<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY - PERIOD ENDED MARCH 31, 1999 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 0-21796
CDW COMPUTER CENTERS, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3310735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 N. MILWAUKEE AVE. 60061
VERNON HILLS, ILLINOIS (Zip Code)
(Address of principal executive offices)
(847) 465-6000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------------- --------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
-------------- --------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF APRIL 28, 1999, 21,602,789 COMMON SHARES WERE ISSUED AND
21,552,789 WERE OUTSTANDING.
<PAGE> 2
CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
Page No.
-----------
PART I. Financial Information
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income -
Three months ended March 31, 1999 and 1998 2
Condensed Consolidated Statement of Shareholders'
Equity - Three months ended March 31, 1999 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial
Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
PART II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
ii
<PAGE> 3
ITEM I. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,545 $ 4,230
Marketable securities 59,445 66,458
Accounts receivable, net of allowance for doubtful
accounts of $3,485 and $3,185, respectively 187,468 152,308
Miscellaneous receivables 6,401 5,896
Merchandise inventory 80,463 64,392
Prepaid expenses and other assets 1,357 1,423
Deferred income taxes 5,081 5,081
--------- ---------
Total current assets 348,760 299,788
Property and equipment, net 38,203 37,056
Deferred income taxes and other assets 4,869 4,977
--------- ---------
TOTAL ASSETS $ 391,832 $ 341,821
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,669 $ 41,358
Accrued expenses:
Compensation 14,871 16,279
Income taxes 9,816 5,146
Exit costs 2,600 2,715
Other 5,912 5,560
--------- ---------
Total current liabilities 96,868 71,058
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred shares, $1.00 par value; 5,000 shares
authorized; none issued - -
Common shares, $ .01 par value; 75,000 shares
authorized; 21,591 and 21,571 shares issued
respectively 216 216
Paid-in capital 85,700 81,352
Retained earnings 211,957 192,259
Unearned compensation (820) (975)
--------- ---------
Total shareholders' equity 297,053 272,852
--------- ---------
Less cost of common shares in treasury, 50 shares (2,089) (2,089)
--------- ---------
Total shareholders' equity 294,964 270,763
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 391,832 $ 341,821
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
1
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31
-----------------------------
1999 1998
------------- -------------
Net sales $ 539,406 $ 384,591
Cost of sales 471,500 335,444
--------- ---------
Gross profit 67,906 49,147
Selling and administrative expenses 36,221 25,792
--------- ---------
Income from operations 31,685 23,355
Interest income 1,042 1,169
Other expense (113) (71)
--------- ---------
Income before income taxes 32,614 24,453
Income tax provision 12,916 9,683
--------- ---------
Net income $ 19,698 $ 14,770
========= =========
Earnings per share
Basic $ 0.91 $ .69
========= =========
Diluted $ 0.90 $ .68
========= =========
Weighted average number of
common shares outstanding
Basic 21,535 21,546
========= =========
Diluted 21,941 21,753
========= =========
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE> 5
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Paid in Retained Unearned Treasury Shares Shareholders'
Shares Amount Capital Earnings Compensation Shares Amount Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 21,571 $ 216 $ 81,352 $ 192,259 $ (975) 50 $(2,089) $ 270,763
MPK Restricted Stock Plan forfeitures (44) (44)
Amortization of unearned compensation 155 155
Exercise of Stock Options 20 501 501
Tax Benefit from stock option transactions 3,891 3,891
Net income 19,698 19,698
--------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 21,591 $ 216 $ 85,700 $ 211,957 $ (820) 50 $(2,089) $ 294,964
======================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE> 6
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,698 $ 14,770
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 1,500 1,059
Accretion of marketable securities, net (762) (746)
Allowance for doubtful accounts 300 225
Stock-based compensation expense 111 119
Legal fees assumed by majority shareholder, net of tax - 65
Deferred income taxes 112 -
Tax benefit from stock option exercises 3,891 351
Changes in assets and liabilities:
Accounts receivable (35,460) (10,926)
Miscellaneous receivables (505) (1,472)
Merchandise inventory (16,071) (8,221)
Prepaid expenses and other assets 63 (186)
Accounts payable 22,311 (4,892)
Accrued compensation (1,408) (2,697)
Accrued income taxes and other expenses 5,021 6,035
Accrued exit costs (115) (178)
-------- --------
Net cash used in operating activities (1,314) (6,694)
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (32,244) (6,000)
Redemptions of available-for-sale securities 13,090 7,250
Purchases of held-to-maturity securities - (20,843)
Redemptions of held-to-maturity securities 26,929 23,055
Purchase of property and equipment (2,647) (5,961)
-------- --------
Net cash provided by / (used in) investing activities 5,128 (2,499)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 501 440
-------- --------
Net cash provided by financing activities 501 440
-------- --------
Net increase / (decrease) in cash 4,315 (8,753)
Cash and cash equivalents - beginning of period 4,230 18,233
-------- --------
Cash and cash equivalents - end of period $ 8,545 $ 9,480
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 7
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
CDW Computer Centers, Inc. and its subsidiaries (collectively the
"Company") are engaged in the distribution of brand name personal computers and
related products primarily through direct marketing to end users within the
United States. The Company's primary business is conducted from a combined
telemarketing, corporate office, warehouse and showroom facility located in
Vernon Hills, Illinois. The Company also operates a telemarketing facility in
Buffalo Grove, Illinois, a retail showroom in Chicago, Illinois and a government
sales office in Chantilly, Virginia.
The Company extends credit to business, government and institutional
customers under certain circumstances based upon the financial strength of the
customer. Such customers are typically granted net 30 day credit terms. The
balance of the Company's sales are made primarily through third-party credit
cards and for cash-on-delivery.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. Such principles were
applied on a basis consistent with those reflected in the 1998 Annual Report on
Form 10-K and documents incorporated therein as filed with the Securities and
Exchange Commission. The accompanying financial data should be read in
conjunction with the notes to consolidated financial statements contained in the
1998 Annual Report on Form 10-K and documents incorporated therein. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting solely of normal
recurring accruals) necessary to present fairly the financial position of the
Company as of March 31, 1999 and December 31,1998, the results of operations for
the three months ended March 31, 1999 and 1998, the cash flows for the three
months ended March 31, 1999 and 1998, and the changes in shareholders' equity
for the three months ended March 31, 1999. The unaudited condensed consolidated
statements of income for such interim periods are not necessarily indicative of
results for the full year.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Earnings Per Share
A reconciliation of basic and diluted earnings per-share computations in
accordance with Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128) is included in Note 6 to the financial statements.
5
<PAGE> 8
On April 20, 1999, the Board of Directors of the Company approved a
two-for-one stock split to be effected in the form of a stock dividend payable
on May 19, 1999 to all common shareholders of record at the close of business on
May 5, 1999. Footnote 6 presents the number of basic and diluted shares
outstanding as of March 31, 1999 and 1998, and earnings per share for the three
months ended March 31, 1999 and 1998 adjusted for the impact of the stock split.
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments
in marketable securities at March 31, 1999, were (in thousands):
<TABLE>
<CAPTION>
Gross
Unrealized
Holding
-----------------------
Estimated Amortized
Fair Value Gains (Losses) Cost
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Security Type
Available-for-sale:
U.S. Government and Government Agency Securities $ 21,279 $ - $ (25) $ 21,304
-------------------------------------------------
Total available-for-sale 21,279 - (25) 21,304
-------------------------------------------------
Held to maturity:
Bonds of states, municipalities, and political
subdivisions 457 1 - 456
U.S. Government and Government Agency Securities 37,650 1 (36) 37,685
-------------------------------------------------
Total held-to-maturity 38,107 2 (36) 38,141
-------------------------------------------------
Total marketable securities $ 59,386 $ 2 $ (61) $ 59,445
=================================================
</TABLE>
The Company's investments in securities held-to-maturity at March 31, 1999
were all due in one year or less by contractual maturity. Estimated fair values
of marketable securities are based on quoted market prices.
4. Facilities & Exit Accrual
In July 1997, the Company relocated to its current facility in Vernon Hills
and vacated its Buffalo Grove facility. The Company recorded a pre-tax
non-recurring charge to operating results for exit costs in the first quarter of
1996. The exit costs consist primarily of the estimated cost to the Company of
subleasing the vacated facility, including holding costs, the estimated costs of
restoring the building to its original condition and certain asset write-offs
resulting from the relocation. During the three months ended March 31, 1999 and
1998 the Company charged approximately $115,000 and $178,000, respectively,
against the exit accrual in cash payments for rent, real estate taxes and
maintenance of the facility.
The Company reopened the office portion of the Buffalo Grove facility
during the fourth quarter of 1998 as a telemarketing facility. Accordingly, the
Company records a proportionate share of the rent and other operating costs to
selling and administrative expenses. The Company plans to occupy the Buffalo
Grove office facility while it finalizes future long term growth plans for its
Vernon Hills campus and is continuing its effort to sublease the warehouse
portion of the Buffalo Grove facility. There is no assurance that the remaining
exit liability of $2.6 million at March 31, 1999 will be adequate to cover
actual costs should the Company's actual experience in subleasing the facility
differ from the assumptions used in calculating the exit charge.
6
<PAGE> 9
5. Financing Arrangements
The Company has an aggregate $50 million available pursuant to unsecured
lines of credit with two financial institutions expiring in June 1999, at which
time the Company intends to renew the lines. Borrowings under one of the credit
facilities bear interest at the prime rate less 2 1/2%, LIBOR plus 1/2% or the
federal funds rate plus 1/2%, as determined by the Company. Borrowings under the
second credit facility bear interest at the prime rate less 2 1/2%, LIBOR plus
.45% or the federal funds rate plus .45%, as determined by the Company. At March
31, 1999, there were no borrowings against either of the credit facilities.
In October 1998, the Company established an unsecured stand-by letter of
credit for approximately $160,000 related to improvements to the Vernon Hills
facility which expires in June 1999.
6. Earnings Per Share
The Company has approximately 21,591,000 shares outstanding at March 31,
1999. The Company has also granted options to purchase common shares to the
directors and coworkers of the Company under several stock option plans. These
options have a dilutive effect on the calculation of earnings per share. The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations as required by SFAS 128.
<TABLE>
<CAPTION>
Three Months Ended March 31,
As Presented on
Consolidated Adjusted for 2-for-1
Statements of Income Stock Split
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Income available to
common shareholders (numerator) $ 19,698 $ 14,770 $ 19,698 $ 14,770
------------ ------------ ------------ ------------
Weighted average common
shares outstanding (denominator) 21,535 21,546 43,070 43,092
------------ ------------ ------------ ------------
Basic earnings per share $ 0.91 $ 0.69 $ 0.46 $ 0.34
============ ============ ============ ============
Diluted earnings per share:
Income available to
common shareholders (numerator) $ 19,698 $ 14,770 $ 19,698 $ 14,770
------------ ------------ ------------ ------------
Weighted average common
shares outstanding 21,535 21,546 43,070 43,092
Effect of dilutive securities:
Options on common stock 406 207 812 414
------------ ------------ ------------ ------------
Total common shares and dilutive
securities (denominator) 21,941 21,753 43,882 43,506
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.90 $ 0.68 $ 0.45 $ 0.34
============ ============ ============ ============
</TABLE>
7
<PAGE> 10
7. Leasing Joint Venture
In April 1999, CDW Capital Corporation, a wholly-owned subsidiary of CDW,
and First Portland Corporation ("FIRSTCORP") formed CDW Leasing, L.L.C.
("CDW-L"), a 50/50 joint venture. CDW-L will provide captive leasing services to
CDW customers. FIRSTCORP is a full-service leasing organization that has
provided third party leasing solutions to CDW customers for more than three
years. Under the terms of an operating agreement, FIRSTCORP will provide leasing
management services to CDW-L, with net earnings of the venture allocated 50% to
CDW and 50% to FIRSTCORP. CDW Capital Corporation has committed to loan up to
$10 million to CDW-L on a secured basis to fund new leases initiated by CDW-L.
The investment in CDW-L will be accounted for using the equity method.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED ELSEWHERE HEREIN.
RESULTS OF OPERATIONS
The following table sets forth financial information derived from the
Company's statements of income expressed as a percentage of net sales, and
certain operating statistics.
<TABLE>
<CAPTION>
FINANCIAL INFORMATION Percentage of Net Sales
Three Months Ended
March 31,
------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 87.4 87.2
------ ------
Gross profit 12.6 12.8
Selling and administrative expenses 6.7 6.7
------ ------
Income from operations 5.9 6.1
Other income, net 0.2 0.3
------ ------
Income before income taxes 6.1 6.4
Income tax provision 2.4 2.6
------ ------
Net income 3.7% 3.8%
====== ======
</TABLE>
OPERATING STATISTICS Three Months Ended
March 31,
-------------------------
1999 1998
-------- --------
Number of orders shipped 624,152 578,249
Average order size $ 864 $ 665
Number of account managers, end of period 630 476
Customers serviced - commercial 117,000 100,000
Customers serviced - consumer 107,000 129,000
Annualized inventory turns 26 20
9
<PAGE> 12
The following table presents net sales by product line as a percentage of
total net sales. Product classifications are based upon internal product code
classifications and are retroactively adjusted for the addition of new
categories but not for changes in individual product categorization.
PRODUCT MIX
Three Months Ended
March 31,
1999 1998
-------- --------
Notebooks & Laptops 19.0% 20.2%
Desktop Computers & Servers 15.8 15.6
Software 13.0 12.8
Printers 12.1 13.4
Data Storage Devices 10.0 11.2
Network & Communication Products 9.4 8.5
Monitors and Video Products 7.3 8.3
Add-On Boards & Memory 4.7 4.5
Supplies 3.7 N/A
Input Devices 2.4 2.9
Multi-Media Devices 1.6 2.1
Other Accessories 1.0 0.5
-------- --------
Total 100.0% 100.0%
======== ========
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Net sales in the first quarter of 1999 increased 40.3% to a record $539.4
million compared to $384.6 million in the first quarter of 1998. The Company's
average order size increased 29.9% to $864 from $665 in the prior year quarter.
The growth in net sales is primarily attributable to a higher concentration of
commercial accounts, a higher level of sales per active account and an increase
in the number of orders processed. Sales to commercial accounts, including
business, government, educational and institutional customers, increased to 90%
of net sales in the first quarter of 1999 from approximately 83% in the first
quarter of 1998. The number of active commercial customers increased 17% to
117,000 in the first quarter of 1999 from 100,000 in the first quarter of 1998.
For the three months ended March 31, 1999 the number of orders shipped increased
7.9% to over 624,000. Notebook computers continue to represent the largest
portion of the Company's sales at 19.0%, with dollar volume increasing more than
32% from the first quarter of 1998.
The average selling price of desktop and server CPU's increased 10.0% and
the average selling price of notebook CPU's declined 4.6% from the first quarter
of 1998. The Company believes there may be future decreases in prices for
personal computers and related products. Such decreases require the Company to
sell more units in order to maintain or increase the level of sales. The
Company's sales growth rate and operating results could be adversely affected if
future manufacturer price reductions or the Company's sales and marketing
efforts fail to increase the level of unit sales. Sales of Compaq, Hewlett
Packard, IBM, Microsoft and Toshiba products comprise a substantial portion of
the Company's sales. The loss of any of these, or any other key vendors, could
have an adverse effect on the Company's results from operations. The statement
concerning future prices, sales and results from operations are forward looking
statements that involve certain risks and uncertainties such as stated above.
10
<PAGE> 13
The fastest growing product categories in terms of sales dollars during the
first quarter of 1999 were network and communication products at 55.7%, memory
at 45.2%, software at 43.3%, desktop computers and servers at 42.5%, and
notebook computers at 31.6%. Demand for certain products offered by the Company,
and the growth of certain product categories, are driven by advances in
technology and the development of new products and applications by the industry
manufacturers, and acceptance of these new technologies and products by
end-users. Any slowdown in the rate of technological advancement and new product
development by industry manufacturers could have a material adverse effect on
the Company's future sales growth.
Gross profit decreased as a percentage of net sales to 12.6% for the three
months ended March 31, 1999, compared to 12.8% in the first quarter of 1998. The
decrease in gross profit as a percentage of net sales is primarily the result of
lower selling margins achieved on certain product lines. On a forward-looking
basis, it is likely that the gross profit margin achieved will fluctuate from
quarter to quarter and could be less than the 12.6% achieved in the first
quarter of 1999. The statement concerning future gross profit is a forward
looking statement that involves certain risks and uncertainties such as the
continued participation by vendors in inventory price protection and rebate
programs, pricing strategies, product mix, market conditions and other factors
which could result in a fluctuation of gross margins below recent experience.
Certain manufacturers may make additional changes that limit the amount of price
protection for which the Company is eligible. Such changes could have a negative
impact on gross margin in future periods. Vendor rebate programs are at the
discretion of the vendor and many of these programs are dependent on achieving
certain goals and objectives. Accordingly, there is no certainty that such
programs will continue at their current levels or that the established goals and
objectives will be attained.
Selling and administrative expenses, which include net advertising expense,
other selling administrative expenses and the executive incentive bonus pool
remained flat at 6.7% of net sales in the three months ended March 31, 1999 and
1998.
Net advertising expense increased as a percentage of net sales to 0.79%
from 0.75% for the three months ended March 31, 1999 and 1998, respectively.
Gross advertising expense decreased to 2.8% of net sales in the first quarter of
1999 versus 3.3% in the first quarter of 1998. The Company decreased catalog
circulation and the number of national advertising pages versus the prior year,
while expanding its spending on branding. Based upon the Company's planned
marketing initiatives, future levels of gross advertising expense as a
percentage of net sales are likely to be relatively consistent with or higher
than the level achieved in the first quarter of 1999. Cooperative advertising
reimbursements as a percentage of net sales declined to 2.0% of net sales from
2.5% in the first quarter of 1998. The decline in cooperative advertising as a
percentage of sales is partially due to fixed fund market development fund
programs, as well as normal variation in programs offered by vendors. The
cooperative advertising reimbursement rate may fluctuate in future quarters
depending on the level of vendor participation achieved, changes in vendor
programs and collection experience. The statements concerning future advertising
expense and cooperative advertising reimbursements are forward looking
statements that involve certain risks and uncertainties including the ability to
identify and implement cost effective incremental advertising and marketing
programs as well as the continued participation of vendors in the cooperative
advertising reimbursement program.
Other selling and administrative costs decreased to 5.7% of net sales in
1999 from 5.8% in the prior year. Increases in coworker productivity offset
increased payroll and associated costs related to our sales force expansion. As
of March 31, 1999, there were 630 account managers, an increase of 32.4% from
476 account managers as of March 31, 1998. Of the 630 account managers,
approximately 74% had fewer than 24 months experience and 55% had fewer than 12
months, as compared to 86% and 62% at March 31, 1998.
The executive incentive bonus pool increased to $1.4 million in the first
quarter of 1999 from $546,000 in the first quarter of 1998. For 1999, the
Compensation and Stock Option Committee established the bonus pool at 15% of the
increase in operating income over the prior year.
11
<PAGE> 14
Interest income, net of other expenses, decreased to $929,000 in the first
quarter of 1999 compared to $1.1 million in the first quarter of 1998, due to
both lower levels of available cash and reduced interest rates.
The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.6% for the three months ended March 31, 1999 and 1998.
Net income for the three months ended March 31, 1999, was $19.7 million, a
33.4% increase over $14.8 million for the three months ended March 31, 1998.
Diluted earnings per share was $0.90 and $0.68 for the three months ended March
31, 1999 and 1998, respectively, an increase of 32.4%.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
The Company has historically financed its operations and capital
expenditures primarily through cash flow from operations, short-term borrowings
and public offerings of common stock.
At March 31, 1999, the Company had cash, cash equivalents and marketable
securities of $68.0 million and working capital of $251.9 million, representing
a decrease of $2.7 million in cash, cash equivalents and marketable securities
and an increase of $23.2 million in working capital from December 31, 1998.
As of March 31, 1999, the Company had an aggregate $50.0 million available
pursuant to unsecured credit facilities with two financial institutions expiring
in June 1999. Borrowings under one of the lines bear interest at the prime rate
less 2.5%, LIBOR plus 0.5% or the federal funds rate plus 0.5%, as determined by
the Company. Borrowings under the second credit facility bear interest at the
prime rate less 2.5%, LIBOR plus 0.45% or the federal funds rate plus 0.45%, as
determined by the Company. At March 31, 1999, there were no borrowings against
either of the credit facilities. The Company intends to renew the credit
facilities upon expiration in June 1999. In October 1998, the Company
established an unsecured stand-by letter of credit for approximately $160,000
related to improvements to the Vernon Hills facility which expires in June 1999.
The Company's current primary and anticipated use of cash is to fund the
growth in working capital and capital expenditures. The Company believes that
the funds held in cash, cash equivalents and marketable securities, and funds
available under the credit facilities will be sufficient to fund the Company's
working capital and cash requirements at least through March 31, 2000.
CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net cash used in operating activities for the three months ended March 31,
1999, was $1.3 million. The primary factors which historically affect the
Company's cash flows from operations are accounts receivable, merchandise
inventory and accounts payable. The increase in accounts receivable resulted
from increased sales volume, an increase in the percentage of net sales
generated from commercial accounts with open credit terms to 67.3% and changes
in the timing of payments by certain customers. Annualized inventory turnover
increased to approximately 26 times for the three months ended March 31, 1999.
Inventory turnover in 1999 has been positively impacted by a reduction in
inventory levels resulting from the implementation of build to order programs by
the major hardware manufacturers. The increase in accounts payable reflects
timing of payments to vendors at the end of the respective periods.
12
<PAGE> 15
Cash provided by operating activities for the three months ended March 31,
1999, was positively impacted by a $3.9 million tax benefit recorded to
paid-in-capital, relating to the exercise of shares pursuant to the MPK Stock
Option Plan.
Net cash provided by investing activities for the three months ended March
31, 1999, was $5.1 million, including approximately $2.6 million used for
capital expenditures. The capital expenditures made by the Company were
primarily related to the purchase of machinery and equipment for the Vernon
Hills facility.
LEASING JOINT VENTURE
In April 1999, CDW Capital Corporation, a wholly-owned subsidiary of CDW,
and First Portland Corporation ("FIRSTCORP") formed CDW Leasing, L.L.C.
("CDW-L"), a 50/50 joint venture. CDW-L will provide captive leasing services to
CDW customers. FIRSTCORP is a full-service leasing organization that has
provided third party leasing solutions to CDW customers for more than three
years. Under the terms of an operating agreement, FIRSTCORP will provide leasing
management services to CDW-L, with net earnings of the venture allocated 50% to
CDW and 50% to FIRSTCORP. CDW Capital Corporation has committed to loan up to
$10 million to CDW-L on a secured basis to fund new leases initiated by CDW-L.
The investment in CDW-L will be accounted for using the equity method.
YEAR 2000 READINESS DISCLOSURE
General
The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, receive or
ship products, send invoices, or engage in similar normal business activities.
The Company has established a Y2K project designed to make all its hardware
and software systems Y2K compliant by December 31, 1999. The Company intends to
contract an outside organization to review its project methodology and status to
ensure all aspects of the Y2K issue have been addressed.
Project
CDW's Y2K project consists of two components, internal and external. The
internal section has been divided into five steps which are currently being
completed by the Y2K Team:
1. Awareness - Awareness includes evaluating industry best practices,
generating management and employee awareness, establishing communications
methods and establishing the project team.
2. Assessment - This phase includes hardware and software compliance
assessment, establishment of the size and scope of the project,
establishment of a project timeline, priorities, budgeting and allocation
of resources.
3. Renovation - Renovation consists of establishing a detailed implementation
plan, the design of new systems and system corrections, writing of system
code and software and hardware testing.
4. Validation - Validation includes testing new systems and system corrections
to ensure they will function properly in operation.
5. Implementation - Final certification of the new and corrected systems,
implementation of the systems and monitoring to ensure they continue to
function.
13
<PAGE> 16
All phases of the project as they relate to internal systems were completed
as of March 31, 1999. The Company plans to focus the majority of its efforts for
the remainder of 1999 on the external portion of the project while continuing to
validate and test its internal systems to ensure those systems are properly
converted.
The external portion of the project focuses on assessing the Y2K readiness
of product and service vendors and its potential impact on the Company's
operations. The Company began communications with its vendors in the first
quarter of 1999 to assess the status of the vendors' Y2K projects. The Company
will work through issues with its business partners to minimize potential
business interruptions during the remainder of 1999. This portion of the project
is expected to be completed prior to December 31, 1999.
Costs
The Company estimates that total costs for the Y2K project, through
December 31, 1999, will range between $750,000 and $1 million. As of March 31,
1999 the Company has incurred, and recorded as operating expenses, approximately
$370,000 in costs related to the project, of which approximately $130,000 were
incurred during the three months ended March 31, 1999. Essentially all of the
Company's expenditures to date are for internal payroll costs related to the
assessment and correction of internal systems. Of the estimated remaining costs
of $380,000 to $630,000, approximately 75% relate to the cost of assessing and
communicating with vendors and 25% relate to the correction of internal systems.
Risks The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K
readiness of third-party suppliers, the Company is unable to determine at this
time whether the consequences of Y2K failures will have a material impact on the
Company's results of operations and financial condition. The Company's Y2K
project is expected to significantly reduce the Company's level of uncertainty
about the Y2K problem and, in particular, about the Y2K compliance and readiness
of its material vendors. The Company believes that, with the completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be minimized.
The statements concerning future impact of the Y2K issue are forward
looking statements that involve certain risks and uncertainties, such as the
inability to receive products on a timely basis from vendors, ship products to
customers,receive payments from customers and other factors which could have a
material impact on the Company's results from operations. Certain vendors may
fail to adequately prepare their information systems or the Company's own Y2K
project may not correct all Y2K issues. Accordingly, there is no certainty that
either the Company or its vendors will complete their Y2K projects prior to
December 31, 1999.
Certain statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations concerning the Company's sales
growth, gross profit as a percentage of sales, advertising expense, cooperative
advertising reimbursements and the potential impact on operations of the Y2K
issue are forward-looking statements that involve certain risks and
uncertainties, as specified herein.
14
<PAGE> 17
PART II Other Information
ITEM 1. Legal Proceedings
The Company is currently not a party to any material legal proceedings.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 (uu) CDW 1998 Officer and Manager Bonus Plan
10 (vv) Operating agreement of CDW Leasing, L.L.C.
10 (ww) Loan and Security Agreement Between CDW Capital Corp.
and CDW Leasing, L.L.C.
10 (xx) First Amendment to CDW 1996, 1997 and 1998 Officer
Manager Bonus Plans
21 Subsidiaries of the Registrant
27 (a) Financial Data Schedule (for the three months ended March
31, 1999)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
March 31, 1999.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CDW Computer Centers, Inc.
(Registrant)
Date April 30, 1999 /s/ Harry J. Harczak, Jr.
--------------------- ---------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date April 30, 1999 /s/ Sandra M. Rouhselang
--------------------- ---------------------------
Sandra M. Rouhselang
Controller
16
<PAGE> 19
Index to Exhibits
10 (uu) CDW 1998 Officer and Manager Bonus Plan
10 (vv) Operating Agreement of CDW Leasing, L.L.C.
10 (ww) Loan and Security Agreement Between CDW Capital Corp. and CDW Leasing,
L.L.C.
10 (xx) First Amendment to 1996, 1997 and 1998 Officer Manager Bonus Plan
21 Subsidiaries of the Registrant
27 Financial Data Schedule
17
<PAGE> 1
EXHIBIT 10 (uu)
CDW 1998 OFFICER AND MANAGER BONUS PLAN
The purpose of the CDW 1998 Officer and Manager Bonus Plan (the "Plan")
is to provide CDW Computer Centers, Inc., an Illinois corporation (the
"Company"), with a means of retaining and motivating the management personnel
designated by the Committee, as defined below ("Participating Employees"), by
offering them bonus compensation.
The terms and provisions of the Plan are as follows:
1. Administration. The Plan shall be administered by the CDW
Compensation and Stock Option Committee (the "Committee") of the Company's Board
of Directors. All questions arising under the Plan shall be decided by the
Committee and its determination shall be conclusive.
2. Bonus Grants. Bonuses shall be awarded under the Plan as follows:
(a) A Participating Employee's bonus will equal 100% of
his/her bonus grant under the CDW 1997 Officer and Manager Bonus Plan
(on a dollar basis) plus [fifteen percent (15%)].
(b) For each dollar that is over 1997's bonus, the 1998 bonus
will be paid [one-third (1/3)] in cash and the other [two-thirds (2/3)]
in options to acquire common stock of the Company, at an exercise price
of $.01 per share, which vest on January 1, 2003 after continuous
employment with the Company, subsequent to December 31, 1998.
3. Amendment and Termination of Plan. The Committee may from time to
time amend, suspend or terminate the Plan in whole or in part as necessary to
comply with applicable laws and governing bodies.
4. Shareholder Approval. If necessary to conform with applicable laws
and governing rules and regulations, or any requirements of the Nasdaq Stock
Market or the Company's transfer agent, the Plan shall be submitted for approval
of the Company's shareholders prior to any shares of Company common stock being
issued.
5. Death or Disability. Notwithstanding the provisions of
Section 2(c);
(a) If cessation of employment occurs by reason of the
Disability of the Participating Employee, all options shall
automatically vest immediately upon the issuance of a Final Certificate
(as hereinafter defined); and
(b) If cessation of employment occurs by reason of death while
in the employ of the Company, all options shall automatically vest
immediately.
(c) "Disability" for purposes of this Plan shall be defined as
follows:
<PAGE> 2
(i) If a Participating Employee becomes disabled
during the term of his/her employment and prior to January 1,
2003 by reason of illness, accident or any other cause, the
Company shall have the right to appoint a physician or
physicians to (A) examine the Participating Employee at
reasonable intervals from time to time in connection with such
disability and (B) deliver to the Company (1) a certificate
("Initial Certificate") certifying whether or not such
disability occurred and, if so, the date on which it commenced
("Onset Date"); and (2) if the condition or disability
continues uninterrupted for a one (1) year period beginning on
the Onset Date and ending on the one (1) year anniversary
thereof, a certificate ("Final Certificate") certifying that
fact. The Participating Employee shall cooperate fully with
the physician(s) as set forth in either the Initial
Certificate or the Final Certificate or both and the
Participating Employee shall have the right to appoint another
physician to examine the Participating Employee and determine
the same matters. If the physicians appointed by the Company
and by the Participating Employee do not agree, such
physicians shall jointly appoint a third physician to examine
the Participating Employee and determine the same matters. The
determination of the third physician shall be binding on the
Company and the Participating Employee; and
(ii) In determining whether the Participating
Employee is disabled for purposes of the Initial Certificate,
the standard to be applied by any physician appointed in
accordance with this Paragraph shall be, at the Company's
election, either of the following: the Participating Employee
will be deemed disabled if on the applicable Onset Date (A) he
or she is unable to render to the Company services of
substantially the kind and nature, and to substantially the
extent, being rendered by him or her pursuant to this Plan
during the fiscal quarter next preceding such Onset Date, or
(B) his or her medical condition satisfies such other standard
of total disability as is to be applied under any policy of
insurance, the proceeds of which would be payable to fund a
claim or claims of disability with respect to the
Participating Employee. If more than one such policy is in
effect at the time of such physician's determination, the
Company shall designate which policy standard shall apply. The
standard used for purposes of the Initial Certificate shall
also be used for purposes of the Final Certificate.
6. Restrictive Covenants. In the event that any Participating Employee
becomes employed by, receives compensation from or otherwise is associated with
or has agreed in principle to be employed by or to receive compensation from or
otherwise be associated as an officer, agent, director, employee, shareholder,
consultant, or otherwise with a Competitor of the Company at any time prior to
January 1, 2004: (i) all unexercised Options shall be forfeited and (ii) any
Option Proceeds shall be immediately due and payable by the Participating
Employee. For purposes of this Paragraph, "Option Proceeds" shall mean (i) the
difference between (A) the per share closing price of the Company's Common Stock
as reported on the Nasdaq Stock Market or such other reported value of the
Common Stock as shall be specified by the Committee at the date of exercise and
(B) the per share exercise price of the option, multiplied by (ii) the number of
shares acquired pursuant to any exercise of options issued under this Agreement
which occurs after the date 12 months prior to the date of termination of
employment with the Company. For purposes of this Paragraph, "Competitor" shall
be any entity or person which engages for any portion of its business in the
direct marketing of personal computer products to residents of the United States
including, but not limited to, sale by mail order. The remedy provided by this
Paragraph shall be in addition to and not in lieu of any rights or remedies
which Company may have against the Participating Employee in respect of a breach
by the Participating Employee of any duty or obligation to the Company.
7. Effective Date. This Plan shall be effective as of December 31,
1998.
<PAGE> 1
EXHIBIT 10 (vv)
OPERATING AGREEMENT OF CDW LEASING, L.L.C.
THE MEMBERSHIP INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION, BUT HAVE BEEN ISSUED PURSUANT TO
EXEMPTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED. FURTHERMORE, SUCH
MEMBERSHIP INTERESTS HAVE NOT BEEN REGISTERED WITH THE SECURITIES COMMISSIONER
OF THE STATE OF ILLINOIS OR ANY OTHER STATE. ACCORDINGLY, THE SALE, TRANSFER,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF SUCH MEMBERSHIP INTERESTS IS
RESTRICTED AND MAY NOT BE ACCOMPLISHED EXCEPT IN ACCORDANCE WITH ARTICLE 7 AND
OTHER APPLICABLE PROVISIONS OF THIS AGREEMENT, AND AN APPLICABLE REGISTRATION
STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT A
REGISTRATION STATEMENT IS UNNECESSARY.
THIS OPERATING AGREEMENT SETS FORTH SOME, BUT NOT NECESSARILY ALL, OF THE
MATERIAL RIGHTS AND OBLIGATIONS OF, AND PROVISIONS WHICH MAY HAVE A MATERIAL
EFFECT ON, BEING A MEMBER OF THE COMPANY. THE ILLINOIS LIMITED LIABILITY ACT
SETS FORTH NUMEROUS OTHER PROVISIONS WHICH MAY HAVE A MATERIAL IMPACT ON A
PERSON'S MEMBERSHIP INTEREST IN THE COMPANY, INCLUDING, BUT NOT BY WAY OF
LIMITATION, PROVISIONS CONCERNING ADDITIONAL RIGHTS, OBLIGATIONS AND LIABILITIES
THAT MAY BE ASSOCIATED WITH SUCH MEMBERSHIP INTEREST. ANY PERSON CONTEMPLATING
BECOMING A MEMBER IN THE COMPANY IS CAUTIONED TO REFER TO AND BECOME FAMILIAR
WITH THE ACT IN ITS ENTIRETY AND TO CONSULT LEGAL COUNSEL REGARDING ANY
QUESTIONS PRESENTED THEREBY OR ADVICE SOUGHT IN CONNECTION THEREWITH.
<PAGE> 2
April 27, 1999
THIS OPERATING AGREEMENT (this "Agreement") of CDW LEASING, LLC, an Illinois
limited liability company (the "Company"), is made and entered into as of the
27th day of April, 1999, by and among those persons whose names and addresses
are set forth on Exhibit A attached hereto.
R E C I T A L S:
A. The parties hereto desire to form a limited liability company
pursuant to the terms of the Act, for the purposes and in accordance with the
provisions hereof.
B. The parties hereto have caused the Articles to be filed with the
Secretary of State of Illinois.
C. The Company will be managed by a Manager.
D. The terms used in this Agreement with their initial letters
capitalized shall, unless the context otherwise requires, or unless otherwise
expressly provided for herein, have the meanings ascribed to them in Article 12
hereof.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto agree as follows:
ARTICLE 1
FORMATION
1.1 Organization. The Company is and shall be a limited liability
company organized under the Act.
1.2. Purpose and Authority. The purpose of the Company is the
transaction of any or all lawful businesses for which limited liability
companies may be organized under the Act. To carry out its purpose, the Company
is authorized in furtherance of the Company business and subject to the other
provisions of this Agreement to do any and all acts or take any actions
necessary therefor.
1.3 Registered Agent; Registered Office. The name of the registered
agent and the address of registered office of the Company shall be
Michael S. Tepper
Arnstein & Lehr
120 South Riverside Plaza
Suite 1200
Chicago, Illinois 60606
<PAGE> 3
The registered office and registered agent may be changed by filing the address
of the new registered office and/or the name of the new registered agent with
the Illinois Secretary of State pursuant to the Act.
1.4 Principal Place of Business. The office of the principal place of
business of the Company shall be:
200 North Milwaukee Avenue
Vernon Hills, Illinois 60061
or such other location as may hereafter be determined by the Manager with the
approval of the Members if and as required pursuant to Section 3.2 hereof. The
records of the Company shall be maintained at such office. Upon any change in
the principal place of business or registered office of the Company, the Manager
shall promptly notify the Members of any such change and shall file an amendment
to the Articles stating the address of the new principal place of business or
registered office, as the case may be.
1.5 Term. The term of the Company shall commence upon the filing of
Articles with the Illinois Secretary of State and shall continue thereafter in
perpetuity unless a specific date by which termination shall sooner occur is set
forth in the Articles, or unless sooner terminated as provided by the terms of
this Agreement or applicable law.
1.6 Filing of Articles and Other Documents. Corp-Link Services, Inc.
is designated to act as organizer of the Company, on behalf of the Members, for
purposes of filing the Articles with the Illinois Secretary of State. The
Members agree to execute or cause to be executed such further certificates or
documents and to do or cause to be done such filings, recordings and all other
acts, including the recording of the Articles and any assumed name certificates
in the appropriate offices in the State of Illinois and any other applicable
jurisdictions, as may be required to comply with applicable law. To the fullest
extent permitted by law, the Company shall indemnify, defend, and hold the
organizer and his or her employees and agents, and their respective successors,
executors, administrators or personal representatives harmless from and against
any loss, liability, damage, cost or expense (including reasonable attorneys'
fees) sustained or incurred in connection with the organization of the Company
pursuant to the authority granted herein.
<PAGE> 4
1.7 Federal Income Tax Status and Matters. The Members intend that the
Company qualify to be treated as a partnership for, but only for, federal (and
where applicable, state) income tax purposes. The Members do not intend that the
Company be operated or treated as a partnership for any purposes other than
federal (and where applicable state) income tax purposes, including for purposes
of Section 303 of the federal Bankruptcy Code. The Manager shall act as the tax
matters partner ("TMP"), as that term applies under Section 6231(a)(7) of the
Code, and shall have all the powers and duties assigned to the TMP under
Sections 6221-6233 of the Code and the Treasury Regulations thereunder. The
Company shall not be obligated to pay any fees or other compensation to the TMP
in his or her capacity as such, provided that the Company shall reimburse the
TMP for any and all reasonable out-of-pocket costs and expenses (including
reasonable attorneys' and other professional fees) incurred by such Person in
his or her capacity as TMP. The Company shall indemnify, defend, and hold the
TMP harmless from and against any loss, liability, damage, cost, or expense
(including reasonable attorneys' fees) sustained or incurred as a result of any
act or decision concerning Company tax matters and within the scope of the
Manager's responsibilities as TMP.
ARTICLE 2
MEMBERS; MEMBERS' INTERESTS AND CAPITAL ACCOUNTS
2.1 Members.The names, addresses, Capital Contributions and Percentage
Interests of the initial Members shall be as set forth on Exhibit A attached
hereto. The obligation of an initial Member to make the Capital Contribution set
forth on Exhibit A for such Member shall not be excused by the Member's death,
disability or other inability to perform personally. After the organization of
the Company, any Person approved by the Members, as provided for in Section 3.2
hereof, may become an Additional Member of the Company for such consideration as
the Members shall determine, whereupon Exhibit A attached hereto shall be
amended to reflect the Capital Contributions and Percentage Interests of the
Members after the admission of the new Member or Members. Any Additional Member
must acknowledge in writing all of the terms and provisions of this Agreement
and agree to be bound thereby.
2.2 Invested Capital. No certificates or other evidence of ownership
need be issued with respect to the Capital Contributions, Invested Capital,
Percentage Interests or Distributional Interests of the Members, except for this
Agreement, which shall fully represent and evidence the Interest in the Company
owned by each Member. Each Member's Percentage Interest shall be as set forth in
Exhibit A, as amended from time to time if and as new Members are admitted. The
Invested Capital and the Percentage Interests of the Members shall also be
adjusted from time to time as provided in Section 2.3 below. No Member shall be
entitled to interest on any of his or her Invested Capital. Loans by any Member
to the Company, if made as provided for under Section 2.3 hereof or otherwise,
shall not be considered as Invested Capital.
<PAGE> 5
2.3 Additional Capital or Loans. Unless otherwise specifically set
forth in this Agreement, no Member shall be required to make any contributions
to the capital of the Company other than as set forth on Exhibit A attached
hereto (or as the same may be amended as provided for herein), or to lend or
advance funds to the Company for any purpose. If the Manager determines it to be
necessary or appropriate for Members to make additional contributions to the
capital of the Company, or to lend or advance funds to the Company for any
purpose, the Members may contribute in proportional amounts any additional
capital, or may lend or advance funds to the Company, in accordance with the
following: (a) if any Member fails to contribute that Member's share of any or
all of the additional capital, the other Members or any one of them may
contribute the additional capital not paid by such refusing Member(s) and shall
receive therefore an increase in the Interest in the Company in direct
proportion to the total capital contributed, as equitably determined by the
Manager, and (b) if any Member fails to lend or advance that Member's share of
any or all the funds, the other Members or any one of them may loan or advance
the additional funds not provided by such refusing Member(s) and those Members
who have so elected to loan or advance funds to the Company shall be entitled to
receive interest on said loans at the rate and upon the other terms and
conditions as mutually agreed between such Members and the Manager. Exhibit A
attached hereto shall be amended from time to time to appropriately reflect any
additional capital contributed to the Company pursuant to the provisions of this
Section 2.3.
Notwithstanding anything contained herein to the contrary, at any time
the Company fails to maintain a "positive net worth", the Manager shall have the
right to require additional capital from the Members, on a pro rata basis, in
relationship to its ownership interest, for the operation of the Company's
business. Additionally, the Manager can require Members to make additional
capital contributions upon dissolution, liquidation or termination if the
Company has "negative" capital or negative net worth in order to fund such
shortfall or deficit. For purposes of this Agreement the term "positive net
worth" means assets greater than liabilities as determined in accordance with
generally accepted accounting principles. If the Manager elects to require
additional capital from the Members, the Manager shall notify each Member of (i)
the amount its pro rata share of additional capital required, and (ii) the
deadline for the contribution of same, which shall be no more than thirty (30)
days from the date of receipt of said notice. Each Member shall contribute such
additional capital in its pro rata share, as determined by Exhibit A. In the
event that any Member shall fail to make such contribution within the time
period set forth in the Manager's notice, (i) the Manager shall have the right
to raise additional capital by admitting Additional Members or by collecting
additional funds from existing Members, (ii) the Percentage Interest of any
non-contributing Member shall be diluted proportionately, and (iii) such event
shall be deemed an event of dissociation.
<PAGE> 6
2.4 Capital Accounts. There shall be established on the books of the
Company a Capital Account for each Member which shall be maintained in
accordance with the Code and the regulations promulgated thereunder, including,
but not limited to, the applicable rules set forth in Treasury Regulation
Section 1.704-1. Subject to the immediately preceding sentence, there shall be
credited to each Member's Capital Account (i) the amount of money and the fair
market value of any property (net of related liabilities) contributed by the
Member to the Company as capital, and (ii) the Member's share of income or gain
(or items thereof) of the Company, including income and gain exempt from tax.
There shall be charged against each Member's Capital Account (i) the amount of
money and the fair market value of any property (net of related liabilities)
distributed to the Member by the Company and (ii) the Member's share of loss and
deductions (or items thereof) of the Company. If property is contributed to the
capital of the Company or if there is a revaluation of any Company property so
that the book value of such Company property differs from its adjusted tax
basis, the Members' Capital Accounts shall be appropriately adjusted for income,
gain, loss and deduction as required by Treasury Regulation Section
1.704-1(b)(2)(iv)(g). To the extent a Member's Capital Account is greater than
zero, such excess is hereinafter referred to as a "positive balance." To the
extent that a Member's Capital Account is less than zero, said amount is
hereinafter referred to as a "negative balance" or "deficit balance." Except as
is specifically provided otherwise in this Agreement or in the Act, no Member
shall have any liability or obligation to restore a negative or deficit balance
in such Member's Capital Account, nor shall any negative balance in a Member's
Capital Account create any liability on the part of the Member to any third
party.
2.5 Interpretation and Changes. The foregoing provisions of this
Article 2 and the other provisions of this Agreement relating to the maintenance
of Capital Accounts are intended to comply with the Code and applicable Treasury
Regulations and shall be interpreted and applied in a manner consistent
therewith. In the event the Manager shall determine, after consultation with
Company counsel, that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto are allocated or computed, in order
to comply with such applicable federal law, the Manager shall make such
modification without the consent of any other Member, provided the Manager
determines in good faith that such modification is not likely to have a material
adverse effect on the amounts properly distributable to any Member upon the
dissolution of the Company and that such modification will not increase the
liability of any Member to third parties. The Manager shall give written notice
to each of the Members of any actions taken pursuant to the provisions of this
Section 2.5.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS
3.1 No Management Rights. Except insofar as the vote, consent or
approval of the Members shall be otherwise expressly required or provided for by
this Agreement or the Act, (i) no Member, as such, shall have any power or
authority with respect to the management, operation or control of the business
or affairs of the Company, or transact any business in the name, or on behalf,
of the Company, and (ii) no Member, as such, shall have the power or authority
to bind the Company or to sign any agreement, document or other legal instrument
in the name, or on behalf, of the Company. The foregoing shall not apply,
however, to a Member who is also a Manager with respect to acts in his or her
capacity as a Manager.
<PAGE> 7
3.2 Right to Vote on or Approve Certain Actions. For purposes of the
actions with respect to which the Act or this Agreement requires, permits or
otherwise provides for the vote, consent or approval of the Members, or a
requisite percentage of the Percentage Interests of the Members, the following
provisions shall apply (unless otherwise expressly provided to the contrary in
this Agreement) and, to the extent permitted by law, take precedence over any
provisions in the Act to the contrary:
(a) The unanimous vote, consent or approval of all of the Members
shall be required for any of the following actions:
(i) the amendment of this Agreement in any respect;
(ii) the amendment of the Articles;
(iii) the determination not to make mandatory income tax
payment Distributions as provided for in Section 6.1
hereof;
(iv) the use of the Company's property to redeem a
Distributional Interest subject to a charging order,
as restricted pursuant to Section 4.10(g) hereof;
(v) the approval of the Company's recognition of, and
giving effect to, an assignment or other transfer of
a Distributional Interest under any of the otherwise
restrictive circumstances set forth in Section 7.1(a)
hereof;
(vi) the waiver of the right to have the Company's
business wound up after the dissolution of the
Company, as provided for in Section 9.2 hereof; and
(vii) the approval of any actions of the Manager, as
restricted pursuant to Section 4.10(k) hereof, which
involve any act in contravention of this Agreement.
(b) Except for those matters for which the unanimous vote, consent or
approval of the Members shall be required, as provided for in Section 3.2(a)
above, the affirmative vote, consent or approval of the Members representing not
less than a majority of the Percentage Interests shall be sufficient to
authorize all other acts or actions for which the vote, consent or approval of
the Members shall be required under the Act or this Agreement. Set forth below,
by way of example and not by way of limitation, are certain of the acts or
actions for which such majority approval shall be required, and sufficient:
<PAGE> 8
(i) the compromise of the obligation to make a capital
contribution by a Member who dies or becomes legally
incompetent or otherwise unable to perform
personally, as provided for in Section 4.10(c)
hereof, or otherwise;
(ii) the compromise, as among Members, of an obligation of
a Member to make a capital contribution or return
money or other property paid or distributed in
violation of this Agreement or the Act, as provided
for in Section 4.10(d), or otherwise;
(iii) the making of a Distribution, other than a tax
payment Distribution as provided for in Section 6.1
hereof, prior to the dissolution and winding up of
the Company, including a Distribution in redemption
of a Distributional Interest, as provided for in
Section 4.10(e) hereof or otherwise;
(iv) the admission of a Person as an Additional Member or
Substitute Member, by the Manager as provided for in
Section 4.10(f) hereof, or otherwise as provided for
in Section 2.1;
(v) the voluntary dissolution and winding up the affairs
of the Company, as provided for Section 4.10(h)
hereof or as otherwise provided for in Section 9.1(a)
hereof;
(vi) the merger of the Company with any other entity, as
provided for in Section 4.10(i) hereof or otherwise;
(vii) the sale, lease or other disposal of all or
substantially all of the assets or the business of
the Company, with or without goodwill, as provided
for in Section 4.10(j) hereof or otherwise;
(viii) the purchase of the Distributional Interest of a
Dissociated Member as provided for in Section 4.10(l)
hereof, or otherwise;
(ix) the determination of the consideration to be paid by
an Additional Member for his or her Percentage
Interest, as provided for in Section 4.10(m) hereof
or as otherwise provided for in Section 2.1 hereof
(x) the approval of the compensation to be paid to the
Manager, as provided for in Section 4.3 hereof, or
otherwise;
(xi) the removal of the Manager, as provided for in
Section 4.4 hereof, or otherwise;
<PAGE> 9
(xii) the appointment of a new Manager, except as otherwise
provided for in Section 4.4 hereof, or otherwise;
(xiii) the consent to an effective date which is less than
thirty (30) days from the date of a notice of
resignation by a Manger, as provided for in Section
4.4 hereof;
(xiv) the determination of the fair market value of
Property contributed to the Company, as provided for
in Section 5.5 hereof;
(xv) the release of a transferor Member in connection with
the transfer of his or her Distributional Interest
pursuant to Section 7.6 hereof;
(xvi) payment provisions other than as provided for in
Exhibit E hereto for the purchase of the
Distributional Interest of a Dissociated Member
pursuant to the provisions of Section 8.2(d) hereof;
(xvii) payment provisions other than as provided for in
Exhibit F hereto for the purchase of the
Distributional Interest of a Dissociated Member if
the Company is obligated to purchase such interest
pursuant to the provisions of Section 8.2(e) hereof
or otherwise;
(xviii) the keeping of any applicable books and records of
the Company on a basis other than in accordance with
generally accepted principles of accounting;
(xix) the holding of a meeting of the Members at a location
outside the state of Illinois, as provided for in
Section 11.2(a) hereof; and
(xx) the locating the office of the principal place of
business of the Company, as provided for in Section
1.4 hereof, outside the state of Illinois.
3.3 Distributional Interest. A Member (or Member Transferee) shall
have an interest in the Distributions provided for in this Agreement with
respect to such Member's Percentage Interest thereof. Such Distributional
Interest is personal property and, subject to the Act and the further
limitations and restrictions contained herein, may be transferred in whole or
in part. A Member is not a co-owner of, and has no transferable interest in,
the assets of the Company.
<PAGE> 10
3.4 Limitation on Liability of Member. Except as otherwise provided
herein, the liability of each Member shall be limited to the amount required to
be paid or the contribution of capital to be made by such Member as set forth on
Exhibit A hereto, as amended from time to time as provided in Article 2. Except
as expressly provided to the contrary in this Agreement, or as otherwise
provided in the Act or by other applicable law, (a) a Member shall not have any
liability to contribute money or make loans to the Company nor shall a Member be
liable for any obligations or liabilities of the Company, and (b) a Member who
has fully paid or made the Capital Contribution required of such Member as set
forth on Exhibit A hereto, as amended from time to time as provided in Article
2, shall have no liability to restore his or her Capital Account balance to the
amount set forth on Exhibit A hereto, as amended from time to time as provided
in Article 2, notwithstanding that such Member has received Distributions from
the Company as authorized and provided for herein.
3.5 Other Activities. Neither the Company nor any of the Members shall
have any rights by virtue of this Agreement with respect to Members that may
engage in or possess interests in other business ventures, including those
engaged in the same business as that of the Company, and, except as otherwise
provided by the Act or applicable law, neither the Company nor any of the
Members shall have any rights by virtue of this Agreement in or to such business
ventures or to the income or profits derived therefrom.
3.6 Good Faith and Fair Dealing. In discharging any duties or
exercising any rights a Member may have under the Act or this Agreement, the
Member shall comply with the obligation of good faith and fair dealing pursuant
to the Act.
ARTICLE 4
RIGHTS, OBLIGATIONS AND
POWERS OF THE MANAGER
<PAGE> 11
4.1 Management of Company Affairs. The management of the Company shall
be vested in the Manager. The initial Manager shall be HARRY HARCZAK, GREGORY
ZEMAN, JOHN ESTOK and LEONARD LUDWIG. The Manager shall have full, exclusive and
complete discretion in the management and control of the business and affairs of
the Company and shall make all decisions affecting the Company's business and
affairs, and any action taken by the Manager shall constitute the act of and
serve to bind the Company. The Manager may designate one or more employees,
agents or Affiliates to carry out his or her duties and responsibilities to the
Company. The officers designated by the Manager pursuant to Sections 4.12 and
4.13 hereof shall have full day to day power and authority to make all decisions
based upon the authority granted to each officership. Persons dealing with the
Company shall be entitled to rely conclusively on the power and authority of the
Manager as set forth in this Agreement. The Manager shall execute and place with
the records of the Company, and deliver a copy thereof to each Member, a written
acceptance of his or her appointment hereunder wherein he or she agrees to
become bound by and observe the terms and conditions of this Agreement. The
failure of the Manager to execute and maintain such written acceptance with the
Company records, and deliver a copy thereof to each Member, shall not be deemed
to be or constitute a waiver or release of any rights the Company or the Members
may otherwise have against the Manager nor of any obligations the Manager may
otherwise have to the Company and its Members, and the Manager, by acting as
such, shall be deemed to have become bound by the terms and conditions of this
Agreement whether or not he or she executes and maintains such written
acceptance with the Company records, and delivers a copy thereof to the Members.
4.2 Annual and Tax Information. The Manager shall use his or her best
efforts to deliver to each Member within 60 days after the end of each fiscal
year all information necessary for the preparation of such Member's federal
income tax return. The Manager shall use his or her best efforts to provide,
within 60 days after the end of each fiscal year, each Member with audited
financial statements of the Company for such period. The Manager shall also
provide each Member (and former Member if and as required under the Act), and
his or her agents and attorneys, such information and access to the Company's
books and records, and in the manner, as is otherwise provided for in the Act
and Section 9.1 of this Agreement.
4.3 Fees; Reimbursement of Expenses. The Manager shall be entitled to
reasonable fees or other compensation for the performance of duties as mutually
agreed among the Manager and the Members, as provided for in Section 3.2 hereof.
The Company shall reimburse the Manager for all direct costs incurred by him or
her on behalf of the Company.
4.4 Resignation, Removal and Replacement of a Manager. A Manager may
resign as Manager upon written notice to the Members specifying an effective
date for the resignation which shall be not less than thirty (30) days after the
date of such notice unless a shorter notice period shall be otherwise consented
to by Members possessing the requisite percentage of the Percentage Interests as
provided for in Section 3.2 hereof. For purposes of this Section 4.4, any
Manager who is also a Member and becomes Dissociated as provided for in Section
8.1 hereof, or any Manager who is not a Member but with respect to whom an event
occurs which would have resulted in such Person's becoming Dissociated had he or
she also been a Member, shall be deemed to have resigned as Manager. Members may
remove a Manager with or without cause by the requisite vote or consent as
provided for in Section 3.2 hereof. If at any time the Person serving as the
Manager ceases to be the Manager for any reason, the Members shall appoint a new
Manager by the requisite vote or consent as provided for in Section 3.2 hereof;
provided however, that the Member entity from whom the person serving as a
Manager ceases to be that Manager shall have the first right to identify,
appoint and elect the new Manager from such Member entity group.
<PAGE> 12
4.5 Fiduciary Duties of the Manager. The Manager shall have the
fiduciary obligations imposed by the Act with respect to the duty of loyalty,
the duty of care and the obligation to discharge his or her duties and exercise
any rights he or she may have under the Act or this Agreement consistent with
the obligation of good faith and fair dealing. As provided in the Act, the duty
of loyalty includes the duty to account to the Company and to hold as trustee
for it any property, profit, or benefit derived in the conduct or winding up of
the Company's business or derived from a use of the Company's property,
including the appropriation of a company's opportunity; to act fairly when
dealing with the Company in the conduct or winding up of the Company's business
as or on behalf of a party having an interest adverse to the Company; and to
refrain from competing with the Company in the conduct of the Company's business
before dissolution of the Company. As provided in the Act, the duty of care is
limited to refraining from engaging in grossly negligent or reckless conduct,
intentional misconduct, or a knowing violation of law. As further provided in
the Act, the Manager is not regarded as violating a duty or obligation under the
Act or this Agreement merely because his or her conduct furthers his or her own
interest. This Agreement may not be amended or modified to eliminate or vary the
Manager's fiduciary duties and obligations as set forth in the preceding
sentences of this Section 4.5 except for amendments or modifications which (a)
delegate managerial authority to the Members (in which case the Manager is
relieved of liability imposed by law for violations of the standards prescribed
on the Manager) or (b) identify specific types or categories of activities that
do not violate these duties, if not manifestly unreasonable, or specify the
number or percentage of Members or disinterested Managers, if there be more than
one Manager, that may authorize or ratify, after full disclosure of all material
facts, a specific act or transaction that otherwise would violate these duties,
or determine the standards by which the performance of the obligation of good
faith and fair dealing is to be measured, if not manifestly unreasonable, or (c)
are otherwise permitted by the Act or by law. For purposes of this Section and
clarification of the duties hereunder, the Company shall from time to time
promulgate various duties, responsibilities and obligations in a written policy
established from time to time. Without limiting anything contained herein, the
Manager and Members shall not otherwise compete with the Company in a fashion
which otherwise would cause or create a conflict of interests with the Company
or with any affiliate or related entity of any Member of the Company. Nothing
contained herein or in Section 4.6 hereof shall restrict, limit or otherwise
prevent FPC, or any affiliate of FPC, from operating its equipment leasing and
financing business, except that FPC shall not, during such time as it is a
member hereof, form or enter into any joint venture or like entity to provide
services which are similar or substantially similar to those set forth in the
Servicing Agreement between FPC and Company that competes, directly or
indirectly, with CDW Computer Centers, Inc. or CDW Government, Inc.
<PAGE> 13
4.6 Devotion of Time by the Manager. The Manager shall devote such time
to the business and affairs of the Company as he or she may reasonably determine
to be necessary to manage and supervise the Company in an efficient manner and
to accomplish the purposes of the Company. Subject to the provisions of Section
4.5 hereof, the Manager shall be free to engage in other business ventures
whether or not directly competing with the Company, or to exploit business
opportunities whether or not arising from the conduct of Company business.
4.7 Liability of the Manager. Subject to the provisions of Section 4.5
hereof, no Manager shall be liable, responsible or accountable in damages or
otherwise to the Company or any of the Members for any acts performed or omitted
within the scope of his or her authority, including the results of any
investment made by the Manager on behalf of the Company, provided that the
Manager shall have acted in good faith.
4.8 Company Indemnification of the Manager. Provided that the actions
of such Person were within the scope of his or her authority and not in
violation of the duties and obligations imposed by this Agreement or the Act,
the Company shall indemnify, defend, and hold the Manager and his or her
employees and agents, and their respective successors, executors, administrators
or personal representatives harmless from and against any loss, liability,
damage, cost or expense (including reasonable attorneys' fees) sustained or
incurred as a result of any act or omission concerning the business or
activities of the Company to the fullest extent permitted by law.
4.9 Manager's Specific Authority. Without limiting the generality of
the powers of the Manager as set forth in Section 4.1 above, the Manager shall,
exercising sole discretion, have the following rights and powers, except to the
extent such rights and powers may be limited by other provisions of this
Agreement or provisions of the Act with respect to which this Agreement does not
provide otherwise:
(a) The making of any expenditures incurred in connection with the
business of the Company.
(b) The use of the assets of the Company in connection with the
business of the Company.
(c) The negotiation, execution and performance of any contracts,
conveyances or other instruments or documents.
(d) The selection, on behalf of and at the expense of the Company, and
the dismissal of, employees and such persons, firms or corporations (including
Affiliates of Members) as the Manager in his or her reasonable judgment shall
deem advisable for the conduct and operation of the business of the Company,
including brokers, agents, lawyers, accountants, consultants, contractors and
providers of other services or materials for the Company, on such terms and for
such compensation or costs as the Manager, in his or her reasonable judgment,
shall determine.
<PAGE> 14
(e) The maintenance of insurance for the benefit of the Company and
its Members.
(f) If reasonably required by any lender providing a loan to the
Company, the making of modifications to this Agreement, without the consent of
but with notice to the Members, so as to comply with the requirements of such
lender, provided that such amendments do not adversely affect the Members in any
material manner.
(g) The control of any matters affecting the rights and obligations of
the Company, including the conduct of litigation and the incurring of legal
expense and the settlement of claims and pending or threatened litigation.
(h) The filing on behalf of the Company of all required local, state
and federal tax returns and other documents relating to the Company and the
making or revoking of any applicable elections with respect thereto or with
respect to the status of the Company thereunder.
(i) The filing of such amendments to the Articles as may be required
or as the Manager may reasonably deem necessary from time to time provided that
unless otherwise approved by the Members as provided for in Section 3.2 hereof,
no such amendment shall be made which involves (i) the purpose for which the
Company has been organized, (ii) a change in any of the events of dissolution in
a manner that is inconsistent with the provisions of this Agreement, (iii) the
term of the Company's existence, (iv) a change with respect to any fiduciary
duties of the Manager or any Member, (v) an increase in any rights of the
Manager or a waiver, release or discharge of any obligation of the Manager to
the Company or a Member, (vi) any indemnification of the Manager by the Company,
or (vii) any of the other provisions for the regulation of the internal affairs
of the Company in a manner that is inconsistent with the provisions of this
Agreement.
4.10 Limitations on the Authority of the Manager. Except as otherwise
provided for or authorized in this Agreement, the Manager shall not take any of
the following actions unless specifically authorized by the Members as provided
for in Section 3.2 hereof:
(a) The amendment of this Agreement;
(b) The amendment of the Articles;
(c) The compromise the obligation to make a capital contribution by a
Member who dies or becomes legally incompetent or otherwise unable to perform
personally;
(d) The compromise, as among Members, of an obligation of a Member to
make a capital contribution or return money or other property paid or
distributed in violation of this Agreement or the Act;
<PAGE> 15
(e) The making of a Distribution, other than a tax payment
Distribution as provided for in Section 6.1 hereof, prior to the dissolution and
winding up of the Company, including a Distribution in redemption of a
Distributional Interest;
(f) The admission of a Person as an Additional Member or a Substitute
Member;
(g) The use of any of the Company's property to redeem a
Distributional Interest that is subject to a charging order;
(h) The taking of any voluntary action to dissolve the Company;
(i) The merger of the Company with any other entity;
(j) The taking of any act in contravention of this Agreement;
(k) The purchase of the Distributional Interest of any Member or
Member Transferee; and
(l) The determination of the consideration to be paid by an Additional
Member for his or her Percentage Interest, as provided for in Section 2.1
hereof, or otherwise.
(m) The incurring of indebtedness or the pledging of assets of the
Company where such actions are either financially material or outside the
ordinary course of business. This subsection is specifically governed by the
fiduciary duties of the Manager as set forth in Section 4.5 hereof and the
duties, responsibilities and authorizations from time to time promulgated by the
Company.
4.11 Requisite Vote for Multiple Managers. If at any time there are two
or more Persons acting as Manager, all references to the Manager herein shall
include each of such Persons, jointly and severally, but any action or decision
which is necessary, required, or appropriate of the Manager shall be pursuant to
the determination or approval thereof by a majority of the Persons acting as
Manager. If at any time there are two or more Persons acting as Manager of the
Company, at least two (2) Manager signatures shall be required to take any
action which requires the authorized signature of a Manager of the Company.
4.12 Appointment of Officers by Manager. The Manager hereby appoints
the following slate of initial officers of the Company to serve until their
respective successors are duly designated or until their respective earlier
death, resignation or removal: Gregory Zeman - President, Daniel Callen - Vice
President Finance and Administration, Craig Shipley - Vice President Sales and
Marketing. The Company shall from time to time promulgate written duties,
responsibilities and authorizations of the various officers.
<PAGE> 16
4.13 Officers of the Company. The officers of the Company shall be
President, Vice President Finance and Administration, Vice President Sales and
Marketing, and such other officers as may be appointed by the Manager from time
to time. Any two or more offices may be held by the same person.
4.14 Appointment and Term of Office. The officers of the Company shall
be appointed periodically by the Manager and such individuals shall continue to
serve unless and until specific action is taken to the contrary by the Manager.
Vacancies may be filled or new offices created and filled at the discretion of
the Manager.
ARTICLE 5
PROFITS AND LOSSES
5.1 Allocations of Profits and Losses. Unless otherwise provided in
Exhibit B attached hereto, Profits and Losses are intended to and shall be
allocated among the Members (and Member Transferees, as applicable) in
accordance with their respective Percentage Interests. In those instances where
the Code and applicable Treasury Regulations are reasonably determined by the
Manager to require either contrary or more specific profit and loss allocation
provisions due to applicable circumstances, the following additional provisions
shall apply:
(a) Profits shall be allocated among the Members (and Member
Transferees, as applicable) in the following order of priority:
(1) first, to those Persons having deficit balances in
their Capital Accounts, in proportion to and to the
extent of such deficit balances;
(2) second, to those Persons, in proportion to and to the
extent of the respective amounts necessary to
increase the Capital Account balance of each such
Person to an amount equal to his or her Invested
Capital;
(3) third, to those Persons in proportion to and to the
extent of the amounts, if any, necessary to cause
their Excess Balances to be in proportion to their
respective Percentage Interests; and
(4) fourth, in accordance with their respective
Percentage Interests;
(b) Losses shall be allocated among the Members (and Member
Transferees, as applicable) in the following order of priority:
<PAGE> 17
(1) first, in proportion to and to the extent of the
amounts, if any, necessary to cause the excess of
each Person's positive Capital Account balance over
such Person's Invested Capital (such excess amounts,
if any, are referred to in this Section 5.1 as
"Excess Balances"), to be in proportion to their
respective Percentage Interests;
(2) second, to those Persons having Excess Balances in
proportion to and to the extent of such Excess
Balances;
(3) third, to those Persons, in proportion to and to the
extent of their respective positive Capital Account
balances; and
(4) fourth, in accordance with their respective
Percentage Interests.
5.2 Allocations With Respect to Transferred Distributional Interests.
Unless otherwise required by the Code or agreed to by the Manager, any Profit or
Loss allocable to a Member (or Member Transferee) whose Distributional Interest
has been transferred during any year shall be allocated among the Persons who
were the holders of such interest during such year in proportion to the number
of days during such year that each holder was recognized as the holder of the
interest, without regard to the results of Company operations during the period
the holder was recognized as the owner thereof.
5.3 Tax Credits. Unless otherwise required by the Code, any tax
credit of the Company shall be allocated among the Members (and Member
Transferees, as applicable) in accordance with their respective Percentage
Interests. Any recapture of tax credits shall be allocated among the Members
(and Member Transferees, as applicable) in the same ratio as the applicable tax
credits were allocated to the Members (and Member Transferees, as applicable).
5.4 Regulatory Allocations. If and to the extent reasonably deemed
necessary by the Manager to satisfy the requirements of the Code and Treasury
Regulations, the provisions set forth in Exhibit C attached hereto shall apply
and take precedence over any other provisions of this Agreement.
<PAGE> 18
5.5 Section 704(c) Allocation. Notwithstanding the foregoing
allocations of Profits and Losses, if any property contributed to the Company
has a fair market value (as agreed by the Members as provided in Section 3.2
hereof) that differs from its adjusted basis for federal income tax purposes at
the time of such contribution, or if there is a revaluation of any Company
Property such that the book value of such property differs from its adjusted
basis for federal income tax purposes, items of income, gain, loss, and
deduction with respect to any such property shall be allocated among the Members
(and Member Transferees, as applicable) so as to take account of such
difference, in the manner intended by Section 704(c) of the Code and the
Treasury Regulations from time to time promulgated thereunder, using such method
permitted by such Treasury Regulations as the Manager may determine.
ARTICLE 6
DISTRIBUTIONS
6.1 Mandatory Tax Payment Distributions. Unless otherwise consented to
or acquiesced in by the Members as provided for in Section 3.2 hereof, the
Manager shall use his or her reasonable good faith efforts to see to it that
Distributions are made annually to the Members (and Member Transferees, as
applicable), on a consistent basis, as reasonably determined to be necessary to
enable such Persons to pay the federal income taxes on the Profits allocated to
them pursuant to this Agreement. For purposes of determining the amount of the
tax payment Distributions provided for in this Section 6.1, the Manager shall
select what he or she reasonably believes to be the most equitable single rate
to be applied uniformly to all Members regardless of the fact that some Members
(and Member Transferees, as applicable) may be subject to different effective or
marginal tax rates than others. The Manager shall use his or her reasonable good
faith efforts to see to it that such Distributions are made in such a fashion
that the Persons receiving the same may use such Distributions to satisfy in a
timely manner their income tax payment obligations.
6.2 Interim Operating Distributions. Unless otherwise provided in
Exhibit D attached hereto, all Distributions prior to liquidation shall be made
to the Members (and Member Transferees, as applicable) pro rata in proportion to
their respective Percentage Interests on the record date of such Distributions.
Unless otherwise provided in Section 6.1 hereof, all such Distributions shall be
made at such time as determined by the Manager.
6.3 Liquidating Distributions. Unless otherwise provided in Exhibit D
attached hereto, upon the liquidation and termination of the Company, Cash
Available for Distribution shall be distributed on the same basis as is provided
for in Section 6.2 hereof with respect to Distributions prior to liquidation and
termination of the Company.
<PAGE> 19
6.4 Limitations on Distributions. Notwithstanding the provisions of
the other Sections of this Article 6, a Distribution shall not be made if the
Company would not be able to pay its debts as they become due in the ordinary
course of business or the Company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if the Company were
to be dissolved, wound up and terminated at the time of the Distribution, to
satisfy the preferential rights of Members whose preferential rights are
superior to those receiving the Distribution. A payment of principal or interest
on the Company's indebtedness issued or created in connection with the purchase,
redemption or other acquisition of a Distributional Interest is considered to be
a Distribution for purposes of this Agreement and the effect of each such
payment shall be measured on the date the payment is made. In all other cases,
the effect of a Distribution shall be measured as of the date the Distribution
is authorized if payment occurs within 120 days after the date of authorization
or as of the date payment is made if it occurs more than 120 days after the date
of authorization. Members (and Member Transferees) who receive Distributions in
violation of the provisions of this Section 6.4 or the Act may be compelled to
return the amount wrongfully received. The Manager and any Member who votes for
or assents to a Distribution in violation of the provisions of this Section 6.4
or the Act may be personally liable to the Company, as provided for in the Act,
for the amount in excess of that which could have been rightfully distributed if
such Person fails to perform the duties of loyalty, due care and good faith and
fair dealing as imposed by this Agreement or the Act.
ARTICLE 7
TRANSFERS OF INTERESTS
7.1 General Provisions Regarding Transfers.
(a) Except to the extent otherwise required by law or otherwise
directed pursuant to the affirmative vote of the Members as provided for in
Section 3.2 hereof, the Company need not recognize or give effect to any
transfer, in whole or in part, of a Distributional Interest under any of the
following circumstances: (i) if such transfer will, in the opinion of counsel to
the Company, result in a termination of certain elections or tax treatments of
the Company for federal income tax purposes; (ii) if such transfer will, in the
opinion of counsel to the Company, result in the Company's failure to qualify
for, or the loss by the Company or any Member of, an exemption from the
registration requirements of the federal or any applicable state securities
laws; (iii) if such transfer would otherwise result in adverse tax consequences
to the Company or the other Members; (iv) if such transferee is a "foreign
person" as that term is defined in the Foreign Investment in Real Property Tax
Act of 1980, as amended; or (v) if such transfer will, in the opinion of counsel
to the Company, result in a default under any loan agreement, contract or other
agreement to which the Company or any of its assets are bound, unless if the
only default is due to not obtaining a valid consent, for which the Company will
then seek such consent.
<PAGE> 20
(b) Except as otherwise expressly provided for in this Agreement, no
Person to whom all or any part of a Member's Interest in the Company is
transferred (by sale, assignment or other transfer, whether voluntarily or by
operation of law) shall become a Substitute Member without complying with the
other requirements set forth in this Article 7. Any Person who acquires all or
any part of a Member's Interest in the Company without complying with the other
requirements set forth in this Article 7 shall obtain thereby only the rights of
an assignee or transferee as provided for in this Agreement. Subject to the
satisfaction of the conditions set forth herein, each Member hereby consents to
the admission of any assignee or transferee of a Member's Interest in the
Company as a Substitute Member.
(c) No Person shall be admitted as a Substitute Member under this
Agreement unless and until:
(1) such admission has been approved by the Members,
other than the transferring Member, as provided for
in Section 3.2 hereof;
(2) a duplicate original of a written instrument of
assignment or transfer, in form and substance as
reasonably required by the Manager, signed by the
assigning Member if applicable, and accepted in
writing by the assignee or transferee, is delivered
to the Manager;
(3) the Company receives an opinion of counsel, by legal
counsel and in form and of substance reasonably
satisfactory to it, to the effect that any of the
adverse consequences, if applicable, referred to
Section 7.1(a)(i), Section 7.1(a)(ii) or Section
7.1(a)(v) will not in fact result from such
assignment or other transfer, or the Company waives
this requirement; and
(4) the prospective new Member executes and delivers to
the Company a written agreement, in form reasonably
satisfactory to the Manager, pursuant to which said
Person agrees to be bound by and confirms the
agreements, representations, warranties, and any
power of attorney, if applicable, contained in this
Agreement.
(d) In the event an assignment of any portion or all of a Member's
Interest in the Company is made or a transfer thereof otherwise occurs,
regardless of whether the assignee or transferee becomes a Substitute Member,
then unless otherwise required by the Code:
(1) the effective date of such assignment or transfer
shall be the date the written instrument of
assignment or transfer is delivered to the Company
or, if applicable, such other date as may be
specified in such written instrument as the effective
date thereof provided that such date is approved as
such by the Manager; and
<PAGE> 21
(2) the Company, the Manager and the other Members shall
be entitled to treat the assignor or transferor of
the assigned or transferred interest as the absolute
owner thereof in all respects and shall incur no
liability for allocations of Profits and Losses and
Distributions made in good faith to such assignor or
transferor until such time as the written instrument
of assignment or transfer has actually been received
and a reasonable time has been afforded the Manager
to have the same recorded in the books of the
Company.
(e) The cost of processing and perfecting an admission contemplated by
this Section 7.1 (including reasonable attorneys' fees and out-of-pocket
expenses incurred by the Company) shall be borne by the party seeking admission
as a Member to the Company.
(f) Notwithstanding any of the provisions of Sections 7.2,7.3, 7.4 and
7.5 below to the contrary, if at any time when there is only one remaining
Member such Member dies or becomes legally incompetent or, in the case of a
Member who is a partnership, limited liability company, corporation, trust or
other entity, such entity terminates, the legal representative or
successor-in-interest of such terminated Member shall have the right, by filing
a written instrument with the records of the Company so stating, to
automatically become a substituted Member for the deceased, incompetent or
terminated Member for purposes of waiving the right to have the Company's
business wound up and the Company terminated by reason of the Dissociation of
the deceased, incompetent or terminated Member, as provided for in Section
35-3(b) of the Act. In such circumstances, it shall not be necessary to comply
with such of the other provisions of this Section 7.1 as the Manager may
reasonably determine to be unnecessary for purposes of such legal representative
or successor-in-interest becoming a Substitute Member for the deceased,
incompetent or terminated Member, but the Manager may require compliance with
those provisions, and such other or additional procedures, as reasonably
determined to be necessary or appropriate to evidence the legal effectiveness of
such transfer. If the deceased or incompetent Member was also the Manager, a
replacement Manager may be designated by such legal representative or
successor-in-interest and an amendment to the Articles shall be filed by such
replacement Manager as required by the Act.
(g) Notwithstanding the other provisions of Section 7.1(b) and Section
7.1(c) of this Agreement to the contrary, a Member shall have the right to
transfer his or her Interest in the Company to a grantor trust of which he or
she is and remains the trustee (or a co-trustee) and sole income beneficiary
during his or her lifetime, retaining the full and unrestricted power to amend
and revoke such trust agreement during his or her lifetime, provided the trustee
of said grantor trust complies with the provisions of Section 7.1(c)(2), Section
7.1(c)(4), Section 7.1(d) and Section 7.1(e) of this Agreement. In such case,
the grantor trust shall automatically become a Substitute Member.
<PAGE> 22
7.2 Involuntary Transfers. Except as otherwise provided in Section
7.1(f) hereof, in the event (i) of the death or incompetency of an individual
Member, or (ii) any Member shall be the subject of a Bankruptcy, the personal
representative or trustee (or successor-in-interest) of the deceased or
incompetent Member or Bankrupt Member shall be an assignee of such Member's
Distributional Interest having the rights set forth in Section 7.5 and shall not
become a Substitute Member unless and until the conditions set forth in Section
7.1 are satisfied; and any such Member's estate (or successor-in-interest) shall
be, and continue to be, liable for all of the obligations of such Member.
7.3 Dissolution or Termination of Members.Except as otherwise provided
in Section 7.1(f) hereof, in the event of the dissolution or termination, as
applicable, of a Member that is a partnership, limited liability company,
corporation, trust or other entity, the successor(s)-in-interest to the
dissolved or terminated Member shall, for the purposes of winding up the affairs
of the dissolved or terminated Member, have the rights of an assignee of such
Member's Interest in the Company, as described in Section 7.5, and shall not
become a Substitute Member unless and until the conditions set forth in Section
7.1 are satisfied.
7.4 Transfers of Ownership Interests in Members. For purposes of this
Article 7, any transfer or assignment of any direct or indirect ownership or
other interests in a Member that (taking into account any prior such transfers
or assignments) results in such Member being controlled by a Person or Persons
other than the Person or Persons that control such Member on the date of
becoming a Member shall be deemed an assignment of such Member's Distributional
Interest and therefore subject to all of the restrictions and provisions of this
Article 7; however, such transferor may seek consent for such transfer from the
Company and such consent shall not be unreasonably withheld.
7.5 Status of Member Transferee. Unless and until the conditions of
Section 7.1 hereof are satisfied, no Person who acquires all or any portion of a
Member's Interest in the Company shall become a Member of the Company, but such
Person shall, to the extent of the interest acquired, be entitled only to the
transferor Member's rights, if any, in the Profits and Losses and Distributions
provided for with respect to the transferor Member's Percentage Interest
pursuant to this Agreement, subject to the liabilities and obligations of the
transferor Member hereunder; and such Person shall have no right to participate
in the management of the business and affairs of the Company and shall be
disregarded in determining whether the approval, consent or any other action has
been given or taken by the Members. Any such Member Transferee shall have the
same right, subject to the same limitations, as the transferor Member had under
the provisions of this Article 7 to assign such transferred interest, but any
such further assignee or transferee thereof shall likewise have only the rights
set forth in this Section 7.5, shall be subject to the provisions of Section 7.1
hereof, and shall not become a Substitute Member of the Company unless and until
the conditions of Section 7.1 have been satisfied.
<PAGE> 23
7.6 Transferor Not Released. Whether or not a transferee of a Member's
Distributional Interest becomes a Member, the transferor Member shall not be
released from liability to the Company under this Agreement or the Act unless
otherwise consented to or acquiesced in by the other Members as provided for in
Section 3.2 hereof.
7.7 Unilateral Right to Purchase Ownership Interest. Notwithstanding
anything to the contrary contained herein, CDW Capital Corp., or its successor
or assign, shall have the unilateral right to purchase all of an other Member
interest upon thirty (30) days prior written notice at price consistent with the
terms and conditions set forth of Exhibit E hereof.
ARTICLE 8
DISSOCIATION OF A MEMBER
8.1 Events of Dissociation. A Member shall be dissociated from the
Company upon the occurrence of any of the following events:
(a) The Company's having notice of the Member's express will to
withdraw upon the date of notice or on a later date specified by the Member.
(b) The transfer of all of a Member's Distributional Interest, other
than a transfer for security purposes or a court order charging the Member's
Distributional Interest that has not been foreclosed.
(c) The Member's expulsion by unanimous vote of the other Members if
it is unlawful to carry on the Company's business with the Member.
(d) On application by the Company or another Member, the Member's
expulsion by judicial determination because the Member (i) engaged in wrongful
conduct that adversely and materially affected the Company's business, or (ii)
willfully or persistently committed a material breach of this Agreement or a
duty owed the Company or the other Members under Section 15-3 of the Act.
(e) The Member's becoming a debtor in Bankruptcy; executing an
assignment for the benefit of creditors; seeking, consenting to, or acquiescing
in the appointment of a trustee, receiver, or liquidator of the Member or of all
or substantially all of the Member's property; or failing, within 90 days after
the appointment, to have vacated or stayed the appointment of a trustee,
receiver, or liquidator of the Member of all or substantially all of the
Member's property obtained without the Member's consent or acquiescence, or
failing within 90 days after the expiration of a stay to have the appointment
vacated.
(f) In the case of a Member who is an individual:
<PAGE> 24
(1) The Member's death;
(2) The appointment of a guardian or general conservator
for the Member; or
(3) A judicial determination that the Member has
otherwise become incapable of performing the Member's
duties under this Agreement.
(g) In the case of a Member that is a trust or is acting as a Member
by virtue of being a trustee of a trust, distribution of the trust's entire
rights to receive Distributions from the Company, but not merely by reason
of the substitution of a successor trustee.
(h) In the case of a Member that is an estate or is acting as a Member
by virtue of being a personal representative of an estate, distribution of the
estate's entire rights to receive Distributions from the Company, but not merely
the substitution of a successor personal representative.
(i) Termination of the existence of a Member if the Member is no an
individual, estate or trust other than a business trust.
(j) In the case of First Portland Corporation ("FPC"), which is a
Member of the Company as set forth on Exhibit A:
(1) FPC actions or omissions cause the Company to be in
breach or default under that certain Loan and
Security Agreement (the "Loan Agreement") dated April
27, 1999 by and between the Company and CDW Capital
Corp. ("CDWCC") or any future agreements or
amendments thereto and such breach or default is not
cured within fifteen (15) days after written notice
to FPC;
(2) FPC is in breach or default under that certain
Servicing Agreement dated (the "Servicing Agreement")
April 27, 1999 by and between FPC and the Company or
any amendments thereto and such breach or default
results in an early termination of the Servicing
Agreement;
<PAGE> 25
(3) The occurrence of any one or more of the following
without the prior written consent of the Company,
which consent shall not be unreasonably withheld: (A)
any person or entity, other than the existing
shareholders of FPC or a trustee or other fiduciary
holding securities under an employee benefit plan of
FPC, or a corporation owned directly or indirectly by
the stockholders of FPC in substantially the same
proportions as their ownerships of stock in FPC,
becomes the beneficial owner, directly or indirectly,
of securities of FPC, representing more than 50% of
the combined voting power of FPC's then outstanding
securities; (B) the individuals who as of the date of
this Agreement compose the Board of Directors of FPC
cease for any reason to constitute a majority
thereof; (C) the stockholders of FPC approve (i) a
plan of complete liquidation of FPC, (ii) an
agreement for the sale or disposition of all or
substantially all of FPC's assets, or (iii) a merger,
consolidation, or reorganization of FPC with or
involving any other corporation, other than a merger,
consolidation, or reorganization that would result in
the voting securities of FPC outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at least
51% of the combined voting power of the voting
securities of FPC (or such surviving entity)
outstanding immediately after such merger,
consolidation, or reorganization; (D) failure by FPC
to file any tax returns; or
<PAGE> 26
(4) No earlier than one year after the date of this
Agreement, and at anytime thereafter, CDWCC shall
have the right to dissociate FPC by purchasing FPC's
entire Interest in the Company by delivering written
notice to the Manager and FPC. If CDWCC so elects,
the closing of such purchase shall take place no
later than thirty (30) days from the date of said
notice, and the purchase price CDWCC shall pay to FPC
for FPC's entire Interest in the Company shall be
equal to FPC's capital account, determined in
accordance with generally accepted accounting
principles, as adjusted to record the Company's lease
portfolio and related accounts at fair market value,
as hereafter defined. The fair market value of the
lease portfolio shall be determined in good faith by
CDWCC and FPC, collectively, by obtaining three (3)
independent and bona fide offers to acquire the
entire lease portfolio. CDWCC may, entirely at their
option, utilize the middle value of the three (3)
offers to determine the purchase price of FPC's
proportionate interest or accept one of the bona fide
offers, sell the lease portfolio and accordingly
adjust FPC's capital account to reflect the sale of
the lease portfolio and final purchase price. If
CDWCC is the purchaser hereunder, simultaneously with
CDWCC's delivery of the purchase price to FPC for
FPC's entire Interest in the Company, FPC shall
deliver a duly executed assignment agreement in favor
of CDWCC which assigns the portfolio of leases, and
all rights and interests related thereto, to CDWCC,
and FPC and CDWCC shall execute an Agreement
terminating the Servicing Agreement as of such date;
however, CDWCC shall have the right to extend the
Servicing Agreement month to month, for up to six (6)
months consistent with Section 10 of the Servicing
Agreement.
(k) In the case of CDWCC, which is a Member as set forth on Exhibit A,
CDWCC breaches or is in default under the Loan Agreement.
(l) If a Member fails to contribute additional capital pursuant to the
terms of Section 2.3.
8.2. Consequences of a Member's Dissociation. A Member's Dissociation
shall not cause dissolution of the Company. Upon a Member's Dissociation the
following shall apply:
(a) The Dissociated Member shall cease to be a Member. Any right the
Dissociated Member previously had to participate in the management and conduct
of the Company's business shall terminate, including, but not limited to , that
Member's right to determine any value or continuing interest in the Portfolio,
except as otherwise provided in Section 35-4 of the Act. The Dissociated Member
shall have no right to be provided with access to the Company's books and
records with respect to any of the Company's business or affairs occurring after
the date of the Dissociation except insofar as it may be necessary to
appropriately address or dispose of matters related to the period during which
such Person was a Member.
(b) The Dissociated Member's fiduciary duties shall terminate except
that the Dissociated Member's duty of loyalty and duty of care, as provided in
this Agreement and the Act, shall continue with regard to matters arising and
events occurring before the Dissociation as and to the extent provided for in
the Act.
(c) The transferee or successor(s)-in-interest to the Dissociated
Member's Distributional Interest, and any Dissociated Member who retains his or
her Distributional Interest, shall be a Member Transferee, and be subject to the
provisions of Section 7.5
<PAGE> 27
hereof, unless, in the case of a transferee or successor-in-interest, such
Person is accepted as or deemed to be a Substitute Member as provided for in
Article 7 hereof or, if Article 7 fails to so provide or the provisions of
Article 7 are judicially determined to be invalid, as provided by the Act. A
Member Transferee (including a Person who withdraws as a Member pursuant to
Section 8.1(a) hereof) shall be subject to all of the terms and provisions of
this Agreement that pertain to a Member Transferee's Distributional Interest,
including the Company's right to purchase, or cause its designee to purchase,
such Distributional Interest as provided for in Section 8.2(d) hereof.
(d) The Company shall have the right (but not the obligation) to
purchase, or cause its designee to purchase, the Distributional Interest of a
Dissociated Member or Member Transferee as provided for in Exhibit E attached
hereto.
(e) The Company shall have an obligation to purchase the
Distributional Interest of a Dissociated Member or Member Transferee unless
otherwise expressly so provided for in Exhibit F attached hereto.
(f) If the Dissociated Member's Dissociation is wrongful, as provided
in Section 8.3 hereof, such Dissociated Member shall be liable to the Company
and the other Members for damages caused by the Dissociation, which shall be in
addition to any other obligation of the Dissociated Member to the Company and
the other Members. If the Company does not dissolve and wind up its business
following a Member's wrongful Dissociation, damages sustained by the Company for
the wrongful Dissociation must be offset against Distributions otherwise due the
Dissociated Member after the Dissociation.
8.3 Wrongful Dissociation. A Member's Dissociation from the Company
shall be deemed to be wrongful unless such Dissociation is by reason of any of
the following:
(a) The Member's death or legal disability or physical or mental
inability to perform his or her duties under this Agreement;
(b) The transfer of a Member's Distributional Interest to a Person who
is a Member or who thereafter becomes an additional or substitute Member in
compliance with the provisions of Article 7 hereof; or
(c) A Dissociation pursuant to the provisions of Section 8.1(g) or
Section 8.1(h) hereof.
<PAGE> 28
ARTICLE 9
DISSOLUTION AND LIQUIDATION
9.1 Events of Dissolution. The following shall be events which shall
cause the dissolution of the Company and, unless continued as provided for in
Section 9.2 hereof, the winding up of the Company's business:
(a) The determination by the Members to dissolve and wind up the
affairs of the Company, as provided for in Section 3.2 hereof;
(b) An event that makes it unlawful for all or substantially all of
the business of the Company to be continued, except to the extent that
any illegality can be and is cured within 90 days after notice to the Company
of such event, in which case such cure shall be considered effective retroactive
to the date of the event;
(c) On application by a Member or Dissociated Member, upon entry of a
judicial decree that
(i) The economic purpose of the Company is likely to be
unreasonably frustrated;
(ii) Another Member has engaged in conduct relating to the
Company's business that makes it not reasonably
practicable to carry on the Company's business with
that Member;
(iii) It is not otherwise reasonably practicable to carry
on the Company's business in conformity with the
Articles and this Agreement;
(iv) The Company has failed to purchase the petitioner's
Distributional Interest as required by Section 8.2(c)
hereof or the Act; or
(v) The Manager or Members in control of the Company have
acted, are acting, or will act in a manner that is
illegal, oppressive or fraudulent with respect to the
petitioner.
(d) On application by a Member Transferee, a judicial determination
that it is equitable to wind up the Company's business; or
(e) Administrative action by the Secretary of State of Illinois as
provided for under Section 35-23 of the Act except and to the extent provided in
connection with reinstatement following such action as provided for in the Act.
<PAGE> 29
9.2 Continuation After Dissolution. At any time after the dissolution
of the Company and before the winding up of its business is completed, the
Members, including a Dissociated Member whose Dissociation caused the
dissolution, if applicable, may waive the right to have the Company's business
wound up and the Company terminated, as provided for in Section 3.2 hereof. In
such event, the Company shall resume carrying on its business as if the
dissolution had never occurred and any liability incurred by the Company or a
Member after the dissolution and before the waiver shall be determined as if the
dissolution had never occurred but the rights of a third party pursuant to
Section 35-7(a) of the Act or arising out of conduct in reliance on the
dissolution before the third party knew or received notice of the waiver shall
not be adversely affected.
9.3 Winding Up of Affairs. Except as otherwise provided in Section 9.2
hereof, in the event of the dissolution of the Company for any reason, the
Manager shall promptly commence to wind up the affairs of the Company and shall
convert all of the Company's assets to cash or cash equivalents within such
reasonable period of time as may be required to receive fair value therefor.
During the period of winding up the affairs and business of the Company, the
rights and obligations of the Manager set forth herein with respect to the
management of the Company shall continue. The Manager retains the right to "run
out" the existing Portfolio during any wind up period. In the event the Manager
ceases or fails to act, a Member who has not wrongfully Dissociated may
participate in the winding up of the Company's business, or the legal
representative of the last surviving Member may wind up the Company's business.
On application of any Member, Member's legal representative or Member
Transferee, the court, for good cause shown, may order judicial supervision of
the winding up. A Person winding up the Company's business may prosecute and
defend actions and proceedings, whether civil, criminal or administrative,
settle and close the Company's business, dispose of and transfer the Company's
property, discharge the Company's liabilities, distribute the Company's assets
as provided for herein, settle disputes by mediation or arbitration, and perform
other necessary acts. The Company shall be bound by a Person's act after
dissolution that is appropriate for winding up the Company's business or would
have bound the Company under Section 13-5 of the Act before dissolution if the
other party to the transaction did not have notice of the dissolution. A Person
who, with knowledge of the dissolution, subjects the Company to liability by an
act that is not appropriate for winding up the Company's business shall be
liable to the Company for any damage caused to the Company from such liability.
The assets of the Company shall be applied or distributed in liquidation in the
following order of priority: (1) in payment of debts and obligations of the
Company owed to third party creditors (including Members who are creditors) and
(2) to Members in the manner set forth in Section 6.3 hereof. All items of
income, gain, loss, deduction and credit during the period of liquidation shall
be allocated among the Members in the same manner as before the dissolution.
9.4 Accounting. In the case of the dissolution and termination of the
Company, prior to any distributions to Members pursuant to Section 6.3, a proper
accounting shall be made of the Capital Accounts of the Members and Member
Transferees, and of each item of income, gain, loss, deduction and credit of the
Company from the date of the last previous accounting to the date of
dissolution. The Manager shall provide a copy of such accounting to all Members
and Member Transferees.
<PAGE> 30
9.5 No Right to Partition. Each Member hereby waives any and all
rights to partition the interest of the Company in the Property, or any other
asset of the Company, or any part thereof, or otherwise to divide (whether
through an action in equity or through some other means) the beneficial
interest in any nominee holding title to any such assets.
9.6 No Personal Liability for Return of Capital. The Manager shall not
be liable personally for the return or repayment of all or any portion of the
capital of any Member, or for the repayment of all or any portion of any loan
made by any Member to the Company, it being expressly understood that any such
return of capital or repayment of any such loan shall be made solely from the
assets (which shall not include any right of contribution from the Manager) of
the Company.
9.7 Articles of Dissolution. When all debts, liabilities and
obligations of the Company have been paid and discharged or adequate provision
has been made therefor and all of the remaining property and assets of the
Company have been distributed to the Members, Articles of Dissolution shall be
filed by the Manager as required under the Act, whereupon the existence of the
Company shall terminate. Thereafter, the Manager and any remaining Members shall
be trustee for the Members and creditors of the terminated Company and, in that
capacity, shall have authority to convey or distribute any Company property
discovered after termination and take any other action that may be necessary on
behalf of and in the name of the terminated Company.
ARTICLE 10
BOOKS AND RECORDS; ACCOUNTING;
TAX ELECTIONS AND OTHER MATTERS
10.1 Books and Records. Except to the extent otherwise acquiesced in by
the Members as provided for in Section 3.2 hereof, the books and records of the
Company shall be maintained in accordance with generally accepted accounting
principles. Within ninety (90) days after each respective fiscal year end, the
Company shall cause audited annual financial statements to be prepared by a
reputable certified public accounting firm, with delivery of a copy thereof to
each Member. These and all other records of the Company, including information
relating to the status of the Property and information with respect to the sale
by the Manager or any Affiliate of goods or services to the Company, shall be
kept at the principal office of the Company or at such other reasonable
locations as determined by the Manager provided that written notice of any such
other location, and the books and records maintained at such other location, is
given to the Members. The books and records of the Company shall include but not
be limited to the following:
<PAGE> 31
(a) A list of the full name and the last known address of each Member
setting forth the amount of cash each Member has contributed, a description and
statement of the agreed value of the other property or services each Member has
contributed or has agreed to contribute in the future, and the date on which
each became a Member.
(b) A copy of the Articles and all amendments thereto, and executed
copies of any powers of attorney pursuant to which the Articles, any amendment
to or restatement of the Articles, or any application or certificate, have been
executed.
(c) Copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the three (3) most recent taxable
years.
(d) Copies of the original Agreement and all amendments to the
Agreement.
(e) A binder or file which contains, in chronological or other
reasonable order, a record of all actions taken by the Members in the form of
voting at a meeting, written consent or other approval or acquiescence as
provided for herein.
(f) Financial statements of the Company for the three (3) most recent
fiscal years, if applicable.
Each Member, and his or her agents and attorneys, shall have a right of access
to the Company's books and records, from time to time and during normal business
hours at the Company's principal place of business or such other reasonable
location as may be designated by the Manager, for inspection and copying. The
Company may impose a reasonable charge for the expenses, including labor,
associated with providing such inspection and copying, except that upon written
request by a Member a copy of the Agreement, and all amendments thereto, shall
be provided at the expense of the Company. A former Member, and his or her
agents and attorneys, and the legal representative of a deceased Member or
Member under a legal disability, shall have the same rights as a Member to
access to the Company's books and records, for proper purposes, pertaining to
the period during which such former Member was a Member.
10.2 Company Funds; Bank Accounts; Investments.
(a) The funds of the Company shall not be commingled with the funds of
any other Person and the Manager shall not use, or permit any other Person to
use, such funds in any manner except for the benefit of the Company.
(b) All funds of the Company not otherwise invested shall be deposited
in the name of the Company in one or more accounts maintained in such financial
institutions as the Manager shall reasonably determine.
<PAGE> 32
10.3 Section 754 Elections. In the event of a transfer of all or any
part of the interest of a Member permitted by this Agreement, the Company, with
the approval of the Manager, may elect, pursuant to Section 754 of the Code (or
any corresponding provision of succeeding law), to adjust the basis of the
Company Property. All costs incurred by the Company in making such election
shall be borne prorata by the Members benefitting from such election. Each
Member agrees to furnish the Company with all information necessary to give
effect to such election.
10.4 Fiscal Year. The fiscal year of the Company shall be the calendar
year.
ARTICLE 11
CONSENTS, MEETINGS AND VOTING
11.1 Consents.
(a) Any request for consent of the Members pursuant to this Agreement
shall be made by delivery of a written request to each Member whose consent or
approval is requested.
(b) Each Member who receives a request for consent or approval shall
respond by delivery of a written consent, approval or declination to the
requesting party within fifteen (15) days of the delivery of the request for
consent or approval unless another time period is specified in this Agreement.
Failure to respond as provided in this Section 11.1(b) shall constitute a
consent or approval for all purposes of this Agreement.
(c) Any action which could otherwise be taken by vote of the Members
at a meeting may be taken by the Members without a meeting and by means of a
written consent to such action signed by those Members representing the
Percentage Interests necessary to take or approve such action at a meeting,
provided such written consent is filed with the records of the Company. Any such
consent may be executed in counterparts and each counterpart shall constitute a
single consent of the Members.
11.2 Meetings of Members.
(a) Meetings of Members shall be held at such location in Illinois, or
such location outside the state of Illinois as approved or consented to by the
Members as provided for in Section 3.2 hereof, as provided in any proper Notice
of meeting. A Notice of a meeting shall state, with reasonable particularity,
the purposes of the meeting and shall be sent to all Members not more than 30,
nor less than 10, days before the date scheduled for the meeting. Attendance at
a meeting by a Member (in person or by proxy or by telephone) shall constitute
waiver of Notice of such meeting as well as a waiver of such Member's right to
contest to the location of such meeting, if outside the state of Illinois and
not otherwise approved as provided for in Section 3.2 hereof. Waiver of Notice
of a meeting may also be given by written waiver by the Member.
<PAGE> 33
(b) Meetings shall be held only when called by the Manager or by those
Members possessing the requisite percentage of the Percentage Interests of the
Members, as provided for in Section 3.2 hereof, but in no event any less often
than one (i) time per year.
(c) The presence (in person or by proxy)at a meeting, for which proper
Notice has been given or waivers of Notice have been received, of those Members
possessing a majority of the Percentage Interests shall constitute a quorum.
(d) Voting at any meeting at which a quorum is present shall be by
written ballot (including proxies) unless otherwise agreed by all Members
present. The Manager (or in his or her absence, the Member selected by those
Members in attendance possessing a majority of the Percentage Interests of those
Members in attendance) shall record all votes and maintain or cause to be
maintained with the Company records an accurate record of the voting results and
actions agreed upon at the meeting.
(e) All matters which may or are required to be submitted to a vote of
the Members shall be determined by the affirmative vote, consent or approval of
those Members representing the Percentage Interests required therefor as set for
in Section 3.2 hereof.
11.3 Dispute Resolution. The Members retain the right to adjudicate any
and all disputes in any court of competent jurisdiction subject to the governing
law principles contained herein and further whereas venue shall lie in Cook
County, Illinois and/or in the Northern District of Illinois with respect to any
federal action.
ARTICLE 12
DEFINITIONS
As used in this Agreement, the terms with their initial letters
capitalized, shall, unless the context otherwise requires or unless otherwise
expressly provided herein, have the meanings specified below:
"Act" means the Limited Liability Company Act of the state of Illinois.
"Additional Member" means any Person, other than an Initial Member, who
by contributing to the capital of the Company and by being approved as such, in
the manner herein provided, becomes a Member.
<PAGE> 34
"Affiliate" means any Person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with any other Person, with "control" meaning the power, directly or indirectly,
to direct the management or policies of such Person, whether by the ownership of
voting securities, by contract or otherwise.
"Agreement" or "Operating Agreement" means this Operating Agreement as
initially executed, or as amended from time to time, unless the context
otherwise requires.
"Articles" means the Articles of Organization of the Company and any
amendment to such Articles filed in the Office of the Secretary of State of the
State of Illinois.
"Bankruptcy" of a Member means the occurrence of any of the following
events: (i) the filing by such Person of a voluntary case or the seeking of
relief under any chapter of Title 11 of the United States Code, as now
constituted or hereafter amended ("Bankruptcy Code"), (ii) the making by such
Person of a general assignment for the benefit of its creditors, (iii) the
admission in writing by such Person of the inability to pay his or her debts as
they mature, (iv) the filing by such Person of an application for, or consent
to, the appointment of any receiver or a permanent or interim trustee of such
Person or of all or any portion of his or her property, including, without
limitation, the appointment or authorization of a trustee, receiver, or agent
under applicable law or under a contract to take charge of his or her property
for the purposes of enforcing a lien against such property or for the purpose of
general administration of such property for the benefit of his or her creditors,
(v) the filing by such Person of a petition seeking a reorganization of his or
her financial affairs or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution, or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against such
Person in any proceeding under any such law or statute, (vi) an involuntary case
is commenced against such Person by the filing of a petition under any chapter
of the Bankruptcy Code and within sixty (60) days after filing of such case
either the petition is not dismissed or an order for relief is entered therein;
(vii) an order, judgment, or decree is entered appointing a receiver or a
permanent or interim trustee of such Person or of all or any portion of his or
her property, including, without limitation, the entry of an order, judgment or
decree appointing or authorizing a trustee, receiver, or agent to take charge of
the property of such Person for the purpose of enforcing a lien against such
property or for the purpose of general administration of such property for the
benefit of the creditors of such Person, and such order, judgment or decree
shall continue unstayed and in effect for a period of sixty (60) days; or (viii)
an order, judgment, or decree is entered, without the approval or consent of
such Person, approving or authorizing the reorganization, insolvency,
readjustment of debt, dissolution or liquidation of such Person under any such
law or statute, and such order, judgment or shall continue unstayed and in
effect for a period of sixty (60) days.
"Book Value" means the present value of cash flows discounted at the
inherent rate of the lease less the cost of ongoing maintenance of the lease.
<PAGE> 35
"Capital Account" means the account established and maintained for each
Member (and Member Transferee, as applicable) on the books of the Company
pursuant to Article 2 hereof.
"Cash Available for Distribution" means (i) all cash received by the
Company from sources including, but not limited to, (a) Company operations, (b)
sales or other dispositions of Company Property and (c) financing or refinancing
proceeds, condemnation awards, insurance proceeds, or proceeds derived from the
disposition of other Company assets; less (ii) all out-of-pocket costs and
expenses of the Company incurred in connection with such events, and all debt
service on all third-party loans and reasonable reserves to pay for anticipated
expenses and obligations of the Company as determined in the reasonable
discretion of the Manager, and all amounts previously distributed to the
Members.
"Capital Contribution" means (i) the amount of cash contributed and/or
(ii) the fair market value of property contributed. Such Capital Contribution
shall be reflected on Exhibit A as amended from time to time as provided for
herein.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Property" or "the Property" means all property, whether real
or personal, tangible or intangible, now owned or hereafter acquired by the
Company.
"Dissociation" means, with respect to a Person who was a Member
immediately preceding, the occurrence of any of the events set forth in Section
8.1 of this Agreement pursuant to which such Person ceases to be a Member as
provided in this Agreement and by applicable law.
"Dissociated Interest" means the interest of a Dissociated Member in
the payments owing with respect to such Person's Distributional Interest in the
Company as provided for in this Agreement and by applicable law.
"Dissociated Member" means a Person who has ceased to be a Member by
reason of the occurrence of an event of Dissociation as provided in this
Agreement and by applicable law.
"Distributional Interest" means all of a Member's (or Member
Transferee's, as applicable) interest in and right to receive the Distributions
to be made by the Company with respect to the Percentage Interest associated
therewith.
<PAGE> 36
"Distribution" means any money, property or other benefit, from any
source, transferred by the Company to a Member in the capacity as a Member or to
a Member Transferee, but shall not include any payments made to a Member on
account of any indemnity contained herein.
"Event of Dissociation" means the occurrence of any of the events set
forth in Section 8.1 hereof which give rise to the dissociation of a Member.
"Initial Member" means each of the Persons listed on Exhibit A as of
the time of the filing of the Articles with the Illinois Secretary of State's
Office.
"Interest in the Company" means for each Member all of a Member's
right, title and interest in and to the Company and its assets, including,
without limitation, such Member's Capital Account, the right to receive
Distributions, such Member's allocable share of Company Profits and Losses, and
such Member's right to manage the Company as provided for herein and by
applicable law.
"Invested Capital" means, with respect to any Member, the amount of the
Capital Contributions made by such Member to the Company as provided in Article
2 hereof less Distributions made to such Member pursuant to Article 6 hereof in
payment of all or any portion of the previously existing amount of Invested
Capital, but not less than zero. In the case of a Member Transferee, such term
shall mean the transferor Member's Invested Capital immediately prior to such
transfer, less Distributions made to such Member Transferee subsequent to such
transfer in payment of all or any portion of such previously existing Invested
Capital.
"Manager" means one or more managers as appointed in or pursuant to
Article 3 hereof. References to the Manager in the singular or as him, her, it,
itself or other like references shall also, where the context so requires, be
deemed to include the plural or the neuter, masculine or feminine reference, as
the case may be.
"Market Value" means the bona fide fair market value of the portfolio
of leases which an unrelated third party would pay the Company in a lump sum and
on a non-recourse basis for the Company's entire portfolio of leases.
"Member Transferee" means a Person to whom the interest of a Member in
Profits and Losses and Distributions has been transferred but who has not become
an additional or substitute Member pursuant to the provisions hereof and
applicable law.
"Members" means those Persons designated as Members on Exhibit A and
each Person who may become an additional or substitute Member pursuant to the
provisions hereof and applicable law.
<PAGE> 37
"Notice" means a written statement containing the information required
by this Agreement to be communicated to a Person and sent to such Person in
accordance with Section 13.9.
"Percentage Interest" means for each Member (and Member Transferee, as
applicable), the percentage set forth opposite such Member's name on Exhibit A,
as the same may be adjusted from time to time pursuant to Article 2 hereof,
which shall be represent the pro rata share of Profits and Losses to be
allocated, and Distributions to be made, to such Person as provided for in this
Agreement or otherwise by applicable law.
"Person" means any individual, company, limited liability company,
corporation, unincorporated association, partnership, trust or other entity.
"Profits" and "Losses" mean the net profits or losses of the Company as
determined by the Company's accountants in accordance with federal income tax
accounting principles as of the close of each fiscal year of the Company.
"Substitute Member" means any Person to whom the Distributional
Interest of a Member has been transferred and who is approved as such, in the
manner herein provided, and thereby becomes a Member.
"Treasury Regulations" means the federal income tax regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
ARTICLE 13
GENERAL PROVISIONS
13.1 Burden and Benefit. Subject to the provisions of Article 7 hereof,
the covenants and agreements contained herein shall be binding upon and inure to
the benefit of the heirs, executors, administrators, successors and assigns of
the respective parties hereto. Any Person acquiring or claiming an interest in
the Company, in any manner whatsoever, shall be subject to and bound by all
terms, conditions and obligations hereof to which such Person's predecessor in
interest was subject or bound, without regard to whether such a Person has
executed a counterpart hereof or any other document contemplated hereby. No
Person, including the legal representatives, heirs or legatees of a deceased
Member, shall have any rights or obligations greater than those set forth herein
and no Person shall acquire an Interest in the Company or become a Member
thereof except as permitted hereby.
<PAGE> 38
13.2 Applicable Law. This Agreement shall be construed and enforce in
accordance with the laws of the State of Illinois, without giving effect to the
principles of conflicts of law thereof.
13.3 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties shall not have signed the same counterpart,
and the original of this Agreement shall be a counterpart signed by all the
Members.
13.4 Separability of Provisions. Each provision of this Agreement shall
be considered separable and if for any reason any provision which is not
essential to the effectuation of the basic purposes of the Agreement is
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those provisions of this
Agreement which are valid.
13.5 Entire Agreement. This Agreement, together with schedules and
exhibits attached hereto and any other documents executed concurrently herewith,
sets forth all (and is intended by all parties to be an integration of all) of
the promises, agreements and understandings among the parties hereto with
respect to the Company, the Company business and the property of the Company,
and there are no promises, agreements, or understandings, oral or written,
express or implied, among them other than as set forth or incorporated herein.
13.6 Additional Requirements. Each Member agrees to do all acts and
things to make, execute and deliver such written instruments as may from time to
time be reasonably required by the Manager to carry out the terms and provisions
hereof, including, but not limited to, any assignments or amendments hereto as
may be required by any lender providing financing.
13.7 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any of the creditors of the Company or the
Members.
13.8 Gender and Captions. Wherever the context so requires, the use of
the singular number shall be deemed to include the plural and vice versa. Each
gender shall be deemed to include any other gender, and each shall include a
Person wherever the context so requires. The captions and headings of the
various Articles and Sections of this Agreement are intended only as a matter of
reference and convenience and in no way define, limit or prescribe the scope or
intent of this Agreement or any Article or Section.
13.9 Notice. All notices required or permitted to be given shall be
sufficient if and when given in the following manner:
<PAGE> 39
If to the Company: to the attention of the Manager, at the address or fax number
of the principal office of the Company
If to a Member: at the address or fax number of the Member as indicated on
Exhibit A, as amended from time to time or to such other address or fax number
as may be specified in a written notice as conforming hereto. A notice may be
given by personal delivery, by certified U.S. Mail, return receipt requested, or
by fax the receipt of which is confirmed by printed report acknowledging receipt
at the receiving fax machine. A notice given by personal delivery shall be
deemed given when delivered. A notice given by certified U. S. mail shall be
deemed given on the third day following deposit with the sending post office. A
notice given by fax shall be deemed given as of the date and time shown on the
delivery confirmation report.
13.10 Amendments. Except as otherwise provided herein, any amendments
hereto shall require the written consent of the Members as provided for in
Section 3.2 hereof.
13.11 Jurisdiction; Prevailing Party Expenses. Each party hereto
consents and submits to (i) the jurisdiction of the courts of the state of
Illinois and of the courts of the United States for a judicial district within
the territorial limits of the state of Illinois for all purposes of this
Agreement and any ancillary document to which it is a party and (ii) the venue
of any action or proceeding arising out of or relating to this Agreement being
Cook County, Illinois or, if such proceeding cannot be lawfully held in such
location, as near thereto as applicable law permits. The prevailing party or
parties in any such action or proceeding arising shall be reimbursed by the
party or parties who do not prevail for the reasonable fees and costs of their
attorney, accountants and experts and for the costs of such proceeding. In the
event that two or more parties are deemed liable for a specific amount payable
or reimbursable under this Section 13.11, such parties shall be jointly and
severally liable.
13.12 Members' Investment Representations. Each Member hereby
represents that, with respect to his or her interest in the Company: (i) he or
she is or has acquired such interest for purposes of investment only, for his or
her own account (or a trust account if such Member is a trustee), and not with a
view to resell or distribute the same or any part thereof, and (ii) no other
Person has any interest in such interest or in the rights of such Member under
this Agreement other than a spouse who may have rights as provided by applicable
law. Each Member also represents to the Company and the other Members that he or
she has the business and financial knowledge and experience necessary to acquire
an interest in the Company on the terms contemplated herein and that he or she
has the ability to bear the risks of such investment (including the risk of
sustaining a complete loss of all its capital contributions) without the need
for the investor protections provided by the registration requirements of the
Securities Act of 1933, as amended.
<PAGE> 40
13.13 Set-off. In the event any Member owes any amount to the Company,
by reason of a breach of such Member's obligations hereunder or otherwise, the
Company may set-off and deduct the amount so owing from such Member from any
Distributions otherwise required to be made to such Member (or Member
Transferee, as applicable).
13.14 Company Deemed a Party to this Agreement. All Members and the
Manager hereby intend and agree that the Company shall be deemed to be a party
to this Agreement and bound by the terms hereof. The Manager shall promptly
execute, place on file with this Agreement and maintain with the Company's books
and records a written acknowledgment of the provisions of this Section 13.14,
evidencing the Company's becoming a party hereto and being bound hereby, but the
failure to do so shall not be deemed to be a release, waiver or other act which
results in the Company's not being deemed to be a party hereto or bound hereby.
IN WITNESS WHEREOF, the parties hereto have agreed to the terms of this
Agreement as of the day and date first written above.
CDW CAPITAL CORP. FIRST PORTLAND CORPORATION
By: ___________________________ By: ___________________________
Name: ________________________ Name: ________________________
Its: ___________________________ Its: ___________________________
<PAGE> 41
EXHIBIT A
MEMBERS, INTERESTS AND CONTRIBUTIONS
Percentage Capital
Member Interest Contribution
Name CDW Capital Corp. 50% $100,000.00
Street 200 North Milwaukee Avenue
City Vernon Hills
State, ZIP Illinois 60061
FEIN 36-4272428
Telephone # 800-800-4239
Fax # 847-465-3838
Name First Portland Corporation 50% $100,000.00
Street 7145 South West Varns Street
City Portland
State, ZIP Oregon 97223
FEIN 93-0870892
Telephone # 800-247-3722
Fax # 503-620-7677
A-1
<PAGE> 42
EXHIBIT B
ALLOCATIONS OF PROFITS AND LOSSES
Profits and Losses shall be allocated prorata among the Members (and Member
Transferees, as applicable) in proportion to their respective Percentage
Interests.
B-1
<PAGE> 43
EXHIBIT C
REGULATORY ALLOCATIONS
As provided in Section 5.4 of the Agreement, the following provisions shall
apply and take precedence over any other provisions in the Agreement if and to
the extent reasonably deemed necessary by the Manager to satisfy the
requirements of the Code and applicable Treasury Regulations:
(a) Minimum Gain Chargeback. If there is a net decrease in Minimum Gain
(as defined below) for a Company taxable year, each Member (or Member
Transferee, as applicable) shall be allocated, before any other allocation of
Company items for such taxable year, items of gross income and gain for such
year (and, if necessary, for subsequent years) in proportion to, and to the
extent of, the amount of such Person's share of the net decrease in Minimum Gain
during such year, as required by and in accordance with Treasury Regulation
Sections 1.704-2(f)(1) and 1.704-2(i)(4). The income allocated pursuant to this
paragraph in any taxable year shall consist first of gains recognized from the
disposition of property subject to one or more nonrecourse liabilities of the
Company, and any remainder shall consist of a pro rata portion of other items of
income or gain of the Company. The allocation otherwise required by this
paragraph shall not apply to a Member to the extent provided in Treasury
Regulation Sections 1.704-2(f)(2) through (5).
(b) Qualified Income Offset. If a Person unexpectedly receives an
adjustment, allocation or distribution described in Treasury Regulation Section
1.704-l(b)(2)(ii)(d)(4), (5) or (6) that causes or increases an excess deficit
Capital Account balance with respect to such Person, items of Company gross
income and gain shall be specifically allocated to such Person in an amount and
manner sufficient to eliminate such excess deficit Capital Account balance as
quickly as possible.
(c) Gross Income Allocation. If at the end of any Company taxable year,
a Person has an excess deficit Capital Account balance, such Person shall be
specially allocated items of Company income or gain in an amount and manner
sufficient to eliminate such excess deficit Capital Account balance as quickly
as possible.
(d) Nonrecourse Deductions. Any deductions attributable to partnership
nonrecourse liabilities (as determined pursuant to Treasury Regulation Section
1.704-2(c)) of the Company shall be allocated among the Members (and Member
Transferees, as applicable) in accordance with their Percentage Interests.
C-1
<PAGE> 44
(e) Definitions Regarding Regulatory Allocations.
(1) "Minimum Gain" shall have the meaning given such term in
Treasury Regulation Section 1.704-2(d), and shall generally mean the
amount by which the nonrecourse liabilities secured by any assets of
the Company exceed the adjusted tax basis of such assets as of the date
of determination. A Person's share of Minimum Gain (and any net
decrease thereof) at any time shall be determined in accordance with
Treasury Regulation Section 1.704-2(g).
(2) The "excess deficit Capital Account balance" of any Person
shall be the Capital Account balance of such Person, adjusted as
provided in the immediately following sentence, to the extent, if any,
that such balance is a deficit (after adjustment). For purposes of
determining the existence and amount of an excess deficit Capital
Account balance, the Capital Account balance of a Person shall be
adjusted by: (i) crediting thereto (A) that portion of any deficit
Capital Account balance that such Person is required to restore under
the terms of this Agreement, and (B) the amount of such Person's share
of Minimum Gain, including any "partner nonrecourse debt minimum gain"
(as defined in Treasury Regulation Section 1.704-2(i)); and (ii)
charging thereto the items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6) that apply to such Person. The
existence and amount of any excess deficit Capital Account balance at
the end of any year shall be determined before any other allocations
provided for in this Exhibit C for such year have been made.
(f) Nonrecourse Debt. Any item of Company Loss, deduction or
expenditures described in Code Section 705(a)(2)(B) that is attributable to a
partner nonrecourse debt (as defined in Treasury Regulation Section
1.704-2(b)(4)) of a Person shall be allocated to those Persons that bear the
economic risk of loss for such partner nonrecourse debt, and among such Persons
in accordance with the ratios in which they share such economic risk, determined
in accordance with Treasury Regulation Section 1.704-2(i). If there is a net
decrease for a Company taxable year in any partner nonrecourse debt minimum gain
of the Company, each Person with a share of such partner nonrecourse debt
minimum gain as of the beginning of such year shall be allocated items of gross
income and gain in the manner and to the extent provided in Treasury Regulation
Section 1.704-2(i)(4).
(g) Interpretation. The foregoing provisions of this Exhibit C are
intended to comply with Treasury Regulation Sections 1.704-1 and 1.704-2 and
shall be interpreted consistently with this intention. Any terms used in such
provisions that are not specifically defined in this Agreement shall have the
meaning, if any, given such terms in the Regulations cited above.
C-2
<PAGE> 45
(h) Curative Allocations. If any allocation of gain, income, loss,
expense or any other item is made pursuant to this Exhibit C (the "Regulatory
Allocations") with respect to one or more Persons (the "Deficit Persons"), then
the Regulatory Allocations shall be taken into account in allocating Profits and
Losses and other items of income, gain, loss and deduction among the Persons
such that, to the extent possible (taking into account the provisions of the
applicable Treasury Regulations), the net amount of such allocations of Profits
and Losses and other items, and the Regulatory Allocations, to each Person shall
be equal to the net amount that would have been allocated to each such Person if
the Regulatory Allocations had not been made.
C-3
<PAGE> 46
EXHIBIT D
DISTRIBUTIONS
To the extent necessary to comply with any applicable requirements of the Code
and Treasury Regulations, Cash Available for Distribution shall be distributed
first to those Persons having positive balances in their Capital Accounts (after
giving effect to allocations of Profits and Losses as provided in this
Agreement) in proportion to and to the extent of such positive balances.
All other Distributions shall be made prorata to the Members (and Member
Transferees, as applicable) in proportion to their respective Percentage
Interests as of the record date of such Distributions.
D-1
<PAGE> 47
EXHIBIT E
CALL RIGHTS OF THE COMPANY UPON DISSOCIATION
In the event the Company becomes entitled to purchase the Distributional
Interest of a Dissociated Member or Member Transferee pursuant to the provisions
of Section 8 of this Agreement, the price to be paid for such Distributional
Interest shall be the greater of (i) the amount of the Member Transferee's
Capital Account as of the date of Dissociation or (ii) the Transferee's actual
or pro-forma capital account calculation as described and set forth in Section
8.1(j)(4). The amount so determined as above provided shall be herein referred
to as the "Purchase Price."
The Purchase Price shall be paid at such time, in full or in installments, as
the Company and the Member Transferee shall, each acting in good faith, mutually
agree within a reasonable period of time after the Purchase Price has been
determined, not to exceed fully amortizable quarterly payments not to exceed two
(2) years in total from the date of the Dissociation unless otherwise mutually
agreed.
Any amount of the Purchase Price that is paid in installments shall be evidenced
by the promissory note of the Company which shall bear interest at such rate as
is mutually agreed between the Member Transferee and the Company, each acting in
good faith, or if the parties cannot agree on such interest rate, then at the
current prime rate being charged by the Company's commercial lender, or, if
none, then by such commercial banking institution as the Company may reasonably
designate. Such promissory note shall be subordinated, without affecting any
payments due thereon, to (i) any indebtedness of the Company then existing to
the Company's commercial lender if a lender other than a Member if and to the
extent that such subordination is required to prevent such commercial lender
from calling due such indebtedness, if entitled to do so, under the terms of any
applicable loan documentation, and (ii) any refinancing of any such indebtedness
referred to in (i) above undertaken by the Company in good faith and without
unduly causing the deferral of payment of the unpaid balance of the Purchase
Price owing to the Member Transferee.
E-1
<PAGE> 48
EXHIBIT F
FAIR VALUE AND PAYMENT FOR
A DISSOCIATED MEMBER'S DISTRIBUTIONAL INTEREST
In the case of a Dissociated Member who has withdrawn pursuant to Section 8.1 of
this Agreement, if such Person has indicated clearly and unequivocally in his or
her notice of withdrawal that he or she elects to have the Company purchase his
or her Distributional Interest as provided for in this Exhibit F, the following
shall apply.
The price to be paid for such Distributional Interest shall be the greater of
(i) the amount of the Dissociated Member's Capital Account as of the date of
Dissociation or (ii) the Dissociated Member's actual or pro-forma capital
account calculation as described and set forth in Section 8.1(j)(4). The amount
so determined as above provided shall be herein referred to as the "Purchase
Price."
The Purchase Price shall be paid at such time, in full or in installments, as
the Company and the Dissociated Member shall, each acting in good faith,
mutually agree within a reasonable period of time after the Purchase Price has
been determined, not to exceed fully amortizable quarterly payments not to
exceed two (2) years in total from the date of the Dissociation unless otherwise
mutually agreed.
Any amount of the Purchase Price that is paid in installments shall be evidenced
by the promissory note of the Company which shall bear interest at such rate as
is mutually agreed between the Dissociated Member and the Company, each acting
in good faith, or if the parties cannot agree on such interest rate, then at the
current prime rate being charged by the Company's commercial lender, or, if
none, then by such commercial banking institution as the Company may reasonably
designate. Such promissory note shall be subordinated, without affecting any
payments due thereon, to (i) any indebtedness of the Company then existing to
the Company's commercial lender if and to the extent that such subordination is
required to prevent such commercial lender if a lender other than a Member from
calling due such indebtedness, if entitled to do so, under the terms of any
applicable loan documentation, and (ii) any refinancing of any such indebtedness
referred to in (i) above undertaken by the Company in good faith and without
unduly causing the deferral of payment of the unpaid balance of the Purchase
Price owing to the Dissociated Member.
F-1
<PAGE> 1
EXHIBIT 10 (ww)
LOAN AND SECURITY AGREEMENT BETWEEN
CDW CAPITAL CORP. AND
CDW LEASING, L.L.P.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of this
27th day of April, 1999, by and between CDW CAPITAL CORP., an Illinois
corporation ("CDWCC"), with its principal place of business at 200 North
Milwaukee Avenue, Vernon Hills, Illinois 60061 and CDW LEASING, LLC, an Illinois
limited liability company ("Borrower"), with its principal place of business at
200 North Milwaukee Avenue, Vernon Hills, Illinois 60061.
WHEREAS, Borrower has requested, and CDWCC has agreed to provide a
secured revolving credit facility to Borrower in the aggregate principal amount
not to exceed the sum of Ten Million and No/100 Dollars ($10,000,000.00) (the
"Loan") to be made in one or more Advances (as hereinafter defined); and
WHEREAS, the purpose of the Loan is to enable Borrower to finance the
purchase of certain equipment and enter into leases with end users for such
equipment; and
WHEREAS, CDWCC is prepared to make such Loan on the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, and for other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS AND TERMS; INCORPORATION
1.1 The following words, terms and/or phrases shall have the meanings
set forth thereafter and such meanings shall be applicable to the singular and
plural form thereof, giving effect to the numerical difference; whenever the
context so requires, the use of "it" in reference to Borrower shall mean
Borrower as identified at the beginning of this Agreement;
A. "Advance": means an advance, in minimum amounts of
$25,000.00.
B. "Book Value": means the remaining gross investment in the
Eligible Leases less unearned income plus the present value of any residual.
C. "Borrower's Liabilities": all obligations and liabilities
of Borrower to CDWCC (including without limitation all debts, claims, and
indebtedness) whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Agreement or the "Other Agreements" (hereinafter
defined) or operation of law or otherwise.
<PAGE> 2
D. "Charges": all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality, division, agency,
body or department thereof) taxes, levies, assessments, charges, liens, claims
or encumbrances upon and/or relating to the "Collateral" (as hereinafter
defined), Borrower's Liabilities, Borrower's business, Borrower's ownership
and/or use of any of its assets, and/or Borrower's income and/or gross receipts.
E. "Eligible Leases": all leases, instruments and documents
which have been approved by Borrower consistent with all credit, management and
administrative policies relating thereto.
F. "Indebtedness": (i) indebtedness for borrowed money or for
the deferred purchase price of property or services, (ii) obligations as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, (iii) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) or (ii) above, and (iv) liabilities in
respect of unfunded vested benefits under plans covered by Title IV of the
Employee Retirement Income Security Act of 1974, as the same may be amended and
in effect from time to time.
G. "Obligor": any Person (as hereinafter defined) who is
and/or may become obligated to Borrower under or on account of "Eligible
Leases".
H. "Other Agreements": all agreements, instruments and
documents, including without limitation guaranties, mortgages, deeds of trust,
notes, pledges, powers of attorney, consents, assignments, contracts, notices,
security agreements, leases, financing statements and all other written
materials heretofore, now and/or from time to time hereafter executed by and/or
on behalf of Borrower and delivered to CDWCC.
I. "Persons": any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or government (whether national,
federal, state, county, city, municipal or otherwise - including without
limitation, any instrumentality, division, agency, body or department thereof.)
J. "Subordinated Indebtedness": all indebtedness of Borrower
to its members, which indebtedness has been and remains subordinated in right of
payment to the prior payment in full of the principal of and interest on any and
all indebtedness of Borrower to CDWCC, whether now existing or hereafter
arising.
<PAGE> 3
K. "Total Debt": as of any time the same is to be determined
the aggregate of all liabilities, reserves and any other items which would be
listed as a liability on a balance sheet of Borrower in accordance with
generally accepted accounting principles consistently applied, and in any event
including all indebtedness or liabilities of any other Person which Borrower may
guaranty or otherwise be responsible or liable for (other than the liability
arising out of the endorsement for commercial paper for deposit or collection in
the ordinary course of business), all indebtedness and liabilities secured by
any lien or any security interest on any property or assets of Borrower, whether
or not the same would be classified as a liability on a balance sheet, the
liability of Borrower in respect of banker's acceptance and the aggregate over
the remaining unexpired term of all leases which should have been or must be, in
accordance with generally accepted accounting principles, recorded as capital
leases in respect of which Borrower is liable as lessee.
1.2 Except as otherwise defined in this Agreement or by the Other
Agreements, all words, terms and/or phrases used herein and therein shall be
defined by the applicable definition therefor (if any) in the Uniform Commercial
Code of the State of Illinois.
1.3 The Recitals set forth above and the Exhibits attached hereto are
true and correct and are incorporated into this Agreement by this reference as
if they were fully set forth herein.
2. LOANS
2.1 Note. The Loan made by CDWCC to Borrower pursuant to this Agreement
shall be evidenced by a revolving line of credit note (which note may be
modified, renewed and/or extended), substantially in the form of Exhibit A
attached hereto, or other instruments issued or made by Borrower to CDWCC.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to CDWCC in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to CDWCC on the maturity
date(s) described in any such note(s) (as the same may be amended or renewed)
and all costs, fees and expenses payable hereunder or under the Other
Agreements, shall be payable by Borrower to CDWCC on demand, in either case at
CDWCC's principal place of business or such other place as CDWCC shall specify
in writing to Borrower.
2.2 Single Obligation. All of Borrower's Liabilities shall constitute
one loan secured by CDWCC's security interest in the Collateral and by all other
security interests, liens, claims and encumbrances heretofore, now and/or from
time to time hereafter granted by Borrower to CDWCC.
2.3 Continuing Warranty and Representation. The Loan made by CDWCC to
Borrower pursuant to this Agreement or the Other Agreements shall constitute an
automatic warranty and representation by Borrower to CDWCC that there does not
then exist an "Event of Default" (as hereinafter defined) or any event or
condition which with notice, lapse of time and/or the making of such loan would
constitute an Event of Default.
<PAGE> 4
2.4 Term of Agreement. This Agreement shall be in effect until all of
Borrower's Liabilities have been paid in full and any and all commitments of
CDWCC to make loans have terminated.
2.5 Borrowing Base Certificate. Provided that an Event of Default does
not then exist or would not then be created thereby or any event which with
notice or lapse of time or both would constitute an Event of Default does not
then exist, CDWCC, for such period of time as this Agreement shall be in effect,
shall loan to Borrower an amount (the "Borrowing Base") equal to one hundred
three percent (103%) of the Book Value (which includes equipment, taxes and
shipping) of all Eligible Leases that are scheduled on the initial Borrowing
Base Certificate, in the form attached hereto as Exhibit B, delivered to CDWCC
at Closing, and subsequent Borrowing Base Certificates, in the form attached
hereto as Exhibit B, to be delivered by Borrower to CDWCC by the tenth (10th)
day of each month thereafter. If the Book Value of the Eligible Leases as
indicated on the Borrowing Base Certificate must be one hundred three percent
(103%) of the loan outstanding or the difference between the loan outstanding
and one hundred three percent (103%) of the Book Value of the Eligible Leases
shall be required to be repaid to CDWCC. Upon CDWCC's request therefor, Borrower
shall attach to each Borrowing Base Certificate a true and correct copy of such
leases and other documents relating to the Eligible Leases scheduled thereon.
Borrower's failure to maintain the collateral advance rates set forth in this
Paragraph 5 shall be deemed to be an Event of Default hereunder.
2.6 Loan Advance Requests. On a periodic basis, Borrower shall submit
funding requests (the "Loan Advance Request") to CDWCC. Each Loan Advance
Request shall consist of new Eligible Leases entered into by the Borrower and
various lessees during the most recent previous periods. CDWCC shall advance to
Borrower the amount requested in each Loan Advance Request subject to the total
loan limit set forth in the Borrowing Base as set forth in Section 2.5 herein.
CDWCC shall advance such funds under each Loan Advance Request in an amount
equal to one hundred three percent (103%) of the Book Value (which includes
equipment, taxes and shipping) of all Eligible Leases that are scheduled on the
Loan Advance Request, in the form attached hereto attached as Exhibit C,
delivered to CDWCC at the time of each periodic Loan Advance Request. All Loan
Advance Requests are subject to the Borrowing Base limitations set forth in
Section 2.5 herein.
2.7 Termination of Lending Obligations. CDWCC's commitment to loan
funds hereunder shall expire on the earlier of (i) the date on which CDWCC
demands repayment of Borrower's Liabilities under the terms of any note given by
Borrower to CDWCC, or (ii) the occurrence of an Event of Default pursuant to
Section 6 hereof.
<PAGE> 5
3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to CDWCC of Borrower's Liabilities and
the prompt, full and faithful performance by Borrower of all of the provisions
to be kept, observed or performed by Borrower under this Agreement and/or the
Other Agreements, Borrower grants to CDWCC a security interest in and to, and
collaterally assigns to CDWCC, all of Borrower's property, wherever located,
whether now or hereafter existing, owned, licensed, leased (to the extent of
Borrower's ownership interest therein), arising and/or acquired, including
without limitation all of Borrower's: goods, chattels and intangibles now owned
or hereafter acquired, including, without limitation, all present and future
accounts receivable, all inventory now owned or hereafter acquired, chattel
paper, general tangibles, all office furniture and fixtures, office machines,
all equipment now owned or hereafter acquired, including data processing,
computer and telecommunication systems, all other tangible property now owned or
hereafter acquired, and all proceeds of the foregoing collateral, all other
goods, machinery, equipment, tools and dies, accounts receivable, general
intangibles, fixtures, leases, deposits, customer's lists, routes, patents and
patent applications, trade marks and trade names, franchises, licenses,
insurance policies, return insurance premiums, inventory, raw materials, work in
process, finished goods, products of goods, returned and repossessed goods,
documents, instruments and chattel paper now owned or hereafter acquired by
Borrower, by way of addition, accession, substitution, renewal or replacement
and the proceeds of any sale, exchange, collection or other disposition of all
inventory, raw materials, work in process, finished goods, returned and
repossessed goods, accounts receivable contract rights and chattel paper (herein
collectively called the "Collateral"), and all proceeds and products of the
Collateral of every kind and description, including insurance proceeds.
3.2 Borrower shall execute and deliver to CDWCC, at the request of
CDWCC, all agreements, instruments and documents that CDWCC reasonably may
request, in form and substance acceptable to CDWCC, to perfect and maintain
perfected CDWCC's security interest in the Collateral and to consummate the
transactions contemplated in or by this Agreement and the Other Agreements.
Borrower agrees that a carbon, photographic or photostatic copy, or other
reproduction, of this Agreement or of any financing statement, shall be
sufficient as a financing statement.
3.3 CDWCC shall have the right, at any time during Borrower's usual
business hours, on a monthly basis, upon reasonable notice to Borrower of not
less than two (2) business days, to conduct a field collateral audit which shall
consist of inspecting the Collateral and all related records (and the premises
upon which it is located), and to verify the amount and condition or any other
matter relating to the Collateral. The cost of all field collateral audits shall
be borne by Borrower.
<PAGE> 6
3.4 Borrower warrants and represents to and covenants with CDWCC that:
(a) CDWCC's security interest in the Collateral is now and at all times
hereafter shall be perfected and have a first priority; (b) the office and/or
locations where Borrower keeps the Collateral are specified at the end of this
Paragraph and Borrower shall not remove such Collateral therefrom and shall not
keep any of such Collateral at any other office or location unless Borrower
gives CDWCC written notice thereof at least thirty (30) days prior thereto and
the same is within the continental United States of America; and (c) the
addresses specified at the end of this Paragraph include and designate
Borrower's chief executive office, chief place of business and other offices and
places of business, including inventory locations, and are Borrower's sole
offices and places of business. Locations of Collateral, Borrower's principal
place of business and all other offices and places of business: 200 N. Milwaukee
Avenue, Vernon Hills, Illinois 60061; and 7145 South West Varns Street,
Portland, Oregon 97223.
3.5 At the request of CDWCC, Borrower shall receive, as the sole and
exclusive property of CDWCC and as trustee for CDWCC, all monies, checks, notes,
drafts and all other payment for and/or proceeds of Collateral which come into
the possession or under the control of Borrower and promptly upon receipt
thereof, Borrower shall remit the same (or cause the same to be remitted), in
kind, to CDWCC or at CDWCC's direction.
3.6 Upon demand or an Event of Default or event or condition which with
notice of lapse of time would constitute an Event of Default, CDWCC may take
control of, in any manner, and may endorse Borrower's name to any of the items
of payment or proceeds described in Paragraph 3.5 above and, pursuant to the
provisions of this Agreement, CDWCC shall apply the same to and on account of
Borrower's Liabilities.
3.7 CDWCC, at its option, may at any time or times hereafter, but shall
be under no obligation to, pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against the
Collateral.
3.8 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from CDWCC to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of CDWCC or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by CDWCC to or
set off by CDWCC against Borrower's Liabilities hereunder.
3.9 Upon CDWCC's election and only after reasonable notice, Borrower
shall instruct the Obligors of its accounts to make payments directly to a lock
box or cash collateral account maintained by CDWCC in Borrower's name. All such
collections shall be CDWCC's property to be applied against Borrower's
Liabilities, at CDWCC's option, and not Borrower's property. CDWCC may endorse
Borrower's name to any of the items of payment or proceeds described herein.
CDWCC shall notify Borrower, within three (3) business days after its receipt of
any payment, of the payment amount, lessee's name, date of receipt and any
instructions, invoices or correspondence accompanying such payment.
<PAGE> 7
4. ELIGIBLE LEASES
4.1 With respect to Eligible Leases, applying a standard of
reasonableness and good faith, except as otherwise disclosed by Borrower to
CDWCC in writing, Borrower warrants and represents to and covenants with CDWCC
that: (a) they are genuine, in all respects what they purport to be and are not
evidenced by a judgment; (b) they represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in such leases
and other documents delivered to CDWCC with respect thereto; (c) the amounts
thereof, which may be shown on any Borrowing Base Certificate and/or all
invoices and statements delivered to CDWCC with respect thereto, are actually
and absolutely owing to Borrower and are not contingent for any reason; (d)
Borrower knows of no basis for any set offs, counterclaims or disputes existing
or asserted with respect thereto and Borrower has not made any agreement with
any Obligor thereof for any deduction therefrom; (e) Borrower knows of no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder from the amount thereof,
which may be shown on any Borrowing Base Certificate and on all leases and
statements delivered to CDWCC with respect thereto; (f) to the best of
Borrower's knowledge, all Obligors thereof have the capacity to contract and are
solvent; (g) the services furnished and/or goods sold giving rise thereto are
not subject to any lien, claim, encumbrance or security interest except that of
CDWCC; (h) Borrower has no knowledge of any fact or circumstance which would
impair the validity or collectability thereof; and (i) to the best of Borrower's
knowledge, there are no proceedings or actions which are threatened or pending
against any Obligor thereof which might result in any material adverse change in
its financial condition. The representations and warranties set forth herein are
qualified and limited to the extent of applicable bankruptcy, insolvency,
reorganization of other laws of general application relating to or affecting the
rights of creditors and to the extent enforceability may be limited by rules of
law governing specific performance, injunctive relief or other equitable
remedies.
4.2 At any time or times hereafter, any of CDWCC's officers, employees
or agents shall have the right, in CDWCC's name or in the name of a nominee of
CDWCC, to verify the validity, amount or any other matter relating to any
Eligible Leases by mail, telephone, telegraph or otherwise. All costs, fees and
expenses relating thereto incurred by CDWCC (or for which CDWCC becomes
obligated) shall be part of Borrower's Liabilities, payable by Borrower to CDWCC
on demand.
4.3 Unless CDWCC notifies Borrower in writing that CDWCC suspends any
one or more of the following requirements, Borrower shall: (a) promptly upon
Borrower's learning thereof, inform CDWCC, in writing, of any material delay in
Borrower's performance of any of its obligations to any Obligor and of any
assertion of any material claims, offsets or counterclaims by any Obligor and of
any material allowances, credits and/or other monies granted by Borrower to any
Obligor; and (b) not permit or agree to any extension, compromise or settlement
with respect to Eligible Leases except in the ordinary course of business.
<PAGE> 8
4.4 Upon an Event of Default hereunder, CDWCC shall have the right, at
its option, without notice thereof to Borrower: (a) to notify any or all
Obligors that the Eligible Leases and Collateral have been assigned to CDWCC and
CDWCC has a security interest therein; (b) to direct such Obligors to make all
payments due from them to Borrower upon the Eligible Leases and Collateral
directly to CDWCC; and (c) to enforce payment of and collect, by legal
proceedings or otherwise, the Eligible Leases and Collateral in the name of
CDWCC and Borrower.
4.5 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints CDWCC (and all Persons designated by CDWCC) as Borrower's true and
lawful attorney (and agent-in-fact), with power, upon an Event of Default or
event or condition which with notice or lapse of time would constitute an Event
of Default, without notice to Borrower and in Borrower's or CDWCC's name: (a) to
enforce payment of the Eligible Leases by legal proceedings or otherwise; (b) to
exercise all of Borrower's rights and remedies with respect to the collection of
the Eligible Leases; (c) to settle, adjust, compromise, discharge, release,
extend or renew the Eligible Leases; (d) to settle, adjust or compromise any
legal proceedings brought to collect the Eligible Leases; (e) to sell or assign
the Eligible Leases upon such terms, for such amounts and at such time or times
as CDWCC deems advisable; (f) to prepare, file and sign Borrower's name on any
Notice of Lien, Assignment or Satisfaction of Lien or similar document in
connection with the Eligible Leases and Special Collateral; or (g) to prepare,
file and sign Borrower's name on any Proof of Claim in Bankruptcy or similar
document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS: GENERAL
5.1 Borrower warrants and represents to and covenants with CDWCC that:
(a) Borrower is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Illinois,
with full and adequate power to carry on and conduct its business as presently
conducted, and is duly licensed or qualified in all foreign jurisdictions
wherein the nature of its activities require such qualification or licensing;
(b) Borrower has obtained all licenses, permits and the like
required by any jurisdiction where Borrower currently conducts its business;
(c) Borrower has the right, power and capacity and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and Other Agreements and all necessary and appropriate action has been
taken on the part of Borrower to authorize the execution and delivery of this
Agreement and the Other Agreements;
(d) the execution, delivery and/or performance by Borrower of
this Agreement and Other Agreements shall not, by the lapse of time, the giving
of notice or otherwise, (i) constitute a violation of any applicable law or a
breach of any provision contained in Borrower's Articles of Organization, or
similar document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound or (ii)
contravene or conflict with any provision of any law, statute or regulation or
any judgment, decree or order;
<PAGE> 9
(e) that there is no litigation or governmental proceeding
pending or to the knowledge of Borrower threatened, against Borrower, which, if
adversely determined, would result in any material adverse change in the
financial condition or properties, business or operations of Borrower;
(f) Borrower has duly filed all applicable income or other tax
returns (including extensions) and has paid all income or other taxes when due.
There is no controversy or objection pending, or to the knowledge of Borrower
threatened in respect of any tax returns of Borrower;
(g) Borrower is and shall continue to be solely responsible to
(i) properly complete and file on a timely basis and in correct form all
material tax returns (federal, state, county, local and other, excise,
franchise, payroll, capital stock, intangible, sales and use, service,
employment, property and, without limitation by specific enumeration of the
foregoing, all other material tax returns of every kind and nature) which have
heretofore been required or are required to be filed by Borrower and which
relate to tax liabilities of Borrower and (ii) pay, on a timely basis, all taxes
reflected on such tax returns, including all deficiency assessments, additions
to tax, penalties and interest related thereto;
(h) Borrower is now and at all times hereafter shall be
solvent and generally paying its debts as they mature and Borrower now owns and
shall at all times hereinafter own property which, at a fair valuation, is
greater than the sum of its debts;
(i)Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statute, regulation or
ordinance, in any respect materially and adversely affecting its business,
property, assets, operations or condition, financial or otherwise; and
(j) Borrower is not in default with respect to any indenture,
loan agreement, mortgage, deed or other similar agreement relating to the
borrowing of monies to which it is a party or by which it is bound.
5.2 Borrower warrants and represents to and covenants with CDWCC that
Borrower shall not, without CDWCC's prior written consent thereto, which consent
shall not be unreasonably withheld:
(a) grant a security interest in, assign, sell or transfer any
of the Collateral to any Person or permit, grant or suffer a lien, claim or
encumbrance upon any of the Collateral or upon Borrower's assets, excluding
liens, claims or encumbrances suffered by a lessee;
(b) enter into any transaction not in the ordinary course of
business which materially and adversely affects Borrower's ability to repay
Borrower's Liabilities or Indebtedness, or a material portion of the Collateral;
<PAGE> 10
(c) other than as specifically permitted in or contemplated by
this Agreement, encumber, pledge, mortgage, sell, lease or otherwise dispose of
or transfer, whether by sale, merger, consolidation or otherwise, any of
Borrower's assets including the Collateral;
(d) incur indebtedness, except renewals or extensions of
existing Indebtedness and interest thereon, and except Indebtedness that is
unsecured and is to Persons who execute and deliver to CDWCC in form and
substance acceptable to CDWCC and its counsel subordination agreements
subordinating their claims against Borrower therefor to the payment of
Borrower's Liabilities;
(e) make any acquisition or divestiture of a company or
business of any kind or nature for an aggregate amount in excess of Twenty-five
Thousand and No/100 Dollars ($25,000.00) within any fiscal year of Borrower;
(f) distribute income in excess of the amounts required to
satisfy that portion of the current income tax obligations of the members of
Borrower or which arise as a result of the election by the Borrower to be taxed
as a partnership under the Internal Revenue Code, if applicable;
(g) make or have outstanding any new investments (whether
through purchase of stocks or obligations or otherwise) in, or loans or advances
to, any other person, firm or corporation, or acquire all or any substantial
part of the assets or business of any other person, firm or corporation;
(h) Issue o r distribute additional shares or options to
purchase the capital stock; or
(i) make any loan or credit facility available to any Person,
excluding lease transactions which may be characterized as a loan.
5.3 Borrower warrants and represents to and covenants with CDWCC that:
no condition, circumstance, event, agreement, document, instrument, restriction,
litigation or proceeding (or threatened litigation or proceeding or basis
therefore) exists wherein there is a reasonable likelihood to (i) adversely
affect the validity or priority of the liens and security interest granted to
CDWCC under the Other Agreements; (ii) materially adversely affect the ability
of Borrower to perform its obligations under the Other Agreements; (iii)
constitute an Event of Default under any of the Other Agreements; or (iv)
constitute such an Event of Default with the giving of notice or lapse of time
or both.
<PAGE> 11
5.4 Borrower covenants with CDWCC that Borrower shall furnish to CDWCC:
(a) as soon as possible but not later than ninety (90) days after the close of
each fiscal year of Borrower, annual audited financial statements of Borrower;
(b) as soon as available but not later than thirty (30) days after the end of
each quarter hereafter, financial statements of Borrower certified by Borrower
to be prepared in accordance with generally accepted accounting principles and
to present fairly the financial position and results of operations of Borrower
for such period including aged accounts receivable certified as true and
complete by an officer of the Borrower; and (c) such other data and information
(financial and otherwise) as CDWCC, from time to time, may request.
5.5 Borrower covenants with CDWCC that it will not make any payment on
account of any Subordinated Indebtedness except interest and ordinary operating
expenses without the prior written consent of CDWCC, which consent shall not be
unreasonably withheld.
5.6 Borrower covenants with CDWCC that it warrants and represents to
and covenants with CDWCC that this Agreement and all financial statements,
schedules, certificates, confirmations, agreements, contracts, and other
materials submitted to CDWCC in connection with or in furtherance of this
Agreement by or on behalf of Borrower fully and freely state the matters with
which they purport to deal, and neither misstate any material fact nor,
separately or in the aggregate fail to state any material fact necessary to make
the statements made not misleading.
5.7 Borrower warrants and represents to and covenants with CDWCC that
the Loan made pursuant to the terms of this Agreement and the Other Agreements,
including interest rate, fees and charges as contemplated hereby, is a business
loan within the purview of 815 ILCS 205 14, the Loan is an exempted transaction
under the Truth in Lending Act, 12 U.S.C. 1601 et seq.; and the Loan does not
and when disbursed shall not, violate the provisions of the Illinois usury laws,
any consumer credit laws or the usury laws of any state which may have
jurisdiction over this transaction, Borrower or any property securing the Loan.
5.8 Borrower covenants with CDWCC that it will allow CDWCC access to
its books and records, as CDWCC may reasonably request.
5.9 Borrower covenants with CDWCC that immediately after the
commencement thereof, it will give notice to CDWCC in writing of all actions,
suits and proceedings before any court or governmental department, commission,
board or other administrative agency which may have a material effect on the
operations of Borrower.
5.10 Borrower represents and warrants to CDWCC that Borrower does not
have any obligation to pay any Person in respect of any finder's, brokers or
similar fee in connection with the Loan or this Agreement.
<PAGE> 12
5.11 Borrower represents and warrants to CDWCC that neither Borrower
nor any other Person employed by Borrower has ever used, generated, processed,
stored, disposed of, released or discharges any Hazardous Materials in, on,
under or about any real property (the "Real Property") heretofore, presently or
hereafter leased or owned by Borrower or transported any Hazardous Material to
or from such locations. Borrower does not have any knowledge of other
contamination or non-complying conditions or use of Hazardous Material on the
Real Property or any property now or hereafter owned or used by Borrower. For
purposes of this Agreement, the term "Hazardous Material"means petroleum
products, asbestos, and any other hazardous or toxic substance, material or
waste, which is or becomes regulated by any local governmental authority, the
State or Commonwealth in which the Real Property is located, or the United
States government, whether originating from the Real Property, or migrating,
flowing, percolating, diffusing or in any way moving onto or under the Real
Property. Borrower agrees to indemnify and hold CDWCC harmless from and against
all liabilities, claims, actions, foreseeable and unforeseeable consequential
damages, costs and expenses (including sums paid in settlement of claims and all
consultant, expert and legal fees and expenses of CDWCC's counsel) or loss
directly or indirectly arising out of or resulting from any Hazardous Material.
5.12 The representations, warranties and covenants set forth in this
Section 5 shall survive until all of Borrower's Liabilitie have been fully
satisfied.
For purposes of this Agreement, unless otherwise specified, all
accounting terms used herein shall be interpreted, all accounting determinations
and computations hereunder or thereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared in accordance
with, those generally accepted accounting principles applied on a consistent
basis in the preparation of the financial statements referenced to herein.
6. DEFAULT
6.1 The occurrence of any one of the following events shall constitute
a default ("Event of Default") by Borrower under this Agreement:
(a) if Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, warranty or representation contained in this
Agreement or in the Other Agreements, which is required to be performed, kept or
observed by Borrower; provided, however, Borrower shall have a period not to
exceed thirty (30) days after written notice of said failure of performance or
observance to cure the same;
(b) if Borrower fails to pay any of Borrower's Liabilities within ten
(10) business days of the date when due;
(c) subject to a good faith dispute and the Borrower's ability to
reasonably contest such matter, if the Collateral or any other of Borrower's
assets are attached, seized, subjected to a writ of distress warrant, or are
levied upon, or become subject to any lien, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors;
<PAGE> 13
(d) if Borrower becomes insolvent or generally fails to pay, or admits
in writing its inability to pay debts as they become due, if a petition under
title 11, United States Code or any similar law or regulation shall be filed by
or against Borrower or if Borrower shall make an assignment for the benefit of
its creditors or if any cause or proceeding is filed by or against Borrower for
its dissolution of liquidation, or if Borrower is enjoined, restrained or in any
way prevented by court order from conducting all or any material part of its
business affairs;
(e) subject to a good faith dispute and the Borrower's ability to
reasonably contest such matter, if a notice of lien, levy or assessment is filed
of record or given to Borrower with respect to all or any of Borrower's assets
by any federal, state or local department or agency and such lien, levy or
assessment is not cured to the reasonable satisfaction of CDWCC within thirty
(30) days of the date of such notice;
(f) if a contribution failure occurs with respect to any pension plan
maintained by Borrower or any corporation, trades or business that is, along
with Borrower, a member of a controlled group of corporations or controlled
group of tracks or businesses (as described in Section 414(b) and (c) of the
Internal Revenue Code of 1986, as amended, or Section 4001, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") sufficient to give
rise to a lien under Section 302(f) of ERISA;
(g) subject to a good faith dispute and the Borrower's ability to
reasonably contest such matter, if Borrower is in default in the payment of any
obligations, indebtedness or other liabilities to any third parties and such
Event of Default is declared and is not cured within thirty (30) days;
(h) the appointment of a conservator for all or any portion of
Borrower's assets;
(i) the occurrence of a default or Event of Default under any
agreement, instrument and/or document executed and delivered by any person or
entity to CDWCC pursuant to which such person or entity has guaranteed to CDWCC
the payment or collection of Borrower's Liabilities and/or has granted to CDWCC
a security interest or lien in and to some or all of such person's or entity's
real and/or personal property to secure the payment of Borrower's Liabilities;
or
(j) the occurrence of a default or an Event of Default under any of the
Other Agreements.
6.2 All of CDWCC's rights and remedies under this Agreement and the
Other Agreements are cumulative and nonexclusive.
6.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 6.1, without notice by CDWCC to or demand by CDWCC of
Borrower, CDWCC shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by CDWCC to or demand by CDWCC of Borrower, Borrower's Liabilities shall
be due and payable, forthwith.
<PAGE> 14
6.4 Upon an Event of Default, CDWCC, in its sole and absolute
discretion, may exercise any one or more of the rights and remedies accruing to
a secured party under the Uniform Commercial Code of the relevant state and any
other applicable law upon default by a debtor.
6.5 Upon an Event of Default, Borrower, immediately upon demand by
CDWCC, shall assemble the Collateral and make it available to CDWCC at a place
or places to be designated by CDWCC which is reasonably convenient to CDWCC and
Borrower. Borrower recognizes that in the event Borrower fails to perform,
observe or discharge any of its obligations or liabilities under this Agreement
or the Other Agreements, no remedy of law will provide adequate relief to CDWCC,
and agrees that CDWCC shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
6.6 Any notice required to be given by CDWCC of a sale, lease, other
disposition of the Collateral or any other intended action by CDWCC, deposited
in the United States mail, postage prepaid and duly addressed to Borrower at the
address specified at the beginning of this Agreement not less than five (5) days
prior to such proposed action, shall constitute commercially reasonable and fair
notice to Borrower thereof.
6.7 Upon an Event of Default, Borrower agrees that CDWCC may, if CDWCC
deems it reasonable, postpone or adjourn any such sale of the Collateral from
time to time by an announcement at the time and place of sale or by announcement
at the time and place of such postponed or adjourned sale, without being
required to give a new notice of sale. Borrower agrees that CDWCC has no
obligation to preserve rights against prior parties to the Collateral.
7. NOTICES.
Except as otherwise provided in this Agreement, any and all notices,
consents, waivers, directions, requests or other instruments or communications
provided for under this Agreement and the Other Agreements shall be in writing,
signed by the party giving the same, and shall be deemed properly given only if
delivered in person, or if sent by registered or certified U.S. Mail, postage
prepaid, or a national express courier, freight charges paid, and addressed as
follows:
If to CDWCC: CDW Capital Corp.
200 North Milwaukee Avenue
Vernon Hills, Illinois 60061
Attn: Mr. Harry J. Harczak, Jr.
If to Borrower: CDW Leasing, LLC
200 North Milwaukee Avenue
Vernon Hills, Illinois 60061
Attn: Mr. Daniel F. Callen
<PAGE> 15
Any notice so given shall be deemed to have been received as of the
second (2nd) business day after it was mailed or sent, provided that the notice
is actually received in due course. Any such communication sent by telegram
shall be deemed properly given when received by the person to whom it is sent.
Any such communication sent by fax or other means of electronic transmission
shall not be deemed to have been delivered in person hereunder. Any party may,
by written notice to the other, specify any other address within the United
States for the receipt of such instructions or communications.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by CDWCC on account of
Borrower's Liabilities and Borrower agrees that CDWCC shall have the continuing
exclusive right to apply and reapply any and all such payments in such manner as
CDWCC may deem advisable, notwithstanding any entry by CDWCC upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to CDWCC that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from the time of Borrower's execution of this
Agreement to the end of the original term and each renewal term hereof. All of
Borrower's warranties, representations, undertakings, and covenants contained in
this Agreement or the Other Agreements shall survive until such time as
Borrower's Liabilities to CDWCC have been paid in full.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered hereby. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
CDWCC. Except for the provisions of Section 2 hereof which shall terminate as
provided in paragraph 2.6, this Agreement shall continue in full force and
effect so long as any portion or component of Borrower's Liabilities shall be
outstanding. Should a claim ("Recovery Claim") be made upon CDWCC at any time
for recovery of any amount received by CDWCC in payment of Borrower's
Liabilities (whether received from Borrower or otherwise) and should CDWCC repay
all or part of said amount by reason of (1) any judgment, decree or order of any
court or administrative body having jurisdiction over CDWCC or any of its
property; or (2) any settlement or compromise of any such Recovery Claim
effected by CDWCC with the claimant (including Borrower), this Agreement and the
security interests granted CDWCC hereunder shall continue in effect with respect
to the amount so repaid to the same extent as if such amount had never
originally been received by CDWCC, notwithstanding any prior termination of this
Agreement, the return of this Agreement to Borrower, or the cancellation of any
notice or other instrument evidencing Borrower's Liabilities. Borrower may not
sell, assign or transfer this Agreement, or the Other Agreements or any portion
thereof.
<PAGE> 16
8.4 CDWCC's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
CDWCC thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by CDWCC of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by CDWCC unless such suspension
or waiver is by an instrument in writing signed by an officer of CDWCC and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and CDWCC. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 To the fullest extent permitted by law, Borrower hereby agrees to
protect, indemnify, defend and save harmless, CDWCC and its directors, officers,
agents and employees from and against any and all liability, expense or damage
of any kind or nature and from any suits, claims, or demands, including legal
fees and expenses on account of any matter or thing or action or failure to act
by CDWCC, whether in suit or not, arising out of this Agreement or in connection
herewith unless such suit, claim or damage is caused solely by any act, omission
or willful malfeasance of CDWCC, its directors, officers, agents and authorized
employees. This indemnity is not intended to excuse CDWCC from performing
hereunder. This obligation on the part of Borrower shall survive the closing of
the Loans, the repayment thereof and any cancellation of this Agreement.
Borrower shall pay, and hold CDWCC harmless from, any and all claims of any
brokers, finders or agents claiming a right to any fees in connection with
arranging the financing contemplated hereby.
8.8 Borrower hereby appoints CDWCC as Borrower's agent and
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any agreement, instrument or
document which CDWCC may deem necessary or advisable to accomplish the purposes
hereof which appointment is irrevocable and coupled with an interest. All monies
paid for the purposes herein, and all costs, fees and expenses paid or incurred
in connection therewith, shall be part of Borrower's Liabilities, payable by
Borrower to CDWCC on demand.
<PAGE> 17
8.9 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or any portion thereof, shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
8.10 Except as otherwise provided in the Other Agreements, if any
provision contained in this Agreement is in conflict with, or inconsistent with
any provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.11 Except as otherwise specifically provided in this Agreement,
Borrower waives any and all notice or demand which Borrower might be entitled to
receive by virtue of any applicable statute of law, and waives presentment,
demand and protest and notice of presentment, protest, default, dishonor,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any and all agreements, instruments or documents at any time held by CDWCC on
which Borrower may in any way be liable.
8.12 Until CDWCC is notified by Borrower to the contrary in writing by
registered or certified mail directed to CDWCC's principal place of business,
the signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to CDWCC by and of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower.
8.13 This Agreement and the Other Agreements shall be governed and
controlled by the laws of the State of Illinois.
8.14 If at any time or times hereafter whether or not Borrower's
Liabilities are outstanding at such time, CDWCC: (a) employs counsel for advice
or other representation (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent CDWCC in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by CDWCC, Borrower or any other Person) in any
way or respect relating to the Collateral, this Agreement, the Other Agreements,
or Borrower's affairs, or (iii) to enforce any rights of CDWCC against Borrower
or any other Person which may be obligated to CDWCC by virtue of this Agreement
or the Other Agreements, including, without limitation, any Obligor; (b) takes
any action with respect to administration of Borrower's Liabilities or to
protect, collect, sell, liquidate or otherwise dispose of the Collateral; and/or
(c) attempts to or enforces any of CDWCC's rights or remedies under this
Agreement or the Other Agreements, including without limitation, CDWCC's rights
or remedies with respect to the Collateral, the reasonable costs and expenses
incurred by CDWCC, including attorney's fees, in any matter or way with respect
to the foregoing, shall be part of Borrower's Liabilities, payable by Borrower
to CDWCC on demand.
<PAGE> 18
8.15 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO CDWCC'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY CDWCC IN ACCORDANCE WITH
THIS PARAGRAPH.
8.16 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first set forth above.
ATTEST: CDW LEASING , LLC
By: __________________________ By: ________________________
Its:__________________________ Its:________________________
ATTEST: CDW CAPITAL CORP.
By: __________________________ By: ________________________
Its:__________________________ Its:________________________
<PAGE> 19
EXHIBIT A
Revolving Credit Note
$10,000,000.00 Vernon Hills, Illinois
________________, 1999
For value received, the undersigned, CDW LEASING, LLC, an Illinois
limited liability company (the "Borrower"), promises to pay to the order of CDW
CAPITAL CORP., an Illinois corporation ("CDWCC"), at its principal office at 200
North Milwaukee Avenue, Vernon Hills, Illinois 60061, the principal sum of Ten
Million and No/100 Dollars ($10,000,000.00), or such lesser amount as may be
advanced to the Borrower, on the day following receipt of written demand for
such payment (the "Demand Date") from the holder hereof in lawful money of the
United States of America.
The Borrower promises to pay interest (computed on the basis of a year
of three hundred sixty (360) days for the actual number of days elapsed) on the
principal amount from time to time remaining unpaid hereon from the date hereof
until the Demand Date at "LIBOR" plus three (3) percentage points, commencing on
__________, 1999, and on the first day of each and every month thereafter until
this Note is paid in full, except that the final payment of principal and all
accrued but unpaid interest, if not sooner paid,
shall be due on the Demand Date.
For purposes of this Note, "LIBOR" means the rate of interest per annum
(rounded upwards, if necessary, to nearest 1/8 of 1%) at which deposits in U.S.
dollars in immediately available funds are being offered to prime banks in the
London interbank market at 11:00 a.m. (London, England time), using the three
(3) month rate, as determined by reference to Bloomberg Financial Market's
terminal screen entitled "Official BBA LIBOR Fixings" or such other information
vendor selected by the holder of this Note for determining British Bankers'
Association Interest Settlement Rates for U.S. Dollar deposits. Such rate shall
be set and adjusted on the first business day of each calendar quarter and shall
remain the same and in effect for said calendar quarterly, subject to the
default rate adjustments as hereinafter set forth.
The Borrower shall have the right to prepay, without premium or
penalty, and to reborrow the revolving credit hereunder in accordance with the
terms and conditions of the Loan and Security Agreement between the Borrower and
CDWCC (the "Loan Agreement") of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement), and continuing until this Note is paid in full, and after maturity,
the principal hereof then outstanding shall bear interest at the rate per annum
determined by adding three percent (3%) to the LIBOR Rate.
<PAGE> 20
Upon the occurrence of an Event of Default, this Note and all other
indebtedness of the Borrower to CDWCC shall immediately become due and payable,
without notice or demand by CDWCC.
All payments and prepayments on account of the indebtedness evidenced
by this Note shall be first applied to costs of collection and any other charges
due hereunder, if any, then on accrued and unpaid interest on the unpaid
principal balance of this Note and the remainder, if any, to said principal
balance.
All loans made by CDWCC against this Note and all payments made by the
Borrower on account of the unpaid principal amount hereof, shall be recorded on
the books and records of the holder hereof and endorsed hereon prior to any
transfer hereof, and the Borrower agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the amount shown as
owing on this Note on the books and records of the holder hereof shall be deemed
prima facie correct.
This Note and any and all other liabilities and obligations of Borrower
to CDWCC, howsoever created, arising or evidenced, whether now or hereafter
existing, are secured, inter alia by the Loan Agreement, and all other documents
and instruments evidencing or securing the loan evidenced by this Note are
hereinafter collectively referred to as the "Loan Documents".
This Note has been executed and delivered in Vernon Hills, Illinois and
shall be construed in accordance with, and governed by, the laws of the State of
Illinois.
In the event one or more of the provisions contained in this Note shall
for any reason be held to be invalid, illegal or unenforceable in any respect by
a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note, and this
Note shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
The Borrower hereby irrevocably waives any right to trial by jury in
any action, suit, counterclaim or proceeding (i) to enforce or defend any rights
under or in connection with this Note, or any amendment, instrument, document or
agreement delivered or which may in the future be delivered in connection
herewith or therewith, or (ii) arising from any dispute or controversy arising
in connection with or related to this Note, or any such amendment, instrument,
document or agreement, and agrees that any such action, suit, counterclaim or
proceeding shall be tried before a court and not before a jury.
The Borrower promises to pay all reasonable costs and expenses
(including reasonable attorneys' fees suffered or incurred by the holder hereof)
in collecting this Note or in enforcing any rights under the Loan Agreement
including any collateral granted thereunder. The Borrower hereby waives notice
of nonpayment, presentment for payment, notice of dishonor, and protest of this
Note.
<PAGE> 21
If payment hereunder becomes due and payable on a Saturday, Sunday or
legal holiday, the due date thereof shall be extended to the next succeeding
business day and interest shall be payable thereon at the interest rate set
forth herein
IN WITNESS WHEREOF, this Note has been duly executed as of the day and
year first set forth above.
ATTEST: CDW LEASING , LLC
By: ______________________ By: _______________________
Its:______________________ Its:_______________________
<PAGE>
EXHIBIT B
Borrowing Base Certificate
Reference is made to that certain Loan and Security Agreement (the
"Agreement") between CDW CAPITAL CORP., an Illinois corporation ("CDWCC"), and
CDW LEASING, LLC, an Illinois limited liability company ("Borrower") dated ,
1999. Capitalized terms used in this Certificate shall have the meanings
assigned to them in such agreement.
The undersigned hereby certifies to CDWCC as follows:
1. He is a Manager of Borrower.
2. The Book Value of all outstanding Eligible Leases is one hundred
three percent (103%) or less of the loan outstanding or the difference
between the loan outstanding and one hundred three percent (103%) of
the Book Value of the Eligible Leases is hereby repaid to CDWCC
concurrent with the presentation of this Borrowing Base Certificate.
3. The Eligible Leases and other contracts, invoices and accompanying
documents are complete and authentic and shall be attached hereto if so
requested by CDWCC and evidence the requested Advance in the amount of
$________, and all signatures thereon are genuine. Such Eligible Leases
arose from bona fide transactions and all amounts represented to be
payable on such leases, as indicated on the respective leases, are in
fact, payable in accordance with the provision set forth therein.
4. The notice will confirm that representations, warranties and
covenants contained in Section 5 of the Agreement are true and correct
and that no Event of Default exists, both as of the date of this
request.
IN WITNESS WHEREOF, the undersigned has executed this Borrowing Base
Certificate as of the ____ day of _____________, 19__.
_____________________(signature)
Name: __________________________
Title:__________________________
<PAGE> 22
EXHIBIT C
Loan Advance Request
Reference is made to that certain Loan and Security Agreement (the
"Agreement") between CDW CAPITAL CORP., an Illinois corporation ("CDWCC"), and
CDW LEASING, LLC, an Illinois limited liability company ("Borrower") dated ,
1999. Capitalized terms used in this Certificate shall have the meanings
assigned to them in such agreement.
The undersigned hereby certifies to CDWCC as follows:
1. He is a Manager of Borrower.
2. Borrower hereby requests an Advance under the Loan in the amount of
$_____.00.
3. The Eligible Leases and other contracts, invoices and related
documents, which are summarized on Schedule 1 attached hereto and made
a part hereof are complete and authentic and evidence the requested
Advance in the amount of $________, and all signatures thereon are
genuine. Such Eligible Leases arose from bona fide transactions and all
amounts represented to be payable on such leases, as indicated on the
respective leases, are in fact, payable in accordance with the
provision set forth therein.
4. The notice will confirm that representations, warranties and
covenants contained in Section 5 of the Agreement are true and correct
and that no Event of Default exists, both as of the date of this
request.
IN WITNESS WHEREOF, the undersigned has executed this Loan Advance
Request as of the ____ day of _____________, 19__.
_____________________(signature)
Name: __________________________
Title:__________________________
<PAGE> 23
SCHEDULE 1 TO LOAN ADVANCE REQUEST
List of Eligible Leases Relating to Attached Loan Advance Request
<PAGE> 1
EXHIBIT 10 (xx)
FIRST AMENDMENT TO 1996, 1997 AND 1998
OFFICER MANAGER BONUS PLAN
This First Amendment to each of the CDW 1996 Officer and Manager Bonus
Plan, CDW 1997 Officer and Manager Bonus Plan and CDW 1998 Officer and
Management Bonus Plan is made as of this 5th day of April, 1999 with effect from
July 23, 1999.
W I T N E S S E T H:
WHEREAS, on December 31 of each of 1996, 1997 and 1998, CDW Computer
Centers, Inc., an Illinois corporation (the "Company"), adopted the CDW 1996
Officer and Manager Bonus Plan, 1997 Officer and Manager Bonus Plan and 1998
Officer and Manager Bonus Plan, respectively (each a "Plan" and, collectively,
the "Plans"), pursuant to which the Company, as designated by the CDW
Compensation and Stock Option Committee (the "Committee"), is authorized to
grant bonuses to management personnel for the year in which the Plan was
implemented;
WHEREAS, the Committee deems it to be in the best interests of the
Company that the Plans be amended as reflected herein; and
WHEREAS, the Committee is vested with the ability to amend the Plan
pursuant to Section 3 thereof.
NOW, THEREFORE, in accordance with the powers vested in the Committee
under the Plans, the Plans shall each be amended as follows:
1. The first sentence of Section 5 shall be deleted in its entirety.
2. The heading in Section 5 shall be restated as follows: "Death,
Disability or Retirement."
3. Section 5 shall be amended by restating the existing subsection (c)
as subsection (d) thereof and by adding the following as the new subsection (c):
"(c) if cessation of employment occurs by reason of the
Retirement (as hereinafter defined) of the Participating
Employee, the options granted to such Participating Employee
shall continue to vest in accordance with their original
vesting schedule and the Participating Employee shall be
entitled to exercise said options as if the Participating
Employee were still employed by the Company."
<PAGE> 2
4. A new subsection 5(e) shall be added as follows::
"(e) "Retirement" for purposes of this Plan shall be defined
as the voluntary termination of employment by the
Participating Employee at any time after attaining age 62 and
provided that said Participating Employee has been
continuously employed by the Company for a period of not less
than ten (10) years at the time of the Participating
Employee's voluntary termination."
5. This Amendment shall be incorporated into and made a part of the
Plan.
6. All terms and provisions of the Plan, except as expressly modified
herein, shall continue in full force and effect, and the parties hereby confirm
each and every one of their obligations under the Plan as amended herein.
7. This Amendment shall be governed by and construed in accordance with
the internal laws of the State of Illinois.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
to the 1996 Officer and Manager Bonus Plan, 1997 Officer and Manager Bonus Plan
and 1998 Officer and Manager Bonus Plan as of this 5th day of April, 1999, in
Vernon Hills, State of Illinois.
Signature Title
--------- -----
____________________ Director and Member of
Michelle L. Collins Compensation and Stock Option
Committee
____________________ Director and Member of
Joseph Levy Jr. Compensation and Stock Option
Committee
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
CDW Capital Corporation
CDW Leasing, L.L.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
dated March 31, 1999 and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,545
<SECURITIES> 59,445
<RECEIVABLES> 187,468
<ALLOWANCES> 3,485
<INVENTORY> 80,463
<CURRENT-ASSETS> 348,760
<PP&E> 48,324
<DEPRECIATION> 10,121
<TOTAL-ASSETS> 391,832
<CURRENT-LIABILITIES> 96,868
<BONDS> 0
0
0
<COMMON> 216
<OTHER-SE> 294,748
<TOTAL-LIABILITY-AND-EQUITY> 391,832
<SALES> 539,406
<TOTAL-REVENUES> 539,406
<CGS> 471,500
<TOTAL-COSTS> 471,500
<OTHER-EXPENSES> 36,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,614
<INCOME-TAX> 12,916
<INCOME-CONTINUING> 19,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,698
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
