-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Utu4r818UR+tUlXKc8LjTLA6IZEaMLVeG1W0V2LtkbGrwoTfSK82EDrV9SAsFx80 ZdaacqlKr4XuyWE3EeBoDw== 0000950147-00-000268.txt : 20000221 0000950147-00-000268.hdr.sgml : 20000221 ACCESSION NUMBER: 0000950147-00-000268 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 33 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROAGE INC /DE/ CENTRAL INDEX KEY: 0000814249 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 860321346 STATE OF INCORPORATION: DE FISCAL YEAR END: 1103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15995 FILM NUMBER: 548880 BUSINESS ADDRESS: STREET 1: 2400 S MICROAGE WY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6023662000 MAIL ADDRESS: STREET 1: 2400 SOUTH MICROAGE WAY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 10-K405 1 ANNUAL REPORT FOR FISCAL YEAR ENDED 10-31-99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1999 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-15995 MICROAGE, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 86-0321346 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2400 South MicroAge Way, Tempe, AZ 85282-1896 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (480) 804-2000 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Per Share ---------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $84.6 million at February 14, 2000, based on the closing market price of the Common Stock on such date, as reported by the Nasdaq Stock Market. The number of shares of the registrant's Common Stock outstanding at February 14, 2000 was 21,728,086. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on March 28, 2000 are incorporated by reference into Part III hereof. PART I ITEM 1. BUSINESS BUSINESS OVERVIEW MicroAge, Inc. ("MicroAge" or the "Company"), was incorporated in the State of Arizona in 1976 and reincorporated in the State of Delaware in 1987. The Company provides information technology services, solutions and products, including products and services that support e-Business via the Internet. The Company maintains a portfolio of information technology companies that deliver technology solutions through ISO 9001-certified, multi-supplier integration services and distributed computing solutions to large organizations and computer resellers worldwide. The Company does business in more than 40 countries and offers more than 50,000 products from more than 500 suppliers, backed by a suite of technical, financial, logistics, and account management services. The Company conducts its business through four wholly-owned entities: MicroAge Technology Services, L.L.C. ("MicroAge Technology Services"), Pinacor, Inc. ("Pinacor"), MicroAge Teleservices, L.L.C. ("MicroAge Teleservices"), and Quality Integration Services, L.L.C. ("Quality Integration Services"). MicroAge Technology Services, Pinacor, MicroAge Teleservices, and Quality Integration Services each have separate management teams, operate autonomously in their respective marketplaces, and contract with MicroAge Headquarters for a limited number of services, such as payroll processing and employee benefits. Unless the context otherwise requires, as used herein, the term the "Company" refers to MicroAge, Inc., its predecessors, subsidiaries, and wholly-owned limited liability companies. The Company's headquarters are located at 2400 South MicroAge Way, Tempe, AZ 85282-1896, and its telephone number is (480) 804-2000. The Company maintains the following web pages on the world wide web: * MicroAge/MicroAge Technology Services: www.microage.com * Pinacor: www.pinacor.com * MicroAge Teleservices: www.microageteleservices.com * Quality Integration Services: www.qis-us.com Certain statements in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; potential fluctuations in quarterly results; risks of declines in inventory values; capital intensive nature of the Company's business; dependence on information systems; dependence on independent shipping companies; rapid technological change; and possible volatility of stock price. Exhibit 99.1 to this Annual Report on Form 10-K, which is attached hereto and incorporated by reference herein, discusses these important factors in greater detail. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. MICROAGE TECHNOLOGY SERVICES GENERAL MicroAge Technology Services provides technology infrastructure services designed to support clients' e-Business and on-going operational needs. MicroAge Technology Services offers professional services, selective outsourcing and 2 technology deployment to help clients use technology effectively in their environments, including Internet-related technology and networks. MicroAge Technology Services serves corporations, institutions, and government agencies through its network of company-owned locations, in addition to owner-managed branches and alliance partners spanning more than 40 countries. BUSINESS STRATEGY MicroAge Technology Services' strategic vision is to be the premier provider of e-Business infrastructure services and technology. To help clients profit from technology in the Internet economy, the company delivers solutions which ensure network reliability, availability, and scalability for e-Business. MicroAge Technology Services' strategic focus is to pursue profit expansion as an aggregator of e-Business services and products. MicroAge Technology Services' profit expansion strategy is developed around three elements: (1) emphasizing Client Focus; (2) deploying e-Business Infrastructure Services; and (3) utilizing Digital Business Design to reduce costs and increase profitability. CLIENT FOCUS Client Focus has two components: stronger relationships with targeted key accounts for enhanced account penetration, and identification and development of prospects consistent with the target profile of high-margin opportunities. In addition, MicroAge Technology Services uses Digital Business Design to develop and deploy alternative, cost-effective technology delivery channels for its broader client base and prospects. E-BUSINESS INFRASTRUCTURE SERVICES MicroAge Technology Services is focused on the addition and expansion of higher-margin e-Business Infrastructure Services to deliver the technology infrastructure required for clients' e-Business and on-going operational needs. Services fall into three categories: Professional Services, Selective Outsourcing, and Technology Deployment. DIGITAL BUSINESS DESIGN Digital Business Design uses automated systems to match available staff resources to MicroAge Technology Services' customer needs. Through Digital Business Design, MicroAge Technology Services is better able to effectively manage its assets, improve its internal processes and procedures to increase profitability, streamline operations, and to control expenses. CORE SERVICE OFFERINGS MicroAge Technology Services meets a wide spectrum of client needs, from event or project-based solutions to comprehensive integrated desktop outsourcing solutions. The unit provides program and project management services and is dedicated to building long-term client relationships by delivering a consistent level of quality information technology services, within the following core service offerings: PROFESSIONAL SERVICES MicroAge Technology Services provides Professional Services which are designed to support clients' use of technology for mission-critical operations, including web-based e-Business. The Professional Services line of business is comprised of the following key areas: Network Management, including design, monitoring and hosting services; Systems Management; Migration Services; Convergence Services; e-Business Services; and Microsoft Technologies Services. In addition, within Professional Services, two dedicated practices, the Microsoft Business Practice and the e-Business Services Practice, operate to deliver specialized technical expertise. MicroAge Technology Services also works with selected companies such as Qwest Communications, Fastlane Technologies, Tivoli Systems and others in order to deliver these services. 3 SELECTIVE OUTSOURCING Selective Outsourcing includes Deskside Services, Asset Management, and Help Desk. Deskside Services include software support; installations, moves, adds, and changes; and problem resolution for total deskside systems support. Asset Management includes technology life cycle processes such as end-user requisition, procurement, maintenance, asset tracking, asset inventory, contract management, and strategic planning. Help Desk supports client technology users with direct phone support for proprietary and shrink-wrapped software, hardware, or network issues. TECHNOLOGY DEPLOYMENT Technology Deployment assists clients in every phase of the information technology procurement process. Drawing on e-Business solutions for technology acquisition and deployment, MicroAge Technology Services works with clients to help them identify their system needs, streamline internal procurement processes, and design, implement, and integrate systems to meet their particular needs. Technology Deployment allows clients to achieve strategic goals by reducing procurement costs and order cycle time, and increasing internal customer satisfaction. PRODUCTS AND SUPPLIERS During the fiscal year ended October 31, 1999, MicroAge Technology Services purchased approximately 50% of its computer product needs, including both hardware and software, from Pinacor. MicroAge and Pinacor are parties to a supply agreement pursuant to which Pinacor supplies products to MicroAge Technology Services. The agreement may be terminated by either party upon 90 days' notice. While MicroAge Technology Services has a choice of distributors from which it can purchase products, given its strong relationship with Pinacor and the stability of product supply, MicroAge Technology Services currently chooses to purchase a considerable amount of its product needs from Pinacor. COMPETITION The markets in which MicroAge Technology Services operates are characterized by intense competition from other systems integrators such as Inacom Corp.; Entex Information Services, Inc.; CompuCom Systems, Inc.; and regional/local value-added resellers. MicroAge Technology Services expects to face further competition from new market entrants and possible alliances between competitors in the future. Certain of MicroAge Technology Services' current and potential competitors have greater financial, technical, marketing, and other resources than MicroAge Technology Services. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than MicroAge Technology Services. The principal competitive factors in the systems integration industry include the breadth and quality of product and service offerings, product availability, pricing, and expertise and size of workforce. MicroAge Technology Services believes it competes favorably with respect to each of these factors. TRADEMARKS AND SERVICE MARKS The Company holds various trademarks and service marks, including, among others, MicroAge(R), The Solution Store(R), The Solution Center(R), Solutions(R), MicroSource(R), and MicroAge 2000(R). All trademarks and service marks are registered, or pending registration, in the United States, and certain trademarks and service marks are registered in various foreign countries. The marks are not otherwise registered with any states; however, the Company also claims common law rights to the marks based on adoption and use. Management believes that the value of the Company's marks is increasing with the development of its business, but that the business of the Company as a whole is not materially dependent on such marks. 4 PINACOR GENERAL Pinacor is a wholesale distributor of information technology products and services with locations in North and South America. Pinacor markets hardware, networking equipment, software products, and related services to more than 25,000 reseller customers in multiple countries. Pinacor targets three principal market sectors: Solutions Integrators, consisting of value-added resellers, systems integrators, network integrators, and application value-added resellers; Vertical Markets, consisting of Apple users, small and medium-sized business, and government resellers; and Strategic Accounts, consisting of direct marketers, independent dealers, owner-operated chains, consumer electronics stores, computer superstores, catalog resellers, Web retailers, mass merchants, office product superstores, software-only stores, and warehouse clubs. As a wholesale distributor, Pinacor markets its products to each of these types of resellers as opposed to marketing directly to end-user customers. Pinacor offers one-stop shopping to its reseller customers by providing access to more than 15,000 products from approximately 150 suppliers, including most of the technology industry's leading hardware manufacturers, networking equipment suppliers, computer telephony suppliers, and software publishers. Pinacor's broad product offerings include: desktop and notebook personal computers, servers, and workstations; enterprise solutions; mass storage devices; CD-ROM and DVD drives; monitors; printers; scanners; digital cameras; modems; networking hubs, routers, and telephone switches; network interface cards; business application software; operating system software; entertainment software; and computer supplies. Pinacor's suppliers include IBM, Apple, Compaq, Hewlett-Packard, Microsoft, Novell, Toshiba, HitachiNSA, Canon, Lexmark, Sony, NEC, Panasonic, and Lucent. Pinacor is focused on providing a broad range of products and services, quick and efficient order fulfillment, and consistent on-time and accurate delivery to its reseller customers. Pinacor believes that its information systems provide a competitive advantage through real-time information access and processing capabilities. These Web-based electronic business information systems, coupled with its leading operations in telesales, credit, customer service, purchasing, technical support, and integrated logistics services, enable Pinacor to provide its reseller customers with superior service and low cost leadership. In addition, to enhance sales and to support its suppliers and reseller customers, Pinacor provides a wide range of value-added services, such as custom order fulfillment, tailored financing programs, systems configuration, marketing programs, and electronic commerce tools for real-time business to business connectivity. BUSINESS STRATEGY Pinacor believes that it has the customer and supplier relationships, the capabilities, and the systems critical for long-term success in the information technology distribution industry. Pinacor's product purchasing volume and customer-focused sales strategy enables it to cost effectively expand its core distribution business by seeking new sales opportunities for information technology products. Pinacor has defined areas of profitable growth within developing product markets, and has developed supporting infrastructure to position Pinacor as a leader in those markets. Pinacor's relationships with large information technology service providers such as MicroAge Technology Services give it the lead in providing procurement services to both large and small integrators. Pinacor is leveraging its logistics and product assembly expertise by offering third-party logistics and assembly services to its suppliers. Pinacor has also expanded its Web-based electronic ordering and procurement systems to create a virtual inventory system for its customers that expands the quantity and variety of products that Pinacor can deliver for its customers. This virtual inventory system, combined with Pinacor's physical distribution capabilities, is the cornerstone for Pinacor's e-business growth and development. DISTRIBUTION SERVICES Pinacor's product orders are fulfilled through distribution centers strategically located throughout the United States and Latin America. Products are delivered in one to three business days to resellers or their end-user customers anywhere in the continental United States. Combined, Pinacor's 5 distribution facilities can distribute products anywhere in the Americas. In conjunction with product ordering and shipment, Pinacor offers various services to end-user customers and resellers, including expedited delivery, vendor direct shipment, custom-labeled shipment, and deferred shipment. Pinacor has relationships with more than 750 on-demand suppliers to quickly procure products outside of its major manufacturing alliances. Pinacor also offers consigned storage and redistribution of customer-owned proprietary products. RESELLERS Resellers operate independently. Pinacor generally does not require minimum purchase levels from its reseller customers. The loss of any single reseller would not have a material adverse impact on the Company. COMPETITION Pinacor operates in a highly competitive environment with other information technology distributors such as Ingram Micro, Inc., Tech Data Corp., and Merisel, Inc., both in the United States and Latin America. The information technology products distribution industry is characterized by intense competition based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, electronic supply chain linkages to resellers and suppliers, ability to tailor specific solutions to customers needs, quality and breadth of product lines and services, availability of technical and product information, and recruitment and retention of resellers. Pinacor believes that it competes favorably with respect to each of these factors. As price points have declined, Pinacor believes that value-added service capabilities (such as integrated logistics services, product configuration, electronic commerce tools, innovative financing programs, and contract warehousing) will become more important competitive factors. Some of Pinacor's current and potential competitors have greater financial, technical, marketing, and other resources than Pinacor. As a result, they may have the potential to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than Pinacor. TRADEMARKS AND SERVICE MARKS Pinacor holds various trademarks and service marks, including, among others, Pinacor(TM), Ecadvantage(TM) EC Media(TM), Ecworksite(TM) Netgenuity(TM), EC Configuration(TM), Infotour(TM), 20/20 Group(TM), EC Document(TM), Powerdisc(TM), and ZData(R). All trademarks and service marks are registered, or pending registration, in the United States, and certain trademarks and service marks are registered in various foreign countries. The marks are not otherwise registered with any states; however, Pinacor also claims common law rights to the marks based on adoption and use. Management believes that the value of Pinacor's marks is increasing with the development of its business, but that the business of Pinacor as a whole is not materially dependent on such marks. PRODUCT STRATEGY Pinacor sells a broad selection of products with a predominant focus on the products of major systems and peripheral manufacturers. Three suppliers of Pinacor each represented more than 10% of total product sales for the year ended October 31, 1999: Compaq, Hewlett-Packard, and IBM. The following table sets forth the percentage of sales of these suppliers' products for the last three fiscal years: 1999 1998 1997 ---- ---- ---- COMPAQ 22% 26% 23% Hewlett-Packard 20% 19% 20% IBM 15% 13% 14% Sales of these three manufacturers' products represented approximately 57%, 58%, and 57% of Pinacor's revenue from product sales during fiscal 1999, fiscal 1998, and fiscal 1997, respectively. Pinacor's agreements with these suppliers 6 generally are renewed periodically and permit termination by the vendor without cause, generally upon 30 to 90 days' notice, depending on the vendor. Pinacor believes that these provisions are standard in the computer reseller industry. In addition, Pinacor's business is dependent upon price and related terms and product availability provided by its key suppliers. During the quarter ended August 1, 1999, the Company announced a change in the Pinacor product sourcing relationship with Compaq Computer Corporation ("Compaq"). The effect of this change is that Pinacor no longer sources certain Compaq products directly from Compaq. See "Product Supply" for a further discussion of Pinacor's relationship with Compaq. Although Pinacor considers its relationships with Hewlett-Packard and IBM to be good, there can be no assurance that these relationships will continue as presently in effect or that changes by one or more of these key suppliers in their terms and conditions, volume discount schedules, or other marketing programs would not adversely affect Pinacor. Termination or nonrenewal of Pinacor's agreements with Hewlett-Packard or IBM would have a material adverse effect on Pinacor's business. Pinacor continually evaluates its product assortment based on technological advances, the market for information technology products, and resellers' requirements related to technological capability, product availability, and marketability. Over the last several years, Pinacor has expanded its product offerings in response to market conditions and has established relationships with new suppliers to distribute, service, and support both high-end, higher-priced enterprise and computer telephony products as well as complementary computer peripheral products and software. These products generally carry higher profit margins than Pinacor's traditional brand name products and have historically been distributed primarily by wholesale distributors or sold directly to end-users by manufacturers. Sales of these products generally require the extension of credit by Pinacor, resulting in increased working capital requirements. PRODUCT SUPPLY The computer reseller industry continues to experience product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply certain products. In addition, certain suppliers have initiated new channels of distribution that increase competition for the available product supply. The backlog of orders for products distributed by Pinacor was approximately $173.6 million on October 31, 1999, compared to approximately $121.8 million on November 1, 1998. Such orders are not necessarily firm because customers may place orders with several computer resellers and will accept products from the first computer reseller to provide delivery. There can be no assurance that suppliers will be able to maintain an adequate supply of products to fulfill all of Pinacor 's customer orders on a timely basis. Although Pinacor has not historically encountered such conditions, the failure to obtain adequate product supplies, if competitors were able to obtain them, could have a material adverse effect on Pinacor's results of operations. During the quarter ended August 1, 1999, the Company announced a change in the Pinacor product sourcing relationship with Compaq. In October, 1999, the Company began sourcing certain Compaq products from other Compaq distributors instead of sourcing directly from Compaq. Compaq has indicated that Pinacor remains an authorized distributor and reseller and will be able to distribute the full range of Compaq products. In addition, Pinacor will continue to order some products directly from Compaq. During the quarter ended August 1, 1999, Compaq sales decreased approximately $75 million, or 20%, when compared to the quarter ended May 2, 1999, and for the quarter ended October 31, 1999, Compaq sales decreased an additional $97 million compared to the quarter ended May 2, 1999. The Company expects a further decline in Compaq revenue as the full impact of the change in the sourcing relationship is realized. In addition to the expected declines in Compaq revenue, the Company believes that sales of other suppliers' products may decrease as customers that purchase Compaq products from other sources move purchases of other products to those sources. This change will have a negative impact on the Company's operating results. 7 SUPPLIER RELATIONSHIPS Because of its quantity purchasing capabilities, Pinacor generally obtains volume discounts from its suppliers, enabling it to sell products to resellers on more favorable terms than the typical reseller could obtain on its own from such suppliers. Historically, Pinacor's agreements included provisions designed to protect Pinacor's inventory risk in the event of price reductions by its suppliers on eligible products in Pinacor's inventory and to permit the return of slow-moving and other products for credit (generally at cost minus a restocking fee). However, suppliers have taken steps to reduce such price protection. Although Pinacor believes that it will be able to manage inventories at levels that minimize the risk of non-protected price decreases, there can be no assurance that losses from price reductions will not be incurred. Such losses could have a material adverse effect on Pinacor's results of operations. Subject to product availability, Pinacor carries inventory at levels that it believes will enable it to meet the anticipated needs of its resellers and end-user customers and, to a lesser extent, to take advantage of certain vendor discounts and promotions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding the impact of supplier incentives on Pinacor's gross profit percentage. Several major suppliers sponsor payment programs with commercial credit companies to facilitate product sales to and through resellers. Such programs generally provide resellers with payment terms averaging 30 days, with certain suppliers subsidizing a portion of the terms. Under these programs, Pinacor generally receives payment for product sales within three to five business days, thus significantly reducing Pinacor's working capital requirements and credit exposure. Pinacor pays the commercial credit companies for reseller terms not subsidized by the suppliers. The amount paid by Pinacor for these programs has increased as suppliers have reduced the amount of reseller purchases that they will subsidize. MICROAGE TELESERVICES GENERAL Since 1994, MicroAge Teleservices has provided call and contact center services to various Fortune 500 companies in the technology, logistics, communications, healthcare, utilities, and consumer products industries. MicroAge Teleservices offers customized solutions designed to meet specific client requirements. With three centers in Tempe, AZ, Las Vegas, NV and Santa Maria, CA, MicroAge Teleservices offers a full range of services to its clients and their customers. BUSINESS STRATEGY MicroAge Teleservices is a committed to delivering quality call and contact center services to each of its clients. Through a management team of seasoned call and contact management veterans, MicroAge Teleservices' experience is utilized every day to ensure that best practices are being implemented and observed in all areas of operation. MicroAge Teleservices' focus on quality and process improvement separates it from competitors. Service and support teams provide world class technical support and customer service to every client. The mission of MicroAge Teleservices is to help clients acquire customers, maintain and extend the customer relationship, and provide technical support services, both by telephone and over the Internet. MicroAge Teleservices accomplishes this mission by offering solutions that improve clients' customer satisfaction, competitive position and profitability. MicroAge Teleservices employs a vertical marketing strategy, and has developed customized solutions to penetrate key industries. COMPETITION Call and contact management services are at the center of a rapidly growing and dramatically changing area of the Information Technology Services market. Recent growth in the industry is closely tied to a paradigm shift that is affecting an increasing number of corporations throughout the world that are investing in technology and processes to better position themselves to maximize 8 customer relationships. These companies will demand services from a growing list of providers with superior call center and customer care capabilities in order to become more customer-centric. Moreover, to deal with increased competitive pressures, larger and more geographically dispersed client bases, and more expansive technology infrastructures, many companies are opting to leverage outsourcing partners' capabilities, people, technology and processes already in place. MicroAge Teleservices competitors include APAC Customer Services, Inc., Centrobe, Convergys Corporation, Sitel Corporation, Sykes Enterprises, Inc., TeleSpectrum Worldwide Inc., TeleTech Holdings, Inc., and West TeleServices Corporation. QUALITY INTEGRATION SERVICES GENERAL Quality Integration Services (QIS) offers custom integration services to customers from its ISO 9001-certified facilities located in Tempe, AZ and Cincinnati, OH. QIS also has an IBM co-location facility in Raleigh, NC. QIS provides a wide spectrum of integration services including systems assembly, including refurbishment, concurrent engineering; design, assembly, and prototype testing; and vendor service upgrades. QIS has the ability for custom integration utilizing any equipment from boxes to modems to hard drives of any OEM. Each integrated system is tested and inspected before delivery to ensure that manufacturer and customer specifications are met. QIS can incorporate unique or highly complex system testing requirements into the integration process. QIS also direct-ships configured systems to end-user customers, allowing resellers to service these customers more profitably by reducing inventory levels, carrying costs, and freight expense, and by freeing up technical staff. The repair, refurbishment, and HotSwap programs offered allow the customer to send in their computers or laptops to receive a working product with their specifications within 24 hours. The Company's long-standing relationships with all major technology manufacturers allows QIS to provide the latest and best technology to clients and to provide consistent integration of multi-vendor solutions. BUSINESS STRATEGY Quality Integration Services provides services to current customers in the following areas: custom integration; channel assembly; contract manufacturing, including full service Kiosk manufacturing; depot services; and network design of computers and related products in an ISO-9001 environment. This will result in total customer satisfaction and will be accomplished through the application of best-in-class processes as follows: * Technical Project Management * Consultation * Systems Process Engineering * Manufacturing Technologies * Management Practices * Associate Development * Teamwork * Continous Improvement QIS' internal organization is structured to focus on the customer. QIS develops monthly forecasts in order to manage work flow and staffing levels at its facilities. This close communication among facilities results in better cost containment and improved service to customers. QIS will continue to develop new business opportunities by providing project management, consulting, systems process engineering, deskside services, and systems administration. CONTRACT MANUFACTURING Currently, QIS does most of its business with MicroAge Technology Services and Pinacor but is expanding into the Contract Manufacturing arena. QIS plans to grow its contract manufacturing business through the addition of targeted clients. Co-location will enhance the cycle time costs in the integration supply chain. QIS is a full-service manufacturer of kiosk system that can be manufactured for any custom needs. This includes complete design, prototype, programming, assembly, installation and on-going support services. Quality Integration Services has the ability and infrastructure to perform contract manufacturing activities. QIS assembles consumer, and industrial electronic products in a high-volume, high-mix environment. In addition to assembly of such products such as circuit boards, QIS deals with personal computers, automotive components, communications and network gear and digital set-up boxes. QIS is a full-service manufacturer of kiosk systems that can be 9 manufactured for any custom needs. This includes complete design, prototype, programming, assembly, installation and on-going support services. EMPLOYEES GENERAL None of the Company's employees are represented by labor unions. The Company considers its employee relations to be good. MICROAGE TECHNOLOGY SERVICES As of October 31, 1999, MicroAge Technology Services employed approximately 2,300 persons, approximately 2,000 of whom were employed at its branch locations. PINACOR As of October 31, 1999, Pinacor employed approximately 1,400 persons. MICROAGE TELESERVICES As of October 31, 1999, MicroAge Teleservices employed approximately 1,000 persons. QUALITY INTEGRATION SERVICES As of October 31, 1999, Quality Integration Services employed approximately 400 persons. GOVERNMENT REGULATION Although the Company is not presently offering or selling franchises, the Company remains subject to a substantial number of state laws regulating franchise operations. In certain cases, statutes and court-created doctrines apply substantive standards to the relationship between franchisor and franchisee, including restrictions on the Company's ability to terminate or refuse to renew a franchise agreement. The Company believes it is in substantial compliance with all such regulations. SEASONALITY Although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special vendor promotions and year-end business purchases. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the executive officers of the Company as of February 17, 2000: EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE POSITION - ---- --- -------- John H. Andrews 43 Executive Vice President; President, MicroAge Teleservices, L.L.C. James H. Domaz 44 Vice President, Corporate Counsel, and Secretary Christopher J. Koziol 39 President and Chief Operating Officer Donald J. Lyons 60 President, Pinacor, Inc. Jeffrey D. McKeever 57 Chairman of the Board and Chief Executive Officer Mark D. Mumford 37 Senior Vice President - Operations, MicroAge Technology Services, L.L.C. Raymond L. Storck 39 Vice President, Controller, Interim Chief Financial Officer and Treasurer Jeffery M. Swanson 46 President, MicroAge Technology Services, L.L.C. Robert W. Zack 37 Vice President - Finance, Pinacor, Inc. 10 JOHN H. ANDREWS has served as President of MicroAge Teleservices, L.L.C. since October 1999, and as Executive Vice President of the Company since February 1998. Mr. Andrews served as President, Logistics Group of the Company from November 1996 to February 1998 and as President, MicroAge Logistics Services, MCCI, from July 1993 to February 1998. He also served as Vice President-Logistics of the Company from December 1995 to November 1996; Vice President-Operations from July 1993 to December 1995; Group Vice President, Operations from January 1993 to July 1993; Vice President and Chief Financial Officer from June 1990 to January 1993; and as Treasurer from June 1991 to January 1993. Mr. Andrews joined the Company in 1984 and served as Principal Accounting Officer from December 1988 to June 1990. JAMES H. DOMAZ has served as Vice President since November 1997, Corporate Counsel of the Company since November 1996, Secretary since December 1999, Assistant Secretary from November 1996 to December 1999, Legal Counsel from April 1996 to November 1996, and Associate Counsel from May 1993 to April 1996. Prior to joining the Company he served as General Counsel for C&L Distributing, Inc. from May 1991 to May 1993. CHRISTOPHER J. KOZIOL has served as President and Chief Operating Officer since February 2000. Mr. Koziol served as President of MicroAge Technology Services, L.L.C. from October 1999 to February 2000 and as Executive Vice President of the Company since September 1998. Mr. Koziol served as President, Distribution Group from November 1996 to July 1998, and as Senior Vice President-Sales of the Company from May 1996 to September 1998. Mr. Koziol served as President, Pinacor, Inc. from March 1998 to August 1998. He served as President, MicroAge Infosystems Services, Inc. from October 1995 to January 1997, as President, MicroAge Infosystems Services, MCCI, from July 1993 to October 1995, and as Vice President, Sales, MCCI, from January 1992 to July 1993. He joined the Company in September 1985 and served as Director-Regional Support from March 1988 to December 1991. DONALD J. LYONS has served as President of Pinacor, Inc. since February 2000. Mr. Lyons served as Group Vice President, Procurement and Logistics of Pinacor, Inc. from March 1998 to February 2000. Prior to joining Pinacor, Inc., Mr. Lyons held various management positions in distribution, products, marketing, and customer service at MicroAge, Inc. JEFFREY D. MCKEEVER has served as Chief Executive Officer since February 1987 and as Chairman of the Board since October 1991. Mr. McKeever co-founded the Company in August 1976 and has served as a director of the Company since October 1976. He also served as President from June 1995 to January 1996, from January 1993 to February 1993, and from February 1987 to October 1991, as Chairman of the Board and Secretary from October 1976 to February 1987, and as Treasurer from October 1976 to February 1983 and from February 1987 to December 1988. MARK D. MUMFORD has served as Senior Vice President-Operations of MicroAge Technology Services, L.L.C. since October 1999. Mr. Mumford was Group Vice President-Finance of Pinacor, Inc. from March 1998 to October 1999. Mr. Mumford was Vice President of Supplier Finance and Pricing at MicroAge, Inc. from 1996 to 1998. Prior to that, he held various positions with the Company, including Controller from 1995 to 1996. Mr. Mumford joined MicroAge in 1990 as senior accounting manager. In 1992, he assumed the position of Director of Financial 11 Accounting, Reporting and Acquisitions. Prior to joining the Company, Mr. Mumford held positions with PricewaterhouseCoopers and Deloitte & Touche. Mr. Mumford is a certified public accountant. RAYMOND L. STORCK has served as Interim Chief Financial Officer and Treasurer since February 2000 and as Vice President, Controller since July 1993. Mr. Storck served as Assistant Treasurer of the Company from October 1991 to February 2000. He joined the Company in 1986 and served in positions in accounting, reporting and analysis, including Director of Planning and Analysis from June 1990 to July 1991. JEFFREY M. SWANSON has served as President of MicroAge Technology Services, L.L.C. since February 2000. Mr. Swanson served as Senior Vice President and Regional General Manager for MicroAge from May 1998 to February 2000. Mr. Swanson served as President, MicroAge Solutions, from December 1994 to May 1998, and as a branch General Manager from October 1991 to December 1994. Prior to joining the Company, he held various positions with AmeriData, Inc. since February 1981, culminating with Executive Vice President, Sales and Marketing. ROBERT W. ZACK has served as Vice President, Finance, of Pinacor, Inc. since February 1999. Prior to joining Pinacor, Mr. Zack served as the Chief Financial Officer of NIENEX, Inc. from September 1995 to February 1999. Mr. Zack served as Controller, MicroAge Enterprises, Inc. during November 1994 to September 1995. Prior to joining MicroAge Enterprises, Mr. Zack held various executive and financial management roles at Active Noise and Vibration Technologies, Pinnacle West Capital Corporation and Arthur Andersen & Company. Mr. Zack is a certified public accountant. ITEM 2. PROPERTIES GENERAL All facilities are leased except for a building in Tempe, AZ that houses MicroAge Technology Services' executive offices. The Company believes that its properties and equipment are well-maintained, in good operating condition, and adequate for its present foreseeable needs. MICROAGE MicroAge's executive offices are located in Tempe, AZ. MICROAGE TECHNOLOGY SERVICES MicroAge Technology Services' executive offices are located in Tempe, AZ. As of October 31, 1999, MicroAge Technology Services operated branches in the following cities: Anchorage, AK; Phoenix, AZ; Dublin, Santa Ana, and Van Nuys, CA; Englewood, CO; Milford, CT; Boca Raton, Jacksonville, Miami, and Tampa, FL; Norcross, GA; Chicago, IL; Indianapolis, IN; Gaithersburg, MD; Burlington, MA; Novi, MI; Plymouth, MN; Chesterfield, MO; Hampton, NH; Edison, NJ; New York, NY; Raleigh, NC; Cincinnati and Columbus, OH; Oklahoma City and Tulsa, OK; Portland, OR; Exton and Pittsburgh, PA; Greenville, SC; Memphis and Nashville, TN; Houston and Irving, TX; Richmond, VA; Bellevue, WA; and Brookfield, WI. PINACOR Pinacor's executive offices are located in Tempe, AZ. Pinacor operates automated distribution and logistics centers in Tempe, AZ and Cincinnati, OH which occupy approximately 300,000 square feet each. In addition, Pinacor has a distribution center in Miami, FL occupying appoximately 60,000 square feet. Pinacor also has in-country distribution facilities in Colombia, Venezuela, Bolivia, and Ecuador. MICROAGE TELESERVICES MicroAge Teleservices executive offices are located in Tempe, AZ. MicroAge Teleservices conducts its business from three strategically located call centers occupying approximately 58,000 square feet in Las Vegas, NV; approximately 60,000 square feet in Tempe, AZ, and approximately 58,000 square feet in Santa Maria, CA. 12 QUALITY INTEGRATION SERVICES Quality Intergration Services has ISO 9001-certified facilities located in Tempe, AZ and Cincinnati, Ohio. Quality Integration Services also has an IBM co-location assembly and distribution facility in Raleigh, NC. ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine litigation incidental to the conduct of its business. There are currently no material pending proceedings to which the Company or any of its subsidiaries is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market under the symbol MICA and is quoted on the Nasdaq Stock Market. The following table sets forth the quarterly high and low sale prices for the common stock as reported by the Nasdaq Stock Market for the two most recent fiscal years: RANGE OF SALES PRICES FISCAL 1998 HIGH LOW ---------------------------------------------------- First Quarter $25 3/4 $10 9/16 Second Quarter $16 $11 9/16 Third Quarter $16 1/16 $13 Fourth Quarter $15 11/16 $8 29/32 FISCAL 1999 HIGH LOW ---------------------------------------------------- First Quarter $18 5/8 $13 5/8 Second Quarter $15 5/8 $4 5/8 Third Quarter $6 1/8 $3 17/32 Fourth Quarter $3 17/32 $2 1/16 As of December 31, 1999, there were approximately 1,484 stockholders of record of the common stock. The Company believes that as of such date there were approximately 12,546 beneficial holders of the common stock. The Company has never declared or paid a cash dividend on its common stock and does not presently intend to do so. Future dividend policy will depend upon the Company's earnings, capital requirements, financial condition, and other factors deemed relevant by the Company's Board of Directors. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five fiscal year periods ended October 31, 1999 are derived from the Company's Consolidated Financial Statements. The selected financial data should be read in conjunction with the Company's Consolidated Financial Statements and related notes included elsewhere in this report. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations." 13 INCOME STATEMENT DATA:
Fiscal years ended ------------------------------------------------------------------ Oct. 31, Nov. 1, Nov. 2, Nov. 3, Oct. 29, 1999 (1) 1998 (2) 1997 1996 1995 (3) -------- -------- ---- ---- -------- (in thousands, except per share data) Revenue $ 6,149,613 $ 5,520,031 $4,379,208 $3,608,230 $3,018,288 Gross profit 372,980 353,241 297,465 206,981 162,608 Income (loss) before income taxes (194,610) (7,418) 43,579 26,543 3,211 Net income (loss) (169,022) (8,325) 25,197 15,529 1,862 Diluted net income (loss) per common share $ (8.22) $ (0.42) $ 1.43 $ 0.94 $ 0.12 Diluted weighted average common and common equivalent shares 20,571 19,783 17,635 16,452 15,910 BALANCE SHEET DATA: ------------------------------------------------------------------ Oct. 31, Nov. 1, Nov. 2, Nov. 3, Oct. 29, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (in thousands) Working capital $ 59,331 $ 78,610 $ 126,264 $ 114,965 $ 110,310 Total assets 786,643 1,315,143 919,396 711,979 594,474 Long-term obligations 49,080 5,553 35,187 3,991 4,176 Stockholders' equity 132,894 290,486 262,325 191,580 171,908
- ---------- (1) The fiscal year ended October 31, 1999 included $147,462,000 of restructuring and other one-time charges. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) The fiscal year ended November 1, 1998 included $5,600,000 of restructuring and other one-time charges. (3) The fiscal year ended October 29, 1995 included $9,029,000 of restructuring and other one-time charges. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; capital intensive nature of the Company's business; potential fluctuations in quarterly 14 results; risks of declines in inventory values; dependence on information systems; dependence on independent shipping companies; rapid technological change; and possible volatility of stock price. Exhibit 99.1 to this Annual Report on Form 10-K, which is attached hereto and incorporated by reference herein, discusses these important factors in greater detail. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. FISCAL 1999 DEVELOPMENTS During fiscal 1999, the Company experienced increased competitive pressure and other economic factors that have negatively impacted the Company's gross margins and operating results. In response to these conditions, the Company took actions to decrease operating expenses. These actions included the elimination of positions at Pinacor and MicroAge Technology Services, the closure of branch locations, and the exiting of several businesses that were no longer consistent with the strategic direction of the Company. In addition, during the second fiscal quarter of 1999, the Company reassessed the recoverability of its goodwill due to changes in the computer integration and distribution industry as well as recent operating losses. The Company determined that, based on cash flow and other market analyses, a substantial portion of its goodwill was impaired. Charges were also recognized during the first half of fiscal year 1999 related to the conversion and implementation of a new branch automation system, as well as the completion of the separation of the Company into two independent businesses (Pinacor and MicroAge Technology Services) which started in February 1998. See Note 14 to financial statements - Restructuring and Other One-Time Charges. In connection with these developments, the Company recorded restructuring and other expenses in the last three quarters of fiscal 1999 aggregating $174 million ($151 million, or $7.35 per share after taxes). These charges included $123 million for the write-down to net realizable value of goodwill, $13 million for the write off of assets no longer utilized or otherwise impaired after the system conversion and completion of the company split described above, $10 million for employee termination benefits, $12 million for facility consolidation and business exit costs, and $8 million related to Pinacor's Latin America distribution business. The charges for Pinacor Latin America were primarily the result of the deterioration of the South American economy and consist of receivable and inventory write downs and the write down of Pinacor's investment in several Latin American companies. In addition, the company resolved legal matters and recorded expenses of $8 million in the fourth quarter of fiscal 1999. The total charges of $174 million include $26 million of charges that were recorded as components of cost of sales, operating expenses and other expense in the accompanying statements of operations. The following table illustrates the recognition within the consolidated statements of operations of the restructuring and other unusual charges described above (in thousands):
Fiscal Year Ended October 31, 1999 -------------------------------------------- Restructuring and other As reported unusual charges As adjusted ----------- --------------- ----------- Cost of sales $5,776,633 $ 6,016 $5,770,617 Operating expenses 378,911 17,870 361,041 Restructuring and other one-time charges 147,462 147,462 -- Operating income (loss) (153,393) 171,348 17,955 Other expenses - net 41,217 2,350 38,867 Loss before income taxes $ (194,610) $ 173,698 $ (20,912)
The Company is continuing to reduce its expense structure and anticipates additional restructuring costs in fiscal 2000 related to further consolidation of branch and warehouse locations and headcount reductions. On February 16, 2000 the Company announced the reduction of approximately 250 positions and additional cost cutting initiatives. 15 During the quarter ended May 2, 1999, the Company announced a change in the Pinacor product sourcing relationship with Compaq Computer Corporation ("Compaq"). In October 1999, Pinacor began sourcing certain Compaq products from other Compaq distributors instead of sourcing directly from Compaq. Compaq has indicated that Pinacor remains an authorized distributor and reseller and will be able to distribute the full range of Compaq products. In addition, Pinacor will continue to order some products directly from Compaq. The Company believes that this change will have a negative impact on its operating results; however, the amount of the impact cannot be determined at this time. RESULTS OF OPERATIONS The following table sets forth, for the indicated periods, data as percentages of total revenue: Fiscal years ended ------------------------------------------- Oct. 31, Nov. 1, Nov. 2, 1999 1998 1997 ---- ---- ---- Revenue 100.0% 100.0% 100.0% Cost of sales (1) 93.8 93.6 93.2 ---------- ---------- ---------- Gross profit (1) 6.2 6.4 6.8 Operating and other expenses Operating expenses (1) 5.9 5.8 5.2 Restructuring and other one-time charges (2) 2.8 0.1 -- ---------- ---------- ---------- Total 8.7 5.9 5.2 ---------- ---------- ---------- Operating income (2.5) 0.5 1.6 Other expenses - net (1) 0.6 0.7 0.6 ---------- ---------- ---------- Income (loss) before income taxes (3.1) (0.2) 1.0 Provision for income taxes (0.4) -- 0.4 ---------- ---------- ---------- Net income (loss) (2.7)% (0.2)% 0.6% ========== ========== ========== (1) Calculations for the fiscal year ended October 31, 1999 exclude the effects of $26 million of charges discussed above. Inclusion of such expenses would result in the following percentage relationship to net sales for the year: Cost of sales 93.9% Gross profit 6.1 Operating expenses 6.2 Other expenses - net 0.7 (2) Calculations for the fiscal year ended October 31, 1999 include the effects of $26 million of charges excluded from cost of sales, gross profit, operating expenses and other expenses as discussed in footnote (1) above. The following discussion of results of operations for the fiscal year ended October 31, 1999 exclude the effect of the restructuring and other unusual charges discussed above in "Fiscal 1999 Developments". FISCAL YEAR ENDED OCTOBER 31, 1999 VERSUS FISCAL YEAR ENDED NOVEMBER 1, 1998 Total Revenue. Total revenue during fiscal 1999 was $6.1 billion. Pinacor revenues totaled $5.4 billion and MicroAge Technology Services (MTS) revenues totaled $1.8 billion. On a consolidated basis, these revenues were partially offset by eliminations of intercompany revenues of $1.2 billion. Total revenue increased $630 million, or 11%, for the fiscal year ended October 31, 1999 as compared to the fiscal year ended November 1, 1998. This revenue increase included a $429 million, or 9%, increase in Pinacor revenue, a $35 million, or 2%, increase in MTS revenue and a $173 million decrease in intercompany eliminations. 16 The increase in business was attributable to sales to resellers added since November 1, 1998, increased demand for the Company's major suppliers' products, the Company's addition of new product offerings, service revenue growth, and the growth of the microcomputer products industry. Total revenue decreased in the third and fourth fiscal quarters compared to the second fiscal quarter primarily as a result of the change in Pinacor's sourcing relationship with Compaq described above in Fiscal 1999 Developments, and to a focus within MTS to reduce unprofitable product revenue. In addition, the Company believes that a portion of the decrease in volume is attributable to a price increase instituted by Pinacor during the quarter ended May 2, 1999. The Company anticipates lower revenue in its first fiscal quarter ending January 30, 2000 due to the full impact of the Compaq sourcing relationship and to lower customer demand partially as a result of Y2K concerns. Gross Profit Percentage. The Company's gross profit percentage was 6.2% for the fiscal year ended October 31, 1999 and 6.4% for the fiscal year ended November 1, 1998. The decrease in the Company's gross profit percentage was due to lower margins in Pinacor combined with the fact that MTS revenues, which have higher gross margins, comprised a smaller percentage of total revenues. In Pinacor, gross margins on sales to reseller customers decreased due to increased competitive pressures. In addition, changes in supplier terms and conditions impacted Pinacor margins. Supplier incentive funds were lower as a percentage of total Pinacor revenue, and due to reductions in price protection and return privileges, product costs were higher in fiscal 1999 compared to fiscal 1998. MTS margins increased for the fiscal year ended October 31, 1999 compared to the fiscal year ended November 1, 1998 primarily due to an increase in service revenue as a percentage of total revenue. MTS increased its focus on service revenue growth during the year. In addition, MTS reduced certain unprofitable product revenue during the fiscal year. Future gross profit percentages may be affected by market pressures, the introduction of new Company initiatives, changes in revenue mix, changes in supplier incentive funds, changes in suppliers' terms and conditions, the Company's utilization of early payment discount opportunities, supplier pricing actions, and other competitive and economic pressures. See "Potential Fluctuations in Operating Results" below for information regarding industry trends that may affect future gross profit percentages. Operating Expense Percentage. As a percentage of revenue, operating expenses were 5.9% for the fiscal year ended October 31, 1999, compared to 5.8% for the fiscal year ended November 1, 1998. The Company began taking steps to decrease its operating expenses, including the elimination of positions in Pinacor and MTS and the closure of branches as well the consolidation of headquarters facilities in the third and fourth quarters of fiscal 1999 and will continue to reduce operating expenses during the fiscal year ended October 29, 2000. Other Expenses - Net. Other expenses - net increased to $38.9 million for the fiscal year ended October 31, 1999 from $33.4 million for the fiscal year ended November 1, 1998. Financing costs increased due to increased average borrowings as a result of changes in the Company's major suppliers' policies. During the first quarter of fiscal 1999, certain major suppliers changed the terms of their credit arrangements with the Company. These changes include a decrease in the number of days the Company has to pay for product purchases and a decrease in the amount of reseller purchases from the Company that the suppliers are willing to subsidize. These changes increased the Company's working capital requirements and financing costs. These increases were partially offset by a decrease in amortization expense due to the write-down of impaired goodwill during the second quarter. Income Tax Provision. As a percentage of the loss before tax, the income tax benefit was 13.2% for the fiscal year ended October 31, 1999 compared to a provision equal to 12.2% of the loss before tax for the fiscal year ended November 1, 1998. The change in the effective tax rate is due to the impact of permanent differences, primarily consisting of goodwill write-offs and amortization and meals and entertainment expenses, between the book loss and the taxable loss. 17 FISCAL YEAR ENDED NOVEMBER 1, 1998 VERSUS FISCAL YEAR ENDED NOVEMBER 2, 1997 Total Revenue. Total revenue during fiscal 1998 was $5.5 billion. Pinacor revenues totaled $5.0 billion and MTS revenues totaled $1.8 billion. On a consolidated basis, these revenues were partially offset by eliminations of intercompany revenues of $1.3 billion. Total revenue increased $1.1 billion, or 26%, for the fiscal year ended November 1, 1998 as compared to the fiscal year ended November 2, 1997. This revenue increase included a $901 million, or 22%, increase in Pinacor revenue and a $277 million, or 18%, increase in MTS revenue, partially offset by an increase in intercompany eliminations. The increase in revenue was attributable to sales to resellers added since November 2, 1997, increased demand for the Company's major suppliers' products, improved product availability, the Company's addition of new product offerings, the growth of the microcomputer products industry and acquisitions of reseller locations. Gross Profit Percentage. The Company's gross profit percentage was 6.4% for the fiscal year ended November 1, 1998 and 6.8% for the fiscal year ended November 2, 1997. The decrease in the Company's gross profit percentage was due to lower margins in Pinacor combined with the fact that MTS revenues, which have higher gross margins, comprised a smaller percentage of total revenues. In Pinacor, gross margins on sales to reseller customers decreased due to increased competitive pressures. In addition, supplier incentive funds were lower as a percentage of total Pinacor revenue, and net freight expense increased as a percentage of revenue. The freight expense increase as a percentage of revenue was primarily due to a decrease in the average selling price per pound of product shipped as well as an increase in the cost per pound shipped. MTS margins increased due to an increase in service revenue, which has higher gross margins than product revenue margins. This increase was partially offset by lower margins on MTS product sales to end-user customers due to competitive pricing pressures. Operating Expense Percentage. As a percentage of revenue, operating expenses increased to 5.8% for the fiscal year ended November 1, 1998, compared to 5.2% for the fiscal year ended November 2, 1997. The increase in operating expenses was primarily in MicroAge Technology Services and was attributable to acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other businesses), the costs associated with assimilating these acquisitions, start-up costs of several new locations, and the build-up of infrastructure associated with MTS' increasing levels of service revenue. Restructuring and Other One-Time Charges. The Company recorded a $5.6 million charge ($3.2 million, or $0.16 per share, after taxes) for the second quarter of fiscal 1998. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations, and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and MTS as separate businesses. The charges associated with employee termination benefits consisted primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company. Other Expenses - Net. Other expenses - net increased to $33.4 million for the fiscal year ended November 1, 1998 from $27.6 million for the fiscal year ended November 2, 1997. This increase was due to higher average daily borrowings, primarily in the first two fiscal quarters of fiscal 1998, to support higher inventory and accounts receivable levels and to increased amortization expense associated with goodwill from acquisitions. CHANGES IN SUPPLIER TERMS AND CONDITIONS The key suppliers of the Company provide various incentives for promoting and marketing their product offerings. A large portion of the incentives is passed on to the Company's customers. However, a portion of the incentives positively impact the Company's income. 18 Major manufacturers have instituted changes in their sales incentive programs and inventory management programs. Pursuant to these changes, the major manufacturers have (i) reduced the amount of product that the Company is allowed to return, (ii) reduced the amount of price protection coverage offered to the Company and (iii) changed incentives to programs based on sales of the manufacturers' products, rather than on purchases of the products from the manufacturers. In addition, several of the major suppliers within the computer hardware industry have changed the terms of their credit arrangements. These changes include a decrease in the number of days the Company has to pay for product purchases and a decrease in the amount of reseller purchases from the Company that the suppliers are willing to subsidize. These changes have increased the Company's working capital requirements and financing costs. Further changes in incentives or other terms and conditions could have a material adverse effect on the Company's operating results. During the quarter ended August 1, 1999, the Company announced a change in the Pinacor product sourcing relationship with Compaq. In October 1999, the Company began sourcing certain Compaq products from other Compaq distributors instead of sourcing directly from Compaq. Compaq has indicated that Pinacor remains an authorized distributor and reseller and will be able to distribute the full range of Compaq products. In addition, Pinacor will continue to order some products directly from Compaq. During the quarter ended August 1, 1999, Compaq sales decreased approximately $75 million, or 20%, when compared to the quarter ended May 2, 1999, and for the quarter ended October 31, 1999 Compaq sales decreased an additional $97 million compared to the quarter ended May 2, 1999. The Company expects a further decline in Compaq revenue as the full impact of the change in the sourcing relationship is realized. In addition to the expected declines in Compaq revenue, the Company believes that sales of other suppliers' products may decrease as customers that purchase Compaq products from other sources move purchases of other products to those sources. The amount of any future revenue decline related to the change in the Compaq relationship cannot be determined at this time. The lower revenue levels will result in lower gross profit dollars as well as lower operating expenses. In response to the Compaq change, Pinacor has taken and will continue to take actions to reduce operating expenses to partially offset the impact of the revenue decline. The change in the Compaq relationship will have a negative impact on the Company's operating results; however, the amount of the impact cannot be determined at this time. POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services, the amount of supplier incentive funds received by the Company, the results of acquired businesses, product availability, competitive conditions, new product introductions, changes in customer order patterns, changes in supplier terms and conditions and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments and interest rates. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special supplier promotions and year-end business purchases. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. During the fiscal year ended October 31, 1999, the Company experienced competitive pressures in its industry which resulted in the Company incurring a net loss of $169 million which included charges as the Company reassessed the recoverability of certain long lived assets (see Note 14 to financial statements). At October 31, 1999 the Company has an accumulated deficit of $88 million. 19 The Company has taken certain actions to reduce operating costs, including reductions in headcount and the closure of certain branches (see Note 14 to financial statements). The Company will continue to implement cost cutting measures, including additional reductions in headcount and the closure of additional facilities. The Company has positive net working capital of $59 million at October 31, 1999 and generated cash from operations of $21 million in the year then ended. The Company's continuing liquidity is contingent upon improving cash flows through reductions in inventory and accounts receivable, attaining forecasted sales levels, reducing operating costs, and meeting financial covenants in its credit facilities as described in Note 6 to the Company's financial statements. The Company believes that, based on its current forecast and its existing credit facilities, that cash flows will be sufficient to meet operating requirements through the end of fiscal year 2000. In addition, the Company believes that operating results will be sufficient to comply with the current financial covenants in its credit facilities. However, the Company has no assurance that it will meet its current forecast. In addition, even minor adverse changes in the Company's results compared to forecast could cause the Company to be out of compliance with its financial covenants. In the event the Company's future operating results fall below management's expectations, the Company will attempt to renegotiate its credit agreements. Cash provided by operating activities was $21 million in fiscal 1999 as compared to $10 million used by operating activities in fiscal 1998. The decrease was primarily due to a change in cash provided or used by accounts receivable, inventory, and accounts payable. During fiscal 1999, $280 million was provided by changes in accounts receivable, compared to $275 million used by accounts receivable in fiscal 1998. The change was primarily due to a change in the amount of receivables sold to a finance company. The amount of sold receivables increased from $39 million at November 1, 1998 to $255 million at October 31, 1999. The change in inventory provided $149 million in cash compared to $2 million used in fiscal 1998. The change in inventory was primarily due to the Company's efforts to decrease inventory levels in response to suppliers' changes in price protection and return priviliges. Cash used by changes in accounts payable was $437 million for fiscal 1999 compared to $227 million of cash provided by changes in accounts payable in fiscal 1998. The change in accounts payable during fiscal 1999 was primarily due to the changes in supplier terms and conditions described above. In addition, the Company's accounts payable was unusually low at the fiscal year end as a result of lower payables to finance companies as the Company prepared to transition to the new financing facilities described below. Cash used in investing activities increased from $50 million in fiscal 1998 to $58 million in fiscal 1999 primarily due to an increase in purchases of property and equipment as a result of increased spending for electronic commerce initiatives and capacity expansion in systems and facilities. Cash provided by financing activities was $64 million in fiscal 1999 compared to of $34 million in fiscal 1998. The change was primarily due to a smaller increase in the Company's overdraft position offset by increased borrowings under the Company's line of credit. During the fiscal year ended October 31, 1999, the Company maintained three financing agreements (the "Agreements") with financing facilities totaling $660 million at the end of the year. The Agreements included an accounts receivable facility (the "A/R Facility") and inventory financing facilities (the "Inventory Facilities"). Under the A/R Facility, the Company had the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At October 31, 1999, the net amount of sold accounts receivable was $255 million. The Inventory Facilities provided for borrowings up to $310 million. Within the Inventory Facilities, the Company had lines of credit for the purchase of inventory from selected product suppliers ("Inventory Lines of Credit") and a line of credit for general working capital requirements ("Supplemental Line of Credit"). Payments for products purchased under the Inventory Lines of Credit varied depending upon the product supplier, but generally were due between 30 and 60 days from the date of the advance. No interest or finance charges were payable on the Inventory Lines of Credit if payments were made when due. At October 31, 1999, the Company had $114 million outstanding under the Inventory Lines of Credit (included in accounts payable in the accompanying Balance Sheets), and $45 million outstanding under the Supplemental Line of Credit. Borrowings under the Agreements were secured by substantially all of the Company's assets, and the Agreements contained certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. 20 On October 28, 1999, the Company entered into new financing facilities (the "Facilities") to replace the Agreements described above. The Facilities, as amended, provide for borrowing of up to $540 million and include a $300 million revolving credit facility (the "Credit Facility") and $240 million in inventory financing facilities (the "New Inventory Facilities"). The Credit Facility includes a $145 million sublimit for the issuance of letters of credit. Borrowings under the Facilities are secured by substantially all of the Company's assets, subject to other liens permitted under the Facilities. The Facilities contain certain restrictive covenants, including capital expenditure limitations, a minimum interest coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) amount and a minimum debt to EBITDA ratio. The initial covenant measurement date is January 30, 2000, the end of the Company's first fiscal quarter. Borrowings under the Facilities are limited based on borrowing base formulas which consider eligible inventories, eligible accounts receivable, and letters of credit. Borrowings are also subject to the satisfaction of customary conditions, including the absence of any material adverse change in the Company's business or financial condition. As discussed above in the 1999 versus 1998 revenue comparison, the Company anticipates lower revenue in its first fiscal quarter ending January 30, 2000 due to the full impact of the Compaq sourcing relationship and to lower customer demand partially as a result of Y2K concerns. With lower operating activity, eligible assets in the borrowing base calculations are likely to decrease. There can be no assurances that the Company will be able to borrow adequate amounts on terms acceptable to the Company. Interest rates on the Credit Facility are based on the agent's base rate plus a specified margin or LIBOR plus a specified margin. The current margins are 2.5% for base rate advances and 3.5% for LIBOR advances. The margins may be adjusted from time to time based on the Company's performance against covenants. The current borrowing rate is approximately 9.9% compared to approximately 8.4% for the fourth fiscal quarter of 1999 under the Company's prior agreements. The Credit Facility also includes letter of credit and unused line fees. The Credit Facility has a termination date of October 31, 2002. Payments for products purchased under the New Inventory Facilities vary depending upon the product supplier, but generally are due between 30 and 45 days from the date of the advance. No interest or finance charges are payable on the New Inventory Facilities if payments are made when due. The Company has the ability under one of the New Inventory Facilities to extend payments 30 days beyond the initial due date with a financing fee of LIBOR plus 3.75%. One of the New Inventory Facilities has a termination date of October 18, 2002 and the other has no defined termination date. Subsequent to October 31, 1999 the Company has refinanced all of its then outstanding financing arrangements using the Credit Facility and New Inventory Facilities entered into on October 28, 1999. Had the Credit Facility and New Inventory Facilities been in use at October 31, 1999 rather than the Company's prior financing facilities, selected balance sheet accounts on a pro forma basis would be as follows: As reported Pro forma -------- -------- (in thousands) Accounts receivable, net $220,386 $475,743 Inventory 336,653 336,653 All other current assets 94,806 94,806 -------- -------- Total current assets 651,845 907,202 Accounts payable (1) 549,394 549,394 All other current liabilities 43,120 43,120 -------- -------- Total current liabilities 592,514 592,514 Line of credit 45,000 300,357 (1) Accounts payable includes $114 million in inventory credit facility borrowings. 21 The Company's outstanding balance of $45 million on its Supplemental Line of Credit has been classified as a long-term liability based on the Company's ability and intent to refinance the obligation on a long-term basis. In evaluating the ability to refinance the obligation on a long-term basis, in addition to ensuring a long-term financing facility is in place, the Company has evaluated its forecasted results of operations and capital requirements in comparison to its available credit and the financial covenants associated with its new financing arrangements. During the first quarter of fiscal year 2000 it became apparent that the Company would not meet its minimum EBITDA and maximum debt to EBITDA covenants for the quarter ending January 30, 2000 and for each of the remaining periods in fiscal 2000. The Company has since renegotiated the covenants for its Credit facility and its New Inventory Facilities to require minimum EBITDA of $2.5 million in the fiscal quarter ending April 30, 2000 and minimum cumulative EBITDA of $12 million and $26 million for the two fiscal quarters ending July 30, 2000 and the three fiscal quarters ending October 29, 2000, respectively. Rolling twelve month EBITDA covenants for fiscal years 2001 and 2002 are based on quarterly EBITDA requirements ranging from $19 million to $25 million. The Company also renegotiated its related financial ratio covenants included in the agreements. In addition to the financing facilities discussed above, the Company maintained an accounts receivable purchase agreement (the "Purchase Agreement") with a commercial credit corporation (the "Buyer") whereby the Buyer purchased, from time to time at its option, on a limited recourse basis, certain accounts receivable of the Company. At October 31, 1999, the net amount of sold accounts receivable under the Purchase Agreement was $36 million. The Purchase Agreement was canceled subsequent to October 31, 1999. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. As discussed above, several of the Company's major suppliers have changed the terms of their credit arrangements with the Company. These changes include a decrease in the number of days the Company has to pay for product purchases and a decrease in the amount of reseller purchases from the Company that the suppliers are willing to subsidize. These changes have increased the Company's working capital requirements and financing costs. The additional borrowings that will be required to pay suppliers on shorter terms could exceed the borrowings available under the Facilities due to collateral constraints. The unavailability of a significant portion of, or the loss of, the Facilities or trade credit from suppliers would have a material adverse effect on the Company. Although the Company has no material capital commitments, the Company expects to make capital expenditures of less than $30 million in the next fiscal year. INFLATION The Company believes that inflation has generally not had a material impact on its operations or liquidity to date. 22 YEAR 2000 The Company began preparation for the Year 2000 date transition in 1996. In connection with this effort, the Company completed an inventory of all mission critical systems with Year 2000 implications, assessed the readiness of those systems, and replaced, retired or upgraded those systems that were not Year 2000 ready. Additionally, the Company surveyed its stocking manufacturers and obtained the manufacturer's Year 2000 readiness statements or warranty, where applicable. During the Year 2000 date transition, the Company did not experience any failure of mission critical systems nor has it experienced any significant problem with regard to third party suppliers. The Company does not anticipate any material adverse effect to its business in the future as a result of Year 2000 related problems; however, it is possible that such problems might still arise. The Company estimates that it has spent approximately $2.2 million upgrading its mission critical systems to be Year 2000 ready. These estimates include only such expenditures for converting the Company's mainframe and modifications to desktops, applications that directly interface with the mainframe unit, and specific phone switches and exclude other expenses incurred for regularly scheduled updates that would have been taken regardless of the Year 2000 problem, but result in a system being Year 2000 ready. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated Financial Statements of the Company listed in the index appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on Form 10-K and are hereby incorporated by reference in this Item 8. See also "Index to Financial Statements" on page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Company's directors is incorporated herein by reference to the information furnished under the captions "Election Of Directors" and "Section 16 Requirements" in the Company's Proxy Statement relating to its 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement"). Information regarding executive officers of the Company is included in Item I of this report, furnished under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein by reference to the information furnished under the captions "Executive Compensation" and "Other Information Regarding the Board of Directors" in the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information furnished under the captions "Security Ownership of Management" and "Principal Stockholders" in the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the information furnished under the caption "Certain Relationships and Related Transactions" in the 2000 Proxy Statement. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements: Page No. -------- Report of Independent Accountants F-2 Consolidated Balance Sheets at October 31, 1999 and F-3 November 1, 1998 Consolidated Statements of Operations for each of the F-4 fiscal years ended October 31, 1999, November 1, 1988 and November 2, 1997 Consolidated Statements of Cash Flows for each of the F-5 fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997 Consolidated Statements of Stockholders' Equity for F-6 each of the fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997 Notes to Consolidated Financial Statements F-7 (2) Consolidated Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts and Reserves S-1 (3) The Exhibits which are filed with this Annual Report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on page E-1 hereof, which Exhibit Index is incorporated herein by reference. (b) Reports filed on Form 8-K during the quarter ended October 31, 1999: (c) See Item 14(a)(3) above. (d) See "Index to Consolidated Financial Statements" included under Item 8 to this Annual Report on Form 10-K. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 17th day of February, 2000. MICROAGE, INC. (Registrant) /s/ Jeffrey D. McKeever -------------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Jeffrey D. McKeever Director, Chairman of the Board February 17, 2000 - --------------------------- and Chief Executive Officer Jeffrey D. McKeever (Principal Executive Officer) /s/ Lynda M. Applegate Director February 17, 2000 - --------------------------- Lynda M. Applegate /s/ Cyrus F. Freidheim, Jr. Director February 17, 2000 - --------------------------- Cyrus F. Freidheim, Jr. /s/ Roy A. Herberger, Jr. Director February 17, 2000 - --------------------------- Roy A. Herberger, Jr. /s/ William H. Mallender Director February 17, 2000 - --------------------------- William H. Mallender /s/ Steven G. Mihaylo Director February 17, 2000 - --------------------------- Steven G. Mihaylo /s/ Dianne C. Walker Director February 17, 2000 - --------------------------- Dianne C. Walker /s/ Raymond L. Storck Vice President, Controller, February 17, 2000 - --------------------------- Interim Chief Financial Officer Raymond L. Storck and Treasurer (Principal Financial and Accounting Officer) 25 MICROAGE, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants F-2 Consolidated Balance Sheets at October 31, 1999 and November 1, 1998 F-3 Consolidated Statements of Operations for each of the fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997 F-4 Consolidated Statements of Cash Flows for each of the fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997 F-5 Consolidated Statements of Stockholders' Equity for each of the fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997 F-6 Notes to Consolidated Financial Statements F-7 Schedule II - Valuation and Qualifying Accounts and Reserves S-1 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of MicroAge, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of MicroAge, Inc. and its subsidiaries at October 31, 1999 and November 1, 1998, and the results of their operations and their cash flows for the fiscal years ended October 31, 1999, November 1, 1998 and November 2, 1997, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjuction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Phoenix Arizona February 17, 2000 F-2 MICROAGE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS October 31, November 1, 1999 1998 ----------- ----------- Current assets: Cash and cash equivalents $ 67,656 $ 41,894 Accounts and notes receivable, net 220,386 529,877 Inventory 336,653 486,150 Other 27,150 24,432 ------------ ------------ Total current assets 651,845 1,082,353 Property and equipment, net 102,175 92,147 Intangible assets, net 12,693 126,105 Other 19,930 14,538 ------------ ------------ Total assets $ 786,643 $ 1,315,143 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 549,394 $ 967,501 Accrued liabilities 33,065 24,279 Current portion of long-term obligations 2,497 3,095 Other 7,558 8,868 ------------ ------------ Total current liabilities 592,514 1,003,743 Line of credit 45,000 -- Long-term obligations 4,080 5,553 Other long-term liabilities 12,155 15,361 Stockholders' equity: Preferred stock, par value $1.00 per share -- -- Shares authorized: 5,000,000 Issued and outstanding: none Common stock, par value $.01 per share 208 203 Shares authorized: 40,000,000 Issued: October 31, 1999 - 20,838,211 November 1, 1998 - 20,284,789 Additional paid-in capital 220,522 206,720 Retained earnings (deficit) (87,829) 83,729 Treasury stock, at cost (7) (166) Issued: October 31, 1999 - 412 November 1, 1998 - 16,378 ------------ ------------ Total stockholders' equity 132,894 290,486 ------------ ------------ Total liabilities and stockholders' equity $ 786,643 $ 1,315,143 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Fiscal years ended ----------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- Revenue $ 6,149,613 $ 5,520,031 $ 4,379,208 Cost of sales 5,776,633 5,166,790 4,081,743 ----------- ----------- ----------- Gross profit 372,980 353,241 297,465 Operating and other expenses Operating expenses 378,911 321,683 226,260 Restructuring and other one-time charges 147,462 5,600 -- ----------- ----------- ----------- Total 526,373 327,283 226,260 ----------- ----------- ----------- Operating income (loss) (153,393) 25,958 71,205 Other expenses - net 41,217 33,376 27,626 ----------- ----------- ----------- Income (loss) before income taxes (194,610) (7,418) 43,579 Provision for (benefit from) income taxes (25,588) 907 18,382 ----------- ----------- ----------- Net income (loss) $ (169,022) $ (8,325) $ 25,197 =========== =========== =========== Net income (loss) per common and common equivalent share Basic $ (8.22) $ (0.42) $ 1.51 =========== =========== =========== Diluted $ (8.22) $ (0.42) $ 1.43 =========== =========== =========== Weighted average common and common equivalent shares outstanding Basic 20,571 19,783 16,731 Diluted 20,571 19,783 17,635 The accompanying notes are an integral part of these consolidated financial statements. F-4 MICROAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands) Fiscal years ended ------------------------------------ October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $(169,022) $ (8,325) $ 25,197 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 44,574 40,017 23,637 Provision for losses on accounts and notes receivable 28,794 13,640 9,208 Restructuring and other one-time charges 130,917 -- -- Other non-cash charges 1,099 585 365 Changes in assets and liabilities net of business acquisitions: Accounts and notes receivable 279,986 (275,115) 63,390 Inventory 149,497 (1,759) (143,786) Other current assets (2,718) (13,468) 21 Other assets (7,314) (483) (5,547) Accounts payable (437,161) 227,070 55,169 Accrued liabilities 8,953 (639) (4,345) Other liabilities (7,016) 8,897 679 --------- --------- --------- Net cash provided by (used in) operating activities 20,589 (9,580) 23,988 Cash flows from investing activities: Purchases of property and equipment (52,903) (42,258) (34,988) Purchases of businesses and investments in unconsolidated companies, net of cash acquired (5,500) (7,259) (1,810) --------- --------- --------- Net cash used in investing activities (58,403) (49,517) (36,798) Cash flows from financing activities: Amounts received from ESOT -- -- 207 Proceeds from change in overdraft position 19,994 113,130 (19,971) Proceeds from issuance of stock, net of issuance costs 2,864 3,412 5,886 Net borrowings (repayments) under lines of credit 45,000 (30,650) 30,650 Shareholder distributions - pooled companies -- (128) (953) Principal payments on long-term obligations (4,282) (7,052) (2,665) --------- --------- --------- Net cash provided by financing activities 63,576 78,712 13,154 --------- --------- --------- Net increase in cash and cash equivalents 25,762 19,615 344 Cash and cash equivalents at beginning of period 41,894 22,279 21,935 --------- --------- --------- Cash and cash equivalents at end of period $ 67,656 $ 41,894 $ 22,279 ========= ========= ========= Supplemental disclosure to cash flows - See Note 13 The accompanying notes are an integral part of these consolidated financial statements. F-5 MICROAGE, INC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
For the fiscal years ended October 31, 1999, November 1, 1998, and November 2, 1997 ----------------------------------------------------------------------------------- Additional Loan to Total Preferred Common paid-in Retained employee stock Treasury stockholders' stock stock capital earnings ownership trust stock equity --------- ------ ---------- -------- --------------- -------- ------------- BALANCE at November 3, 1996 $ -- $ 162 $ 124,464 $ 67,885 $(207) $(724) $ 191,580 Options for 438,079 common shares exercised -- 5 4,050 -- -- -- 4,055 Contribution of 31,731 treasury shares to employee benefit plan -- -- 205 -- -- 262 467 Issuance of 99,703 shares under the employee stock purchase plan -- 1 1,353 -- -- -- 1,354 Loan payments from ESOT -- -- -- -- 207 -- 207 Issuance of 108,417 shares to acquire KNB, Inc. -- 1 2,002 -- -- -- 2,003 Issuance of 609,779 shares to acquire Access MicroSystems, Inc. -- 6 15,894 -- -- -- 15,900 Issuance of 8,000 restricted common shares to outside directors -- -- 122 -- -- -- 122 Issuance of 932,039 shares to acquire Pride Technologies, Inc. -- 9 22,496 -- -- -- 22,505 Unearned compensation - restricted common shares issued to directors -- -- (122) -- -- -- (122) Compensation expense- restricted common shares issued to directors -- -- 40 -- -- -- 40 Compensation expense-stock option excercise -- -- 325 -- -- -- 325 15,080 shares of treasury stock acquired through cashless stock option exercises -- -- -- -- -- (355) (355) Distributions to shareholders - pooled companies -- -- -- (953) -- -- (953) Net income -- -- -- 25,197 -- -- 25,197 ----- ----- --------- ---------- ----- ----- --------- BALANCE at November 2, 1997 -- 184 170,829 92,129 -- (817) 262,325 Compensation expense- restricted common shares issued to directors -- -- 85 -- -- -- 85 Compensation expense-stock options -- -- 500 -- -- -- 500 Options for 79,936 common shares exercised -- 1 534 -- -- -- 535 Issuance of 5,000 restricted common shares to outside directors -- -- 110 -- -- -- 110 Unearned compensation - restricted common shares issued to directors -- -- (110) -- -- -- (110) Issuance of 1,565,730 shares for business acquisitions -- 16 32,484 -- -- -- 32,500 Issuance of 182,470 common shares under the employee stock purchase plan -- 2 2,254 -- -- -- 2,256 Contribution of 64,000 shares of treasury stock to employee benefit plan -- -- 34 -- -- 651 685 Distributions to shareholders - pooled companies -- -- -- (128) -- -- (128) Unrealized translation gain -- -- -- 53 -- -- 53 Net loss -- -- -- (8,325) -- -- (8,325) ----- ----- --------- ---------- ----- ----- --------- BALANCE at November 1, 1998 -- 203 206,720 83,729 -- (166) 290,486 Compensation expense- restricted common shares issued to directors -- -- 99 -- -- -- 99 Compensation expense-stock options -- -- 1,000 -- -- -- 1,000 Issuance of 8,000 restricted common shares to outside directors -- -- 86 -- -- -- 86 Unearned compensation - restricted common shares issued to directors -- -- (86) -- -- -- (86) Options for 62,729 shares exercised -- 1 496 -- -- -- 497 Issuance of 419,682 common shares under the employee stock purchase plan -- 4 2,364 -- -- -- 2,368 Contribution of 63,011 shares of common stock to employee benefit plan -- -- 1,043 -- -- -- 1,043 Receipt of 13,871 shares of treasury stock to pay note -- -- -- -- -- (332) (332) Acquisition change from pooling to purchase accounting -- -- 9,124 (2,432) -- -- 6,692 Contribution of 29,837 shares of treasury stock to employee benefit plan -- -- (324) -- -- 491 167 Unrealized translation loss -- -- -- (104) -- -- (104) Net loss -- -- -- (169,022) -- -- (169,022) ----- ----- --------- ---------- ----- ----- --------- BALANCE at October 31, 1999 $ -- $ 208 $ 220,522 $ (87,829) $ -- $ (7) $ 132,894 ===== ===== ========= ========== ===== ===== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 MICROAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS MicroAge, Inc. is a global provider of efficient technology solutions. The Company is composed of information technology businesses that deliver technology infrastructure solutions through ISO 9001-certified, multi-vendor integration services and distributed computing solutions to large organizations and computer resellers worldwide. The Company does business in more than 40 countries and offers over 50,000 products from more than 500 suppliers backed by a suite of technical, financial, logistics and account management services. The Company operates primarily through two wholly-owned subsidiaries: MicroAge Technology Services, L.L.C. ("MicroAge Technology Services" or "MTS") and Pinacor, Inc. ("Pinacor"). MTS is a leading provider of technology infrastructure services worldwide. MTS provides a wide-range of professional technology services, focusing on Selective Outsourcing, Professional Services and Technology Procurement. MTS supports customers in more than 40 major US markets and provides international support through business partner locations throughout the world. Pinacor is a wholesale distributor of information technology products and services. Pinacor markets hardware, networking equipment, software products and related services to more than 25,000 reseller customers in multiple countries. Using electronic commerce to streamline the delivery of efficient technology solutions and services, Pinacor supports customers worldwide from strategic distribution hubs in the United States and Latin America. Unless the context otherwise requires, references to the "Company" include MicroAge, Inc. and its consolidated subsidiaries. During the fiscal year ended October 31, 1999, the Company experienced competitive pressures in its industry which resulted in the Company incurring a net loss of $169 million which included charges as the Company reassessed the recoverability of certain long lived assets (see Note 14). At October 31, 1999 the Company has an accumulated deficit of $88 million. The Company has taken certain actions to reduce operating costs, including reductions in headcount and the closure of certain branches (see Note 14). The Company will continue to implement cost cutting measures, including additional reductions in headcount and the closure of additional facilities. The Company has positive net working capital of $59 million at October 31, 1999 and generated cash from operations of $21 million in the year then ended. The Company's continuing liquidity is contingent upon improving cash flows through reductions in inventory and accounts receivable, attaining forecasted sales levels, reducing operating costs, and meeting financial covenants on its credit facilities as described in Note 6. The Company believes that based on its current forecast and its existing credit facilities that cash flows will be sufficient to meet operating requirements through the end of fiscal year 2000. In addition, the Company believes that operating results will be sufficient to comply with the current financial covenants on its credit facilities. However, the Company has no assurance that it will meet its current forecast. In addition, even minor adverse changes in the Company's results compared to forecast could cause the Company to be out of compliance with its financial covenants. In the event the Company's future operating results fall below management's expectations, the Company will attempt to renegotiate its credit agreements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. FISCAL YEAR The Company's fiscal year ends on the Sunday nearest October 31 in each calendar year. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments that are subject to fair value disclosure requirements are carried in the consolidated financial statements at amounts that approximate fair value. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. F-7 CASH OVERDRAFTS Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes. Such amounts, aggregating $178.5 and $158.5 million at October 31, 1999 and November 1, 1998, respectively, are included as a component of accounts payable in the accompanying consolidated balance sheets. ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable are comprised of amounts due from financing companies, end-users, and resellers and are net of an allowance for doubtful accounts of $29,680,000 and $20,418,000 at October 31, 1999 and November 1, 1998, respectively. INVENTORY Inventory consisting of resale merchandise is stated at lower of cost (first-in, first-out method) or market. International Business Machines Corporation ("IBM") products totaling $39,334,000 and $65,775,000 included in inventory at October 31, 1999 and November 1, 1998, respectively, are subject to a reservation of the title in IBM for the purpose of assuring that such products are sold and delivered only to IBM-authorized personal computer dealers; such reservation does not prohibit the Company from granting security interests to other parties. During the fiscal year ended October 31, 1999, sales of COMPAQ Computer Corporation, Hewlett-Packard Company and IBM products accounted for approximately 22%, 20% and 15%, respectively, of the Company's revenue from sales of merchandise. The sales of no other individual supplier's products accounted for more than 10% of such revenue during the fiscal year ended October 31, 1999. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated on the straight-line method over their estimated useful lives. Equipment under capital lease is recorded at the lower of fair market value or the present value of future lease payments and is amortized on the straight-line method over the estimated useful life or the term of the lease, whichever is less. The following reflects the estimated lives by category of property and equipment: Furniture, fixtures, equipment and software 3 to 7 years Equipment under capital lease 3 to 5 years Leasehold improvements 3 to 5 years Expenditures for maintenance and repairs are charged to operations in the year in which the expense is incurred. F-8 INTANGIBLE ASSETS Intangible assets are amortized over their economic lives ranging from three to fifteen years using the straight-line method. For acquisitions accounted for under the purchase method, the excess of cost over the fair value of net identifiable assets acquired is classified as goodwill and is included in intangible assets. On an ongoing basis, the Company reviews the valuation and amortization of goodwill. As part of this review, the Company estimates the net realizable value of goodwill and assesses whether the unamortized balance could be recovered through expected future cash flows over the remaining life of the asset. During the second quarter of fiscal 1999, the Company determined that a portion of its goodwill was impaired and recorded a charge to earnings of $123 million (see Note 14 - Restructuring and Other One-time Charges). At October 31, 1999 no additional impairment was indicated. Intangible assets are net of $1,533,000 and $16,594,000 of accumulated amortization at October 31, 1999 and November 1, 1998, respectively. REVENUE RECOGNITION Revenue from product sales is recognized at the time of shipment. Revenue from services is recognized as services are performed, or ratably if performed over a service contract period. SUPPLIER INCENTIVE FUNDS In general, suppliers provide the Company with various incentive programs. The funds received under these programs are generally determined based on the Company's purchases and/or sales of the suppliers' product. The funds are earned through marketing programs or meeting purchasing, sales or other objectives established by the suppliers. Once earned, the funds are applied against product cost or operating expenses. ACCOUNTING FOR STOCK BASED COMPENSATION As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), the Company measures compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") but provides pro forma disclosures of net income and earnings per share as if the fair value method (as defined in SFAS 123) had been applied beginning in 1996 (see Note 8). COMPREHENSIVE INCOME Effective November 2, 1998, the company adopted Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption had no material impact on the Company's net income or stockholders' equity. The Company's applicable components of comprehensive income for the fiscal years ended October 31, 1999 and November 1, 1998 were $104,000 of unrealized translation loss and $53,000 of unrealized translation gain, respectively. These amounts have not been displayed separately in stockholders' equity as they are immaterial in nature. INCOME TAXES Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. F-9 INCOME PER COMMON SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which replaced the previous presentation of earnings per share with a dual presentation of basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding. Dilutive common equivalent shares consist of stock options and warrants using the treasury stock method. For fiscal 1999 and 1998, the effect of stock options and warrants totaling 178,266 and 471,735, respectively, is not included as it would be anti-dilutive. The weighted average common and common equivalent shares consist of the following: Fiscal years ended -------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ---------- ----------- ----------- (in thousands) Weighted average common shares 20,571 19,783 16,731 Dilutive effect of stock options and warrants -- -- 904 ------ ------ ------ Weighted average common and common equivalent shares outstanding 20,571 19,783 17,635 ====== ====== ====== RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with current year financial statement presentation. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. NOTE 3 - ACQUISITIONS During fiscal 1997, the Company completed an acquisition that was accounted for as a pooling of interests. In fiscal 1999, information was discovered indicating that stock transactions had taken place rendering the pooling of interest accounting inappropriate. The impact on the Company's prior year financial statements was not material, therefore the prior statements have not been restated to reflect purchase accounting for this transaction. Intangible assets and equity were adjusted by $6.7 million at October 31, 1999 to reflect the proper accounting. During fiscal 1998, the Company completed seven separate acquisitions that were accounted for using the purchase method of accounting. In each case, the purchase price was allocated to the assets purchased and the liabilities assumed based on fair values at the date of acquisition. During the second quarter of fiscal 1999, the Company determined that a portion of its goodwill was impaired and recorded a charge to earnings (see Note 2 - Summary of Significant Accounting Policies - Intangible Assets and Note 14 - Restructuring and Other One-time Charges). The goodwill associated with each of the acquisitions described below was included in the fiscal 1999 write-off. These acquisitions are as follows: In November 1997, the Company acquired Microretailing, Inc., a Miami-based distributor, for consideration of $25 million consisting of 1,194,055 common shares. The excess of the purchase price over the fair value of net assets acquired was approximately $23.9 million and was being amortized using the straight-line method over 15 years. F-10 Also in November 1997, the Company acquired Advanced Information Services, Inc., a reseller, for consideration of $5 million consisting of 207,200 common shares, plus an earnout agreement with a guaranteed minimum payment of $7.5 million. The excess of the purchase price over the fair value of net assets acquired was approximately $12.6 million and was being amortized using the straight-line method over 15 years. During fiscal 1999, the Company paid $4.5 million in cash and issued notes totaling $10.0 million for the early termination of the earnout agreement. In December 1997, July 1998 and August 1998, the Company acquired resellers in four separate transactions for consideration of $6 million consisting of $2 million in cash, a total of 164,475 common shares and an earnout with a guaranteed minimum payment of $1.5 million. The excess of the purchase price over the fair value of net assets acquired was approximately $4.5 million and was being amortized using the straight-line method over 15 years. In June 1998, the Company acquired a reseller for $4.8 million of cash. The excess of the purchase price over the fair value of net assets acquired was approximately $4.2 million and was being amortized using the straight-line method over 15 years. The effect of these acquisitions on the Company's revenue, income and assets was not material. Therefore, proforma results are not presented. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consist of the following: October 31, November 1, 1999 1998 -------- -------- (in thousands) Equipment, furniture, fixtures and software $178,321 $157,431 Equipment under capital lease 22,188 20,587 Leasehold improvements 22,262 19,476 Land 3,112 3,112 -------- -------- 225,883 200,606 Less: accumulated depreciation and amortization 123,708 108,459 -------- -------- $102,175 $ 92,147 ======== ======== NOTE 5 - LEASES The following is a schedule by year of future minimum lease obligations under noncancelable leases together with the present value of the net minimum capital lease obligations as of October 31, 1999: F-11 Operating Capital Leases Leases ------- ------- Fiscal year ending in: (in thousands) 2000 $15,155 $ 3,030 2001 14,247 2,740 2002 12,087 1,364 2003 8,786 274 2004 5,219 9 Thereafter 2,395 -- ------- ------- Total minimum lease obligations $57,889 7,417 ======= Less: amount representing interest 840 ------- Present value of minimum lease obligations $ 6,577 ======= None of the leases contain significant restrictive provisions; however, some of the leases contain renewal options and provisions for payment by the Company of real estate taxes, insurance and maintenance costs. Total rent expense was (in thousands): Fiscal year ended: November 2, 1997 $15,007 November 1, 1998 $23,239 October 31, 1999 $26,939 Assets recorded under capital leases are included in Property and Equipment as follows: October 31, November 1, 1999 1998 -------- -------- (in thousands) Equipment $ 22,188 $ 20,587 Accumulated depreciation (15,225) (11,792) -------- -------- $ 6,963 $ 8,795 ======== ======== NOTE 6 - FINANCING ARRANGEMENTS During the fiscal year ended October 31, 1999, the Company maintained three financing agreements (the "Agreements") with financing facilities totaling $660 million at the end of the year. The Agreements included an accounts receivable facility (the "A/R Facility") and inventory financing facilities (the "Inventory Facilities"). Under the A/R Facility, the Company had the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At October 31, 1999, the net amount of sold accounts receivable was $255 million and the effective funding was LIBOR plus 3% (8.4% at October 31, 1999). The Inventory Facilities provided for borrowings up to $310 million. Within the Inventory Facilities, the Company had lines of credit for the purchase of inventory from selected product suppliers ("Inventory Lines of Credit") and a line of credit for general working capital requirements ("Supplemental Line of Credit"). Payments for products purchased under the Inventory Lines of Credit varied depending upon the product supplier, but generally were due between 30 and 60 days from the date of the advance. No interest or finance charges were payable on the Inventory Lines of Credit if payments were made when due. At October 31, 1999, the Company had $114 million outstanding under the Inventory Lines of Credit (included in accounts payable in the accompanying Balance Sheets), and $45 million outstanding under the Supplemental Line of Credit. F-12 Borrowings under the Agreements were secured by substantially all of the Company's assets, and the Agreements contained certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. On October 28, 1999, the Company entered into new financing facilities (the "Facilities") to replace the Agreements described above. The Facilities provide for borrowing of up to $540 million and include a $300 million revolving credit facility (the "Credit Facility") and $240 million in inventory financing facilities (the "New Inventory Facilities"). The Credit Facility includes a $145 million sublimit for the issuance of letters of credit. Borrowings under the Facilities are secured by substantially all of the Company's assets, subject to other liens permitted under the Facilities. The Facilities contain certain restrictive covenants, including capital expenditure limitations, a minimum interest coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) amount and a minimum debt to EBITDA ratio. The initial covenant measurement date is January 30, 2000, the end of the Company's first fiscal quarter. Borrowings under the Facilities are limited based on borrowing base formulas which consider eligible inventories, eligible accounts receivable and letters of credit. Borrowings are also subject to the satisfaction of customary conditions, including the absence of any material adverse change in the Company's business or financial condition. F-13 Interest rates on the Credit Facility are based on the agent's base rate plus a specified margin or LIBOR plus a specified margin. The current margins are 2.5% for base rate advances and 3.5% for LIBOR advances. The margins may be adjusted from time to time based on the Company's performance against covenants. The Credit Facility also includes letter of credit and unused line fees. The Credit Facility has a termination date of October 31, 2002. Payments for products purchased under the New Inventory Facilities vary depending upon the product supplier, but generally are due between 30 and 45 days from the date of the advance. No interest or finance charges are payable on the New Inventory Facilities if payments are made when due. The Company has the ability under one of the New Inventory Facilities to extend payments 30 days beyond the initial due date with a financing fee of LIBOR plus 3.75%. One of the New Inventory Facilities has a termination date of October 18, 2002 and the other has no defined termination date. Subsequent to October 31, 1999 the Company has refinanced all of its then outstanding financing arrangements using the Credit Facility and New Inventory Facilities entered into on October 28, 1999. Had the Credit Facility and New Inventory Facilities been in use at October 31, 1999 rather than the Company's prior financing facilities, selected balance sheet accounts on a pro forma basis would be as follows: As reported Pro forma -------- -------- (in thousands) Accounts receivable, net $220,386 $475,743 Inventory 336,653 336,653 All other current assets 94,806 94,806 -------- -------- Total current assets 651,845 907,202 Accounts payable (1) 549,394 549,394 All other current liabilities 43,120 43,120 -------- -------- Total current liabilities 592,514 592,514 Line of credit 45,000 300,357 (1) Accounts payable includes $114 million in inventory credit facility borrowings. The Company's outstanding balance of $45 million on its Supplemental Line of Credit has been classified as a long-term liability based on the Company's ability and intent to refinance the obligation on a long-term basis. In evaluating the ability to refinance the obligation on a long-term basis, in addition to ensuring a long-term financing facility is in place, the Company has evaluated its forecasted results of operations and capital requirements in comparison to its available credit and the financial covenants associated with its new financing arrangements. During the first quarter of fiscal year 2000 it became apparent that the Company would not meet its minimum EBITDA and maximum debt to EBITDA covenants for the quarter ending January 30, 2000 and for each of the remaining periods in fiscal 2000. The Company has since renegotiated the covenants for its Credit facility and its New Inventory Facilities to require minimum EBITDA of $2.5 million in the fiscal quarter ending April 30, 2000 and require minimum cumulative EBITDA of $12 million and $26 million for the two fiscal quarters ending July 30, 2000 and the three fiscal quarters ending October 29, 2000, respectively. Rolling twelve month EBITDA covenants for fiscal years 2001 and 2002 are based on quarterly EBITDA requirements ranging from $19 million to $25 million. The Company also renegotiated its related financial ratio covenants included in the agreements. In addition to the financing facilities discussed above, the Company maintained an accounts receivable purchase agreement (the "Purchase Agreement") with a commercial credit corporation (the "Buyer") whereby the Buyer purchased, from time to time at its option, on a limited recourse basis, certain accounts receivable of the Company. At October 31, 1999, the net amount of sold accounts receivable under the Purchase Agreement was $36 million. The Purchase Agreement was canceled subsequent to October 31, 1999. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. NOTE 7 - LONG-TERM OBLIGATIONS Long-term obligations consist of the following: October 31, November 1, 1999 1998 ------ ------ (in thousands) Capital lease obligations $6,577 $8,648 Less: current portion 2,497 3,095 ------ ------ $4,080 $5,553 ====== ====== Following are the annual maturities of long-term obligations (in thousands): Fiscal year ending in: 2000 $2,497 2001 2,515 2002 1,293 2003 263 2004 9 ------ $6,577 ====== F-14 NOTE 8 - STOCKHOLDERS' EQUITY EMPLOYEE STOCK OPTION AND AWARD PLANS The Company maintains three incentive plans for officers and other key employees of the Company: the MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1994, the 1997 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1998, and the 1998 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1999, (the "Incentive Plans"). The Incentive Plans authorize grants of Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights, Performance Shares, Restricted Stock, Dividend Equivalents and other Common Stock based awards. The total number of shares of common stock available for awards under the Incentive Plans is 5,800,000. The Company has issued NQSOs and ISOs under the Incentive Plans at prices representing the fair market value of the Company's common stock on the date of the grant. The NQSOs and ISOs are granted for terms of five or ten years and become exercisable on a pro-rata basis on each anniversary of the grant over a five-year period as long as the holder remains an employee of the Company. NQSOs under the Incentive Plans were also granted in fiscal 1994, fiscal 1997, and fiscal 1999 to selected employees in exchange for the employees' irrevocable waiver of a specific amount of base salary or bonus otherwise payable by the Company during a specific period. The options will vest in one-third increments beginning on the January 1 which is three years following the January 1 of the calendar year in which the participant elects to waive compensation. No other awards have been made under the Incentive Plans. In addition to the Incentive Plans, stock options are available under four plans for grant to certain officers and employees of the Company at prices representing the fair market value of the Company's common stock on the date of the grant. Options under these plans are granted for terms of ten years and become exercisable on a pro-rata basis on each anniversary date of the grant over a five to six-year period as long as the holder remains an employee of the Company. Changes during fiscal 1997, 1998 and 1999 in options outstanding under the employee stock option plans (including the Incentive Plans) were as follows: Weighted Average Number Exercise Price of Options per Share ---------- --------- Outstanding at November 3, 1996 1,856,143 $ 9.58 Granted 788,379 $20.12 Exercised (438,079) $ 9.44 Canceled or expired (107,474) $14.02 ---------- Outstanding at November 2, 1997 2,098,969 $13.28 Granted 1,081,575 $13.99 Exercised (79,936) $ 6.65 Canceled or expired (238,376) $17.63 ---------- Outstanding at November 1, 1998 2,862,232 $13.41 Granted 1,249,997 $ 8.24 Exercised (62,729) $ 7.53 Canceled or expired (857,160) $12.71 ---------- Outstanding at October 31, 1999 3,192,340 $11.63 ========== Exercisable at October 31, 1999 788,236 ========== F-15 The following table summarizes information about the Company's stock options at October 31, 1999:
Options Outstanding Options Exercisable -------------------------------------- -------------------------- Weighted Weighted Weighted Avg. Avg. Avg. Number Contractual Exercise Number Exercise Range of Outstanding Years Price Exercisable Price Exercise Prices (in thousands) Remaining per share (in thousands) per share - --------------- -------------- --------- --------- -------------- --------- $5.44 to $9.25 1,562 7.39 6.99 444 8.76 $10.88 to $19.44 1,412 7.80 15.00 270 14.12 $20.38 to $31.75 218 6.62 23.10 74 24.06 ------ ------ $5.44 to $31.75 3,192 7.52 11.63 788 12.03 ====== ======
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), the Company measures compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Had the Company determined compensation cost in accordance with SFAS No. 123, the Company's net income (loss) per share would have been reduced to the pro-forma amounts indicated below (in thousands except per share data): Fiscal year ended ----------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- Net income (loss) As reported $(169,022) $ (8,325) $ 25,197 Pro-forma $(172,421) $ (11,009) $ 23,374 Net income (loss) per common share As reported $ (8.22) $ (0.42) $ 1.43 Pro-forma $ (8.38) $ (0.56) $ 1.33 Pro-forma net income (loss) reflects only options granted after the fiscal year ended October 30, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro-forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period and compensation for options granted prior to October 30, 1995 is not considered. The per share weighted-average fair value of the stock options granted under the plan for the years ended November 2, 1997, November 1, 1998 and October 31, 1999 was $8.35, $11.71 and $4.23 respectively, based on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for all years: expected dividend yield of 0%, expected volatility of .724, a risk free interest rate of 4.85%, and an expected life of 3.31 years. F-16 PINACOR STOCK OPTION Effective as of May 2, 1998, an option was granted to an associate of the Company to purchase a total of 60 shares of Pinacor's common stock, representing six percent of Pinacor's total outstanding shares, at an exercise price of $150,000 per share. The option vests in installments over a three year period and terminates on the earliest to occur of (1) May, 2, 2002, (2) the date the associate ceases to be employed by the Company or any of its subsidiaries for any reason other than retirement, death or disability, or (3) one year after the date the associate ceases to be employed by the Company or any of its subsidiaries by reason of his retirement, death or disability. This option was terminated on January 12, 2000. DIRECTOR INCENTIVE PLANS Under the Company's 1995 Director Incentive Plan, as amended in April 1998 (the "Director Plan"), on November 1 of each year, commencing in 1998 and ending in 2004, each person serving as a Director of the Company who is not also an employee of the Company is automatically granted (i) 1,000 shares of the Company's common stock subject to certain restrictions and (ii) options to purchase 2,500 shares of the Company's common stock. The options vest over three years and are subject to certain stock price hurdles after each vesting date. In addition, options under the Director Plan were granted in fiscal 1999 to Directors in exchange for the Directors' irrevocable waiver of a specific amount of Director fees otherwise payable by the Company during a specific period. The options vest over three years and are subject to certain stock price hurdles after each vesting date. As of October 31, 1999, 120,833 options had been granted under the Director Plan at prices ranging from $5.88 to $22.00 per share. There were 9,667 options exercisable as of October 31, 1999. The aggregate number of shares of the Company's common stock available for awards under the 1995 Director Plan is 129,167. RESTRICTED STOCK PLAN In accordance with the provisions of a restricted stock plan approved in fiscal 1982, 45,000 shares of common stock were reserved for issuance. At October 31,1999, 39,938 shares had been awarded under the plan, and 5,062 additional shares may be awarded under the plan. PREFERRED STOCK PURCHASE RIGHTS In February 1989, as amended in September 1994, November 1996 and January 1999, the Company's Board of Directors adopted a Stockholder Rights Agreement (the "Rights Plan") and declared a dividend distribution of one Right for each share of the Company's common stock outstanding as of the close of business on March 7, 1989 and intends to issue one Right for each share of common stock issued between March 7, 1989 and the date of the distribution of the Rights. As amended, the Rights Plan provides that when exercisable, each Right will entitle its holder to purchase from the Company one one-hundredth (.01) of a share of Series C Junior Participating Preferred stock at a price of $19.90. The Company has reserved 500,000 preferred shares for issuance upon exercise of the Rights. Generally, the Rights become exercisable on the earlier of the date a person or group of affiliated or associated persons acquires or obtains the rights to acquire securities representing fifteen percent (15%) or more of the common stock of the Company or on the tenth day following the commencement of a tender or exchange offer which would result in the offeror beneficially owning fifteen percent (15%) or more of the Company's common stock without the prior consent of the Company. In the event that an unauthorized person or group of affiliated persons becomes the beneficial owner of fifteen percent (15%) or more of the common stock of the Company, proper provision shall be made so that each holder of a Right will have the right to receive, upon exercise thereof and the payment of the exercise price, that number of shares of common stock having a market value of two times the exercise price of the Right. The Rights will expire on October 29, 2000, unless redeemed earlier by the Company pursuant to authorization by the Board of Directors. F-17 Generally, in the event that the Company is involved in a merger or other business combination transaction after the Rights become exercisable, provision shall be made so that each holder of a Right shall have the right to receive, upon the exercise thereof and the payment of the exercise price, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the Right. ASSOCIATE STOCK PURCHASE PLAN In March 1995, as amended in March 1999, the Board of Directors and stockholders approved an associate stock purchase plan (the "Associate Plan"). The Associate Plan provides a means for the Company's employees to authorize payroll deductions up to 10% of their earnings to be used for the periodic purchase of the Company's common stock. Under the Associate Plan, the Company will initially sell shares to participants at a price equal to the lesser of 85% of the fair market value of the common stock at the beginning of a six month subscription period or 85% of fair market value at the end of the subscription period. The Associate Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The maximum number of shares that may be purchased under the Associate Plan is 1,000,000. The initial subscription period began July 1, 1995. As of October 31, 1999, 812,626 shares had been purchased under the Associate Plan. The Associate Plan was suspended effective December 2, 1999. As of that date, no additional payroll deductions were accepted for the purchase of stock. NOTE 9 - OTHER EXPENSES - NET Other expenses - net consists of the following: Fiscal years ended ----------------------------------- October 31, November 1, November 2, 1999 1998 1997 -------- -------- -------- (in thousands) Interest income $ (2,509) $ (3,780) $ (3,907) Interest expense 5,042 4,375 6,142 Flooring expense (1) 14,902 7,534 4,923 Expenses from the sale of accounts receivable 15,195 16,468 18,769 Amortization expense 7,579 8,629 1,871 Other 1,008 150 (172) -------- -------- -------- $ 41,217 $ 33,376 $ 27,626 ======== ======== ======== (1) Flooring expense represents amounts paid to finance companies that provide credit lines to certain reseller customers of the Company. F-18 NOTE 10 - INCOME TAXES The provision for (benefit from) income taxes consists of the following: Fiscal years ended ------------------------------------------ October 31, November 1, November 2, 1999 1998 1997 -------- -------- -------- (in thousands) Current Federal $(17,285) $ 1,698 $ 16,908 State and Foreign 1,107 249 4,241 Deferred (9,410) (1,040) (2,767) -------- -------- -------- $(25,588) $ 907 $ 18,382 ======== ======== ======== The components of deferred income tax expense (benefit) from operations are as follows: Fiscal years ended ---------------------------------- October 31, November 1, November 2, 1999 1998 1997 ------- ------- ------- (in thousands) Allowance for doubtful accounts $(4,820) $(2,839) $ (209) Software development costs 638 2,616 338 Depreciation and amortization (6,858) (863) (1,075) Restructuring reserves -- -- 210 Inventory valuation allowance 300 (709) (190) State deferral, net of federal benefit (845) 389 (488) All other - net 2,175 366 (1,353) ------- ------- ------- $(9,410) $(1,040) $(2,767) ======= ======= ======= Deferred tax assets, which are recorded as a component of other assets or other current assets, are comprised of the following: October 31, November 1, 1999 1998 ------- ------- Gross deferred tax assets: (in thousands) Depreciation and amortization $ 5,819 $ -- Allowance for doubtful accounts 7,346 8,282 Inventory valuation 2,680 3,448 Deferred service revenue 210 -- State net operating loss carry forward 1,985 -- Other 7,185 9,324 ------- ------- Total gross deferred tax assets 25,225 21,054 ------- ------- Gross deferred tax liabilities: Depreciation and amortization 4,510 2,904 Other 316 264 ------- ------- Total gross deferred tax liabilities 4,826 3,168 ------- ------- Net deferred tax asset $20,399 $17,886 ======= ======= F-19 In light of the Company's history of profitable operations (excluding restructuring and other one-time charges), management has concluded that it is more likely than not that the Company will ultimately realize the full benefit of its deferred tax assets related to future deductible items. Accordingly, the Company believes that no valuation allowance is required for the deferred tax assets in excess of deferred tax liabilities. The effective tax rate applied to income before income taxes differs from the expected federal statutory rate as follows: Fiscal years ended --------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- Federal statutory rate 35.0% 34.0% 35.0% Addition (reduction) in taxes resulting from: State income taxes, net of federal tax benefit 1.1 (7.4) 5.5 Non-deductible meals and entertainment (0.3) (6.3) 0.7 Goodwill amortization (18.7) (31.8) 0.3 Other (3.9) (0.7) 0.7 ----- ----- ----- 13.2% (12.2)% 42.2% ===== ===== ===== NOTE 11 - COMMITMENTS The Company has arrangements with major vendors and certain financing companies to develop inventory and accounts receivable financing facilities for certain reseller customers. These arrangements include repurchase agreements that would require the Company to repurchase inventory which might be repossessed from a reseller by the vendor or the financing company. As of October 31, 1999, such repurchases have been insignificant. The Company also provides a program whereby the Company may guarantee an addition to a reseller's credit facility with certain finance companies. The Company's maximum exposure for guaranteed amounts at October 31, 1999 was $14 million. On an ongoing basis, the Company assesses the exposure under the guarantee program and provides a reserve for potential losses. As of October 31, 1999, losses and reserves related to the guarantee program have not been material. NOTE 12 - EMPLOYEE BENEFIT PLAN In July 1988, a deferred compensation plan (the "Savings Plan") became effective for all eligible employees of the Company under the provisions of Section 401(k) of the Internal Revenue Code. Employees are eligible to participate on the first day of the Savings Plan quarter coincident with or following the date on which the employee satisfies all of the eligibility requirements. Employees may contribute a percentage of their salary subject to certain limitations. The Company has historically matched 25% of the employee contribution up to a maximum employee contribution of 6%, as defined in the Savings Plan. Participants are at all times fully vested in their contributions, and the Company contributions, if any, become fully vested to the participant after five years of employment. F-20 In addition to the Savings Plan, the Company has also adopted a supplemental deferred compensation plan (the "Supplemental Savings Plan") for employees holding key management positions or highly compensated employees for purposes of Title I of ERISA. Eligible employees may contribute a percentage of their salary subject to certain limitations as established by the Plan Administrator. The Company has historically matched 25% of the employee contribution. Participants are at all times fully vested in their contributions, and the company contributions, if any, become fully vested to the participant after five years of employment. Contributions to the Supplemental Savings Plan are held by a Trustee, however it is not qualified under the provisions of Section 401(k) of the Internal Revenue Code. All benefits payable under the Supplemental Savings Plan therefore are unsecured obligations of the Company. The Company recognized matching contribution expense for the Savings Plan and the Supplemental Savings Plan of $2.3 million, $1.0 million and $740,000 in fiscal years 1999, 1998 and 1997, respectively. NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows: Fiscal years ended ------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- (in thousands) Details of acquisitions: Fair value of assets acquired $ -- $53,793 $47,816 Liabilities assumed and acquisition- related accruals $ -- $59,080 $73,321 Cash acquired $ -- $ 101 $ 76 Note forgiven $ -- $ -- $ 124 Details of other financing activities: Capital lease obligations executed for equipment $ 2,211 $ 4,875 $ 3,834 Cash paid for: Interest $17,893 $22,677 $21,906 Income taxes $ 4,089 $ 3,332 $27,301 NOTE 14 - RESTRUCTURING AND OTHER ONE-TIME CHARGES FISCAL 1999 RESTRUCTURING AND OTHER ONE-TIME CHARGES During the fiscal year ended October 31, 1999, the Company recorded a total of $147 million ($132 million, or $6.42 per share, after taxes) of restructuring and other one-time charges. These charges were recognized over the last three quarters of fiscal 1999. The restructuring and other one-time charges included a $123 million write-down of impaired goodwill; $8 million for the write-down to net realizable value of software and equipment no longer utilized by the Company due to the implementation of a new branch automation system; $9 million in employee termination benefits; and $7 million primarily for facility consolidations. F-21 The goodwill was written off during the second fiscal quarter and resulted from businesses acquired primarily in fiscal 1997 and fiscal 1998. Increased competitive pressures in the industry as well as operating losses caused the Company to reassess the recoverability of its long-lived assets. The fair value of the assets, determined through a discounted cash flow analysis as well as other market analyses, was compared to the carrying amount of the assets and the difference was recorded as a charge to earnings. The charges associated with employee termination benefits consisted primarily of severance pay for approximately 560 associates. The reductions occurred in virtually all areas of the Company over the last three fiscal quarters of 1999 and were completed by October 31, 1999. The facility consolidations consisted of branch location closures and consolidations as well as consolidations of headquarters facilities. The charges represent lease buy out costs, excess rent expense over estimated sublease recoveries, broker commissions and other costs of consolidating the facilities. All actions on the facility consolidations were completed by October 31, 1999. The liability for restructuring accruals at October 31, 1999 was $10.7 million, consisting of $5.7 million for facility consolidations, $3.5 million for employee termination benefits and $1.5 million for business closure and other costs. On February 16, 2000, subsequent to the balance sheet date, the Company announced the reduction of approximately 250 positions and additional cost cutting initiatives. FISCAL 1998 RESTRUCTURING AND OTHER ONE-TIME CHARGES In February 1998, the company initiated a plan to restructure the Company into two independent businesses - an integration business ("MicroAge Technology Services") and a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc. ("Pinacor"). These businesses have separate management teams, operate autonomously in their respective marketplaces, and contract with headquarters for a limited number of services. In connection with the restructuring plan discussed above, the Company recorded a $5.6 million charge. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations, and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and MicroAge Technology Services as separate businesses. The charges associated with employee termination benefits consisted primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company and were completed at November 1, 1998. As of November 1, 1998, the remaining liability for restructuring activities was not material. F-22 NOTE 15 - SEGMENT REPORTING The Company operates primarily in two industry segments: the wholesale distribution of computer equipment through Pinacor and technology infrastructure services through MTS. The Company operates primarily in the United States, and therefore has only one reportable geographic segment. The accounting policies of the segments are the same as those described in Note 2 - Summary of Significant Accounting Policies. The following table presents certain segment financial information and the reconciliation of segment financial information to consolidated totals (in thousands):
Fiscal year ended October 31, 1999 ------------------------------------------------- Pinacor MTS Other Total ---------- ---------- ---------- ---------- Net revenue from external customers $4,283,720 $1,834,361 $ 31,532 $6,149,613 Intersegment revenue 1,152,561 -- 2,649 1,155,210 ---------- ---------- ---------- ---------- Total revenue $5,436,281 $1,834,361 $ 34,181 $7,304,823 Income (loss) before taxes(1) $ 3,105 $ (155,235) $ (2,842) $ (154,972) Interest expense $ 14,731 $ 12,828 $ 345 $ 27,904 Depreciation and amortization expense $ 16,879 $ 20,937 $ 3,139 $ 40,955 Total assets $ 644,268 $ 320,106 $ 9,791 $ 974,165 Fiscal year ended November 1, 1998 ------------------------------------------------- Pinacor MTS Other Total ---------- ---------- ---------- ---------- Net revenue from external customers $3,680,274 $1,798,885 $ 40,872 $5,520,031 Intersegment revenue 1,326,833 -- 884 1,327,717 ---------- ---------- ---------- ---------- Total revenue $5,007,107 $1,798,885 $ 41,756 $6,847,748 Income (loss) before taxes(1) $ 56,510 $ (39,007) $ 2,527 $ 20,030 Interest expense $ 4,776 $ 10,621 $ 59 $ 15,456 Depreciation and amortization expense $ 7,460 $ 28,645 $ 3,021 $ 39,126 Total assets $ 773,729 $ 517,208 $ 6,686 $1,297,623 Fiscal year ended November 2, 1997 ------------------------------------------------- Pinacor MTS Other Total ---------- ---------- ---------- ---------- Net revenue from external customers $2,837,883 $1,522,066 $ 19,259 $4,379,208 Intersegment revenue 1,268,644 -- -- 1,268,644 ---------- ---------- ---------- ---------- Total revenue $4,106,527 $1,522,066 $ 19,259 $5,647,852 Income (loss) before taxes $ 68,051 $ 1,345 $ 939 $ 70,335 Interest expense $ 13,601 $ 3,323 $ 73 $ 16,997 Depreciation and amortization expense $ 8,725 $ 9,955 $ 487 $ 19,167 Total assets $ 668,743 $ 460,322 $ 4,046 $1,133,111
F-23 Reconciliation Fiscal years ended --------------------------------------- October 31, November 1, November 2, 1999 1998 1997 ----------- ----------- ----------- Revenue Total revenue for segments $ 7,304,823 $ 6,847,748 $ 5,647,852 Elimination of intersegment revenue (1,155,210) (1,327,717) (1,268,644) ----------- ----------- ----------- Total consolidated revenue $ 6,149,613 $ 5,520,031 $ 4,379,208 =========== =========== =========== Income (loss) before taxes Total from segments $ (154,972) $ 20,030 $ 70,335 Unallocated amounts (39,638) (27,448) (26,756) ----------- ----------- ----------- Total consolidated income (loss) before taxes $ (194,610) $ (7,418) $ 43,579 =========== =========== =========== Interest expense - net Total from segments $ 27,904 $ 15,456 $ 16,997 Unallocated amounts 4,726 9,141 8,198 ----------- ----------- ----------- Total consolidated net interest expense $ 32,630 $ 24,597 $ 25,195 =========== =========== =========== Depreciation and amortization expense Total from segments $ 40,955 $ 39,126 $ 19,167 Unallocated amounts 3,619 891 4,470 ----------- ----------- ----------- Total consolidated depreciation and amortization expense $ 44,574 $ 40,017 $ 23,637 =========== =========== =========== Total assets Total from segments $ 974,165 $ 1,297,623 $ 1,133,111 Intersegment asset elimination (46,757) (481) (535) Unallocated amounts (2) (140,765) 18,001 (213,180) ----------- ----------- ----------- Total consolidated assets $ 786,643 $ 1,315,143 $ 919,396 =========== =========== =========== (1) Includes an allocated portion of restructuring and other one-time charges for the fiscal years ended October 31, 1999 and November 1, 1998. (2) Unallocated total assets includes negative amounts of $255,357,000, $38,962,000 and $289,689,000 for receivables sold to a finance company at October 31, 1999, November 1, 1998 and November 2, 1997, respectively. Gross receivables are included in the segments and the offsetting sale amount is included in a corporate balance sheet. F-24 NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Consolidated quarterly financial information for fiscal 1999 and 1998 is as follows (in thousands except per share data):
Fiscal 1999 ------------------------------------------------------- Quarter ended January 31 May 2 (1) August 1 (2) October 31 (3) ----------- ----------- ----------- ----------- Revenue $ 1,444,841 $ 1,656,541 $ 1,514,480 $ 1,533,751 Gross profit $ 101,770 $ 86,638 $ 99,183 $ 85,389 Operating income (loss) $ 12,483 $ (153,546) $ 4,277 $ (16,607) Net income (loss) $ 2,066 $ (147,341) $ (3,170) $ (20,577) =========== =========== =========== =========== Net income (loss) per common and common equivalent share $ 0.10 $ (7.19) $ (0.15) $ (0.99) =========== =========== =========== =========== Fiscal 1998 ------------------------------------------------------- Quarter ended February 1 May 3 (4) August 2 November 1 ----------- ----------- ----------- ----------- Revenue $ 1,179,011 $ 1,326,950 $ 1,441,246 $ 1,572,824 Gross profit $ 73,825 $ 84,581 $ 86,671 $ 108,164 Operating income (loss) $ 764 $ (671) $ 8,884 $ 16,981 Net income (loss) $ (6,116) $ (5,957) $ 26 $ 3,722 =========== =========== =========== =========== Net income (loss) per common and common equivalent share $ (0.31) $ (0.30) $ 0.00 $ 0.18 =========== =========== =========== ===========
Totals may not crossfoot due to rounding. (1) The fiscal quarter ended May 2, 1999 includes $134,159,000 of restructuring and other one-time charges. (2) The fiscal quarter ended August 1, 1999 includes $5,411,000 of restructuring and other one-time charges. (3) The fiscal quarter ended October 31, 1999 includes $7,892,000 of restructuring and other one-time charges. (4) The fiscal quarter ended May 3, 1998 includes $5,600,000 of restructuring and other one-time charges. F-25 MicroAge, Inc. Schedule II Valuation and Qualifying Accounts and Reserves (in thousands) Years ended October 31, 1999, November 1, 1998 and November 2, 1997
Balance at Charged to Charged Balance beginning of costs and to other Dedcutions/ at end Description period expenses accounts write-offs of period ----------- -------- -------- -------- -------- -------- Allowance for doubtful accounts: Year ended November 2, 1997 $ 8,405 $ 9,208 $ 0.00 $ (6,647) $ 10,966 ======== ======== ======== ======== ======== Year ended November 1, 1998 $ 10,966 $ 13,640 -- $ (4,188) $ 20,418 ======== ======== ======== ======== ======== Year ended October 31, 1999 $ 20,418 $ 28,794 -- $(19,532) $ 29,680 ======== ======== ======== ======== ========
S-1 1999 10-K EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 3.1 Restated Certificate of Incorporation of MicroAge, Inc. (Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 3.2 By-Laws of MicroAge, Inc., amended and restated as of July 16, 1998 (Incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-62763, filed on September 2, 1998) 4.1 Specimen Common Stock Certificate 4.2 Amended and Restated Rights Agreement, dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (Incorporated by reference to Exhibit 1.1 to the Form 8-A filed January 13, 1994) 4.2.1 First Amendment, dated as of November 5, 1996, by and between MicroAge, Inc. and American Stock Transfer and Trust Company to Amended and Restated Rights Agreement, dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (Incorporated by reference to Exhibit 4.2.1 to the Annual Report on Form 10-K for year ended November 3, 1996) 4.2.2 Second Amendment, dated January 28, 1999, by and between MicroAge, Inc. and American Stock Transfer and Trust Company to Amended Restated Rights Agreement, dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (incorporated by reference to Exhibit 4.2.3 to the Registration Statement on Form S-8 filed March 3, 1999) 4.2.3 Third Amendment, dated September 30, 1999 by and between MicroAge, Inc. and American Stock Transfer and Trust Company to Amended and Restated Rights Agreement dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (incorporated by reference to Exhibit 1.4 to the Form 8-K filed October 25, 1999) 10.1 MicroAge, Inc. Executive Supplemental Savings Plan (1), amended and restated as of October 31, 1997 (Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.2 Form of MicroAge 1994 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.2.1 Form of First Amendment, dated as of December 14, 1995, to the MicroAge 1994 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.2.1 to the Annual Report on Form 10-K for the year ended November 3, 1996) 10.3 MicroAge, Inc. 1998 Associate Stock Award Plan, effective as of September 24, 1998 (1) (incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended November 1, 1998) 10.4 Form of MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.5 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Jeffrey D. McKeever and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.5.1 First Amendment, dated January 12, 2000, to Amended and Restated Employment Agreement, by and between Jeffrey D. McKeever and MicroAge, Inc. (1) 10.6 Supplemental Executive Retirement Plan, dated as of October 1, 1992 (1) (Incorporated by reference to Exhibit 10.65.2 to Registration Statement No. 33-33094) 10.6.1 First Amendment to Supplemental Executive Retirement Plan, dated September 26, 1996 (1) (Incorporated by reference to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year ended November 2, 1997) 10.6.2 Second Amendment to Supplemental Executive Retirement Plan, dated October 1, 1997 (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual Report on Form 10-K for fiscal year ended November 2, 1997) 10.7 Amended and Restated Split-Dollar Insurance Agreement, dated as of December 14, 1994, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.8 Endorsement Split-Dollar Insurance Agreement, dated November 25, 1997, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended February 1, 1998) 10.9 MicroAge, Inc. Compensation Trust, dated February 1, 1998, by and between MicroAge, Inc. and Northern Trust Bank of Arizona, N.A. (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended February 1, 1998) 10.10 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.10.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.11 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated as of April 23, 1999, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.12 Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and MCCI Holding Company, effective as of May 2, 1998 (1) (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K for the fiscal year ended November 1, 1998) 10.12.1 First Amendment, dated as of December 31, 1998, to Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and MCCI Holding Company (1) (incorporated by reference to Exhibit 10.11.1 to the Annual Report on Form 10-K for the fiscal year ended November 1, 1998) 10.13 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Alan P. Hald and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.14 Split--Dollar Insurance Agreement, dated as of December 24, 1992, by and between MicroAge, Inc. and Alan P. Hald (1) 10.14.1 First Amendment, dated June 18, 1999, to the 1992 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Alan P. Hald (1) 10.15 Split-Dollar Insurance Agreement, dated as of January 29, 1997, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.15.1 First Amendment, dated June 18, 1999, to the 1997 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Alan P. Hald (1) 10.16 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.16.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.17 MicroAge, Inc. Compensation Trust for Alan P. Hald, dated February 23, 1999, by and between MicroAge, Inc. and Northern Trust Bank of Arizona (1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 1999) 10.18 Agreement and General Release, dated as of June 18, 1999 by and between MicroAge, Inc. and Alan P. Hald (1) 10.19 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.20 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the fiscal year ended October 29, 1995) 10.21 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and James R. Daniel (1) (Incorporated by reference to Exhibit 10.7.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.21.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and James R. Daniel (1) (Incorporated by reference to Exhibit 10.7.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.22 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated as of April 23, 1999, by and between MicroAge, Inc. and James R. Daniel (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.23 Employment Agreement, dated as of January 4, 1999, by and between Robert G. O'Malley and Pinacor Inc. (1) (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended November 1, 1998) 10.24 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.8.1 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.24.1 First Amendment, dated as of June 24, 1999, to the 1995 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) 10.24.2 Second Amendment dated as of June 24, 1999, to the 1995 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) 10.25 Split-Dollar Insurance Agreement, dated as of January 27, 1997, by and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.8.2 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.25.1 First Amendment, dated June 24, 1999, to the 1997 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) 10.25.2 Second Amendment dated June 24, 1999, to the 1997 Split-Dollar Insurance Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) 10.26 MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) (Incorporated by reference to Exhibit 10.8.3 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.27 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated as of April 23, 1999, by and between MicroAge, Inc. and Robert G. O'Malley (1) (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.28 Agreement and General Release, dated as of June 24, 1999 by and among MicroAge, Inc., Pinacor, Inc., and Robert G. O'Malley. (1) 10.29 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.29.1 First Amendment, dated as of April 1, 1998, to Amended and Restated Employment Agreement, by and between Christopher J. Koziol and MicroAge, Inc. (1) 10.29.2 Second Amendment, dated as of January 28, 1999, to Amended and Restated Employment Agreement, by and between Christopher J. Koziol and MicroAge, Inc. (1) 10.29.3 Third Amendment, dated as of September 30, 1999, to Amended and Restated Employment Agreement, by and between Christopher J. Koziol and MicroAge, Inc. (1) 10.29.4 Fourth Amendment, dated as of February 15, 2000, to Amended and Restated Employment Agreement, by and between Christopher J. Koziol and MicroAge, Inc. (1) 10.30 Split Dollar Insurance Agreement, dated as of September 1, 1995, by and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.9.1 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.31 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Christopher J. Koziol (1) (Incorporated by reference to Exhibit 10.9.2 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.31.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Christopher J. Koziol (1) (Incorporated by reference to Exhibit 10.9.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.32 MicroAge, Inc. 1999 Management Equity Program Award Agreement, dated as of April 23, 1999, by and between MicroAge, Inc. and Christopher J. Koziol (1) (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.33 Director's Fee Waiver, dated April 21, 1999, by and between MicroAge, Inc. and Lynda M. Applegate (1) 10.34 Director's Fee Waiver, dated April 11, 1999, by and between MicroAge, Inc. and Cyrus F. Freidheim, Jr. (1) 10.35 Director's Fee Waiver, dated April 15, 1999, by and between MicroAge, Inc. and Roy A. Herberger, Jr. (1) 10.36 Director's Fee Waiver, dated April 13, 1999, by and between MicroAge, Inc. and William H. Mallender (1) 10.37 Director's Fee Waiver, dated April 12, 1999, by and between MicroAge, Inc. and Steven G. Mihaylo (1) 10.38 Director's Fee Waiver, dated April 22, 1999, by and between MicroAge, Inc. and Dianne C. Walker (1) 10.39 The Amended and Restated MicroAge, Inc. 1989 Stock Option Plan (1) (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended January 30, 1994) 10.40 The Amended and Restated MicroAge, Inc. Directors' Stock Option Plan (1) (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended January 30, 1994) 10.41 Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.41.1 First Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended April 30, 1995) 10.41.2 Second Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated March 14, 1996 (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 28, 1996) 10.41.3 Third Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated October 28, 1996 (1) (Incorporated by reference to Exhibit 10.22.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.41.4 Fourth Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated December 4, 1996 (1) (Incorporated by reference to Exhibit 10.23.4 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.41.5 Fifth Amendment, dated January 31, 1997, to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended February 2, 1997). 10.41.6 Sixth Amendment, dated August 1, 1997, to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended August 3, 1997). 10.41.7 Seventh Amendment to the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998). 10.41.8 Eighth Amendment to the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998). 10.42 MicroAge 1994 Long-Term Incentive Plan (1) (Incorporated by reference to Exhibit A to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 23, 1994, File No. 0-15995) 10.43 MicroAge, Inc. 1997 Long-Term Incentive Plan (1) (Incorporated by reference to Appendix B to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on April 1, 1998, File No. 0-15995) 10.44 1995 MicroAge, Inc. Director Incentive Plan, as amended and restated (1) (Incorporated by reference to Appendix C to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on April 1, 1998, File No. 0-15995) 10.45 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and William H. Mallender (1) (Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.46 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and Lynda M. Applegate (1) (Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.47 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and Cyrus F. Freidheim (1) (Incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.48 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and Roy A. Herberger (1) (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.49 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and Dianne C. Walker (1) (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.50 MicroAge, Inc. 1995 Director Incentive Plan Stock Option Agreement between MicroAge, Inc. and Steven G. Mihaylo (1) (Incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q for the quarter ended May 2, 1999) 10.51 MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Appendix B to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 15, 1995, File No. 0-15995) 10.51.1 First Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Exhibit 99.1 to Registration Statement No. 33-58901) 10.51.2 Second Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for fiscal quarter ended January 28, 1996) 10.51.3 Third Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) 10.51.4 Fourth Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) 10.52 Form of Administrative Services Agreement for the Non-qualified Deferred Compensation Plan Document by The Prudential Insurance Company of America with the Company and Pinacor, Inc., dated July 15, 1999 (1) (Incorporated by reference to Exhibit 10.3 of Quarterly Report on Form 10-Q for the quarter ended August 1, 1999) 10.53 Form of Trust Agreement by and between Prudential Trust Company and the Company and Pinacor, Inc. for the Executive Supplemental Savings Plan, dated August 1, 1999 (1) (Incorporated by reference to Exhibit 10.4 of Quarterly Report on Form 10-Q for the quarter ended August 1, 1999) 10.54 Form of The Prudential Insurance Company of America Administrative Services Agreement for an Individually Designed Plan Document with the Company and Pinacor, Inc., dated July 15, 1999 (1) (Incorporated by reference to Exhibit 10.5 of Quarterly Report on Form 10-Q for the quarter ended August 1, 1999) 10.55 Form of Trust Agreement by and between Prudential Trust Company and the Company and Pinacor, Inc. for the Retirement Savings Plan, dated August 1, 1999 (1) (Incorporated by reference to Exhibit 10.6 of Quarterly Report on Form 10-Q for the quarter ended August 1, 1999) 10.56 Credit Agreement dated as of October 28, 1999 by and among MicroAge Technology Services, L.L.C. and Pinacor, Inc. as Borrowers, MicroAge, Inc., as Parent Guarantor, the Lender Parties thereto, and Citibank, N.A., as Collateral Agent and Administrative Agent for Lender Parties 10.56.1 Amendment No. 1 and Waiver dated as of January 30, 2000 to the Credit Agreement among MicroAge Technology Services, L.L.C. and Pinacor, Inc. as Borrowers, MicroAge, Inc., as Parent Guarantor, the Lender Parties thereto, and Citibank, N.A., as Collateral Agent and Administrative Agent for Lender Parties. 10.57 Amended and Restated Agreement for Wholesale Financing, dated as of October 29, 1999 by and among IBM Credit Corporation, as Lender, MTS Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology Services, L.L.C., Pinacor, Inc., collectively as customers and MicroAge, Inc. as Parent 10.57.1 Acknowledgment, Waiver and Amendment No.1 dated January 30, 2000 to Amended and Restated Agreement for Wholesale Financing dated as of October 29, 1999 by and among IBM Credit Corporation, as Lender, MTS Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology Services, L.L.C., Pinacor, Inc., collectively as customers and MicroAge, Inc. as Parent 10.58 COMPAQ Computer Corporation Dealer Agreement, dated April 1, 1984, by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.1 to Registration Statement No. 33-14333) 10.59 COMPAQ Computer Corporation Central Purchase Agreement, dated November 21, 1983, by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.2 to Registration Statement No. 33-14333) 10.60 Amendment, dated June 15, 1992, to the COMPAQ Computer Corporation Central Purchase Agreement dated November 21, 1983 by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) 10.61 Apple Authorized Dealer Sales Agreement, dated as of April 1, 1989, by and between Apple Computer, Inc. and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for the fiscal year ended September 30, 1989) 10.61.1 Amendment, dated April 1, 1989, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.4.1 to the Annual Report on Form 10-K for the fiscal year ended September 30, 1990) 10.61.2 Letter Agreement, dated September 30, 1992, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) 10.61.3 Letter Agreement, dated February 28, 1994, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24.3 to the Annual Report on Form 10- K for the fiscal year ended October 30, 1994) 10.61.4 Letter Agreement, dated June 23, 1994, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24.4 to the Annual Report on Form 10- K for the fiscal year ended October 30, 1994) 10.62 Authorized Apple Wholesaler U.S. Sales Agreement, dated April 2, 1998, by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (incorporated by reference to Exhibit 10.44 to the Annual Report on Form 10-K for the fiscal year ended November 1, 1998) 10.63 U.S. First Tier Reseller Agreement, dated as of March 1, 1997, by and between Hewlett- Packard Company and MicroAge, Inc. (Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.64 Form of Franchise Agreement, effective December 8, 1993, by and between MicroAge, Inc. and its franchisees (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.64.1 Rider to Franchise Agreement, effective December 1993, by and between MicroAge, Inc. and its existing franchisees (Incorporated by reference to Exhibit 10.26.1 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.64.2 Rider to Franchise Agreement, effective December 1993, by and between MicroAge, Inc. and its new franchisees (Incorporated by reference to Exhibit 10.26.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.65 Form of Franchise Agreement by and between MicroAge, Inc. and its franchisees effective as to franchise agreements executed after March 1997 (Incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.66 Form of Purchasing Agreement, effective January 1997, by and between MicroAge, Inc. and its Independent Computer Dealers (Incorporated by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.67 Form of Purchase Agreement, effective January 1997, by and between MicroAge, Inc. and its resellers (Incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.68 Triple Net Industrial Lease, dated as of December 21, 1993, by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.69 Triple Net Industrial Lease, dated July 28, 1993, by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.69.1 Amendment No. One, dated December 21, 1993, to Triple Net Industrial Lease dated July 28, 1993 by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.70 Lease Amendment, dated September 9, 1994, to Triple Net Industrial Leases dated July 16, 1985, July 28, 1993, and December 21, 1993 by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.34.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.71 Lease Agreement, dated November 18, 1994, by and between Duke Realty Limited partnership and Kenco Group, Inc. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.71.1 Assignment and Assumption of Lease Agreement, dated July 18, 1994, to Lease dated November 18, 1994 by and between Duke Realty Limited partnership and Kenco Group, Inc. (Incorporated by reference to Exhibit 10.2.1 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.72 Industrial Lease, dated August 28, 1996, by and between MICC Venture and MicroRetailing Inc., d/b/a Inter PC and d/b/a Micro Age (Incorporated by reference to Exhibit 10.55 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 11 EPS Calculation 21 List of Subsidiaries of MicroAge, Inc. 23 Consent of Independent Accountants 27 Financial Data Schedule 99.1 Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements 99.2 Company and ESOT Rights Agreement, dated as of April 27, 1990, by and between MicroAge, Inc., The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust and Citizens and Southern Trust Company (Georgia), N.A., solely as Trustee of the ESOT and not in its individual capacity (Incorporated by reference to Exhibit 28.4 to the Current Report on Form 8-K dated May 7, 1990) 99.3 Trust Agreement, dated December 30, 1994, by and between MicroAge, Inc. and First Interstate Bank of Arizona, N.A., as Trustee on behalf of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust (Incorporated by reference to Exhibit 99.8 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) - ---------- (1) Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. EX-4.1 2 SPECIMEN STOCK CERTIFICATE NUMBER SHARES MicroAge(R), Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 594928 10 3 SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT IS THE OWNER OF fully paid and non-assessable shares of COMMON STOCK, par value $.01 per share of MICROAGE, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile signatures of its duly authorized officers. DATED /s/ Jeffrey D. McKeever CHAIRMAN OF THE BOARD /s/ SECRETARY COUNTERSIGNED AND REGISTERED AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE AMERICAN BANK NOTE COMPANY. The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. This certificate also evidences and entitles the holder hereof to certain rights as set forth in an Amended and Restated Rights Agreement dated as of September 28, 1994 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of MicroAge, Inc. Under certain circumstances, as set forth in the Amended and Restated Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. MicroAge, Inc. will mail to the holder of this certificate a copy of the Amended and restated Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Amended and Restated Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Amended and Restated Rights Agreement) may become null and void. KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws and regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT- Custodian --------- ----------- (Cust) (Minor) under Uniform Gifts to Minors Act --------------------------- (State) UNIF TRF MIN ACT- Custodian (until age ) ---------- ------- (Cust) under Uniform Transfers -------------- (Minor) to Minors Act ------------------------- (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, hereby sell, assign and transfer unto. ----------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - -------------------------------------------------------------------------- of capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - ------------------------------------------------------------------------ to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ---------------------------------- X ---------------------------------------------------------------- X ---------------------------------------------------------------- THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NOTICE: NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By ---------------------------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.5.1 3 AMENDMENT TO MCKEEVER AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT This First Amendment (the "AMENDMENT") to the Amended and Restated Employment Agreement (the "EMPLOYMENT AGREEMENT") by and between MICROAGE, INC., a Delaware corporation (the "COMPANY") and JEFFREY D. MCKEEVER (the "EXECUTIVE") is made as of this 12th day of January, 2000 by and between the Company and Executive. RECITALS: WHEREAS, the Company and Executive entered into the Employment Agreement on November 4, 1996; and WHEREAS, pursuant to Section 7.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company granted to Executive the option to purchase 6% of the outstanding common stock of Pinacor, Inc., an indirect wholly-owned subsidiary of the Company ("PINACOR"), for the aggregate purchase price of Nine Million Dollars ($9,000,000), all in accordance with the terms of the Non-Qualified Stock Option Agreement (Jeffrey D. McKeever) effective as of May 2, 1998 (the "PINACOR OPTION AGREEMENT"), which is attached to this Amendment as Attachment A; and WHEREAS, Executive has surrendered all of his rights under the Pinacor Option Agreement by delivering notice of such surrender to Mr. William Mallender, Chairman of the Compensation Committee of the Board, a copy of which is attached to this Amendment as Attachment B; and WHEREAS, the Company and Executive desire to amend the Employment Agreement to pay Executive a bonus upon the disposition of Pinacor as consideration for Executive's surrender of all rights under his Option Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: AGREEMENTS: 1. Section 2.2 of the Employment Agreement (BONUS PAYMENTS) is hereby amended by adding a new paragraph (c) to the end thereof which shall read as follows: (c) Executive shall, in addition, be entitled to a bonus payment upon the Disposition (as defined in Section 7.1) of Pinacor, Inc., a Delaware corporation ("PINACOR") if the Disposition occurs during Executive's period of employment hereunder or within one year following his termination of employment for reasons of death, Total Disability (as defined in Section 7.1) or Retirement (as defined in Section 7.1). The bonus shall be payable in one lump sum within ten (10) days following the Disposition. The bonus shall equal Six Percent (6%) of the amount by which the Disposition Price (as defined in Section 7.1) exceeds $150,000,000. 2. Section 7.1 of the Employment Agreement (DEFINITIONS) is hereby amended by adding new paragraphs (yy), (zz) and (aaa) to the end thereof which shall read as follows: (yy) "DISPOSITION" shall mean the sale or other transfer of all or substantially all of the common stock or assets of Pinacor or MCCI Holding Company to any individual or entity other than an "Affiliate", or the merger, consolidation or other combination of Pinacor or MCCI Holding Company with any entity other than an "Affiliate". For this purpose, an "Affiliate" is any entity that is part of the same controlled group of corporations as the Company within the meaning of Section 1563 of the Code. (zz) "DISPOSITION PRICE" shall mean the aggregate value placed on the common stock or assets of Pinacor or MCCI Holding Company by the parties to the Disposition or, if the parties to the Disposition do not expressly agree to an aggregate value, the Disposition Price shall be the value that the Compensation Committee of the Board determines to be the inherent aggregate value of the Pinacor or MCCI Holding Company common stock or assets for purposes of the Disposition. (aaa) "PINACOR" - as defined in Section 2.2(c). 3. The provisions of this Amendment shall amend only those provisions of the Employment Agreement referred to herein and those provisions not expressly amended hereby shall remain in full force and effect. 4. The modifications made by this Amendment shall be effective as of the date of execution of this Amendment. -2- IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. COMPANY: EXECUTIVE: MICROAGE, INC. /s/ Jeffrey D. McKeever ---------------------------------------- Jeffrey D. McKeever By: /s/ Jeffrey D. McKeever ------------------------------- Name: Jeffrey D. McKeever Title: Chairman of the Board and Chief Executive Officer -3- EX-10.14 4 1992 SPLIT-DOLLAR INSURANCE AGREEMENT EXHIBIT B Split-Dollar Insurance Agreement THIS AGREEMENT is made and entered into this 24th day of December 1992 by and between MicroAge, Inc., a Delaware corporation (the "Company") and Alan Hald (the "Executive"); WHEREAS, the Company has agreed to provide a $1,000,000 death benefit to the Executive during the term of his employment under the Employment Agreement dated as of October 1, 1992 by and between the Company and the Executive (the "Employment Agreement"); and WHEREAS, the Company and the Executive agree that this death benefit will be provided under a life-paid-up-atage-65 policy (the "Policy") issued by The Northwestern Mutual Life Insurance Company (the "Insurer"); and WHEREAS, the Company shall receive the Policy Cash Value (as defined herein) or the face value of the Policy in excess of $1,000,000 in the event the Executive incurs a Substantial Risk of Forfeiture (as defined herein); and WHEREAS, this Agreement is being entered into pursuant to Section 2-A(a) of the Employment Agreement (terms not otherwise defined herein shall have the meanings attributed to them in the Employment Agreement); NOW, THEREFORE, effective as of the date hereof, the Company and the Executive agree as follows: SECTION 1 ISSUANCE, OWNERSHIP, PREMIUMS The Insurer shall issue the Policy to the Executive, who shall own the Policy, subject to the Company's rights recited hereinafter. The Company shall pay all required annual premiums of at least $58,000 during the term of the Policy, but not after death, Retirement, Total Disability or other termination of employment of the Executive under the Employment Agreement. The Executive agrees to report taxable income attributable to the Policy as required under applicable rulings of the Internal Revenue Service. The total death benefit under the Policy shall be of whatever amount is selected by the Company, so long as the proceeds of the Policy are at least adequate to pay Executive's designated beneficiary the $1,000,000 death benefit. The Policy shall be dividend-bearing, and the dividends shall be used to purchase additional amounts of paid-up life insurance on the Executive's life. Neither an insured amount in excess of the $1,000,000 nor the additional amounts provided by application of dividends shall expand the Company's obligation to provide the stated death benefit of $1,000,000. Photostatic copies of the Policy, including the policy -2- application theref or, shall be attached as exhibits to this Agreement. During the term of this Agreement, the Company will not exercise nor withhold its consent TO the exercise by Policy Owner of any rights, privileges or options conferred by the terms of the Policy on the Insured other than the right to borrow (which shall require the prior written consent of the Company) against the aggregate cash value in the Policy (subject to the rights of the Company as SET forth herein). With the prior written consent of the Executive, the Company may borrow against the aggregate cash value in the Policy. SECTION 2 DEATH The Policy shall be appropriately endorsed to provide that at the death of the Executive his designated beneficiary shall be paid $1,000,000 and the excess of the Policy proceeds shall be paid to the Company. SECTION 3 POLICY CASH VALUE AND SUBSTANTIAL RISK OF FORFEITURE For all purposes of this Agreement, the term "Policy Cash Value" shall mean the lesser of (i) the aggregate premiums paid by the Company or (ii) the total -3- cash value of the Policy on the date the Policy Cash Value IS determined. For all purposes of this Agreement, "Substantial Risk of Forfeiture" means (i) in the event of Executive's death prior to age 65, the death proceeds of the Policy in excess of $1,000,000; and (ii) in the event of Executive's termination of employment for any reason other than death, the Policy Cash Value. SECTION 4 RETIREMENT, ETC. At the Executive's age 65 (or earlier termination of his employment under the Employment Agreement by the Company other than for dearh), the Policy Cash Value shall paid to the Company, and the Policy shall become solely the property of the Executive. Any cash value in excess of the Policy Cash Value shall be the property of the Executive. SECTION 5 COLLATERAL ASSIGNMENT Notwithstanding that the Executive is the owner of the Policy, the Company has certain rights thereto as provided herein. The Executive has a right to (i) $1,000,000 in death proceeds if he dies prior to his termination of employment -4- and (ii) any CASH value in excess of the Policy Cash Value. So much of the Policy proceeds upon Executive's death as exceeds $1,000,000 shall be paid by the Insurer to the Company, and, upon Executive's termination of employment for any reason other than death, the Policy Cash Value shall be paid by the Insurer to the Company. Those rights of the Company shall be written into a collateral assignment of the Policy, which shall be executed by the Executive, delivered to the Company and made a part of this Agreement. SECTION 6 MISCELLANEOUS (1) This Agreement shall terminate at termination of the Executive's employment under the Employment Agreement. (2) This Agreement may be amended only in a writing signed by the Company and the Executive. Executive agrees not to amend the Policy without the written consent of the Company. (3) This Agreement shall be construed in accordance with the laws of the State of Arizona. (4) If any provision hereof is deemed unenforceable, said provision shall be interpreted in a manner which approximates the desired outcome. The unenforceability Executive") of any provision hereunder shall not affect the other provisions hereunder. -5- (5) This Agreement may not be assigned by either party without the consent of the other, except that a corporate successor to the Company may accede to the Company's rights and obligations hereunder. (6) Except as otherwise expressly provided for herein, the provisions of Section 6 of the Employment Agreement are incorporated herein and made a part hereof. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on this 24th day of December, 1992, at Tempe, Arizona. /s/ Alan Hald - ----------------------------- ---------------------------------------- Witness: Alan Hald ("Executive") - ----------------------------- MICROAGE, INC. Witness: ("Company") By: /s/ Jeffrey D. McKeever ------------------------------------ Name: Jeffrey D. McKeever Title: -6- COLLATERAL ASSIGNMENT Under Policy Number 12331341 (the "Policy") Issued by The Northwestern Mutual Life Insurance Company Policy Owner and Insured: Alan Hald In compliance with the Employment Agreement dated as of October 1, 1992 executed by and between MicroAge, Inc. (the "Company") and Alan Hald (the "Policy Owner") and a split-dollar insurance agreement of even date herewith between the Policy Owner and the Company, Policy Owner hereby agrees to assign the following interests in the Policy to the Company: (1) If Policy Owner dies prior to his termination of employment with the Company, The Northwestern Mutual Life Insurance Company ("NML") shall pay any death benefit in excess of $1,000,000 to the Company. (2) In the event of Policy Owner a termination of employment with the Company for any reason other than death, NML shall pay the Policy Cash Value (i.e., the lesser of the total cash value of the Policy or the aggregate amount of premiums paid by the Company) to the Company. (3) The Policy Owner shall be the owner of the Policy, subject to the interests assigned to the Company herein. The Policy Owner alone may exercise all of the rights and privileges specified in the Policy, except neither Policy Owner nor Company may borrow against the aggregate cash value in the Policy without the written consent of both parties. Dated: December 24, 1992 /s/ Alan Hald ---------------------------------------- Alan Hald MICROAGE, INC. /s/ Jeffrey D. McKeever ---------------------------------------- Jeffrey D. McKeever -2- EX-10.14.1 5 1ST AMEND TO 1992 SPLIT-DOLLAR INS. AGRMNT FIRST AMENDMENT TO THE 1992 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ALAN P. HALD This First Amendment to the Split-Dollar Insurance Agreement by and between MicroAge, Inc., a Delaware corporation, and Alan P. Hald dated December 24, 1992 (the "1992 SPLIT-DOLLAR AGREEMENT") is made as of this 18th day of June, 1999. R E C I T A L S: A. WHEREAS, Alan P. Hald (the "INSURED") acquired insurance on his life in accordance with the terms and provisions of the 1992 Split-Dollar Agreement; and B. WHEREAS, MicroAge, Inc. (the "CORPORATION") has paid all premiums due on the Policy through November 12, 1999 in accordance with the terms and provisions of the 1992 Split-Dollar Agreement; and C. WHEREAS, the Corporation and the Insured have entered into an Agreement and General Release (the "SEPARATION AGREEMENT") regarding the Insured's separation from his employment with the Corporation effective as of November 1, 1999; and D. WHEREAS, the Separation Agreement requires the amendment of the 1992 Split-Dollar Agreement; NOW, THEREFORE, the parties, in consideration of the mutual promises contained herein, hereby agree as follows: AMENDMENTS: 1. Section 1 of the 1992 Split-Dollar Agreement is hereby amended and restated in its entirety as follows: SECTION 1 ISSUANCE, OWNERSHIP, PREMIUMS The Insurer shall issue the Policy to the Executive, who shall own the Policy, subject to the Company's rights recited hereinafter. The Company shall pay all required premiums of at least $58,000 until the earlier of (i) the Executive's death, (ii) the Executive's attainment of alternative employment, or (iii) November 1, 2001 (the "TERMINATION DATE"). Notwithstanding the foregoing, if the Insured attains alternative employment prior to his death and prior to November 1, 2001, the Termination Date will not occur until the earlier of the Insured's death or November 1, 2001; provided, however, that the Insured notifies the Corporation in writing that the split-dollar benefits offered by the alternative employer for similarly situated executives are less favorable than those available under the Split Dollar Agreement and the Corporation, in the exercise of good faith business judgment, concurs, and, provided further, that the Insured waives any right to receive any split-dollar benefits from the alternative employer during the time MicroAge is providing such benefits. The Executive agrees to report taxable income attributable to the Policy as required under applicable rulings of the Internal Revenue Service. The total death benefit under the Policy shall be of whatever amount is selected by the Company, so long as the proceeds of the Policy are at least adequate to pay Executive's designated beneficiary the $1,000,000 death benefit. The Policy shall be dividend-bearing, and the dividends shall be used to purchase additional amounts of paid-up life insurance on the Executive's life. Neither an insured amount in excess of the $1,000,000 nor the additional amounts provided by application of dividends shall expand the Company's obligation to provide the stated death benefit of $1,000,000. Photostatic copies of the Policy, including the policy application therefor, shall be attached as exhibits to this Agreement. During the term of this Agreement, the Company will not exercise nor withhold its consent to the exercise by Policy Owner of any rights, privileges or options conferred by the terms of the Policy on the Insured other than the right to borrow (which shall require the prior written consent of the Company as set forth herein). With the prior written consent of the Executive, the Company may borrow against the aggregate cash value in the Policy. -2- 2. Section 4 of the 1992 Split-Dollar Agreement is hereby amended and restated in its entirety as follows: SECTION 4 TERMINATION Upon the earlier of the Executive's attainment of alternative employment or November 1, 2001, the Policy Cash Value shall be paid to the Company, and the Policy shall become solely the property of the Executive. Any cash value in excess of the Policy Cash Value shall be the property of the Executive. 3. Section 5 of the 1992 Split-Dollar Agreement is hereby amended and restated in its entirety as follows: SECTION 5 COLLATERAL ASSIGNMENT Notwithstanding that the Executive is the owner of the Policy, the Company has certain rights thereto as provided herein. The Executive has a right to (i) $1,000,000 in death proceeds if he dies prior to the earlier of his attainment of alternative employment or November 1, 2001 and (ii) any cash value in excess of the Policy Cash Value. Upon the Executive's death, so much of the Policy proceeds as exceeds $1,000,000 shall be paid by the Insurer to the Company. Upon the earlier of the Executive's attainment of alternative employment or November 1, 2001, the Policy Cash Value shall be paid by the Insurer to the Company. These rights of the Company as amended by the First Amendment to this Agreement, shall be written into an amended collateral assignment of the Policy, which shall be executed by the Executive, delivered to the Company and made part of this Agreement. 4. Paragraph (1) of Section 6 of the 1992 Split-Dollar Agreement is hereby amended and restated in its entirety as follows: (1) This Agreement shall terminate upon the earlier of the Executive's attainment of alternative employment or November 1, 2001. -3- IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. MICROAGE, a Delaware Corporation /s/ JAMES R. DANIEL -------------------------------------------- James R. Daniel Executive Vice President and Chief Financial Officer /s/ ALAN P. HALD -------------------------------------------- Alan P. Hald -4- AMENDED COLLATERAL ASSIGNMENT Under Policy Number 12331341 (the "Policy") Issued by The Northwestern Mutual Life Insurance Company Policy Owner and Insured: Alan P. Hald In compliance with the First Amendment to the 1992 Split-Dollar Insurance Agreement By and Between MicroAge, Inc. and Alan P. Hald dated as of June 18, 1999, Alan P. Hald (the "Policy Owner") hereby agrees to assign the following interests in the Policy to MicroAge, Inc. (the "Company"): (1) If Policy Owner dies prior to the earlier of his attainment of alternative employment or November 1, 2001, The Northwestern Mutual Life Insurance Company ("NML") shall pay any Policy death benefit in excess of $1,000,000 to the Company. (2) Upon the earlier of Policy Owner's attainment of alternative employment or November 1, 2001, NML shall pay the Policy Cash Value (i.e., the lesser of the total cash value of the Policy or the aggregate amount of premiums paid by the Company) to the Company. (3) The Policy Owner shall be the owner of the Policy, subject to the interests assigned to the Company herein. The Policy Owner alone may exercise all of the rights and privileges specified in the Policy, except neither Policy Owner nor Company may borrow against the aggregate cash value in the Policy without the written consent of both parties. DATED: June 18, 1999 /s/ ALAN P. HALD -------------------------------------------- Alan P. Hald MICROAGE, INC., a Delaware Corporation /s/ JAMES R. DANIEL -------------------------------------------- James R. Daniel Executive Vice President and Chief Financial Officer -5- EX-10.15.1 6 1ST AMEND TO 1997 SPLIT-DOLLAR INS. AGRMNT FIRST AMENDMENT TO THE 1997 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ALAN P. HALD This First Amendment to the Split-Dollar Insurance Agreement by and between MicroAge, Inc., a Delaware corporation, and Alan P. Hald dated January 29, 1997 ("1997 SPLIT-DOLLAR AGREEMENT") is made as of this 18th day of June, 1999. R E C I T A L S: A. WHEREAS, Alan P. Hald (the "INSURED") acquired insurance on his life in accordance with the terms and provisions of the 1997 Split-Dollar Agreement; and B. WHEREAS, MicroAge, Inc. (the "CORPORATION") has paid all premiums due on the Policy through November 12, 1999 in accordance with the terms and provisions of the 1997 Split-Dollar Agreement; and C. WHEREAS, the Corporation and the Insured have entered into an Agreement and General Release (the "SEPARATION AGREEMENT") regarding the Insured's separation from his employment with the Corporation effective as of November 1, 1999; and D. WHEREAS, the Separation Agreement requires the amendment of the 1997 Split-Dollar Agreement; NOW, THEREFORE, the parties, in consideration of the mutual promises contained herein, hereby agree as follows: AMENDMENTS: 1. Article II of the 1997 Split Dollar Agreement is hereby amended and restated in its entirety as follows: ARTICLE II The premiums on the Policy are Fifty-Six Thousand Five Hundred Fifty Dollars and One Cent ($56,550.01) per year. The Corporation shall pay all premiums necessary to keep the Policy in force through the earlier of (i) the death of the Insured, (ii) the Insured's attainment of alternative employment or (iii) November 1, 2001 (the "TERMINATION DATE"). Notwithstanding the foregoing, if the Insured attains alternative employment prior to his death and prior to November 1, 2001, the Termination Date will not occur until the earlier of the Insured's death or November 1, 2001; provided, however, that the Insured notifies the Corporation in writing that the split-dollar benefits offered by the alternative employer for similarly situated executives are less favorable than those available under this Agreement and the Corporation, in the exercise of good faith business judgment, concurs, and, provided further, that the Insured waives any right to receive any split-dollar benefits from the alternative employer during the time MicroAge is providing such benefits. 2. Paragraph B of Article V of the 1997 Split Dollar Agreement is hereby amended and restated in its entirety as follows: B. The Insured may acquire the Corporation's interest in the Policy for an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. The Insured must exercise his option to acquire the Corporation's interest in the Policy on or before the Termination Date. 3. Article VI of the 1997 Split Dollar Agreement is hereby amended and restated in its entirety as follows: A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by the Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. 4. November 1, 2001. 5. The death of the Insured. 6. The Insured's attainment of alternative employment. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3 above, the Insured shall pay the Corporation an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, the Corporation shall thereupon execute and deliver to the Insured a release of the collateral assignment of the Policy. If the Insured does not remit the amount equal to the Corporation's security interest within thirty (30) days of the event described in paragraph A.2 or 3, then all obligations of the Corporation under this Agreement shall be terminated and the Insured shall transfer the ownership of the Policy to the Corporation. C. If this Agreement is terminated pursuant to Article VI, paragraphs A.4 or A.6 above, the Insured shall pay the Corporation an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A above. If the Insured does not remit the amount equal to -2- the Corporation's security interest on or before the Termination Date, then all obligations of the Corporation under this Agreement shall be terminated and the Insured shall transfer the ownership of the Policy to the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. MICROAGE, INC., a Delaware Corporation /s/ JAMES R. DANIEL -------------------------------------------- James R. Daniel Executive Vice President and Chief Financial Officer /s/ ALAN P. HALD -------------------------------------------- Alan P. Hald -3- EX-10.18 7 AGREEMENT AND GENERAL RELEASE AGREEMENT AND GENERAL RELEASE This Agreement and General Release (hereinafter "Agreement") is entered into this 18th day of June, 1999, in the County of Maricopa, State of Arizona, among MicroAge, Inc., a Delaware corporation ("MicroAge"), and Alan P. Hald ("Executive"). RECITALS WHEREAS, Executive is currently serving as the Secretary of MicroAge and President of MicroAge Enterprises, Inc.; WHEREFORE, the parties have agreed that it is in their respective best interests to amicably resolve all matters relative to Executive's employment with MicroAge and separation therefrom pursuant to the following terms and conditions: I. MicroAge covenants and agrees to provide Executive with the severance benefits specified in paragraphs 1-14 on Exhibit A attached hereto (the "Severance Benefits") and the additional benefits specified in paragraphs 15-23 on Exhibit A attached hereto (the "Additional Benefits"). The parties acknowledge and agree that the Severance Benefits provided to Executive as set forth on Exhibit A are provided pursuant to the Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between MicroAge and Executive (the "Employment Agreement"). The parties agree that MicroAge will make no payments of Additional Benefits hereunder until Executive signs and returns the "Non-Revocation" form attached hereto as Exhibit B. Executive's separation from employment with MicroAge will be effective as of November 1, 1999 (the "Separation Date"). Executive hereby acknowledges receipt of an advanced payments in the amount of Seventy Thousand Dollars ($70,000), less applicable taxes on June 1, 1999, and Thirty Two Thousand Eight Hundred Thirty Five and 32/100 ($32,835.32), less applicable taxes, on June 3, 1999. Such advance payment amounts will be deducted from the payments Executive receives on the Payment Date (as defined below) in accordance with his Severance Benefits. It is expressly understood and agreed that, other than the severance benefits being provided to Executive pursuant to this Agreement, neither MicroAge nor any of its affiliates is otherwise indebted to Executive for any other damages, wages, benefits, or reimbursements. II. In exchange for the promises set forth in Paragraph I above, Executive does hereby forever release, discharge, cancel, waive, and acquit, for himself and for his marital community, heirs, executors, administrators and assigns, MicroAge and any and all of its affiliates, subsidiaries, corporate parents, agents, officers, owners, employees, attorneys, successors and assigns, of and from any and all rights, claims, demands, causes of action, obligations, damages, penalties, fees, costs, expenses, and liability of any nature whatsoever which Executive has, had or may hereafter have against them or any of them, arising out of, or by reason of any cause, matter, or thing whatsoever existing as of the date of execution of this Agreement, WHETHER KNOWN TO THE PARTIES AT THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT. This FULL WAIVER OF ALL CLAIMS includes, without limitation, attorney's fees, any claims, demands, or causes of action arising out of, or relating in any manner whatsoever to, the employment and/or termination of the employment of Executive, such as, BUT NOT LIMITED TO, any charge, claim, lawsuit or other proceeding arising under the Civil Rights Act of 1866, 1964, Title VII as amended by the Civil Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination in Employment Act (ADEA), the Labor Management Relations Act, the Employee Retirement Income Security Act, the Consolidated Omnibus Budget Reconciliation Act, the Fair Labor Standards Act, the Arizona Civil Rights Act, Workman's Compensation Claims, or any other federal, state, or local statute. Executive further covenants and agrees not to institute, nor cause to be instituted, any legal proceeding, including filing any claim or complaint with any government agency alleging any violations of law or public policy, against MicroAge and/or any and all of their affiliates, subsidiaries, corporate parents, agents, officers, owners, employees, successors and assigns premised upon any legal theory or claim whatsoever, including without limitation, contract, tort, wrongful discharge, personal injury, interference with contract, defamation, negligence, infliction of emotional distress, fraud, or deceit, except to enforce the terms of this Agreement. III. Executive acknowledges that he is a participant in the MicroAge, Inc. Executive Supplemental Savings Plan (the "ESSP") and the Supplemental Executive Retirement Plan of MicroAge, Inc. (the "SERP" and together with the ESSP, the "Plans"). Executive agrees that he is fully aware of his rights and entitlements under the Plans. Executive acknowledges that he is entitled to receive non-qualified deferred compensation benefits equal to his account balance under the ESSP (which as of January 31, 1999 was $38,911.13). He also acknowledges that he is entitled to receive a benefit under the SERP which is currently being calculated pursuant to the formula set forth in the SERP. The amounts due Executive under the ESSP and the SERP (the "Benefits") are payable within a reasonable time following the Separation Date. Executive understands that, at Executive's request, the Compensation Committee is willing to credit him with additional Benefit Accrual Service (as such term is defined in the SERP), so that as of his Separation Date he will have a total of four (4) years of Benefit Accrual Service under the SERP, which will result in an increase in the benefit payable to Executive under the SERP. Executive further understands that, at Executive's request, the Compensation Committee is willing to accelerate the payment of the Benefits to May 31, 1999, or as soon thereafter as is reasonably practicable, as opposed to the Separation Date. The Compensation Committee has taken appropriate action to authorize the acceleration of the payment of the Benefits and the increase in the Benefit Accrual Service credited to Executive under the SERP. In exchange for the early payments under the Plans and for the increase in his Benefit Accrual Service as set forth above, Executive does hereby forever release, discharge, cancel, waive, and acquit, for himself and for his marital community, heirs, executors, administrators and assigns, MicroAge and any and all of its affiliates, subsidiaries, corporate parents, agents, officers, -2- owners, employees, attorneys, successors and assigns, of and from any and all rights, claims, demands, causes of action, obligations, damages, penalties, fees, costs, expenses, and liability of any nature whatsoever which Executive has, had or may hereafter have against them or any of them, arising out of his participation in the ESSP or the SERP, the accrual or payment of benefits under the ESSP or the SERP, or the termination of the Executive's participation in either the ESSP or the SERP, WHETHER KNOWN TO THE PARTIES AT THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT. IV. The parties and their respective attorneys agree to hold in strict confidence the terms and conditions of this Agreement. The parties covenant and agree that neither they nor their attorneys will, either directly or through any other person, agent or representative, discuss publicly or privately the nature or content of this Agreement with any non-party to this Agreement, except as to either party's accountants, any state tax department or the federal Internal Revenue Service, or any other state or federal official in response to a legitimate inquiry. V. Executive, by his execution of this Agreement, avows that the following statements are true: A. That he has been given the opportunity and has in fact read this entire Agreement, that it is in plain language, and has had all questions regarding its meaning answered to his satisfaction; B. That he has been advised to seek independent advice and/or counsel of his choosing and that he has been given the full opportunity to seek such advice and/or counsel; C. That he fully understands the contents of this Agreement and understands that it is a FULL WAIVER OF ALL CLAIMS, including arbitration claims and awards, against Executive, including any rights under the ADEA and as to ADEA claims is not a waiver of future claims; D. That this FULL WAIVER OF ALL CLAIMS is given in return for valuable consideration, as provided under the terms of this Agreement; E. That he enters into this Agreement knowingly and voluntarily in exchange for the promises referenced in this Agreement and that no other representations have been made to him to induce or influence his execution of this Agreement. Executive has been given at least twenty-one (21) days within which to consider this Agreement before signing and seven (7) days following his execution of the Agreement to revoke this Agreement. The Agreement shall not become effective or enforceable until the foregoing revocation period has expired and Executive has signed and returned the "Non-Revocation" form attached hereto as Exhibit B; and F. That he understands his continuing obligations under the Employment Agreement, including but not limited to his obligations (a) to maintain the confidentiality of Confidential Information (ss. 5.1 of the Employment Agreement), and (b) not to compete with MicroAge or its affiliates for a -3- twenty-four month period (ss. 5.9 of the Employment Agreement). Without limiting the generality of Executive's non-competition obligations, during the Non-Competition Period (as defined in Section 5.9(a) of the Employment Agreement) Executive agrees that Executive will not, either within or outside of the Business territory (as defined in Section 5.9(a) of the Employment Agreement), act as an agent, representative, consultant, officer, director, member, independent contractor, or employee of Arrow Electronics, Inc.; Avnet, Inc.; Cambridge Research Associates, Inc.; CHS Electronics, Inc.; Compaq Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; En Pointe Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy Computer Resources, Inc.; Sarcom; Tech Data Corporation; Xerox Connect; or any Affiliates or successors of the foregoing. VI. The parties confirm their continuing obligations under Section 5.10 of the Employment Agreement, which provides as follows: During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall disclose to any third party the conditions of Executive's employment with the Company except as may be required (i) pursuant to applicable law or regulations, including the rules and regulations of the Securities and Exchange Commission, (ii) to effectuate the provisions of employee plans or programs and insurance policies, or (iii) as may be otherwise contemplated herein or unless such information becomes publicly available without fault of the party making such disclosure. VII. Notwithstanding anything contained in Section 5.9 of the Employment Agreement or Article V.F of this Agreement (the "Noncompetition Agreement"), or in the amendments to the Split-Dollar Agreements (as defined in Exhibit A, paragraph 8), or paragraphs 8 and 17 of Exhibit A, in the event MicroAge defaults in the payment or maintenance of medical or dental benefits specified in paragraphs 4 and 16 of Exhibit A, split-dollar benefits specified in paragraphs 8 and 17, or disability benefits specified in paragraphs 9 and 18 of Exhibit A ("MicroAge Default"), Executive will be released from his obligations under the Noncompetition Agreement and MicroAge will transfer the split-dollar Policies (as such term is defined in each Split-Dollar Agreement) to Executive and will release Executive from any and all obligations to reimburse MicroAge for premiums paid on the Policies. In the event of a MicroAge Default, Executive must give written notice of the MicroAge Default ("Notice") to MicroAge. MicroAge shall have fifteen (15) days to cure the such default ("Cure Period") after Notice is received. If MicroAge fails to cure the MicroAge Default within the Cure Period, Executive has the option to either (a) be relieved of his obligations under the Noncompetition Agreement and to receive the Policies and be released from any and all obligations to reimburse MicroAge for premiums paid on the Policies (the "Noncompete and Split-Dollar Release") or (b) to pursue available legal remedies against MicroAge for the MicroAge Default. In order to elect the Noncompete and Split-Dollar Release, Executive must give MicroAge written notice of such -4- election within fifteen (15) days after the end of the Cure Period. If Executive elects the Noncompete and Split-Dollar Release, the Noncompetition Agreement will be terminated, and MicroAge will be released from its obligations to provide medical, dental, split-dollar or disability benefits to Executive, the MicroAge Default will be deemed to have been cured, and Executive will have no right to pursue any claims against MicroAge or any of its affiliates as a result of the MicroAge Default. In the event Executive elects a Noncompete and Split-Dollar Release, such release shall be deemed to be an amendment to the Employment Agreement and MicroAge and Executive will enter into any necessary amendments to the Split-Dollar Agreements to effectuate the terms of this Article VII. VIII. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance, or otherwise, by the laws of the State of Arizona, and no action involving this Agreement may be brought except in the Superior Court for the State of Arizona or the Federal District Court for the District of Arizona. IX. If any provision of this Agreement or the application thereof is held to be invalid, void, or unenforceable for whatever reason, the remaining provisions not so declared shall nevertheless continue in full force and effect without being impaired in any manner whatsoever. X. This Agreement constitutes the sole and entire Agreement between the parties hereto, and supersedes any and all understandings and agreements made prior hereto, other than the Employment Agreement. There are no collateral understandings, representations, or agreements other than those contained herein or in the Employment Agreement. It is understood and agreed that the execution of this Agreement by MicroAge is not an admission of liability on their parts to Executive, but is an agreement to put to rest any claim of any kind whatsoever relating to the employment relationship or otherwise, except that the parties may enforce their respective rights under the Employment Agreement to the extent they are not inconsistent with this Agreement. IN WITNESS WHEREOF, the undersigned parties have signed this Agreement on the date indicated herein. CAUTION! THIS IS A RELEASE! READ BEFORE SIGNING! MICROAGE, INC. ALAN P. HALD By: /s/ James R. Daniel /s/ Alan P. Hald ------------------- ---------------- Its: Executive Vice President Chief Financial Officer Date: June 18, 1999 Date: June 18, 1999 -5- VERIFICATION STATE OF ARIZONA ) ) ss. County of Yavapai ) On this 18th day of June, 1999, before me, the undersigned Notary Public, personally appeared Alan P. Hald, known to me to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Emily Culpepper ---------------------------------------- Notary Public My Commission Expires March 29, 2002 -------------- -6- EXHIBIT A SEVERANCE BENEFITS 1. LUMP SUM PAYMENTS. Promptly following MicroAge's receipt of the Non-Revocation form attached hereto as Exhibit B (such date hereinafter referred to as the "Payment Date"), MicroAge will pay Executive a lump payment of $1,066,002 which is equal to three (3) times the sum of (1) his base salary in effect immediately prior to his termination ($325,000) plus, (2) the average of the Annual Bonuses paid to him for the three (3) fiscal years immediately preceding fiscal year 2000 ($30,334). 2. ACCRUED VACATION DAYS. As of June 1, 1999, Executive has 141 unused accrued vacation days (the "Accrued Vacation Days"). MicroAge will reimburse Executive for such unused accrued vacation days in an amount equal to Executive's current annual base salary ($325,000) multiplied by a fraction, the numerator of which is the number of unused accrued vacation days (141), and the denominator of which is 260. On the Payment Date, MicroAge will pay Executive One Hundred Seventy Six Thousand Two Hundred and Fifty Dollars ($176,250) for these accrued unused vacation days. No vacation days will accrue after May 31, 1999. 3. REIMBURSABLE EXPENSES. MicroAge will, in accordance with standard policies, reimburse Executive for all reasonable travel and other expenses incurred by Executive prior to the Separation Date and submitted for reimbursement within seven (7) days of the Separation Date. 4. MEDICAL AND DENTAL PLANS. Executive is entitled to continue coverage under the medical and dental plans in which Executive was entitled to participate as a full-time employee immediately prior to the Separation Date in accordance with the standard COBRA rules. Executive's coverage will continue for up to twenty-four (24) months after the Separation Date (until November 1, 2001), subject to the limitations noted below, rather than the standard 18 months provided by COBRA. In addition, until the first to occur of Executive's attainment of alternative employment or November 1, 2001, (i) MicroAge will contribute towards the monthly premium payments in an amount equal to the contribution that MicroAge would have made had Executive continued as an active MicroAge associate; and (ii) Executive will pay the balance of the premiums. In the event Executive obtains alternative employment prior to November 1, 2001, and subject to Paragraph 16, MicroAge will no longer contribute to the premium cost and Executive will be required to pay the full premium in order to continue medical and/or dental benefits starting on the first day of Executive's employment by an alternative employer. The period of continued coverage provided by this paragraph will apply towards Executive's allowed 18 months of COBRA coverage. 5. 401(K) PLAN. Executive participates in the MicroAge Retirement Savings Plan (the "401(k) Plan"). Executive has received information regarding his -7- options under the 401(k) Plan. Any questions regarding the 401(k) Plan should be directed to Patricia Vincent at 366-2287. As of the Separation Date, no additional contributions will be made to the 401(k) Plan. 6. ESSP. Pursuant to Paragraph III of this Agreement, Executive will receive as soon as practicable following the Payment Date, the account balance under the ESSP which was valued at $38,911.13 as of January 31, 1999. There will be no amounts transferred from the ESSP into the 401(k) Plan for fiscal year 1999, since all amounts previously deferred by Executive will be distributed to him. Executive will be ineligible to make additional contributions to the ESSP as of May 31, 1999. 7. SERP. Pursuant to Paragraph III of this Agreement, on the Payment Date or as soon thereafter as is reasonably practicable, Executive will receive a lump sum SERP payment which is currently being calculated pursuant to the formula set forth in the SERP. 8. SPLIT-DOLLAR INSURANCE AGREEMENT. Executive and MicroAge entered into two Split-Dollar Insurance Agreements, dated as of December 24, 1992 and January 27, 1997 (the "Split-Dollar Agreements"). Subject to Paragraph 17, and notwithstanding anything contained in the Split-Dollar Agreements to the contrary, MicroAge will cause the Split-Dollar Agreements to remain in full force and effect and will continue to make the premium payments that become due until the first to occur of (a) Executive's attainment of alternative employment or (b) November 1, 2001 (the "Termination Date"). For purposes of the Split-Dollar Agreements, Executive will be deemed to have terminated from employment on the earlier of his death or the Termination Date. MicroAge and Executive will enter into an amendment to the Split-Dollar Agreements to effectuate the terms of this Paragraph 8. The rights and obligations of Executive and MicroAge then will be determined pursuant to the terms of the Split-Dollar Agreements, as amended. 9. DISABILITY INSURANCE. Executive currently has disability insurance pursuant to separate policies: (1) the UNUM Group Disability Policy (the "Group Policy") and (2) two UNUM Individual Disability Policies (the "Individual Policies"). The Group Policy will terminate as of the Separation Date. Subject to Paragraph 18, MicroAge will cause the Individual Policies to remain in full force and effect until the Termination Date. 10. STOCK OPTIONS. During Executive's employment Executive was granted the following stock options: A. Pursuant to a Letter Award dated June 15, 1994 ("Letter Award") under the 1989 Stock Option Plan, Executive was granted the option to purchase a total of 40,000 shares of MicroAge common stock, par value $.01 per share at an exercise price of $10.42 per share. As of the Separation Date, Executive has 40,000 unexercised vested options. In accordance with the terms of the Letter Award, all options thereunder expire on July 13, 1999 and will not be extended pursuant to Paragraph 15. B. Pursuant to the 1994 Stock Option Grant Letter dated as of December 13, 1995 (the "1995 Grant Letter") Executive was granted the option to -8- purchase a total of 10,000 shares of MicroAge common stock, par value $.01 per share at an exercise price of $8.75 per share. As of the Separation Date, Executive has 6,000 unexercised vested options. In accordance with the terms of the 1995 Grant Letter, all options thereunder terminate on the Separation Date. C. Pursuant to the 1994 Long-Term Incentive Plan Incentive Stock Option Award dated as of December 4, 1996 (the "1996 Letter") Executive was granted the option to purchase a total of 5,000 shares of MicroAge common stock, par value $.01 per share at an exercise price of $24.00 per share. As of the Separation Date, Executive has 2,000 unexercised vested options. In accordance with the terms of the 1996 Letter, all options thereunder will terminate on the Separation Date. 11. MANAGEMENT EQUITY PROGRAMS. Pursuant to the 1994 Management Equity Program Award Agreement dated December 9, 1993 (the "1994 MEP Agreement"), Executive received 125,638 options as a result of his election to restructure his compensation package by reducing his fiscal year 1994, 1995, and 1996 compensation. In accordance with the terms of the 1994 MEP Agreement, on the Separation Date, Executive will have 83,760 vested options. Following the Separation Date, Executive's options will continue to vest under the vesting schedule set forth in Section 6 of the 1994 MEP Agreement. 12. DEMAND REGISTRATION RIGHTS. Section 4.3(j) of the Employment Agreement grants Executive the rights to registration under the Securities Act of 1933, as amended, of his shares of Common Stock. MicroAge is under certain obligations in the event Executive exercises his demand registration rights during the 2 years following his termination of employment. In order for Executive to exercise his demand registration rights, he must request that at least 50,000 shares be registered. 13. TERMINATION PUT. Pursuant to Section 4.3(k) of the Employment Agreement, in the event of Executive's death during the six (6) months following his Separation Date, his estate, his spouse at the date of his death and his children and trusts (the "Designated Beneficiaries") have the option (the "Termination Put") to sell to MicroAge within 180 days of the date of his death, the shares owned by such Designated Beneficiaries. A Designated Beneficiary has this option only if the Designated Beneficiaries together own more than 50,000 shares of Common Stock of MicroAge. 14. EXCISE TAX PAYMENT. Pursuant to Section 4.5 of the Employment Agreement, if any payment made to Executive pursuant to the Employment Agreement is subject to an excise tax imposed by Code Section 4999 (including any interest or penalties incurred by Executive relating to such excise tax), MicroAge will make an additional payment to Executive in an amount equal to such excise tax. 15. EXTENSION OF OPTIONS. MicroAge will request that the Compensation Committee allow the options granted in Paragraph 10 sections B and C, to continue to vest as if Executive's employment continued until November 1, 2000, and to extend the exercise period of all such options for twelve (12) months after the Separation Date (November 1, 2000). -9- 16. HEALTH BENEFITS. Notwithstanding anything contained in Paragraph 4, MicroAge will cease making contributions to the monthly premium payments for Executive's medical and dental coverage upon Executive's attainment of alternative employment unless (i) Executive notifies MicroAge in writing that the benefits offered by the alternative employer for similarly situated executives are less favorable than those available under the MicroAge policies and MicroAge, in the exercise of good faith business judgment, concurs, and (ii) Executive waives any right to receive any medical and/or dental benefits from the alternative employer during the time MicroAge is providing such benefits. This Paragraph 16 shall constitute an amendment to the Employment Agreement. 17. EXTENSION OF SPLIT-DOLLAR AGREEMENTS. Notwithstanding anything contained in Paragraph 8, MicroAge will cease making premium payments that become due pursuant to the Split-Dollar Agreements upon Executive's attainment of alternative employment unless (i) Executive notifies MicroAge in writing that the split-dollar benefits offered by the alternative employer for similarly situated executives are less favorable than those available under the MicroAge policies and MicroAge, in the exercise of good faith business judgment, concurs, and (ii) Executive waives any right to receive any split-dollar benefits from the alternative employer during the time MicroAge is providing such benefits. 18. DISABILITY BENEFITS. Notwithstanding anything contained in Paragraph 9, MicroAge will cease making the premium payments to maintain Executive's Individual Policies upon Executive's attainment of alternative employment unless Executive notifies MicroAge in writing that the disability benefits offered by the alternative employer for similarly situated executives are less favorable than those available under the MicroAge policies and MicroAge, in the exercise of good faith business judgment, concurs. This Paragraph 18 shall constitute an amendment to the Employment Agreement. 19. PRODUCT PURCHASE BENEFITS. Executive may purchase the cellular phone, palm top, personal computer and docking station Executive has been using during his employment with MicroAge at a price equal to their depreciated book values. If Executive elects to purchase such items, Executive will contact Jeffrey D. McKeever on or before the Separation Date. 20. EMPLOYMENT REFERENCE. MicroAge agrees to provide a reference and reason for Executive's separation that is consistent with a statement that will be mutually agreed to by MicroAge and Executive. 21. FUTURE EMPLOYMENT. ASU has proposed an Executive In Residence position for Executive beginning on August 1, 1999 for a one-year period. This position will not be considered alternative employment for purposes of continuing health benefits under this Agreement. 22. MICROAGE CO-FOUNDER. MicroAge acknowledges that Executive may use the term "MicroAge Co-Founder" in whatever context Executive deems appropriate. 23. TELEPHONE LINE AND E-MAIL ADDRESS. Executive will be entitled to maintain his MicroAge telephone number (366-2337) and e-mail address (ahald@microage.com) for a period of two (2) years following the Separation Date. -10- EXHIBIT B NON-REVOCATION AS OF THE DATE SHOWN ON THIS FORM By signing below, I hereby verify that I have chosen not to revoke my agreement to, and execution of, the Agreement and General Release. My signature confirms my renewed agreement to the terms of that Agreement, including the release and waiver of any and all claims relating to my employment with the Employer and its successors, assigns, and affiliated companies, and/or the termination of that employment. I hereby acknowledge that the payments made pursuant to Paragraphs 1, 2, 6 and 7 of Exhibit A are being accelerated and therefore constitute Additional Benefits under the Agreement. /s/ Alan P. Hald June 30, 1999 - ---------------- ------------- Alan P. Hald* Date *Do not sign, date, or return this document until eight (8) days after you sign the Agreement and General Release. The signed and dated document should be returned to Matthew P. Feeney, Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004. -11- VERIFICATION STATE OF ARIZONA ) ) ss. County of Maricopa ) On this ____ day of __________, 1999, before me, the undersigned Notary Public, personally appeared Alan P. Hald, known to me to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ---------------------------------------- Notary Public My Commission Expires ______________ -12- EX-10.24.1 8 1ST AMEND TO 1995 SPLIT-DOLLAR INS. AGRMNT FIRST AMENDMENT TO THE 1995 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ROBERT G. O'MALLEY This First Amendment to the 1995 Split-Dollar Insurance Agreement by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as "Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is effective as of the 30th day of June, 1999. RECITALS WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance Agreement dated September 1, 1995 (hereinafter referred to as "Agreement") and a Collateral Assignment Form dated September 1, 1995 (hereinafter referred to as "CAF"); WHEREAS, the Agreement pertains to a policy of insurance on the life of Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"), in the face amount of Seven Hundred Fifty Thousand Dollars ($750,000), with policy number 13453221 (hereinafter referred as "Policy"), as identified on Schedule A to the Agreement; WHEREAS, MicroAge was required to pay certain premiums due on the Policy pursuant to Article II of the Agreement, and Insured was deemed the owner of the Policy; WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to MicroAge a security interest in the Policy for the repayment of the premiums paid by MicroAge to Insurer; WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide the proceeds of the Policy into two parts in the event of the death of Insured, with MicroAge receiving an amount equal to MicroAge's security interest in the Policy, and Insured's designated beneficiary receiving the balance of the death benefit; WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge desire that MicroAge's interest and obligations under the Agreement be assigned to Pinacor, and Insured agrees to such assignment; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: AGREEMENTS 1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all of its right, title, and interest in the Policy, any and all of its interest acquired under the CAF, and any and all of its duties and obligations under the Agreement. 2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's right, title and interest in the Policy, and any and all of MicroAge's duties and obligations under the Agreement, including but not limited to the obligation to pay the premiums due on the Policy, and agrees to perform the Agreement in the same manner and to the same extent that MicroAge would be required to perform if no such assignment had taken place. 3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold MicroAge harmless from and against any claims, losses or liability which arise from the Agreement or this First Amendment to the Split-Dollar Insurance Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise of its duties and responsibilities under the Agreement or the Amendment, including but not limited to claims of Insured, or losses or liability resulting therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all costs, damages or losses including without limitation any out-of-pocket expenses and reasonable attorneys' fees incurred in the investigation or defense of any such claims. 4. CONSENT OF INSURED. Insured hereby consents to the assignment by MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title and interest in the Policy, and any and all duties and obligations arising from the Agreement. 5. RELEASE BY INSURED. Insured releases, on behalf of himself and his heirs, executors, administrators and assigns, any and all claims of any nature whatsoever against MicroAge and its affiliates, agents, officers, owners, directors, employees, insurers and assigns, arising out of or related in any manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF, and MicroAge's acts or omissions in connection therewith. The foregoing release does not extend to or include Pinacor. 6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to Pinacor and Insurer a Collateral Assignment Form in connection with the execution of this Amendment, establishing Pinacor as the direct beneficiary of the Policy in an amount equal to the total amount of premiums paid to Insurer on the Policy, whether paid by Pinacor or MicroAge. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the 24th day of June, 1999. MICROAGE, INC., a Delaware Corporation By /s/ JEFFREY D. MCKEEVER ------------------------------------- Its Chairman of the Board and Chief Executive Officer PINACOR, INC., a Delaware Corporation By /s/ JAMES G. MANTON ------------------------------------- Its President By /s/ ROBERT G. O'MALLEY ------------------------------------- ROBERT G. O'MALLEY EX-10.24.2 9 2ND AMEND TO 1995 SPLIT-DOLLAR INS. AGRMNT SECOND AMENDMENT TO THE 1995 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN PINACOR, INC. AND ROBERT G. O'MALLEY This Second Amendment to the 1995 Split-Dollar Insurance Agreement by and between Pinacor, Inc., a Delaware corporation, and Robert G. O'Malley dated September 1, 1995 and amended June 24, 1999 (the "SPLIT-DOLLAR AGREEMENT") is effective as of the 30th day of June, 1999. R E C I T A L S: A. WHEREAS, Robert G. O'Malley (the "INSURED") acquired insurance on his life in accordance with the terms and provisions of the Split-Dollar Agreement; and B. WHEREAS, the First Amendment to the Split-Dollar Agreement was executed effective June 30, 1999 whereby MicroAge, Inc. assigned to Pinacor, Inc. (the "CORPORATION") all of its right, title, and interest in the Policy purchased pursuant to the Split-Dollar Agreement, any and all of its interest acquired under the related Collateral Assignment Form, and any and all of its duties and obligations under the Split-Dollar Agreement; and C. WHEREAS, the Corporation has paid all premiums due on the Policy through August 25, 1999 in accordance with the terms and provisions of the Split-Dollar Agreement; and D. WHEREAS, the Corporation and the Insured have entered into an Agreement and General Release (the "SEPARATION AGREEMENT") regarding the Insured's separation from his employment with the Corporation effective as of June 30, 1999; and E. WHEREAS, the Separation Agreement requires the amendment of the Split-Dollar Agreement; NOW, THEREFORE, the parties, in consideration of the mutual promises contained herein, hereby agree as follows: AMENDMENTS: 1. Article II of the Split-Dollar Agreement is hereby amended and restated in its entirety as follows: ARTICLE II The premiums on the Policy are Fifteen Thousand Six Hundred Twenty-Eight Dollars and Ninety-Eight Cents ($15,628.98) per year. The Corporation shall pay all premiums necessary to keep the Policy in force through the earlier of (i) the death of the Insured or (ii) August 25, 1999. 2. Paragraph B of Article V of the Split Dollar Agreement is hereby amended and restated in its entirety as follows: B. On June 30, 1999, the collateral assignment in favor of the Corporation shall expire and the Policy shall become the sole property of the Insured. The Insured shall not be required to reimburse the Corporation for any Policy premiums paid by the Corporation. 3. Article VI of the Split Dollar Agreement is hereby amended and restated in its entirety as follows: A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by the Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. 4. June 30, 1999. 5. The death of the Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3 above, the Insured shall pay the Corporation an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, the Corporation shall thereupon execute and deliver to the Insured a release of the collateral assignment of the Policy. If the Insured does not remit the amount equal to the Corporation's security interest within thirty (30) days of the event described in paragraph A.2 or 3, then all obligations of the Corporation under this Agreement shall be terminated and the Insured shall transfer the ownership of the Policy to the Corporation. C. If this Agreement is terminated pursuant to Article VI, paragraphs A.4 above, the collateral assignment on the Policy in favor of the Corporation shall expire contemporaneously with the termination of this Agreement and the Insured shall then be the sole owner of the Policy. -2- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment on the 24 day of June, 1999. PINACOR, INC., a Delaware Corporation /s/ JAMES G. MANTON ---------------------------------------- James G. Manton President /s/ ROBERT G. O'MALLEY ---------------------------------------- Robert G. O'Malley -3- EX-10.25.1 10 1ST AMEND TO 1997 SPLIT-DOLLAR INS. AGRMNT FIRST AMENDMENT TO THE 1997 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ROBERT G. O'MALLEY This First Amendment to the 1997 Split-Dollar Insurance Agreement by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as "Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is effective as of the 30th day of June, 1999. RECITALS WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance Agreement dated January 27, 1997 (hereinafter referred to as "Agreement") and a Collateral Assignment Form dated January 27, 1997 (hereinafter referred to as "CAF"); WHEREAS, the Agreement pertains to a policy of insurance on the life of Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"), in the face amount of Two Hundred Fifty Thousand Dollars ($250,000), with policy number 14016898 (hereinafter referred as "Policy"), as identified on Schedule A to the Agreement; WHEREAS, MicroAge was required to pay certain premiums due on the Policy pursuant to Article II of the Agreement, and Insured was deemed the owner of the Policy; WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to MicroAge a security interest in the Policy for the repayment of the premiums paid by MicroAge to Insurer; WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide the proceeds of the Policy into two parts in the event of the death of Insured, with MicroAge receiving an amount equal to MicroAge's security interest in the Policy, and Insured's designated beneficiary receiving the balance of the death benefit; WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge desire that MicroAge's interest and obligations under the Agreement be assigned to Pinacor, and Insured agrees to such assignment; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: AGREEMENTS 1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all of its right, title, and interest in the Policy, any and all of its interest acquired under the CAF, and any and all of its duties and obligations under the Agreement. 2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's right, title and interest in the Policy, and any and all of MicroAge's duties and obligations under the Agreement, including but not limited to the obligation to pay the premiums due on the Policy, and agrees to perform the Agreement in the same manner and to the same extent that MicroAge would be required to perform if no such assignment had taken place. 3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold MicroAge harmless from and against any claims, losses or liability which arise from the Agreement or this First Amendment to the Split-Dollar Insurance Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise of its duties and responsibilities under the Agreement or the Amendment, including but not limited to claims of Insured, or losses or liability resulting therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all costs, damages or losses including without limitation any out-of-pocket expenses and reasonable attorneys' fees incurred in the investigation or defense of any such claims. 4. CONSENT OF INSURED. Insured hereby consents to the assignment by MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title and interest in the Policy, and any and all duties and obligations arising from the Agreement. 5. RELEASE BY INSURED. Insured releases, on behalf of himself and his heirs, executors, administrators and assigns, any and all claims of any nature whatsoever against MicroAge and its affiliates, agents, officers, owners, directors, employees, insurers and assigns, arising out of or related in any manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF, and MicroAge's acts or omissions in connection therewith. The foregoing release does not extend to or include Pinacor. 6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to Pinacor and Insurer a Collateral Assignment Form in connection with the execution of this Amendment, establishing Pinacor as the direct beneficiary of the Policy in an amount equal to the total amount of premiums paid to Insurer on the Policy, whether paid by Pinacor or MicroAge. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the 24th day of June, 1999. MICROAGE, INC., a Delaware Corporation By /s/ JEFFREY D. MCKEEVER ------------------------------------- Its Chairman of the Board and Chief Executive Officer PINACOR, INC., a Delaware Corporation By /s/ JAMES G. MANTON ------------------------------------- Its President By /s/ ROBERT G. O'MALLEY ------------------------------------- ROBERT G. O'MALLEY EX-10.25.2 11 2ND AMEND TO 1997 SPLIT-DOLLAR INS. AGRMNT SECOND AMENDMENT TO THE 1997 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN PINACOR, INC. AND ROBERT G. O'MALLEY This Second Amendment to the 1997 Split-Dollar Insurance Agreement by and between Pinacor, Inc., a Delaware corporation, and Robert G. O'Malley dated January 27, 1997 and amended June 24, 1999 (the "SPLIT-DOLLAR AGREEMENT") is effective as of the 30th day of June, 1999. R E C I T A L S: A. WHEREAS, Robert G. O'Malley (the "INSURED") acquired insurance on his life in accordance with the terms and provisions of the Split-Dollar Agreement; and B. WHEREAS, the First Amendment to the Split-Dollar Agreement was executed effective June 24, 1999 whereby MicroAge, Inc. assigned to Pinacor, Inc. (the "CORPORATION") all of its right, title, and interest in the Policy purchased pursuant to the Split-Dollar Agreement, any and all of its interest acquired under the related Collateral Assignment Form, and any and all of its duties and obligations under the Split-Dollar Agreement; and C. WHEREAS, the Corporation has paid all premiums due on the Policy through August 25, 1999 in accordance with the terms and provisions of the Split-Dollar Agreement; and D. WHEREAS, the Corporation and the Insured have entered into an Agreement and General Release (the "SEPARATION AGREEMENT") regarding the Insured's separation from his employment with the Corporation effective as of June 30, 1999; and E. WHEREAS, the Separation Agreement requires the amendment of the Split-Dollar Agreement; 1 NOW, THEREFORE, the parties, in consideration of the mutual promises contained herein, hereby agree as follows: AMENDMENTS: 1. Article II of the Split Dollar Agreement is hereby amended and restated in its entirety as follows: ARTICLE II The premiums on the Policy are Ten Thousand Five Hundred Dollars ($10,500.00) per year. The Corporation shall pay all premiums necessary to keep the Policy in force through the earlier of (i) the death of the Insured or (ii) August 25, 1999. 2. Paragraph B of Article V of the Split Dollar Agreement is hereby amended and restated in its entirety as follows: B. On June 30, 1999, the collateral assignment in favor of the Corporation shall expire and the Policy shall become the sole property of the Insured. The Insured shall not be required to reimburse the Corporation for any Policy premiums paid by the Corporation. 3. Article VI of the Split Dollar Agreement is hereby amended and restated in its entirety as follows: A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by the Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. 4. June 30, 1999. 5. The death of the Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3 above, the Insured shall pay the Corporation an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, the Corporation shall thereupon execute and deliver to the Insured a release of the collateral assignment of the Policy. If the Insured does not remit the amount equal to the Corporation's security interest within thirty (30) days 2 of the event described in paragraph A.2 or 3, then all obligations of the Corporation under this Agreement shall be terminated and the Insured shall transfer the ownership of the Policy to the Corporation. C. If this Agreement is terminated pursuant to Article VI, paragraphs A.4 above, the collateral assignment on the Policy in favor of the Corporation shall expire contemporaneously with the termination of this Agreement and the Insured shall then be the sole owner of the Policy. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment on the 24th day of June, 1999. PINACOR, INC., a Delaware Corporation /s/ JAMES G. MANTON ---------------------------------------- James G. Manton President /s/ ROBERT G. O'MALLEY ---------------------------------------- Robert G. O'Malley 3 EX-10.28 12 AGREEMENT AND GENERAL RELEASE AGREEMENT AND GENERAL RELEASE This Agreement and General Release (hereinafter "AGREEMENT") is entered into this 24th day of June, 1999, in the County of Maricopa, State of Arizona, among MicroAge, Inc., a Delaware corporation ("MICROAGE"), Pinacor, Inc., a Delaware corporation ("PINACOR"), and Robert G. O'Malley ("EXECUTIVE"). RECITALS WHEREAS, Executive is currently serving as the Chief Executive Officer of Pinacor, Inc.; WHEREFORE, the parties have agreed that it is in their respective best interests to amicably resolve all matters relative to Executive's employment with Pinacor and separation therefrom pursuant to the following terms and conditions: I. Pinacor covenants and agrees to provide Executive with the severance benefits specified in paragraphs 1-10 on EXHIBIT A attached hereto (the "SEVERANCE BENEFITS") and the additional benefits specified in paragraphs 11 - 14 on EXHIBIT A attached hereto (the "ADDITIONAL BENEFITS"). Executive covenants and agrees to execute the resignation letter attached hereto as EXHIBIT B resigning from his position as a Director and Chief Executive Officer of the companies listed on such exhibit. The parties acknowledge and agree that the Severance Benefits provided to Executive as set forth on EXHIBIT A are provided pursuant to the Employment Agreement, dated as of January 4, 1999, by and between Pinacor, Inc. and Robert G. O'Malley (the "EMPLOYMENT AGREEMENT"). The parties agree that Pinacor will not provide the Additional Benefits hereunder until Executive signs and returns the "Non-Revocation" form attached hereto as EXHIBIT C. Executive's separation from employment with Pinacor will be effective as of June 30, 1999 (the "SEPARATION DATE"). Executive hereby acknowledges receipt of an advanced payment in the amount of Thirty Seven Thousand Four Hundred and Forty-Eight Dollars and 58/100 ($37,448.58), less applicable taxes, on June 15, 1999, $37,154.40 of which is in complete satisfaction of the payment owed to Executive for his unused accrued vacation days as set forth in EXHIBIT A, paragraph 2, and $294.18 of which is a reimbursement for prepaid medical insurance. It is expressly understood and agreed that, other than the severance benefits being provided to Executive pursuant to this Agreement, neither MicroAge, Pinacor, nor any of their affiliates is otherwise indebted to Executive for any other damages, wages, benefits, or reimbursements. 1 II. In exchange for the promises set forth in PARAGRAPH I above, Executive does hereby forever release, discharge, cancel, waive, and acquit, for himself and for his marital community, heirs, executors, administrators and assigns, MicroAge, Pinacor, and any and all of their affiliates, subsidiaries, corporate parents, agents, officers, owners, employees, attorneys, successors and assigns, of and from any and all rights, claims, demands, causes of action, obligations, damages, penalties, fees, costs, expenses, and liability of any nature whatsoever which Executive has, had or may hereafter have against them or any of them, arising out of, or by reason of any cause, matter, or thing whatsoever existing as of the date of execution of this Agreement, WHETHER KNOWN TO THE PARTIES AT THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT. This FULL WAIVER OF ALL CLAIMS includes, without limitation, attorney's fees, any claims, demands, or causes of action arising out of, or relating in any manner whatsoever to, the employment and/or termination of the employment of Executive, such as, BUT NOT LIMITED TO, any charge, claim, lawsuit or other proceeding arising under the Civil Rights Act of 1866, 1964, Title VII as amended by the Civil Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination in Employment Act (ADEA), the Labor Management Relations Act, the Employee Retirement Income Security Act, the Consolidated Omnibus Budget Reconciliation Act, the Fair Labor Standards Act, the Arizona Civil Rights Act, Workman's Compensation Claims, or any other federal, state, or local statute. Executive further covenants and agrees not to institute, nor cause to be instituted, any legal proceeding, including filing any claim or complaint with any government agency alleging any violations of law or public policy, against MicroAge, Pinacor, and/or any and all of their affiliates, subsidiaries, corporate parents, agents, officers, owners, employees, successors and assigns premised upon any legal theory or claim whatsoever, including without limitation, contract, tort, wrongful discharge, personal injury, interference with contract, defamation, negligence, infliction of emotional distress, fraud, or deceit, except to enforce the terms of this Agreement. III. The parties and their respective attorneys agree to hold in strict confidence the terms and conditions of this Agreement. The parties covenant and agree that neither they nor their attorneys will, either directly or through any other person, agent or representative, discuss publicly or privately the nature or content of this Agreement with any non-party to this Agreement, except as to either party's accountants, any state tax department or the federal Internal Revenue Service, or any other state or federal official in response to a legitimate inquiry. IV. Executive, by his execution of this Agreement, avows that the following statements are true: A. That he has been given the opportunity and has in fact read this entire Agreement, that it is in plain language, and has had all questions regarding its meaning answered to his satisfaction; 2 B. That he has been advised to seek independent advice and/or counsel of his choosing and that he has been given the full opportunity to seek such advice and/or counsel; C. That he fully understands the contents of this Agreement and understands that it is a FULL WAIVER OF ALL CLAIMS, including arbitration claims and awards, against Executive, including any rights under the ADEA and as to ADEA claims is not a waiver of future claims; D. That this FULL WAIVER OF ALL CLAIMS is given in return for valuable consideration, as provided under the terms of this Agreement; E. That he enters into this Agreement knowingly and voluntarily in exchange for the promises referenced in this Agreement and that no other representations have been made to him to induce or influence his execution of this Agreement. Executive has been given at least twenty-one (21) days within which to consider this Agreement before signing and seven (7) days following his execution of the Agreement to revoke this Agreement. The Agreement shall not become effective or enforceable until the foregoing revocation period has expired and Executive has signed and returned the "Non-Revocation" form attached hereto as EXHIBIT C; and F. That he understands his continuing obligations under the Employment Agreement, including but not limited to his obligations (a) to maintain the confidentiality of Confidential Information (ss. 5.1 of the Employment Agreement), and (b) not to compete with Pinacor or its affiliates for a twenty-four month period (ss. 5.9 of the Employment Agreement). Without limiting the generality of Executive's non-competition obligations, during the Non-Competition Period (as defined in Section 5.9(a) of the Employment Agreement) Executive agrees that Executive will not, either within or outside of the Business Territory (as defined in Section 5.9(a) of the Employment Agreement), act as an agent, representative, consultant, officer, director, member, independent contractor, or employee of Arrow Electronics, Inc.; Avnet, Inc.; Cambridge Research Associates, Inc.; CHS Electronics, Inc.; Compaq Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; En Pointe Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy Computer Resources, Inc.; Sarcom; Tech Data Corporation; Xerox Connect; or any Affiliates or successors of the foregoing. V. The parties confirm their continuing obligations under Section 5.10 of the Employment Agreement, which provides as follows: During the term of this Agreement, the Non-Competition Period, the Employee Non- Solicitation Period, and the Customer Non-Solicitation Period, neither the Executive nor the Company will disparage the other, and neither will disclose to any third party the conditions of Executive's employment with the Company, except as may be required (i) pursuant to applicable law or regulations, including the rules and regulations of the Securities and Exchange Commission, (ii) to effectuate the provisions of employee plans or programs and insurance 3 policies, or (iii) as may be otherwise contemplated herein or unless such information becomes publicly available without fault of the party making such disclosure. VI. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance, or otherwise, by the laws of the State of Arizona, and no action involving this Agreement may be brought except in the Superior Court for the State of Arizona or the Federal District Court for the District of Arizona. VII. If any provision of this Agreement or the application thereof is held to be invalid, void, or unenforceable for whatever reason, the remaining provisions not so declared shall nevertheless continue in full force and effect without being impaired in any manner whatsoever. VIII. This Agreement constitutes the sole and entire Agreement between the parties hereto, and supersedes any and all understandings and agreements made prior hereto, other than the Employment Agreement. There are no collateral understandings, representations, or agreements other than those contained herein or in the Employment Agreement. It is understood and agreed that the execution of this Agreement by MicroAge and Pinacor is not an admission of liability on their parts to Executive, but is an agreement to put to rest any claim of any kind whatsoever relating to the employment relationship or otherwise, except that the parties may enforce their respective rights under the Employment Agreement to the extent they are not inconsistent with this Agreement. IN WITNESS WHEREOF, the undersigned parties have signed this Agreement on the date indicated herein. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 4 CAUTION! THIS IS A RELEASE! READ BEFORE SIGNING! MICROAGE, INC. PINACOR, INC. By: /s/ JEFFREY D. MCKEEVER By: /s/ JAMES G. MANTON -------------------------- ---------------------- Its: Chairman of the Board and Its: President Chief Executive Officer Date: June 24, 1999 Date: June 24, 1999 Robert G. O'Malley /s/ ROBERT G. O'MALLEY - ------------------------- Date: June 24, 1999 5 VERIFICATION STATE OF ARIZONA ) ) ss. County of Maricopa ) On this 24th day of June, 1999, before me, the undersigned Notary Public, personally appeared Robert G. O'Malley, known to me to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ MATTHEW P. FEENEY ------------------------ Notary Public My Commission Expires October 31, 1999 6 EXHIBIT A SEVERANCE BENEFITS 1. SALARY PAYMENTS. In consideration of the benefits paid to Executive pursuant to this Agreement, and notwithstanding anything contained in Section 4.3(f) of the Employment Agreement to the contrary, Executive hereby waives his right to receive payments under Section 4.3(f) of the Employment Agreement. This Section 1 shall be deemed to be an amendment to the Employment Agreement. 2. ACCRUED VACATION DAYS. As of May 31, 1999, Executive will have 240 hours of unused accrued hours, or 30 days (the "ACCRUED VACATION DAYS"). Pinacor will reimburse Executive for such unused accrued vacation days in an amount equal to Executive's current annual base salary less his 1999 MEP waiver ($322,000) multiplied by a fraction, the numerator of which is the number of unused accrued vacation days (30), and the denominator of which is 260. On the Separation Date, Pinacor will pay Executive Thirty Seven Thousand One Hundred Fifty-Four Dollars and 40/100 ($37,154.40) for these accrued unused vacation days. 3. REIMBURSABLE EXPENSES. Pinacor will, in accordance with standard policies, reimburse Executive for all reasonable travel and other expenses incurred by Executive prior to the Separation Date and submitted for reimbursement on or before July 15, 1999. 4. MEDICAL AND DENTAL PLANS. In consideration of the benefits paid to Executive pursuant to this Agreement, and notwithstanding anything contained in Section 4.3(g) of the Employment Agreement to the contrary, Executive hereby waives his right to receive medical, dental or other benefits under Section 4.3(g) of the Employment Agreement. As of the Separation Date, Pinacor will cease making contributions to the monthly premiums it made while Executive was an active Pinacor associate. Executive will be entitled to 18 months of COBRA coverage (through December 31, 2000) (the "COBRA PERIOD"). Executive will be required to pay the full COBRA premium in order to continue medical and/or dental benefits during the COBRA Period. Any questions regarding COBRA coverage should be directed to Linda Koch at 366-3014. This Section 4 shall be deemed to be an amendment to the Employment Agreement. 5. 401(K) PLAN AND SUPPLEMENTAL SAVINGS PLAN. Executive participates in the Pinacor Retirement Savings Plan (the "401(K) PLAN") and the Pinacor Executive Supplemental Savings Plan (the "SUPPLEMENTAL SAVINGS PLAN"). Executive has received information regarding his options under the 401(k) Plan. Any questions regarding the 401(k) Plan should be directed to Patricia Vincent at 366-2287. As of the Separation Date, no additional contributions will be made to the 401(k) Plan or the Supplemental Savings Plan. Pursuant to the Participation Agreement dated September 15, 1997, Executive's account balance under the Supplemental Savings Plan will be distributed to him in a lump sum payment within a reasonable time after the Separation Date. A-1 6. SPLIT-DOLLAR INSURANCE AGREEMENT. Executive and MicroAge entered into two Split- Dollar Insurance Agreements, dated as of September 1, 1995 and January 27, 1997 (the "SPLIT- DOLLAR AGREEMENTS"). Attached as EXHIBIT D are the amendments to the Split-Dollar Agreements assigning such agreements from MicroAge to Pinacor as of the Separation Date. Pinacor has paid the premium payments on both Policies (as such term is defined in each Split-Dollar Agreement) through August 24, 1999. On the Separation Date, Pinacor will transfer the Policies to Executive and will release Executive from any and all obligations to reimburse Pinacor for premiums paid on the Policies. After August 24, 1999, Executive will be responsible for maintaining the Policies to the extent Executive elects to do so. Pinacor and Executive will enter into amendments to the Split-Dollar Agreements to effectuate the terms of this Section 6. 7. DISABILITY INSURANCE. Executive currently has disability insurance pursuant to separate policies: (1) the UNUM Group Disability Policy (the "GROUP POLICY") and (2) two UNUM Individual Disability Policies (the "INDIVIDUAL POLICIES"). The Group Policy will terminate as of the Separation Date. Pinacor will cause the Individual Policies to remain in full force and effect until September 30, 1999. After September 30, 1999, Executive will be responsible for the full premium payments if Executive wishes to continue coverage under the Individual Policies. If Executive elects to continue coverage under the Individual Polices, Executive should contact Ellen Steele-Allare (955-7370) on or before September 1, 1999. 8. STOCK OPTIONS. During Executive's employment Executive was granted the following stock options: A. Pursuant to a Letter Award, dated May 15, 1995 (the "LETTER AWARD"), under the MicroAge, Inc. 1994 Long-Term Incentive Plan, Executive was granted the option to purchase a total of 15,000 shares of MicroAge common stock, par value $.01 per share ("COMMON STOCK"), at an exercise price of $11.13 per share. Pursuant to the terms of the Letter Award, on or before the Separation Date, Executive is entitled to purchase up to 9,000 shares of Common Stock at an exercise price of $11.13 per share. In accordance with the terms of the Letter Award, all options thereunder will terminate on the Separation Date. B. Pursuant to the 1994 Stock Option Plan Grant Letter, dated as of December 13, 1995 (the "1994 GRANT LETTER"), Executive was granted the option to purchase a total of 15,000 shares of Common Stock at an exercise price of $8.75 per share. Pursuant to the terms of the 1994 Grant Letter, on or before the Separation Date, Executive is entitled to purchase up to 6,000 shares of Common Stock at an exercise price of $8.75 per share. In accordance with the terms of the 1994 Grant Letter, all options thereunder will terminate on the Separation Date. C. Pursuant to the MicroAge, Inc. Long-Term Incentive Plan Incentive Stock Option Award, dated March 14, 1996 (the "1996 LETTER"), Executive was granted the option to purchase 50,000 shares of Common Stock at an exercise price of $9.25 per share. A-2 Pursuant to the terms of the 1996 Letter, on or before the Separation Date, Executive is entitled to purchase up to 30,000 shares of Common Stock at an exercise price of $9.25 per share. In accordance with the terms of the 1996 Letter, all options thereunder will terminate on the Separation Date. D. Pursuant to the 1994 Long-Term Incentive Plan Incentive Stock Option Award (the "1994 INCENTIVE AWARD"), on December 4, 1996 Executive was granted the option to purchase a total of 20,000 shares of Common Stock at an exercise price of $24.00 per share. Pursuant to the terms of the 1994 Incentive Plan, on or before the Separation Date, Executive is entitled to purchase up to 8,000 shares of Common Stock at an exercise price of $24.00 per share. In accordance with the terms of the 1994 Incentive Award, all options thereunder will terminate on the Separation Date. E. Pursuant to the 1997 Long Term Incentive Plan Incentive Stock Option Award, dated April 10, 1998 (the "1998 LETTER"), Executive was granted the option to purchase a total of 10,000 shares of Common Stock at an exercise price of $14.375 per share. Pursuant to the terms of the 1998 Letter, on or before the Separation Date, Executive is entitled to purchase up to 2,000 shares of Common Stock at an exercise price of $14.375 per share, subject to certain stock price hurdles. In accordance with the terms of the 1998 Letter, all options thereunder will terminate on the Separation Date. F. Pursuant to the 1997 Long-Term Incentive Plan Incentive Stock Option Award, dated January 28, 1999 (the "1999 LETTER"), Executive was granted the option to purchase 10,000 shares of Common Stock at an exercise price of $16.56 per share. As of the Separation Date, Executive is not entitled to exercise any of the options under the 1999 Letter. In accordance with the terms of the 1999 Letter, all options thereunder will terminate on the Separation Date. 9. MANAGEMENT EQUITY PROGRAMS. A. Pursuant to the 1997 Management Equity Program Award Agreement, dated October 11, 1996, and amended January 28, 1999 (the "1997 MEP AGREEMENT"), Executive received 135,035 options as a result of his election to restructure his compensation package by reducing his fiscal year 1997, 1998, and 1999 compensation. As of the Separation Date, Executive will not have any vested options. In accordance with the terms of the 1997 MEP Agreement, following the Separation Date, Executive's options will continue to vest under the vesting schedule set forth on EXHIBIT E. B. Pursuant to the 1999 Management Equity Program Award Agreement dated April 22, 1999 (the "1999 MEP AGREEMENT"), Executive received 32,681 options as a result of his election to waive a portion of his salary during the period from May 1, 1999 through May 1, 2000. In accordance with the terms of the 1999 MEP Agreement, on the Separation Date, Executive will A-3 have 5,447 options. Following the Separation Date, Executive's options will continue to vest under the vesting schedule set forth on EXHIBIT E. 10. ASSOCIATE STOCK PURCHASE PLAN. On June 30, 1999, Executive's balance in the Associate Stock Purchase Plan (the "ASSP") will be invested in MicroAge common stock pursuant to the terms of such plan. Any questions regarding the ASSP should be directed to Patricia Vincent at 366-2287. 11. EXTENSION OF OPTIONS. Pursuant to a written consent dated as of June 16, 1999, the Compensation Committee extended the exercise period of all options granted in Section 8, paragraphs A-F above, for six (6) months after the Separation Date. 12. PRODUCT PURCHASE BENEFITS. Executive may purchase the palm top, personal computer and docking station Executive has been using during his employment with Pinacor at a price equal to their depreciated book values. If Executive elects to purchase such items, Executive will contact Jeff McKeever. 13. CELLULAR PHONE. Executive may retain the cellular phone he was using during his employment with Pinacor. As of the Separation Date, Pinacor will transfer the cellular phone and the related account to Executive and Executive will be responsible for maintaining such account. 14. EMPLOYMENT REFERENCE. Pinacor agrees to provide a reference and reason for Executive's separation that is consistent with a statement that will be mutually agreed to by Pinacor and Executive. A-4 EXHIBIT B June 30, 1999 To the Board of Directors of each of the corporations attached hereto as EXHIBIT A: I hereby resign my positions as a director and officer of each of the corporations attached hereto as EXHIBIT A, effective as of June 30, 1999. Sincerely, Robert G. O'Malley B-1 EXHIBIT A COMPANY POSITION - ------- -------- Complete Distribution, Inc. Director and Chief Executive Officer ConnectWorks, Inc. Director and Chief Executive Officer Contract PC, Inc. Director and Chief Executive Officer MicroRetailing, Inc. Director and Chief Executive Officer Pinacor, Inc. Director and Chief Executive Officer Pinacor Logistics Services, Inc. Director and Chief Executive Officer B-2 EXHIBIT C NON-REVOCATION AS OF THE DATE SHOWN ON THIS FORM By signing below, I hereby verify that I have chosen not to revoke my agreement to, and execution of, the Agreement and General Release. My signature confirms my renewed agreement to the terms of that Agreement, including the release and waiver of any and all claims relating to my employment with the Employer and its successors, assigns, and affiliated companies, and/or the termination of that employment /S/ ROBERT G. O'MALLEY JULY 9, 1999 - --------------------------------------- ------------- Robert G. O'Malley* Date *Do not sign, date, or return this document until eight (8) days after you sign the Agreement and General Release. The signed and dated document should be returned to Matthew P. Feeney, Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004. C-1 VERIFICATION STATE OF ARIZONA ) ) ss. County of Maricopa ) On this ____ day of _____________, 1999, before me, the undersigned Notary Public, personally appeared Robert G. O'Malley, known to me to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purpose therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ---------------------------------------- Notary Public My Commission Expires ----------------- C-2 EXHIBIT D FIRST AMENDMENT TO THE 1995 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ROBERT G. O'MALLEY This First Amendment to the 1995 Split-Dollar Insurance Agreement by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as "Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is effective as of the 30th day of June, 1999. RECITALS WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance Agreement dated September 1, 1995 (hereinafter referred to as "Agreement") and a Collateral Assignment Form dated September 1, 1995 (hereinafter referred to as "CAF"); WHEREAS, the Agreement pertains to a policy of insurance on the life of Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"), in the face amount of Seven Hundred Fifty Thousand Dollars ($750,000), with policy number 13453221 (hereinafter referred as "Policy"), as identified on Schedule A to the Agreement; WHEREAS, MicroAge was required to pay certain premiums due on the Policy pursuant to Article II of the Agreement, and Insured was deemed the owner of the Policy; WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to MicroAge a security interest in the Policy for the repayment of the premiums paid by MicroAge to Insurer; D-1 WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide the proceeds of the Policy into two parts in the event of the death of Insured, with MicroAge receiving an amount equal to MicroAge's security interest in the Policy, and Insured's designated beneficiary receiving the balance of the death benefit; WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge desire that MicroAge's interest and obligations under the Agreement be assigned to Pinacor, and Insured agrees to such assignment; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: AGREEMENTS 1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all of its right, title, and interest in the Policy, any and all of its interest acquired under the CAF, and any and all of its duties and obligations under the Agreement. 2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's right, title and interest in the Policy, and any and all of MicroAge's duties and obligations under the Agreement, including but not limited to the obligation to pay the premiums due on the Policy, and agrees to perform the Agreement in the same manner and to the same extent that MicroAge would be required to perform if no such assignment had taken place. 3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold MicroAge harmless from and against any claims, losses or liability which arise from the Agreement or this First Amendment to the Split-Dollar Insurance Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise of its duties and responsibilities under the Agreement or the Amendment, D-2 including but not limited to claims of Insured, or losses or liability resulting therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all costs, damages or losses including without limitation any out-of-pocket expenses and reasonable attorneys' fees incurred in the investigation or defense of any such claims. 4. CONSENT OF INSURED. Insured hereby consents to the assignment by MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title and interest in the Policy, and any and all duties and obligations arising from the Agreement. 5. RELEASE BY INSURED. Insured releases, on behalf of himself and his heirs, executors, administrators and assigns, any and all claims of any nature whatsoever against MicroAge and its affiliates, agents, officers, owners, directors, employees, insurers and assigns, arising out of or related in any manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF, and MicroAge's acts or omissions in connection therewith. The foregoing release does not extend to or include Pinacor. 6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to Pinacor and Insurer a Collateral Assignment Form in connection with the execution of this Amendment, establishing Pinacor as the direct beneficiary of the Policy in an amount equal to the total amount of premiums paid to Insurer on the Policy, whether paid by Pinacor or MicroAge. D-3 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the ___ day of June, 1999. MICROAGE, INC., a Delaware Corporation By -------------------------------------- Its ------------------------------------- PINACOR, INC., a Delaware Corporation By -------------------------------------- Its ------------------------------------- By -------------------------------------- ROBERT G. O'MALLEY D-4 FIRST AMENDMENT TO THE 1997 SPLIT-DOLLAR INSURANCE AGREEMENT BY AND BETWEEN MICROAGE, INC. AND ROBERT G. O'MALLEY This First Amendment to the 1997 Split-Dollar Insurance Agreement by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "MicroAge"), PINACOR, INC., a Delaware corporation (hereinafter referred to as "Pinacor"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured") is effective as of the 30th day of June, 1999. RECITALS WHEREAS, MicroAge and Insured entered into a Split-Dollar Insurance Agreement dated January 27, 1997 (hereinafter referred to as "Agreement") and a Collateral Assignment Form dated January 27, 1997 (hereinafter referred to as "CAF"); WHEREAS, the Agreement pertains to a policy of insurance on the life of Insured issued by The Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"), in the face amount of Two Hundred Fifty Thousand Dollars ($250,000), with policy number 14016898 (hereinafter referred as "Policy"), as identified on Schedule A to the Agreement; WHEREAS, MicroAge was required to pay certain premiums due on the Policy pursuant to Article II of the Agreement, and Insured was deemed the owner of the Policy; WHEREAS, pursuant to the Agreement and the CAF, Insured assigned to MicroAge a security interest in the Policy for the repayment of the premiums paid by MicroAge to Insurer; WHEREAS, pursuant to the Agreement MicroAge and Insured agreed to divide the proceeds of the Policy into two parts in the event of the death of Insured, with MicroAge receiving an amount equal to MicroAge's security interest in the Policy, and Insured's designated beneficiary receiving the balance of the death benefit; D-5 WHEREAS, Pinacor is a subsidiary of MicroAge, and both Pinacor and MicroAge desire that MicroAge's interest and obligations under the Agreement be assigned to Pinacor, and Insured agrees to such assignment; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: AGREEMENTS 1. ASSIGNMENT BY MICROAGE. MicroAge hereby assigns to Pinacor any and all of its right, title, and interest in the Policy, any and all of its interest acquired under the CAF, and any and all of its duties and obligations under the Agreement. 2. ASSUMPTION BY PINACOR. Pinacor hereby assumes any and all of MicroAge's right, title and interest in the Policy, and any and all of MicroAge's duties and obligations under the Agreement, including but not limited to the obligation to pay the premiums due on the Policy, and agrees to perform the Agreement in the same manner and to the same extent that MicroAge would be required to perform if no such assignment had taken place. 3. INDEMNIFICATION BY PINACOR. Pinacor agrees to defend, indemnify and hold MicroAge harmless from and against any claims, losses or liability which arise from the Agreement or this First Amendment to the Split-Dollar Insurance Agreement (hereinafter referred to as "Amendment"), or from Pinacor's exercise of its duties and responsibilities under the Agreement or the Amendment, including but not limited to claims of Insured, or losses or liability resulting therefrom. Pinacor also agrees to pay or reimburse MicroAge for any and all costs, damages or losses including without limitation any out-of-pocket expenses and reasonable attorneys' fees incurred in the investigation or defense of any such claims. D-6 4. CONSENT OF INSURED. Insured hereby consents to the assignment by MicroAge and the assumption by Pinacor of any and all of MicroAge's right, title and interest in the Policy, and any and all duties and obligations arising from the Agreement. 5. RELEASE BY INSURED. Insured releases, on behalf of himself and his heirs, executors, administrators and assigns, any and all claims of any nature whatsoever against MicroAge and its affiliates, agents, officers, owners, directors, employees, insurers and assigns, arising out of or related in any manner whatsoever to the Policy, the Agreement, the Amendment, and/or the CAF, and MicroAge's acts or omissions in connection therewith. The foregoing release does not extend to or include Pinacor. 6. COLLATERAL ASSIGNMENT FORM. Insured agrees to execute and deliver to Pinacor and Insurer a Collateral Assignment Form in connection with the execution of this Amendment, establishing Pinacor as the direct beneficiary of the Policy in an amount equal to the total amount of premiums paid to Insurer on the Policy, whether paid by Pinacor or MicroAge. D-7 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the ___ day of June, 1999. MICROAGE, INC., a Delaware Corporation MICROAGE, INC., a Delaware Corporation By -------------------------------------- Its ------------------------------------- PINACOR, INC., a Delaware Corporation By -------------------------------------- Its ------------------------------------- By -------------------------------------- ROBERT G. O'MALLEY D-8 EXHIBIT E 1997 MEP AGREEMENT VESTING SCHEDULE 1/3 1/3 1/3 --- --- --- November 1, 1999 14,563 October 30, 2000 14,563 14,563 October 29, 2001 14,562 14,563 15,887 November 4, 2002 14,562 15,886 November 3, 2003 15,886 ------ ------ ------ 43,688 43,688 47,659 TOTAL 135,035 1999 MEP AGREEMENT VESTING SCHEDULE 1/3 --- May 1, 2000 1,816 May 1, 2001 1,816 May 1, 2002 1,815 ----- 5,447 E-1 EX-10.29.1 13 1ST AMEND TO KOZIOL EMPLOYMENT AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT (this "FIRST AMENDMENT") TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of this 1st day of April, 1998, by and between MICROAGE, INC., a Delaware corporation (the "COMPANY") and Christopher J. Koziol ("EXECUTIVE"). RECITALS: WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement, dated as of November 4,1996 (the "EMPLOYMENT AGREEMENT"); and WHEREAS, the Company and Executive desire to amend the Employment Agreement; NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: AGREEMENT: SECTION 1. AMENDMENT TO EMPLOYMENT AGREEMENT. The first sentence of Section 1.2 of the Employment Agreement is hereby amended in its entirety to read as follows: "(a) Executive shall serve as President of Pinacor, Inc., the Company's distribution subsidiary (or in a capacity and with a title of at least substantially equivalent quality)." SECTION 2. EFFECTIVENESS. This First Amendment will become effective as of April 1,1998. SECTION 3. MISCELLANEOUS. A. Full Force and Effect. Except as expressly provided in this First Amendment, the Employment Agreement will remain unchanged and in full force and effect. B. Counterparts. This First Amendment may be executed in any number Qf counterparts, all of which taken together will constitute one and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. A. Arizona Law. It is the intention of the parties that the laws of Arizona will govern the validity of this First Amendment, the construction of its terms, and the interpretation of the rights and duties of the parties. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. Company: MICROAGE, INC. By: /s/ Jeffrey D. McKeever ------------------------------------ Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Executive: /s/ Christopher J. Koziol ---------------------------------------- Christopher J. Koziol EX-10.29.2 14 2ND AMEND TO KOZIOL EMPLOYMENT AGREEMENT SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT (this "SECOND AMENDMENT") TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT, as amended, is entered into as of this 28th day of January, 1999, by and between MICROAGE, INC., a Delaware corporation (the "COMPANY"), and Christopher J. Koziol ("EXECUTIVE"). RECITALS: WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement, dated as of November 4, 1996, as amended by the First Amendment to Amended and Restated Employment Agreement, dated as of April 1, 1998 (the "EMPLOYMENT AGREEMENT"); and WHEREAS, the Company and Executive desire to amend the Employment Agreement; NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: AGREEMENT: SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT. A. The first sentence of Section 1.2 of the Employment Agreement is hereby amended in its entirety to read as follows: "(a) Executive shall serve as Executive Vice President - Sales of the Company (or in a capacity and with a title of at least substantially equivalent quality)." B. Section 2.2 of the Employment Agreement is hereby amended in its entirety to read as follows: 2.2 BONUS PAYMENT. "(a) During the period of Executive's employment under this Agreement, the Company shall pay to Executive annually a fixed cash bonus equal to $4,018 and, in addition, such amount as may be necessary, after payment by the Executive of all taxes, including, without limitation, any federal or state income taxes, on such fixed cash bonus payment, so that Executive shall have remaining, on a grossed-up basis, the amount of $4,018 (the "ANNUAL FIXED CASH BONUS"). (b) The Board or a committee thereof will establish in each fiscal year during the term hereof an executive bonus plan that provides for incentive compensation to Executive. Any bonus under any such plan is referred to herein as the "ANNUAL INCENTIVE BONUS". C. Section 4.2(e) of the Employment Agreement is hereby amended in its entirety to read as follows: "(e) pay Executive any Annual Fixed Cash Bonus and any Annual Incentive Bonus with respect to a prior fiscal year which has accrued but has not been paid (together, such bonus payments are referred to herein as the "ACCRUED ANNUAL BONUS PAYMENTS");" D. Section 4.3(e) of the Employment Agreement is hereby amended in its entirety to read as follows: "(e) pay Executive the Accrued Annual Bonus Payments;" SECTION 2. EFFECTIVENESS. This Second Amendment will become effective as of January 28, 1999. SECTION 3. MISCELLANEOUS. A. Full Force and Effect. Except as expressly provided in this Second Amendment, the Employment Agreement will remain unchanged and in full force and effect. B. Counterparts. This Second Amendment may be executed in any number of counterparts, all of which taken together will constitute one and the same instrument, and any of the parties hereto may execute this Second Amendment by signing any such counterpart. C. Arizona Law. It is the intention of the parties that the laws of Arizona will govern the validity of this Second Amendment, the construction of its terms, and the interpretation of the rights and duties of the parties. 2 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. Company: MICROAGE, INC., a Delaware corporation By: /s/ Jeffrey D. McKeever ------------------------------------ Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Executive: /s/ Christopher J. Koziol ---------------------------------------- Christopher J. Koziol 3 EX-10.29.3 15 THIRD AMENDMENT BETWEEN KOZIOL & MICROAGE THIRD AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT (this "THIRD AMENDMENT") TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT, as amended, is entered into as of this 30th day of September, 1999, by and between MICROAGE, INC., a Delaware corporation (the "COMPANY"), and Christopher J. Koziol ("EXECUTIVE"). RECITALS: WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement, dated as of November 4, 1996, as amended by the First Amendment to Amended and Restated Employment Agreement, dated as of April 1, 1998 and the Second Amendment to the Amended and Restated Employment Agreement, dated January 28, 1999 (the "EMPLOYMENT AGREEMENT"); and WHEREAS, the Company and Executive desire to amend the Employment Agreement; NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T: SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT. A. Section 4.3(g) of the Employment Agreement is hereby amended in its entirety to read as follows: "(g) maintain in full force and effect, for Executive's and his eligible beneficiaries' continued benefit, until the first to occur of (x) his attainment of alternative employment or (y) 24 months following the termination date of his employment hereunder the employee benefits provided pursuant to Company-sponsored benefit plans, programs or other arrangements in which Executive was entitled to participate as a full-time employee immediately prior to such termination in accordance with Section 2.4 hereof, subject to the terms and conditions of such plans and programs (the "Continued Benefits"). If Executive's continued participation is not permitted under the general terms and provisions of such plans, programs and arrangements, the Company shall arrange to provide Executive with Continued Benefits substantially similar to those which Executive would have been entitled to receive under such plans, programs and arrangements; and in addition" B. Section 5.9 (a) of the Employment Agreement is hereby amended in its entirety to read as follows: "(a) NON-COMPETITION. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of 24 months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the 24 month period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9." SECTION 2. EFFECTIVENESS. This Third Amendment will become effective as of September 30, 1999. SECTION 3. MISCELLANEOUS. A. Full Force and Effect. Except as expressly provided in this Third Amendment, the Employment Agreement will remain unchanged and in full force and effect. B. Counterparts. This Third Amendment may be executed in any number of counterparts, all of which taken together will constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. C. Arizona Law. It is the intention of the parties that the laws of Arizona will govern the validity of this Third Amendment, the construction of its terms, and the interpretation of the rights and duties of the parties. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment as of the date first above written. Company: MICROAGE, INC., a Delaware corporation By: /s/ Jeffrey D. McKeever ------------------------------------ Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Executive: /s/ Christopher J. Koziol ------------------------------------ Christopher J. Koziol -2- EX-10.29.4 16 4TH AMENDMENT TO KOZIOL AGREEMENT FOURTH AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS FOURTH AMENDMENT (this "FOURTH AMENDMENT") TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT, as amended, is entered into as of this 15th day of February, 2000, by and between MICROAGE, INC., a Delaware corporation (the "COMPANY"), and Christopher J. Koziol ("EXECUTIVE"). RECITALS: WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement, dated as of November 4, 1996, as amended by the First Amendment to Amended and Restated Employment Agreement, dated as of April 1, 1998, the Second Amendment to the Amended and Restated Employment Agreement, dated January 28, 1999, and the Third Amendment to the Amended and Restated Employment Agreement, dated September 30, 1999 (the "EMPLOYMENT AGREEMENT"); and WHEREAS, the Company and Executive desire to amend the Employment Agreement; NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: AGREEMENT: SECTION 1. AMENDMENTS TO EMPLOYMENT AGREEMENT. A. The first sentence of Section 1.2 of the Employment Agreement is hereby amended in its entirety to read as follows: "(a) Executive shall serve as President and Chief Operating Officer of the Company (or in a capacity and with a title of at least substantially equivalent quality)." B. Section 1.3 of the Employment Agreement is hereby amended in its entirety to read as follows: "1.3 TERM. The term of Executive's employment under this Agreement shall commence on the date first above written and shall continue, unless sooner terminated, until November 2, 1997; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the twenty-four (24) month period commencing on each such day." C. Section 4.3(f) of the Employment Agreement is hereby amended in its entirety to read as follows: "(f) pay Executive commencing on the thirtieth day following the termination date twenty-four monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary in effect immediately prior to the time such termination occurs, plus (2) the average of the Annual Incentive Bonuses paid to Executive for the two (2) fiscal years immediately preceding the fiscal year in which the termination occurs (or if less than two, the amount of his single Annual Incentive Bonus, if any). Should Executive attain alternative employment during the twenty-four (24) month payment period, the Company's obligations under this Section 4.3(f) will be reduced by the amount of Executive's compensation from his new employer. For example, if Executive were entitled to receive $17,500 per month for twenty-four (24) months under this Section 4.3(f), and if, at the beginning of the seventh (7th) month following his termination date, he finds alternative employment that pays him $15,000 per month, the Company would obligated to pay Executive six (6) monthly payments of $17,500, and eighteen (18) monthly payments of $2,500 under this Section 4.3(f);" D. Section 4.4(b) of the Employment Agreement is hereby amended in its entirety to read as follows: "(b) Pay to Executive a lump sum payment on or prior to the thirtieth day following the termination date of Executive's employment hereunder in an amount equal to two hundred percent (200%) of the sum of (1) Executive's Base Salary in effect for the fiscal year immediately prior to the fiscal year in which the Change of Control occurs, plus (2) the average of the Annual Incentive Bonuses paid to Executive for the two (2) fiscal years immediately preceding the fiscal year in which the Change of Control occurs (or if less than two, the amount of his/her single Annual Incentive Bonus, if any). For purposes of this subsection (b), no Annual Incentive Bonus received under the Company's Executive Bonus Plan prior to the 1996 Executive Bonus Plan shall be considered." SECTION 2. EFFECTIVENESS. This Fourth Amendment will become effective as of February 15, 2000. SECTION 3. MISCELLANEOUS. A. Full Force and Effect. Except as expressly provided in this Fourth Amendment, the Employment Agreement will remain unchanged and in full force and effect. B. Counterparts. This Fourth Amendment may be executed in any number of counterparts, all of which taken together will constitute one and the same instrument, and any of the parties hereto may execute this Fourth Amendment by signing any such counterpart. C. Arizona Law. It is the intention of the parties that the laws of Arizona will govern the validity of this Fourth Amendment, the construction of its terms, and the interpretation of the rights and duties of the parties. -2- IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the date first above written. Company: MICROAGE, INC., a Delaware corporation By: /s/ Jeffrey D. McKeever ------------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Executive: /s/ Christopher J. Koziol ---------------------------------------- Christopher J. Koziol -3- EX-10.33 17 DIRECTOR FEE WAIVER-APPLEGATE MICROAGE, INC. DIRECTOR'S FEE WAIVER LYNDA M. APPLEGATE RETAINER FEES $18,000.00 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $ 9,000.00 I hereby elect to waive the following amount of my regular Board meeting fees for the six regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. AUDIT COMMITTEE MEETING FEES $ 2,000.00 I hereby elect to waive the following amount of my regular Audit Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. COMPENSATION COMMITTEE MEETING FEES $ 2,000.00 I hereby elect to waive the following amount of my regular Compensation Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. WAIVER AMOUNT $31,000.00 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ Lynda M. Applegate -------------------------- DATE 4-21-99 -------------------------- SSN -------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.34 18 DIRECTOR'S FEE WAIVER-FRIEDHAM MICROAGE, INC. DIRECTOR'S FEE WAIVER CYRUS F. FREIDHEIM RETAINER FEES $18,000 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $ 9,000 I hereby elect to waive the following amount of my regular Board meeting fees for the six regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. AUDIT COMMITTEE MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Audit Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. COMPENSATION COMMITTEE MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Compensation Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. WAIVER AMOUNT $31,000 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ Cyrus F. Freidham ------------------------- DATE 4-11-99 ------------------------- SSN ------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.35 19 DIRECTOR'S FEE WAIVER-HERBERGER MICROAGE, INC. DIRECTOR'S FEE WAIVER ROY A. HERBERGER, JR. RETAINER FEES $ 2,000 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Board meeting fees for the six $_______ regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. COMPENSATION COMMITTEE MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Compensation Committee meeting $_______ fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. GOVERNANCE COMMITTEE MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Governance Committee meeting fees $_______ for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. COMMITTEE CHAIR FEES $ 2,000 I hereby elect to waive the following amount of the Committee Chair fees payable to me for the next four quarters: THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. WAIVER AMOUNT $10,000 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ Roy A. Herberger, Jr. ------------------------- DATE 4-15-99 ------------------------- SSN ------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.36 20 DIRECTOR'S FEE WAIVER-MALLENDER MICROAGE, INC. DIRECTOR'S FEE WAIVER WILLIAM H. MALLENDER RETAINER FEES $18,000 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $ 9,000 I hereby elect to waive the following amount of my regular Board meeting fees for the six regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. COMPENSATION COMMITTEE MEETING FEES $ 2,000 I hereby elect to waive the following amount of my regular Compensation Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. GOVERNANCE COMMITTEE MEETING FEES $ 1,000 I hereby elect to waive the following amount of my regular Governance Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. LEAD DIRECTOR FEES $______ I hereby elect to waive the following amount of the Lead Director fees payable to me for the next four quarters: THE ANNUAL LEAD DIRECTOR FEE IS $3,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL LEAD DIRECTOR FEES TO BE WAIVED ON THE BLANK LINE ABOVE. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. COMMITTEE CHAIR FEES $______ I hereby elect to waive the following amount of the Committee Chair fees payable to me for the next four quarters: THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. WAIVER AMOUNT $30,000 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ William H. Mallender ------------------------- DATE 4-13-99 ------------------------- SSN ------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.37 21 DIRECTOR'S FEE WAIVER-MIHAYLO MICROAGE, INC. DIRECTOR'S FEE WAIVER STEVEN G. MIHAYLO RETAINER FEES $ 9,000 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $ 4,500 I hereby elect to waive the following amount of my regular Board meeting fees for the six regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. AUDIT COMMITTEE MEETING FEES $ 1,000 I hereby elect to waive the following amount of my regular Audit Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. GOVERNANCE COMMITTEE MEETING FEES $ 1,000 I hereby elect to waive the following amount of my regular Governance Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. COMMITTEE CHAIR FEES $ 1,500 I hereby elect to waive the following amount of the Committee Chair fees payable to me for the next four quarters: THE ANNUAL COMMITTEE CHAIR FEE IS $3,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $750 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL COMMITTEE CHAIR FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. WAIVER AMOUNT $17,000 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ Steven G. Mihaylo ------------------------- DATE 4-12-99 ------------------------- SSN ------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.38 22 DIRECTOR'S FEE WAIVER-WALKER MICROAGE, INC. DIRECTOR'S FEE WAIVER DIANNE C. WALKER RETAINER FEES $10,000 I hereby elect to waive the following amount of the retainer fees payable to me for the next four quarters: THE ANNUAL RETAINER IS $18,000 AND IS PAID IN ARREARS IN QUARTERLY INSTALLMENTS OF $4,500 EACH. YOU MAY ELECT TO WAIVE ALL OR A PORTION OF EACH QUARTERLY INSTALLMENT FOR THE THIRD AND FOURTH QUARTERS OF THE CURRENT FISCAL YEAR AND THE FIRST AND SECOND QUARTERS OF THE FISCAL YEAR THAT WILL END IN 2000. IF YOU WOULD LIKE TO WAIVE ANY PORTION OF THESE FEES, WRITE THE AMOUNT OF THE TOTAL RETAINER FEES TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE FOUR QUARTERLY INSTALLMENTS. BOARD MEETING FEES $______ I hereby elect to waive the following amount of my regular Board meeting fees for the six $_______ regularly scheduled Board meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $9,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE SIX MEETINGS. AUDIT COMMITTEE MEETING FEES $______ I hereby elect to waive the following amount of my regular Audit Committee meeting fees for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. GOVERNANCE COMMITTEE MEETING FEES $______ I hereby elect to waive the following amount of my regular Governance Committee meeting fees $_______ for the two regularly scheduled meetings between May 1, 1999 and April 30, 2000: THE MAXIMUM WAIVER IS $2,000. IF YOU WANT TO WAIVE ANY PORTION OF THIS AMOUNT, WRITE IN THE AMOUNT TO BE WAIVED ON THE BLANK LINE TO THE RIGHT. THE AMOUNT YOU WAIVE WILL BE CHARGED EQUALLY AGAINST THE MEETING FEES FOR THESE TWO MEETINGS. WAIVER AMOUNT $10,000 By signing this Waiver, I acknowledge that I have been given, or was offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended November 1, 1998, and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "SEC Reports"), and that I was given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. By signing this Waiver, I recognize that purchasing options is a speculative investment in that the success or failure of my investment depends on the market value of the Company's stock over a several year period. I further recognize that all or a portion of my investment (i.e., my Waiver Amount) may be lost. I also acknowledge that I was given the opportunity to consult with my personal advisor(s) regarding this Waiver. I hereby elect to waive the Waiver Amount set forth above. By signing this Waiver I agree to the terms and conditions set forth above and acknowledge that I have read and understand the sample Stock Option Agreement that was given to me. SIGNATURE /s/ Dianne C. Walker ------------------------- DATE April 22, 1999 ------------------------- SSN ------------------------- PLEASE FAX YOUR SIGNED FORM TO THOMAS R. HOECKER AT (602) 382-6070. YOUR FORM MUST BE RECEIVED BY MR. HOECKER BY NOON (ARIZONA TIME) ON FRIDAY, APRIL 23, 1999. EX-10.51.3 23 3RD AMEND-1995 ASSOCIATE STOCK PUR. PLN THIRD AMENDMENT TO THE MICROAGE, INC. 1995 ASSOCIATE STOCK PURCHASE PLAN Effective March 15, 1995, the shareholders of MicroAge, Inc. (the "Company") approved the adoption of the MicroAge, Inc. 1995 Associate Stock Purchase Plan (the "Plan"). By the First Amendment to the Plan, the Company amended the Plan to make various technical changes. By the Second Amendment to the Plan, the Company amended the Plan to change the "purchase date" of shares of Common Stock. By this instrument, the Company desires to amend the Plan to increase the number of shares of Common Stock reserved for issuance under the Plan. 1. This Third Amendment shall amend only that Section specified herein and those Sections not amended hereby shall remain in full force and effect. 2. Section 4 is hereby amended and restated in its entirety as follows: 4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided below, the total number of shares of Stock reserved and available for issuance or which may be otherwise acquired upon exercise of Purchase Rights under the Plan will be 1,000,000. Any shares of Stock delivered by the Company under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. The number and kind of such shares of Stock subject to the Plan will be proportionately adjusted, as determined by the Board, in the event of any extraordinary dividend or other distribution, recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Stock. 3. The provisions of this Third Amendment shall be effective for Subscription Periods beginning on or after March 31, 1999. IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed as of this 3rd day of December, 1998. MICROAGE, INC. By: /s/ Jeffrey D. McKeever --------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer EX-10.51.4 24 4TH AMEND-1995 ASSOCIATE STOCK PUR. PLN AMENDMENT TO THE MICROAGE, INC. 1995 ASSOCIATE STOCK PURCHASE PLAN Effective March 15, 1995, the shareholders of MicroAge, Inc. (the "Company") approved the adoption of the MicroAge, Inc. 1995 Associate Stock Purchase Plan (the "Plan"). By this instrument, the Company desires to suspend purchases of stock by Participants under the Plan. 1. The changes made to the Plan by this Amendment are effective as of December 2, 1999. 2. This Amendment shall amend only those Sections specified herein and those Sections not amended hereby shall remain in full force and effect. 3. Section 5(d) of the Plan is hereby amended by adding to end thereof the following new sentence: Notwithstanding the foregoing or any other provision of the Plan to the contrary, as of December 2, 1999, the date this Amendment was approved by the Board, Participant contributions under the Plan are suspended until such time as the Board takes action to permit additional contributions to the Plan. 4. Section 6 of the Plan is hereby amended by adding a new subsection (g) which shall provide as follows: (g) SUSPENSION OF PURCHASES. Notwithstanding the foregoing or any other provision of the Plan to the contrary, Stock remaining available under the Plan as of the Purchase Date next following the effective date of this Amendment shall be purchased by the Custodian and allocated to each Participant's Stock Account in proportion to the amount held in each Participant's Cash Account immediately prior to the Stock purchase contemplated by this paragraph. For purposes of the preceding sentence, any Participant contributions for the Subscription Period that exceed the limitations set forth in Sections 5(d), 6(a) or any other provision of the Plan shall be disregarded. Any amounts that remain in a Participant's Cash Account following the purchase and allocation of all remaining Stock that has been reserved under the Plan shall be repaid to the Participant (without interest) as specified in Section 7(b) as if each Participant's enrollment in the Plan had terminated. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as of this 27th day of January, 2000. MICROAGE, INC. By: Jeffrey D. McKeever ------------------------------------ Its: Chairman of the Board and Chief Executive Officer EX-10.56 25 CREDIT AGREEMENT DATED 10/28/99 EXECUTION COPY $450,000,000 CREDIT AGREEMENT Dated as of October 28, 1999 Among MICROAGE TECHNOLOGY SERVICES, L.L.C. and PINACOR, INC., AS BORROWERS, MICROAGE, INC. AS PARENT GUARANTOR, THE INITIAL LENDERS, INITIAL ISSUING BANK AND SWING LINE BANK NAMED HEREIN AS INITIAL LENDERS, INITIAL ISSUING BANK AND SWING LINE BANK, CITIBANK, N.A. AS COLLATERAL AGENT, CITIBANK, N.A. AS ADMINISTRATIVE AGENT, IBM CREDIT CORPORATION AS DOCUMENTATION AGENT and THE CIT GROUP/BUSINESS CREDIT, INC. AS SYNDICATION AGENT TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01. Certain Defined Terms 1 1.02. Computation of Time Periods; Other Definitional Provisions 29 1.03. Accounting Terms 29 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT 2.01. The Advances and the Letters of Credit 30 2.02. Making the Advances 31 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit 34 2.04. Repayment of Advances 36 2.05. Termination or Reduction of the Commitments 38 2.06. Prepayments 38 2.07. Interest 39 2.08. Fees 40 2.09. Conversion of Advances 41 2.10. Increased Costs, Etc. 42 2.11. Payments and Computations 43 2.12. Taxes 44 2.13. Sharing of Payments, Etc. 46 2.14. Use of Proceeds 47 2.15. Defaulting Lenders 47 2.16. Evidence of Debt 50 2.17. Increase in the Aggregate Working Capital Commitments 51 ARTICLE III CONDITIONS OF LENDING ANDISSUANCES OF LETTERS OF CREDIT 3.01. Conditions Precedent to Initial Extension of Credit 53 3.02. Conditions Precedent to Each Borrowing, Increase Date, Issuance and Increase of Available Amount 59 3.03. Determinations Under Section 3.01 60 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties of the Borrowers and the Parent Guarantor 60 ARTICLE V COVENANTS OF THE BORROWERS AND THE PARENT GUARANTOR67 5.01. Affirmative Covenants 67 5.02. Negative Covenants 73 5.03. Reporting Requirements 80 5.04. Financial Covenants 84 ARTICLE VI EVENTS OF DEFAULT 6.01. Events of Default 86 6.02. Actions in Respect of the Letters of Credit upon Default 90 ARTICLE VII PARENT GUARANTY 7.01. Guaranty 90 7.02. Guaranty Absolute 91 7.03. Waiver 92 7.04. Payments Free and Clear of Taxes, Etc. 93 7.05. Continuing Guaranty; Assignments 94 7.06. Subrogation 94 ARTICLE VIII THE AGENTS 8.01. Authorization and Action 96 8.02. Agents' Reliance, Etc. 97 8.03. Citibank and Affiliates 97 8.04. Lender Party Credit Decision 98 8.05. Indemnification 98 8.06. Successor Agents 99 8.07. Other Agents 100 ARTICLE IX MISCELLANEOUS 9.01. Amendments, Etc. 100 9.02. Notices, Etc. 101 9.03. No Waiver; Remedies 102 9.04. Costs and Expenses 102 9.05. Right of Set-off 104 9.06. Binding Effect 104 9.07. Assignments and Participations 104 9.08. Execution in Counterparts 107 9.09. No Liability of the Issuing Bank 107 9.10. Release of Collateral 108 9.11. Jurisdiction, Etc. 108 9.12. Governing Law 108 9.13. Waiver of Jury Trial 109 SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule II - Borrowers' Account Schedule 4.01(b) - Subsidiaries Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and Filings Schedule 4.01(f) - Disclosed Litigation Schedule 4.01(r) - Open Years Schedule 4.01(t) - Existing Debt Schedule 4.01(u) - Surviving Debt Schedule 4.01(v) - Owned Real Property Schedule 4.01(w) - Leased Real Property Schedule 4.01(x) - Investments Schedule 4.01(y) - Intellectual Property Schedule 5.02(a) - Liens EXHIBITS Exhibit A - Form of Promissory Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Security Agreement Exhibit E - Form of Subsidiary Guaranty Exhibit F - Form of Solvency Certificate Exhibit G - Form of Opinion of Counsel to the Loan Parties Exhibit H - Form of Opinion of Local Counsel Exhibit I - Form of Borrowing Base Certificate Exhibit J - Form of Flooring Letter of Credit Exhibit K - Form of Floor Planning Arrangement Intercreditor Agreement CREDIT AGREEMENT Dated as of October 28, 1999 MICROAGE TECHNOLOGY SERVICES, L.L.C., a Delaware limited liability company ("MTS"), PINACOR, INC., a Delaware corporation ("PINACOR", and together with MTS, the "BORROWERS"), MICROAGE, INC., a Delaware corporation (the "PARENT GUARANTOR"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "INITIAL LENDERS"), the bank listed on the signature pages hereof as the Initial Issuing Bank (the "INITIAL ISSUING BANK") and the Swing Line Bank (as hereinafter defined), CITIBANK, N.A. ("CITIBANK"), as collateral agent (together with any successor collateral agent appointed pursuant to Article VII, the "COLLATERAL AGENT"), IBM CREDIT CORPORATION, as documentation agent (the "DOCUMENTATION AGENT"), THE CIT GROUP/BUSINESS CREDIT, INC., as syndication agent (the "SYNDICATION AGENT"), and CITIBANK, as administrative agent (together with any successor administrative agent appointed pursuant to Article VII, the "ADMINISTRATIVE AGENT" and, together with the Collateral Agent, the Document Agent and the Syndication Agent, the "AGENTS") for the Lender Parties (as hereinafter defined), hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADMINISTRATIVE AGENT" has the meaning specified in the recital of parties to this Agreement. "ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the Administrative Agent maintained by the Administrative Agent with Citicorp Industrial Credit at its office at 399 Park Avenue, New York, New York 10043, Account No. 38858061, ABA 021000089, Attention: Shawn Hendrickson, or such other account as the Administrative Agent shall specify in writing to the Lender Parties. "ADVANCE" means a Working Capital Advance, a Swing Line Advance or a Letter of Credit Advance. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "AGENTS" has the meaning specified in the recital of parties to this Agreement. "AGREEMENT VALUE" means, for each Hedge Agreement, on any date of determination, an amount determined by the Administrative Agent equal to: (a) in the case of a Hedge Agreement documented pursuant to the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc. (the "MASTER AGREEMENT"), the amount, if any, that would be payable by any Loan Party or any of its Subsidiaries to its counterparty to such Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on such date of determination, (ii) such Loan Party or Subsidiary was the sole "Affected Party", and (iii) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of the form of Master Agreement); or (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party to such Hedge Agreement determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date of determination, or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party to such Hedge Agreement determined by the Administrative Agent as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of the future cash flows to be received by such Loan Party or Subsidiary pursuant to such Hedge Agreement; capitalized terms used and not otherwise defined in this definition shall have the respective meanings set forth in the above described Master Agreement. "APPLICABLE LENDING OFFICE" means, with respect to each Lender Party, such Lender Party's Domestic Lending Office in the case of a Base Rate Advance and such Lender Party's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "APPLICABLE LETTER OF CREDIT FEE" means a percentage per annum determined by reference to the Debt/EBITDA Ratio as set forth below: Debt/EBITDA Ratio Applicable Letter of Credit Fee ----------------- ------------------------------- LEVEL I less than 2.25: 1.0 1.625% LEVEL II 2.25: 1.0 or greater, but less than 2.75: 1.0 1.875% LEVEL III 2.75: 1.0 or greater, but less than 3.25: 1.0 2.125% LEVEL IV 3.25: 1.0 or greater, but less than 3.75: 1.0 2.375% LEVEL V 3.75: 1.0 or greater, but less than 4.25:1.0 2.625% LEVEL VI 4.25:1.0 or greater 2.875% The Applicable Letter of Credit Fee shall be determined by reference to the ratio in effect from time to time; PROVIDED, HOWEVER, that (A) no change in the Applicable Letter of Credit Fee shall be effective until three Business Days after the date on which the Administrative Agent receives the financial statements required to be delivered pursuant to Section 5.03(b) or (c), as the case may be, and a certificate of the chief financial officer of the Parent Guarantor demonstrating such ratio and (B) the Applicable Letter of Credit Fee shall be at Level VI until the Parent Guarantor has delivered the financial statements for the fiscal quarter ended February 1, 2000 and for so long as the Parent Guarantor has not submitted to the Administrative Agent the information described in clause (A) of this proviso as and when required under Section 5.03(b) or (c), as the case may be. "APPLICABLE MARGIN" means a percentage per annum determined by reference to the Debt/EBITDA Ratio as set forth below: Debt/EBITDA Ratio Base Rate Advances Eurodollar Rate Advances ----------------- ------------------ ------------------------ LEVEL I less than 2.25: 1.0 1.00% 2.00% LEVEL II 2.25: 1.0 or greater, but less than 2.75: 1.0 1.25% 2.25% LEVEL III 2.75: 1.0 or greater, but less than 3.25: 1.0 1.50% 2.50% LEVEL IV 3.25: 1.0 or greater, but less than 3.75: 1.0 1.75% 2.75% LEVEL V 3.75: 1.0 or greater, but less than 4.25:1.0 2.00% 3.00% LEVEL VI 4.25:1.0 or greater 2.25% 3.25% The Applicable Margin for each Advance shall be determined by reference to the ratio in effect from time to time; PROVIDED, HOWEVER, that (A) no change in the Applicable Margin shall be effective until three Business Days after the date on which the Administrative Agent receives the financial statements required to be delivered pursuant to Section 5.03(b) or (c), as the case may be, and a certificate of the chief financial officer of the Parent Guarantor demonstrating such ratio and (B) the Applicable Margin shall be at Level VI until the Parent Guarantor has delivered the financial statements for the fiscal quarter ended February 1, 2000 and for so long as the Parent Guarantor has not submitted to the Administrative Agent the information described in clause (A) of this proviso as and when required under Section 5.03(b) or (c), as the case may be. "APPLICABLE PERCENTAGE" means a percentage per annum determined by reference to the Debt/EBITDA Ratio as set forth below: Debt/EBITDA Ratio Applicable Percentage ----------------- --------------------- LEVEL I less than 2.25: 1.0 0.375% LEVEL II 2.25: 1.0 or greater, but less than 2.75: 1.0 0.375% LEVEL III 2.75: 1.0 or greater, but less than 3.25: 1.0 0.500% LEVEL IV 3.25: 1.0 or greater, but less than 3.75: 1.0 0.500% LEVEL V 3.75: 1.0 or greater, but less than 4.25:1.0 0.500% LEVEL VI 4.25:1.0 or greater 0.500% The Applicable Percentage shall be determined by reference to the ratio in effect from time to time; PROVIDED, HOWEVER, that (A) no change in the Applicable Percentage shall be effective until three Business Days after the date on which the Administrative Agent receives the financial statements required to be delivered pursuant to Section 5.03(b) or (c), as the case may be, and a certificate of the chief financial officer of the Parent Guarantor demonstrating such ratio and (B) the Applicable Percentage shall be at Level VI until the Parent Guarantor has delivered the financial statements for the fiscal quarter ended February 1, 2000 and for so long as the Parent Guarantor has not submitted to the Administrative Agent the information described in clause (A) of this proviso as and when required under Section 5.03(b) or (c), as the case may be. "ARRANGER" means Salomon Smith Barney Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender Party and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "ASSUMING LENDER" has the meaning specified in Section 2.17(d). "ASSUMPTION AGREEMENT" has the meaning specified in Section 2.17(d)(ii). "AVAILABLE AMOUNT" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "BASE RATE" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; and (b) 1/2 of 1% per annum above the Federal Funds Rate. "BASE RATE ADVANCE" means an Advance that bears interest as provided in Section 2.07(a)(i). "BORROWERS" has the meaning specified in the recital of parties to this Agreement. "BORROWERS' ACCOUNT" means the account of the Borrowers maintained by the Borrowers with Citibank at its office at 399 Park Avenue, New York, New York 10043, with the account number so designated on Schedule II, or such other account as the Borrowers shall specify in writing to the Administrative Agent. "BORROWING" means a Working Capital Borrowing or a Swing Line Borrowing. "BORROWING BASE CERTIFICATE" means a certificate in substantially the form of Exhibit I hereto, duly certified by the chief financial officer of the Parent Guarantor. "BUSINESS DAY" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "CAPITAL EXPENDITURES" means, for any Person for any period, the sum of, without duplication, (a) all expenditures made, directly or indirectly, by such Person or any of its Subsidiaries during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of such Person or have a useful life of more than one year plus (b) the aggregate principal amount of all Debt (including Obligations under Capitalized Leases) assumed or incurred in connection with any such expenditures. For purposes of this definition, the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such proceeds, as the case may be. "CAPITALIZED LEASES" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "CASH CONCENTRATION ACCOUNT" has the meaning specified in the Security Agreement. "CASH EQUIVALENTS" means any of the following, to the extent owned by the Parent Guarantor or any of its Subsidiaries free and clear of all Liens other than Liens created under the Collateral Documents and having a maturity of not greater than 180 days from the date of acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that is a Lender Party or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $1,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency. "CHANGE OF CONTROL" means the occurrence of any of the following: (a) any Person (other than Jeffrey McKeever) or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Parent Guarantor (or other securities convertible into such Voting Stock) representing 20% or more of the combined voting power of all Voting Stock of the Parent Guarantor; or (b) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Parent Guarantor shall cease for any reason to constitute a majority of the board of directors of the Parent Guarantor; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent Guarantor or (d) Jeffrey McKeever shall sell more than 50% of his ownership of the combined voting power of the Voting Stock of the Parent Guarantor. "COLLATERAL" means all "Collateral" referred to in the Collateral Documents and all other property that is or is intended to be subject to any Lien in favor of the Collateral Agent for the benefit of the Secured Parties. "COLLATERAL AGENT" has the meaning specified in the recital of parties to this Agreement. "COLLATERAL DOCUMENTS" means the Security Agreement and any other agreement that creates or purports to create a Lien in favor of the Collateral Agent for the benefit of the Secured Parties. "COMMITMENT" means a Working Capital Commitment or a Letter of Credit Commitment. "COMMITMENT DATE" has the meaning specified in Section 2.17(b). "COMMITMENT INCREASE" has the meaning specified in Section 2.17(a). "CONFIDENTIAL INFORMATION" means information that any Loan Party furnishes to any Agent or any Lender Party in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to such Agent or such Lender Party from a source other than the Loan Parties. "CONSOLIDATED" refers to the consolidation of accounts in accordance with GAAP. "CONSOLIDATING" refers to the presentation of the Consolidated financial statements of the Parent Guarantor and the Consolidated financial statements of each Borrower. "CONTINGENT OBLIGATION" means, with respect to any Person, any Obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment Obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Obligation of a primary obligor, (b) the Obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any Obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "CONVERSION", "CONVERT" and "CONVERTED" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10. "DEBT" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable Preferred Stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, valued at the Agreement Value thereof, (i) all Contingent Obligations of such Person and (j) all indebtedness and other payment Obligations referred to in clauses (a) through (i) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment Obligations. "DEBT/EBITDA RATIO" means, at any date of determination, the ratio of (a) the average Consolidated total Debt for Borrowed Money of the Parent Guarantor and its Subsidiaries as at the end of each week ended within the most recently ended fiscal quarter of the Parent Guarantor for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be, to (b) Consolidated EBITDA of the Parent Guarantor and its Subsidiaries for such fiscal quarter and the immediately preceding three fiscal quarters. "DEBT FOR BORROWED MONEY" of any Person means all Debt of the types described in clauses (a) through (e) of the definition of "Debt" less amounts on deposit in the Cash Concentration Account. "DEFAULT" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DEFAULT TERMINATION NOTICE" has the meaning specified in Section 2.01(c). "DEFAULTED ADVANCE" means, with respect to any Lender Party at any time, the portion of any Advance required to be made by such Lender Party to the Borrowers pursuant to Section 2.01 or 2.02 at or prior to such time which has not been made by such Lender Party or by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) as of such time. In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.15(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "DEFAULTED AMOUNT" means, with respect to any Lender Party at any time, any amount required to be paid by such Lender Party to any Agent or any other Lender Party hereunder or under any other Loan Document at or prior to such time which has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section 2.03(c) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender Party, (d) any other Lender Party pursuant to Section 2.13 to purchase any participation in Advances owing to such other Lender Party and (e) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to such Agent or the Issuing Bank as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.15(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. "DEFAULTING LENDER" means, at any time, any Lender Party that, at such time, owes a Defaulted Advance or a Defaulted Amount. "DISCLOSED LITIGATION" has the meaning specified in Section 3.01(e). "DOMESTIC LENDING OFFICE" means, with respect to any Lender Party, the office of such Lender Party specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assumption Agreement or the in the Assignment and Acceptance pursuant to which it became a Lender Party, as the case may be, or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrowers and the Administrative Agent. "DOMESTIC SUBSIDIARY" means any Subsidiary other than a Foreign Subsidiary. "EBITDA" means, for any period, the sum, determined on a Consolidated basis, of (a) net income (or net loss), (b) interest expense (including implied interest expenses incurred under the Receivables Sales Agreement and flooring subsidies, in each case determined on a basis consistent with past practice), (c) income tax expense, (d) depreciation expense, (e) amortization expense, (f) extraordinary, non-recurring, transactional or unusual losses deducted in calculating net income less extraordinary, non-recurring, transactional or unusual gains added in calculating net income and (g) any non-cash expenses, non-cash losses or other non-cash charges resulting from the writedown in the valuation of any assets in each case of the Parent Guarantor and its Subsidiaries, determined in accordance with GAAP for such period. The amounts referred to in clauses (f) and (g) are agreed to be $152,298,000 and $5,411,000 for the second and third quarters of Fiscal Year 1999, respectively. "ELIGIBLE ASSIGNEE" means (a) with respect to any Facility (other than the Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $2,000,000,000; (iv) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $2,000,000,000; (v) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands, or a political subdivision of any such country, and having total assets in excess of $2,000,000,000, so long as such bank is acting through a branch or agency located in the country in which it is organized or another country that is described in this clause (v); (vi) the central bank of any country that is a member of the OECD; (vii) a finance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of business and having a combined capital and surplus of at least $250,000,000 and (viii) any other Person approved by the Administrative Agent and, unless a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Parent Guarantor, such approval not to be unreasonably withheld or delayed, and (b) with respect to the Letter of Credit Facility, a Person that is an Eligible Assignee under subclause (iii) or (v) of clause (a) of this definition and is approved by the Administrative Agent and, unless a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Parent Guarantor, such approval not to be unreasonably withheld or delayed; PROVIDED, HOWEVER, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "ELIGIBLE CASH" means only such cash or Cash Equivalents of the Borrowers as is on deposit in the Cash Concentration Account "ELIGIBLE COLLATERAL" means, collectively, Eligible Inventory, Eligible Receivables and Eligible Cash. "ELIGIBLE INVENTORY" means only such Inventory of the Loan Parties as the Administrative Agent, in its sole discretion, shall from time to time elect to consider Eligible Inventory for purposes of this Agreement. The value of such Inventory shall be determined by the Administrative Agent in its sole discretion exercised commercially reasonably in accordance with customary business practices and taking into consideration, among other factors, the lowest of its cost, its book value determined in accordance with GAAP and its liquidation value. The following classes of Inventory shall not be Eligible Inventory: (a) Inventory that is obsolete, unusable or otherwise unavailable for sale; (b) Inventory with respect to which the representations and warranties set forth in the Collateral Documents applicable to Inventory are not true and correct; (c) Inventory consisting of promotional, marketing, packaging or shipping materials and supplies; (d) Inventory that fails to meet all standards imposed by any governmental agency, or department or division thereof, having regulatory authority over such Inventory or its use or sale; (e) Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from whom any Loan Party has received notice of a dispute in respect of any such agreement; (f) Inventory located outside the United States; (g) Inventory that is not in the possession of or under the sole control of the Loan Parties; and (h) Inventory in respect of which the Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority lien or security interest in favor of the Collateral Agent for the benefit of the Secured Parties securing the Secured Obligations. "ELIGIBLE RECEIVABLES" means only such Receivables of the Loan Parties as the Administrative Agent, in its sole discretion, shall from time to time elect to consider Eligible Receivables for purposes of this Agreement. The value of such Receivables shall be determined by the Administrative Agent in its sole discretion exercised commercially reasonably in accordance with customary business practices and taking into consideration, among other factors, their book value determined in accordance with GAAP. Not withstanding the foregoing, none of the following classes of Receivables shall be Eligible Receivables: (a) Receivables that do not arise out of sales of goods or rendering of services in the ordinary course of the business of the Loan Parties; (b) Receivables on terms other than those normal or customary in the business of the Loan Parties; (c) Receivables owing from any Person that is an Affiliate of any Loan Party or any of its Subsidiaries; (d) Receivables more than 90 days past the original invoice date or more than 60 days past the date due; (e) Receivables owing from any Person from which an aggregate amount of more than 50% of the Receivables owing is more than 60 days past due; (f) Receivables owing from any Person that (i) has disputed liability for any Receivable owing from such Person or (ii) has otherwise asserted any claim, demand or liability against any Loan Party or any of its Subsidiaries, whether by action, suit, counterclaim or otherwise; (g) Receivables owing from any Person that shall take or be the subject of any action or proceeding of a type described in Section 6.01(f); (h) Receivables (i) owing from any Person that is also a supplier to or creditor of any Loan Party or (ii) representing any manufacturer's or supplier's credits, discounts, incentive plans or similar arrangements entitling any Loan Party to discounts on future purchase therefrom; (i) Receivables arising out of sales to account debtors outside the United States; (j) Receivables arising out of sales on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval or consignment basis or subject to any right of return, set-off or charge-back; (k) Receivables owing from an account debtor that is an agency, department or instrumentality of the United States or any State thereof unless the applicable Loan Party shall have satisfied the requirements of the Assignment of Claims Act of 1940, as amended, and any similar State legislation and the Administrative Agent is satisfied as to the absence of set-offs, counterclaims and other defenses on the part of such account debtor; (l) Receivables the full and timely payment of which the Administrative Agent in its sole discretion believes to be doubtful; and (m) Receivables in respect of which the Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority lien or security interest in favor of the Collateral Agent for the benefit of the Secured Parties securing the Secured Obligations. "ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "ENVIRONMENTAL PERMIT" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "EQUIPMENT" means all Equipment referred to in Section 1(a) of the Security Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code. "ERISA EVENT" means (a)(i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA apply with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any Loan Party or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" means, with respect to any Lender Party, the office of such Lender Party specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assumption Agreement or the in the Assignment and Acceptance pursuant to which it became a Lender Party (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrowers and the Administrative Agent. "EURODOLLAR RATE" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to Citibank's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "EURODOLLAR RATE ADVANCE" means an Advance that bears interest as provided in Section 2.07(a)(ii). "EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXISTING DEBT" has the meaning specified in Section 4.01(t) hereof. "FACILITY" means the Working Capital Facility, the Swing Line Facility or the Letter of Credit Facility. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "FEE LETTER" means the fee letter dated October 28, 1999 between the Parent Guarantor and the Administrative Agent, as amended. "FISCAL YEAR" means a fiscal year of the Parent Guarantor and its Consolidated Subsidiaries ending on the Sunday nearest to October 31 in any calendar year. "FIXED CHARGE COVERAGE RATIO" means, at any date of determination, the ratio of (a) Consolidated EBITDA minus Capital Expenditures to (b) interest payable on, and amortization of debt discount in respect of, all Debt for Borrowed Money (including expenses incurred under the Receivables Sales Agreements and flooring subsidies, in each case determined on a basis consistent with past practice), in each case, of or by the Parent Guarantor and its Subsidiaries during the applicable period most recently ended for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be. "FLOOR PLANNING ARRANGEMENTS" means the (i) Agreement for Inventory Financing dated October 28, 1999 between IBM Credit Corporation, MicroAge Computer Centers, Inc., MTS Holding Company, MicroAge Technology Services, L.L.C. and Pinacor, (ii) Agreement for Wholesale Financing dated September 25, 1998 between Finova Capital Corporation and Pinacor, MicroAge Computer Centers, Inc., and MicroAge, Inc., and (iii) inventory financing arrangement between Hewlett-Packard Company, MicroAge, Inc., MicroAge Computer Centers, Inc. and Pinacor for the purchase by MicroAge Computer Centers, Inc. and Pinacor of inventory and equipment bearing the trademark or tradename of Hewlett-Packard Company or any of its Subsidiaries or Affiliates or manufactured by or sold by Hewlett-Packard Company or any of its Subsidiaries or Affiliates; as each of the foregoing agreements and arrangements may from time to time be amended, supplemented or otherwise modified as permitted in, and in accordance with, the terms of this Agreement. "FLOORING LETTER OF CREDIT" means a Standby Letter of Credit issued to a creditor under a Floor Planning Arrangement in substantially the form of Exhibit J hereto. "FOREIGN SUBSIDIARY" means a Subsidiary organized under the laws of a jurisdiction other than the United States or any State thereof or the District of Columbia. "GAAP" has the meaning specified in Section 1.03. "GUARANTIES" means the Parent Guaranty and the Subsidiary Guaranty. "GUARANTORS" means the Parent Guarantor and the Subsidiary Guarantors. "HAZARDOUS MATERIALS" means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "HEDGE BANK" means any Lender Party or an Affiliate of a Lender Party in its capacity as a party to a Secured Hedge Agreement. "IMMATERIAL SUBSIDIARY" means any Subsidiary of the Parent Guarantor the total assets of which do not exceed $25,000. "INCREASE DATE" has the meaning specified in Section 2.17(a). "INCREASING LENDER" has the meaning specified in Section 2.17(c). "INDEMNIFIED PARTY" has the meaning specified in Section 9.04(b). "INFORMATION MEMORANDUM" means the information memorandum dated October 4, 1999 used by the Arranger in connection with the syndication of the Commitments. "INITIAL EXTENSION OF CREDIT" means the earlier to occur of the initial Borrowing and the initial issuance of a Letter of Credit hereunder. "INITIAL ISSUING BANK" has the meaning specified in the recital of parties to this Agreement. "INITIAL LENDERS" has the meaning specified in the recital of parties to this Agreement. "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "INTERCREDITOR AGREEMENT" has the meaning specified in Section 3.01(a)(xi). "INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrowers pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrowers pursuant to the provisions below. The duration of each such Interest Period shall be (except as provided for in Section 2.02(c)) one, two, three or six months, as the Borrowers may, upon notice received by the Administrative Agent not later than 1:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; PROVIDED, HOWEVER, that: (a) the Borrowers may not select any Interest Period that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED, HOWEVER, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "INVENTORY" means all Inventory referred to in Section 1(b) of the Security Agreement. "INVESTMENT" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities or the assets comprising a division or a business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (i) or (j) of the definition of "DEBT" in respect of such Person. "ISSUING BANK" means the Initial Issuing Bank and any Eligible Assignee to which a Letter of Credit Commitment hereunder has been assigned pursuant to Section 9.07 so long as such Eligible Assignee expressly agrees to perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank and notifies the Administrative Agent of its Applicable Lending Office and the amount of its Letter of Credit Commitment (which information shall be recorded by the Administrative Agent in the Register), for so long as such Initial Issuing Bank or Eligible Assignee, as the case may be, shall have a Letter of Credit Commitment. "L/C CASH COLLATERAL ACCOUNT" means the collateral account with Citibank, N.A., at its office at 399 Park Avenue, New York, New York 10043, in the name of the Collateral Agent and under the sole control and dominion of the Collateral Agent. "L/C RELATED DOCUMENTS" has the meaning specified in Section 2.04(c)(ii). "LENDER PARTY" means any Lender, the Issuing Bank or the Swing Line Bank. "LENDERS" means the Initial Lenders, each Assuming Lender that shall become a party hereto pursuant to Section 2.17 and each Person that shall become a Lender hereunder pursuant to Section 9.07 for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement. "LETTER OF CREDIT ADVANCE" means an advance made by the Issuing Bank or any Lender pursuant to Section 2.03(c). "LETTER OF CREDIT AGREEMENT" has the meaning specified in Section 2.03(a). "LETTER OF CREDIT COMMITMENT" means, with respect to the Issuing Bank at any time, the amount set forth opposite the Issuing Bank's name on Schedule I hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into one or more Assignment and Acceptances, set forth for the Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "LETTER OF CREDIT FACILITY" means, at any time, an amount equal to the lesser of (a) the amount of the Issuing Bank's Letter of Credit Commitment at such time and (b) $150,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "LETTERS OF CREDIT" has the meaning specified in Section 2.01(c). "LIEN" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "LOAN DOCUMENTS" means (a) for purposes of this Agreement and the Notes and any amendment, supplement or modification hereof or thereof, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement and (vii) each Intercreditor Agreement and (b) for purposes of the Guaranties and the Collateral Documents and for all other purposes other than for purposes of this Agreement and the Notes, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement, (vii) each Secured Hedge Agreement and (viii) each Intercreditor Agreement, in each case as amended. "LOAN PARTIES" means the Borrowers and the Guarantors. "LOAN VALUE" means, with respect to any Eligible Collateral, an amount equal to (a) with respect to Eligible Receivables, up to 85% of the value of Eligible Receivables; (b) with respect to Eligible Inventory, up to 75% of the value of Eligible Inventory less than 90 days old plus up to 50% of Eligible Inventory over 90 days old less a liquidation reserve of $30,000,000; and (c) with respect to Eligible Cash, up to 99% of the value of Eligible Cash, or, in each case, such lower percentage of the value of any item of Eligible Collateral determined by the Administrative Agent in its sole discretion exercised commercially reasonably in accordance with customary business practice, PROVIDED that the Administrative Agent shall give five Business Days notice of any change in the foregoing percentages. "MARGIN STOCK" has the meaning specified in Regulation U. "MATERIAL ADVERSE CHANGE" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Parent Guarantor, the Parent Guarantor and its Subsidiaries taken as a whole, MTS, MTS and its Subsidiaries taken as a whole, Pinacor or Pinacor and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Parent Guarantor, the Parent Guarantor and its Subsidiaries taken as a whole, MTS, MTS and its Subsidiaries taken as a whole, Pinacor or Pinacor and its Subsidiaries taken as a whole, (b) the rights and remedies of any Agent or any Lender Party under any Transaction Document or (c) the ability of any Loan Party to perform its Obligations under any Transaction Document to which it is or is to be a party. "MORTGAGES" has the meaning specified in Section 3.01(a)(xvii). "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of capital stock or other ownership or profit interest (including, without limitation, any capital contribution) or any securities convertible into or exchangeable for capital stock or other ownership or profit interest or any warrants, rights, options or other securities to acquire capital stock or other ownership or profit interest by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary closing costs, brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; PROVIDED, HOWEVER, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "RESERVED AMOUNT") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified, PROVIDED FURTHER, HOWEVER, that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder. "NOTE" means a promissory note of the Borrowers payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness to such Lender resulting from the Working Capital Advances, Letter of Credit Advances and Swing Line Advances made by such Lender, as amended. "NOTICE OF BORROWING" has the meaning specified in Section 2.02(a). "NOTICE OF ISSUANCE" has the meaning specified in Section 2.03(a). "NOTICE OF RENEWAL" has the meaning specified in Section 2.01(c). "NOTICE OF SWING LINE BORROWING" has the meaning specified in Section 2.02(b). "NOTICE OF TERMINATION" has the meaning specified in Section 2.01(c). "NPL" means the National Priorities List under CERCLA. "OBLIGATION" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f). Without limiting the generality of the foregoing, the Obligations of any Loan Party under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by such Loan Party under any Loan Document and (b) the obligation of such Loan Party to reimburse any amount in respect of any of the foregoing that any Lender Party, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "OECD" means the Organization for Economic Cooperation and Development. "OPEN YEAR" has the meaning specified in Section 4.01(r)(ii). "OTHER TAXES" has the meaning specified in Section 2.12(b). "PARENT GUARANTOR" has the meaning specified in the recital of parties to this Agreement. "PARENT GUARANTY" means the guaranty of the Parent Guarantor set forth in Article VII of this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "PERMITTED LIENS" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that (i) are not overdue for a period of more than 30 days and (ii) individually or together with all other Permitted Liens outstanding on any date of determination do not materially adversely affect the use of the property to which they relate; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "PERSON" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PLEDGED DEBT" has the meaning specified in the Security Agreement. "PREFERRED STOCK" means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation's assets, whether by dividend or upon liquidation. "PRO RATA SHARE" of any amount means, with respect to any Lender at any time, the product of such amount TIMES a fraction the numerator of which is the amount of such Lender's Working Capital Commitment at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender's Working Capital Commitment as in effect immediately prior to such termination) and the denominator of which is the Working Capital Facility at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Working Capital Facility as in effect immediately prior to such termination). "RECEIVABLES" means all Receivables referred to in Section 1(c) of the Security Agreement. "RECEIVABLES SALES AGREEMENT" means the Purchase Agreement dated as of April 30, 1997, between MicroAge Computer Centers, Inc., Pinacor and NationsCredit Commercial Corporation of America dba MicroAge National Credit. "REDEEMABLE" means, with respect to any capital stock or other ownership or profit interest, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "REGISTER" has the meaning specified in Section 9.07(d). "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "RELATED DOCUMENTS" means any intercompany notes issued pursuant to Section 5.02(b)(ii), each agreement included in the Floor Planning Arrangements and each Flooring Letter of Credit. "REQUIRED LENDERS" means, at any time, Lenders owed or holding at least a majority in interest of the sum of (a) the aggregate principal amount of the Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, or, if no such principal amount and no Letters of Credit are outstanding at such time, Lenders holding at least a majority in interest of the aggregate of Working Capital Commitments PROVIDED, HOWEVER, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused Working Capital Commitment of such Lender at such time. For purposes of this definition, the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank and the Available Amount of each Letter of Credit shall be considered to be owed to the Lenders ratably in accordance with their respective Working Capital Commitments. "RESPONSIBLE OFFICER" means any officer of any Loan Party or any of its Subsidiaries. "SECURED HEDGE AGREEMENT" means any Hedge Agreement required or permitted under Article V that is entered into by and between any Loan Party and any Hedge Bank. "SECURED OBLIGATIONS" has the meaning specified in the Security Agreement. "SECURED PARTIES" means the Agents, the Lender Parties and the Hedge Banks. "SECURITY AGREEMENT" has the meaning specified in Section 3.01(a)(ii). "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STANDBY LETTER OF CREDIT" means any Letter of Credit issued under the Letter of Credit Facility, other than a Trade Letter of Credit. "SUBSIDIARY" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "SUBSIDIARY GUARANTORS" means all Subsidiaries of the Parent Guarantor and each other Subsidiary of any of them that shall be required to execute and deliver a guaranty pursuant to Section 5.01(j) or Section 5.01(k). "SUBSIDIARY GUARANTY" means a guaranty in substantially the form of Exhibit E, together with each other guaranty delivered pursuant to Section 5.01(j), in each case as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. "SURVIVING DEBT" has the meaning specified in Section 3.01(c). "SWING LINE ADVANCE" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(b) or (b) any Lender pursuant to Section 2.02(b). "SWING LINE BANK" means Citibank. "SWING LINE BORROWING" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank pursuant to Section 2.01(b) or the Lenders pursuant to Section 2.02(b). "SWING LINE FACILITY" has the meaning specified in Section 2.01(b). "TAX CERTIFICATE" has the meaning specified in Section 5.03(k) "TAXES" has the meaning specified in Section 2.12(a). "TERMINATION DATE" means the earlier of October 31, 2002 and the date of termination in whole of the Working Capital Commitments and the Letter of Credit Commitment pursuant to Section 2.05 or 6.01. "TRADE LETTER OF CREDIT" means any Letter of Credit that is issued under the Letter of Credit Facility for the benefit of a supplier of Inventory to the Borrowers or any of their respective Subsidiaries to effect payment for such Inventory, the conditions to drawing under which include the presentation to the Issuing Bank of negotiable bills of lading, invoices and related documents sufficient, in the judgment of the Issuing Bank, to create a valid and perfected lien on or security interest in such Inventory, bills of lading, invoices and related documents in favor of the Issuing Bank. "TRANSACTION DOCUMENTS" means, collectively, the Loan Documents and the Related Documents. "TYPE" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "UNUSED WORKING CAPITAL COMMITMENT" means, with respect to any Lender at any time, (a) such Lender's Working Capital Commitment at such time MINUS (b) the sum of (i) the aggregate principal amount of all Working Capital Advances, Swing Line Advances and Letter of Credit Advances made by such Lender (in its capacity as a Lender) and outstanding at such time PLUS (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time, (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.03(c) and outstanding at such time other than any such Letter of Credit Advance which, at or prior to such time, has been assigned in part to such Lender pursuant to Section 2.03(c) and (C) the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(b) and outstanding at such time other than any such Swing Line Advance which, at or prior to such time, has been assigned in part to such Lender pursuant to Section 2.02(b). "VOTING STOCK" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. "WORKING CAPITAL ADVANCE" has the meaning specified in Section 2.01(a). "WORKING CAPITAL BORROWING" means a borrowing consisting of simultaneous Working Capital Advances of the same Type made by the Lenders. "WORKING CAPITAL COMMITMENT" means, with respect to any Lender at any time, (a) the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Working Capital Commitment", (b) if such Lender has become a Lender hereunder pursuant to an Assumption Agreement, the amount set forth in such Assumption Agreement or (c) if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Working Capital Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05 or increased pursuant to Section 2.17. "WORKING CAPITAL FACILITY" means, at any time, the aggregate amount of the Lenders' Working Capital Commitments at such time. SECTION 1.02. COMPUTATION OF TIME PERIODS; OTHER DEFINITIONAL PROVISIONS. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "FROM" means "from and including" and the words "TO" and "UNTIL" each mean "to but excluding". References in the Loan Documents to any agreement or contract "AS AMENDED" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(g) ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. THE ADVANCES AND THE LETTERS OF CREDIT. (a) THE WORKING CAPITAL ADVANCES. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "WORKING CAPITAL ADVANCE") to the Borrowers jointly from time to time on any Business Day during the period from the date hereof until the Termination Date in an amount for each such Advance not to exceed such Lender's Unused Working Capital Commitment at such time. Each Working Capital Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Working Capital Advances made simultaneously by the Lenders ratably according to their Working Capital Commitments. Within the limits of each Lender's Unused Working Capital Commitment in effect from time to time, the Borrowers may borrow under this Section 2.01(a), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(a). (b) THE SWING LINE ADVANCES. The Borrowers may jointly request the Swing Line Bank to make, and the Swing Line Bank may, if in its sole discretion it elects to do so, make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrowers jointly from time to time on any Business Day during the period from the date hereof until the Termination Date (i) in an aggregate amount not to exceed at any time outstanding $50,000,000 (the "SWING LINE FACILITY") and (ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate of the Unused Working Capital Commitments of the Lenders at such time. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount of $1,000,000 or an integral multiple of $250,000 in excess thereof and shall be made as a Base Rate Advance. Within the limits of the Swing Line Facility and within the limits referred to in clause (ii) above, so long as the Swing Line Bank, in its sole discretion, elects to make Swing Line Advances, the Borrowers may borrow under this Section 2.01(b), repay pursuant to Section 2.04(b) or prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(b). (c) LETTERS OF CREDIT. The Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (the "LETTERS OF CREDIT") for the joint account of the Borrowers from time to time on any Business Day during the period from the date hereof until 60 days before the Termination Date in an aggregate Available Amount (i) for all Letters of Credit at any time not to exceed at any time the lesser of (x) the Letter of Credit Facility at such time and (y) the Issuing Bank's Letter of Credit Commitment at such time and (ii) for each such Letter of Credit not to exceed the Unused Working Capital Commitments of the Lenders at such time. No Letter of Credit (other than a Flooring Letter of Credit) shall have an expiration date (including all rights of the Borrowers or the beneficiary to require renewal) later than the earlier of 60 days before the Termination Date (or, in the case of a Flooring Letter of Credit, later than five days before the Termination Date) and (A) in the case of a Standby Letter of Credit (other than a Flooring Letter of Credit), six months after the date of issuance thereof, but may by its terms be renewable annually upon notice (a "NOTICE OF RENEWAL") given to the Issuing Bank and the Administrative Agent on or prior to any date for notice of renewal set forth in such Letter of Credit but in any event at least three Business Days prior to the date of the proposed renewal of such Standby Letter of Credit and upon fulfillment of the applicable conditions set forth in Article III unless the Issuing Bank has notified the Borrowers (with a copy to the Administrative Agent) on or prior to the date for notice of termination set forth in such Letter of Credit but in any event at least 30 Business Days prior to the date of automatic renewal of its election not to renew such Standby Letter of Credit (a "NOTICE OF TERMINATION") and (B) in the case of a Trade Letter of Credit, 60 days after the date of issuance thereof; PROVIDED that the terms of each Standby Letter of Credit that is automatically renewable annually shall (x) require the Issuing Bank that issued such Standby Letter of Credit to give the beneficiary named in such Standby Letter of Credit notice of any Notice of Termination, (y) permit such beneficiary, upon receipt of such notice, to draw under such Standby Letter of Credit prior to the date such Standby Letter of Credit otherwise would have been automatically renewed and (z) not permit the expiration date (after giving effect to any renewal) of such Standby Letter of Credit in any event to be extended to a date later than 60 days before the Termination Date. If either a Notice of Renewal is not given by the Borrowers or a Notice of Termination is given by the Issuing Bank pursuant to the immediately preceding sentence, such Standby Letter of Credit shall expire on the date on which it otherwise would have been automatically renewed; PROVIDED, HOWEVER, that even in the absence of receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless instructed to the contrary by the Administrative Agent or the Borrowers, deem that a Notice of Renewal had been timely delivered and in such case, a Notice of Renewal shall be deemed to have been so delivered for all purposes under this Agreement. Each Standby Letter of Credit shall contain a provision authorizing the Issuing Bank to deliver to the beneficiary of such Letter of Credit, upon the occurrence and during the continuance of an Event of Default, a notice (a "DEFAULT TERMINATION NOTICE") terminating such Letter of Credit and giving such beneficiary 15 days to draw such Letter of Credit. Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, the Borrowers may request the issuance of Letters of Credit under this Section 2.01(c), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(c). SECTION 2.02. MAKING THE ADVANCES. (a) Except as otherwise provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not later than 1:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or not later than 12:00 noon (New York City time) on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrowers jointly to the Administrative Agent, which shall give to each Lender prompt notice thereof by telex or telecopier. Each such notice of a Borrowing (a "NOTICE OF BORROWING") shall be by telephone, confirmed immediately in writing, or telex or telecopier, in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Borrowing, (ii) Facility under which such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 2:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing in accordance with the respective Commitments under the applicable Facility of such Lender and the other Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrowers by crediting the Borrowers' Account; PROVIDED, HOWEVER, that, in the case of any Working Capital Borrowing, the Administrative Agent shall first make a portion of such funds equal to the aggregate principal amount of any Swing Line Advances and Letter of Credit Advances made by the Swing Line Bank or the Issuing Bank, as the case may be, and by any other Lender and outstanding on the date of such Working Capital Borrowing, plus interest accrued and unpaid thereon to and as of such date, available to the Swing Line Bank or the Issuing Bank, as the case may be, and such other Lenders for repayment of such Swing Line Advances and Letter of Credit Advances. (b) Each Swing Line Borrowing shall be made on notice, given not later than 1:00 P.M. (New York City time) on the date of the proposed Swing Line Borrowing, by the Borrowers jointly to the Swing Line Bank and the Administrative Agent. Each such notice of a Swing Line Borrowing (a "NOTICE OF SWING LINE BORROWING") shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (i) date of such Borrowing, (ii) amount of such Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later than the seventh day after the requested date of such Borrowing). If, in its sole discretion, it elects to make the requested Swing Line Advance, the Swing Line Bank will make the amount thereof available to the Administrative Agent at the Administrative Agent's Account, in same day funds. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrowers by crediting the Borrowers' Account. Upon written demand by the Swing Line Bank, with a copy of such demand to the Administrative Agent, each other Lender shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each such other Lender, such other Lender's Pro Rata Share of such outstanding Swing Line Advance as of the date of such demand, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Swing Line Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Swing Line Advance to be purchased by such Lender. Each Borrower hereby agrees to each such sale and assignment. Each Lender agrees to purchase its Pro Rata Share of an outstanding Swing Line Advance on (i) the Business Day on which demand therefor is made by the Swing Line Bank, PROVIDED that notice of such demand is given not later than 1:00 P.M. (New York City time) on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Swing Line Bank to any other Lender of a portion of a Swing Line Advance, the Swing Line Bank represents and warrants to such other Lender that the Swing Line Bank is the legal and beneficial owner of such interest being assigned by it, but makes no other representation or warranty and assumes no responsibility with respect to such Swing Line Advance, the Loan Documents or any Loan Party. If and to the extent that any Lender shall not have so made the amount of such Swing Line Advance available to the Administrative Agent, such Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swing Line Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such amount for the account of the Swing Line Bank on any Business Day, such amount so paid in respect of principal shall constitute a Swing Line Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Swing Line Advance made by the Swing Line Bank shall be reduced by such amount on such Business Day. (c) Anything in subsection (a) above to the contrary notwithstanding, (i) except as provided below, the Borrowers may not select Eurodollar Rate Advances for the initial Borrowing hereunder and for the period from the date hereof to March 31, 2000 (or such earlier date as shall be specified in its sole discretion by the Administrative Agent in a written notice to the Borrowers and the Lenders) or for any Borrowing if the aggregate amount of such Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10 and (ii) Eurodollar Rate Advances may not be outstanding as part of more than ten separate Borrowings; PROVIDED, HOWEVER, the Borrowers may select Eurodollar Rate Advances for the period from the Initial Extension of Credit through December 31, 1999 if the duration of the Interest Period for such Eurodollar Rate Advance is one or two weeks and for the period from December 31, 1999 through March 31, 2000 if the duration of the Interest Period for such Eurodollar Rate Advance is one week, two weeks or one month. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrowers. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrowers shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (e) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrowers on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrowers severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of the Borrowers, the interest rate applicable at such time under Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. ISSUANCE OF AND DRAWINGS AND REIMBURSEMENT UNDER LETTERS OF CREDIT. (a) REQUEST FOR ISSUANCE. (i) Each Letter of Credit other than a Flooring Letter of Credit shall be issued upon notice, given not later than 1:00 P.M. (New York City time) on the tenth Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Borrowers jointly to the Issuing Bank, which shall give to the Administrative Agent and each Lender prompt notice thereof by telex or telecopier. Each such notice of issuance of a Letter of Credit other than a Flooring Letter of Credit (a "NOTICE OF ISSUANCE") shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (A) date of such issuance (which shall be a Business Day), (B) Available Amount of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name and address of the beneficiary of such Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied by such application and agreement for letter of credit as the Issuing Bank may specify to the Borrowers for use in connection with such requested Letter of Credit (a "LETTER OF CREDIT AGREEMENT"). If (x) the requested form of such Letter of Credit is acceptable to the Issuing Bank in its sole discretion and (y) it has not received notice of objection to such issuance from the Required Lenders, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Borrowers at its office referred to in Section 9.02 or as otherwise agreed with the Borrowers in connection with such issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (ii) Each Flooring Letter of Credit shall be issued upon notice, given not later than 1:00 P.M. (New York City time) on the second Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Borrowers to the Issuing Bank, which shall give to the Administrative Agent and each Lender prompt notice thereof by telex or telecopier. Each Notice of Issuance for a Flooring Letter of Credit shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (A) date of such issuance (which shall be a Business Day), (B) initial Available Amount of such Letter of Credit, (C) expiration date of such Letter of Credit and (D) name and address of the beneficiary of such Letter of Credit, which shall be a party to a Floor Planning Arrangement and to an Intercreditor Agreement. Each Flooring Letter of Credit shall be substantially in the form of Exhibit J hereto and shall provide for a variable Available Amount to be determined by reference to a certificate to be delivered by the Parent Guarantor to the Administrative Agent and the Issuing Bank within two days after the end of each week. If it has not received notice of objection to such issuance from the Required Lenders, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Flooring Letter of Credit available to the Borrowers at its office referred to in Section 9.02 or as otherwise agreed with the Borrowers in connection with such issuance. (b) LETTER OF CREDIT REPORTS. The Issuing Bank shall furnish (A) to the Administrative Agent on the first Business Day of each week a written report summarizing issuance and expiration dates of Letters of Credit issued during the previous week, drawings during such week under all Letters of Credit and the aggregate Available Amount of all Letters of Credit outstanding during such week, (B) to each Lender on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and drawings during such month under all Letters of Credit and (C) to the Administrative Agent and each Lender on the first Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit. (c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the Issuing Bank of a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of such draft. Upon written demand by the Issuing Bank, with a copy of such demand to the Administrative Agent, each Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell and assign to each such Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the date of such purchase, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Issuing Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Letter of Credit Advance to be purchased by such Lender. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to the Issuing Bank. Each Borrower hereby agrees to each such sale and assignment. Each Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit Advance on (i) the Business Day on which demand therefor is made by the Issuing Bank, PROVIDED that notice of such demand is given not later than 1:00 P.M. (New York City time) on such Business Day, or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Issuing Bank to any Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents and warrants to such other Lender that the Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any liens, but makes no other representation or warranty and assumes no responsibility with respect to such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to the extent that any Lender shall not have so made the amount of such Letter of Credit Advance available to the Administrative Agent, such Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Issuing Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for its account or the account of the Issuing Bank, as applicable. If such Lender shall pay to the Administrative Agent such amount for the account of the Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced by such amount on such Business Day. (d) FAILURE TO MAKE LETTER OF CREDIT ADVANCES. The failure of any Lender to make the Letter of Credit Advance to be made by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Letter of Credit Advance on such date, but no Lender shall be responsible for the failure of any other Lender to make the Letter of Credit Advance to be made by such other Lender on such date. SECTION 2.04. REPAYMENT OF ADVANCES. (a) WORKING CAPITAL ADVANCES. The Borrowers shall repay to the Administrative Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Working Capital Advances then outstanding. (b) SWING LINE ADVANCES. The Borrowers shall repay to the Administrative Agent for the account of the Swing Line Bank and each other Lender that has made a Swing Line Advance the outstanding principal amount of each Swing Line Advance by each of them on the earlier of the maturity date specified in the applicable Notice of Swing Line Borrowing (which maturity shall be no later than the seventh day after the requested date of such Borrowing) and the Termination Date. (c) LETTER OF CREDIT ADVANCES. (i) The Borrowers shall repay to the Administrative Agent for the account of the Issuing Bank and each other Lender that has made a Letter of Credit Advance on the earlier of demand and the Termination Date the outstanding principal amount of each Letter of Credit Advance made by each of them. (ii) The Obligations of the Borrowers under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrowers is without prejudice to, and does not constitute a waiver of, any rights the Borrowers might have or might acquire as a result of the payment by the Issuing Bank of any draft or the reimbursement by the Borrowers thereof): (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C RELATED DOCUMENTS"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrowers in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that the Borrowers may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (E) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; (F) any exchange, release or non-perfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Guaranties or any other guarantee, for all or any of the Obligations of the Borrowers in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrowers, any Guarantor or any other guarantor. SECTION 2.05. TERMINATION OR REDUCTION OF THE COMMITMENTS. (a) OPTIONAL. The Borrowers may, upon at least five Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the unused portions of the Letter of Credit Facility and the Unused Working Capital Commitments; PROVIDED, HOWEVER, that each partial reduction of a Facility (i) shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their Commitments with respect to such Facility. (b) MANDATORY. (i) The Letter of Credit Facility shall be permanently reduced from time to time on the date of each reduction in the Working Capital Facility by the amount, if any, by which the amount of the Letter of Credit Facility exceeds the Working Capital Facility after giving effect to such reduction of the Working Capital Facility. (ii) The Swing Line Facility shall be permanently reduced from time to time on the date of each reduction in the Working Capital Facility by the amount, if any, by which the amount of the Swing Line Facility exceeds the Working Capital Facility after giving effect to such reduction of the Working Capital Facility. SECTION 2.06. PREPAYMENTS. (a) OPTIONAL. The Borrowers may, upon at least one Business Day's notice in the case of Base Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrowers shall, prepay the outstanding aggregate principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Advance, the Borrowers shall also pay any amounts owing pursuant to Section 9.04(c). (b) MANDATORY. (i) The Borrowers shall, on the date of receipt of the Net Cash Proceeds by any Loan Party or any of its Subsidiaries from (A) the sale, lease, transfer or other disposition of any assets of any Loan Party or any of its Subsidiaries (other than any sale, lease, transfer or other disposition of assets pursuant to clause (i) or (ii) of Section 5.02(e)), (B) the incurrence or issuance by any Loan Party or any of its Subsidiaries of any Debt (other than Debt incurred or issued pursuant to Section 5.02(b)) and (C) the sale or issuance by any Loan Party or any of its Subsidiaries of any capital stock or other ownership or profit interest (including, without limitation, any capital contribution), any securities convertible into or exchangeable for capital stock or other ownership or profit interest or any warrants, rights or options to acquire capital stock or other ownership or profit interest, prepay an aggregate principal amount of the Advances comprising part of the same Borrowings equal to the amount of such Net Cash Proceeds. Each such prepayment shall be applied as set forth in clause (iv) below. (ii) The Borrowers shall, on each Business Day, prepay an aggregate principal amount of the Working Capital Advances comprising part of the same Borrowings, the Letter of Credit Advances and the Swing Line Advances equal to the amount by which (A) the sum of the aggregate principal amount of (x) the Working Capital Advances, (y) the Letter of Credit Advances and (z) the Swing Line Advances then outstanding plus the aggregate Available Amount of all Letters of Credit then outstanding exceeds (B) the lesser of (x) the Working Capital Facility and (y) the Loan Value of Eligible Collateral on such Business Day MINUS $20,000,000. (iii) The Borrowers shall, on each Business Day, pay to the Administrative Agent for deposit in the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in such Account to equal the amount by which the aggregate Available Amount of all Letters of Credit then outstanding exceeds the Letter of Credit Facility on such Business Day. (iv) Prepayments of the Working Capital Facility made pursuant to clause (i) and (ii) above shall be FIRST applied to prepay Letter of Credit Advances then outstanding until such Advances are paid in full, SECOND applied to prepay Swing Line Advances then outstanding until such Advances are paid in full and THIRD applied to prepay Working Capital Advances then outstanding comprising part of the same Borrowings until such Advances are paid in full. (vi) All prepayments under this subsection (b) shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 2.07. INTEREST. (a) SCHEDULED INTEREST. The Borrowers shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) BASE RATE ADVANCES. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time PLUS (B) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) EURODOLLAR RATE ADVANCES. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance PLUS (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) DEFAULT INTEREST. Upon the occurrence and during the continuance of an Event of Default, the Borrowers shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above. (c) NOTICE OF INTEREST RATE. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to Section 2.09 or a notice of selection of an Interest Period pursuant to the terms of the definition of "Interest Period", the Administrative Agent shall give notice to the Borrowers and each Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above. SECTION 2.08. FEES. (a) COMMITMENT FEE. The Borrowers jointly and severally agree to pay to the Administrative Agent for the account of the Lenders a commitment fee, from the date hereof in the case of each Initial Lender and from the effective date specified in the Assumption Agreement or in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable in arrears on the date of the initial Borrowing hereunder, thereafter quarterly on the last day of each March, June, September and December, commencing December 31, 1999, and on the Termination Date, at the rate equal to the Applicable Percentage from time to time on the average daily Unused Working Capital Commitment of such Lender PLUS its Pro Rata Share of the average daily outstanding Swing Line Advances during such quarter other than any such Swing Line Advances which have been assigned in part to such Lender pursuant to Section 2.03(c); PROVIDED, HOWEVER, that no commitment fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (b) LETTER OF CREDIT FEES, ETC. (i) The Borrowers jointly and severally agree to pay to the Administrative Agent for the account of each Lender a commission, payable in arrears quarterly on the last day of each March, June, September and December, commencing December 31, 1999, and on the Termination Date, on such Lender's Pro Rata Share of the average daily aggregate Available Amount during such quarter of Letters of Credit outstanding from time to time at the rate equal to the Applicable Letter of Credit Fee from time to time. (ii) The Borrowers shall pay to the Issuing Bank, for its own account a fronting fee, payable in arrears quarterly on the last day of each March, June, September and December, commencing December 31, 1999, and on the Termination Date, on the average daily aggregate Available Amount during such quarter of Letters of Credit outstanding from time to time at the rate of 0.375% per annum. (c) AGENTS' FEES. The Borrowers jointly and severally agree pay to each Agent for its own account such fees as may from time to time be agreed in writing between the Parent Guarantor and such Agent. SECTION 2.09. CONVERSION OF ADVANCES. (a) OPTIONAL. The Borrowers may on any Business Day, upon notice given to the Administrative Agent not later than 1:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10, Convert all or any portion of the Advances of one Type comprising the same Borrowing into Advances of the other Type; PROVIDED, HOWEVER, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(c), no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(c) and each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made ratably among the Lenders in accordance with their Commitments under such Facility. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on the Borrowers. (b) MANDATORY. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances. (ii) If the Borrowers shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrowers and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the continuance of any Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. INCREASED COSTS, ETC. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender Party of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining or participating in Letters of Credit or of agreeing to make or of making or maintaining Letter of Credit Advances (excluding, for purposes of this Section 2.10, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender Party is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers jointly and severally agree from time to time, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), to pay to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Lender Party, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling such Lender Party as a result of or based upon the existence of such Lender Party's commitment to lend or to issue or participate in Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of or participation in the Letters of Credit (or similar contingent obligations), then, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), the Borrowers jointly and severally agree to pay to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party in the light of such circumstances, to the extent that such Lender Party reasonably determines such increase in capital to be allocable to the existence of such Lender Party's commitment to lend or to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts submitted to the Borrowers by such Lender Party shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrowers and the Lenders, whereupon (i) each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor or, if required by applicable law, immediately, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist. SECTION 2.11. PAYMENTS AND COMPUTATIONS. (a) The Borrowers shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.15), not later than 1:00 P.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by the Borrowers is in respect of principal, interest, commitment fees or any other Obligation then payable hereunder and under the Notes to more than one Lender Party, to such Lender Parties for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective Obligations then payable to such Lender Parties and (ii) if such payment by the Borrowers is in respect of any Obligation then payable hereunder to one Lender Party, to such Lender Party for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon any Assuming Lender becoming a Lender hereunder as a result of a Commitment Increase pursuant to Section 2.17, and upon the Agent's receipt of such Lender's Assumption Agreement and recording of the information contained therein in the Register, from and after the applicable Increase Date, the Agent shall make all payments hereunder and under any Notes issued in connection therewith in respect of the interest assumed thereby to the Assuming Lender. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender Party assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; PROVIDED, HOWEVER, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to any Lender Party hereunder that the Borrowers will not make such payment in full, the Administrative Agent may assume that the Borrowers have made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender Party on such due date an amount equal to the amount then due such Lender Party. If and to the extent the Borrowers shall not have so made such payment in full to the Administrative Agent, each such Lender Party shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender Party together with interest thereon, for each day from the date such amount is distributed to such Lender Party until the date such Lender Party repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.12. TAXES. (a) Any and all payments by the Borrowers hereunder or under the Notes shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Lender Party and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender Party or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Lender Party, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Lender Party's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "TAXES"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender Party or any Agent, (i) the sum payable by the Borrowers shall be increased as may be necessary so that after the Borrowers and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.12) such Lender Party or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make all such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrowers shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made by the Borrowers hereunder or under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "OTHER TAXES"). (c) The Borrowers jointly and severally agree to indemnify each Lender Party and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender Party or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender Party or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrowers shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of the Borrowers through an account or branch outside the United States or by or on behalf of the Borrowers by a payor that is not a United States person, if the Borrowers determine that no Taxes are payable in respect thereof, the Borrowers shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.12, the terms "UNITED STATES" and "UNITED STATES PERSON" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender Party organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender or Initial Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter as requested in writing by the Borrowers (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of the Administrative Agent and the Borrowers with two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the forms provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; PROVIDED, HOWEVER, that if, at the effective date of the Assignment and Acceptance pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) of this Section 2.12 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender Party assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001 or 4224, that the Lender Party reasonably considers to be confidential, the Lender Party shall give notice thereof to the Borrowers and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender Party has failed to provide the Borrowers with the appropriate form described in subsection (e) above (OTHER THAN if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Lender Party shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by the United States by reason of such failure; PROVIDED, HOWEVER, that should a Lender Party become subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Lender Party shall reasonably request to assist such Lender Party to recover such Taxes. SECTION 2.13. SHARING OF PAYMENTS, ETC. If any Lender Party shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of Obligations due and payable to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time to (ii) the aggregate amount of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time obtained by all the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Lender Party at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time obtained by all of the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each other Lender Party shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such Lender Party's ratable share (according to the proportion of (i) the purchase price paid to such Lender Party to (ii) the aggregate purchase price paid to all Lender Parties) of such recovery together with an amount equal to such Lender Party's ratable share (according to the proportion of (i) the amount of such other Lender Party's required repayment to (ii) the total amount so recovered from the purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. Each Borrower agrees that any Lender Party so purchasing a participation from another Lender Party pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender Party were the direct creditor of the Borrowers in the amount of such participation. SECTION 2.14. USE OF PROCEEDS. The proceeds of the Advances and issuances of Letters of Credit shall be available (and each Borrowers agrees that it shall use such proceeds and Letters of Credit) solely to pay transaction fees and expenses, refinance certain Existing Debt, provide working capital for the Borrowers and their respective Subsidiaries and for general business purposes. SECTION 2.15. DEFAULTING LENDERS. (a) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrowers and (iii) the Borrowers shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrowers may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrowers to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrowers shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrowers shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff under the Facility pursuant to which such Defaulted Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Borrowers shall notify the Administrative Agent at any time the Borrowers exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrowers to or for the account of such Defaulting Lender which is paid by the Borrowers, after giving effect to the amount set off and otherwise applied by the Borrowers pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.15. (b) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lender Parties and (iii) the Borrowers shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrowers to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lender Parties and, if the amount of such payment made by the Borrowers shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Lender Parties, in the following order of priority: (i) FIRST, to the Agents for any Defaulted Amounts then owing to them, in their capacities as such, ratably in accordance with such respective Defaulted Amounts then owing to the Agents; (ii) SECOND, to the Issuing Bank and the Swing Line Bank for any Defaulted Amounts then owing to them, in their capacities as such, ratably in accordance with such respective Defaulted Amounts then owing to the Issuing Bank and the Swing Line Bank; and (iii) THIRD, to any other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts then owing to such other Lender Parties. Any portion of such amount paid by the Borrowers for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.15. (c) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrowers, any Agent or any other Lender Party shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrowers or such Agent or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with Citibank, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Citibank's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender Party, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) FIRST, to the Agents for any amounts then due and payable by such Defaulting Lender to them hereunder, in their capacities as such, ratably in accordance with such amounts then due and payable to the Agents; (ii) SECOND, to the Issuing Bank and the Swing Line Bank for any amounts then due and payable to them hereunder, in their capacities as such, by such Defaulting Lender, ratably in accordance with such amounts then due and payable to the Issuing Bank and the Swing Line Bank; (iii) THIRD, to any other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder, ratably in accordance with such respective amounts then due and payable to such other Lender Parties; and (iv) FOURTH, to the Borrowers for any Advance then required to be made by such Defaulting Lender to the Borrowers pursuant to a Commitment of such Defaulting Lender. In the event that any Lender Party that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.15 are in addition to other rights and remedies that the Borrowers may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender Party may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.16. EVIDENCE OF DEBT. (a) Each Lender Party shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender Party resulting from each Advance owing to such Lender Party from time to time, including the amounts of principal and interest payable and paid to such Lender Party from time to time hereunder. Each Borrower agrees that upon notice by any Lender Party to the Borrowers (with a copy of such notice to the Administrative Agent) to the effect that a promissory note or other evidence of indebtedness is required or appropriate in order for such Lender Party to evidence (whether for purposes of pledge, enforcement or otherwise) the Advances owing to, or to be made by, such Lender Party, the Borrowers shall promptly execute and deliver to such Lender Party, with a copy to the Administrative Agent, a Note in substantially the form of Exhibit A hereto, payable to the order of such Lender Party in a principal amount equal to the Working Capital Commitment of such Lender Party. All references to Notes in the Loan Documents shall mean Notes, if any, to the extent issued hereunder. (b) The Register maintained by the Administrative Agent pursuant to Section 9.07(d) shall include a control account, and a subsidiary account for each Lender Party, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assumption Agreement and Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender Party hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Borrowers hereunder and each Lender Party's share thereof. (c) Entries made in good faith by the Administrative Agent in the Register pursuant to subsection (b) above, and by each Lender Party in its account or accounts pursuant to subsection (a) above, shall be PRIMA FACIE evidence of the amount of principal and interest due and payable or to become due and payable from the Borrowers to, in the case of the Register, each Lender Party and, in the case of such account or accounts, such Lender Party, under this Agreement, absent manifest error; PROVIDED, HOWEVER, that the failure of the Administrative Agent or such Lender Party to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrowers under this Agreement. SECTION 2.17. INCREASE IN THE AGGREGATE WORKING CAPITAL COMMITMENTS. (a) The Borrowers may, at any time prior to the Termination Date, with the consent of the Administrative Agent (not to be unreasonably withheld), request that the aggregate amount of the Working Capital Commitments be increased by an amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (each a "COMMITMENT INCREASE") to be effective as of a date that is at least 90 days prior to the scheduled Termination Date then in effect (the "INCREASE DATE") as specified in the related notice to the Administrative Agent; PROVIDED, HOWEVER that (i) in no event shall the aggregate amount of the Commitment Increases exceed $50,000,000 and (ii) on the date of any request by the Borrowers for a Commitment Increase and on the related Increase Date, the applicable conditions set forth in Article III shall be satisfied. (b) The Administrative Agent shall promptly notify such Eligible Assignees as it shall identify of a request by the Borrowers for a Commitment Increase, which notice shall include (i) the proposed amount of such requested Commitment Increase, (ii) the proposed Increase Date and (iii) the date by which Lenders wishing to participate in the Commitment Increase must commit to an increase in the amount of their respective Working Capital Commitments (the "COMMITMENT DATE"). The requested Commitment Increase shall be allocated among the Eligible Assignees willing to participate therein in such amounts as are agreed between the Borrowers and the Administrative Agent. (c) Promptly following each Commitment Date, the Administrative Agent shall notify the Borrowers as to the amount, if any, by which the Eligible Assignees are willing to participate in the requested Commitment Increase; PROVIDED, HOWEVER, that the Working Capital Commitment of each such Eligible Assignee shall be in an amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (d) On each Increase Date, each Eligible Assignee that is not prior to such date a Lender hereunder and accepts an offer to participate in a requested Commitment Increase in accordance with Section 2.17(c) (each such Eligible Assignee, an "ASSUMING LENDER") shall become a Lender party to this Agreement as of such Increase Date and the Working Capital Commitment of each Eligible Assignee that prior to such date is a and accepts an offer to participate in such a requested Commitment Increase (an "INCREASING LENDER") shall be so increased (or established) by such amount as of such Increase Date; PROVIDED, HOWEVER, that the Administrative Agent shall have received on or before such Increase Date the following, each dated such date: (i) (A) certified copies of resolutions of the Board of Directors of each of the Borrowers or the Executive Committee of such Board approving the Commitment Increase and the corresponding modifications to this Agreement, (B) a consent executed by each Guarantor approving the Commitment Increase and the corresponding modifications to this Agreement and (C) an opinion of counsel for the Borrowers (which may be in-house counsel), in substantially the form of Exhibit G hereto; (ii) an assumption agreement from each Assuming Lender, if any, in form and substance satisfactory to the Borrowers and the Administrative Agent (each an "ASSUMPTION AGREEMENT"), duly executed by such Eligible Assignee, the Administrative Agent and the Borrowers; and (iii) confirmation from each Increasing Lender of the increase in the amount of its Working Capital Commitment in a writing satisfactory to the Borrowers and the Administrative Agent. On each Increase Date, upon fulfillment of the conditions set forth in the immediately preceding sentence of this Section 2.17(d), the Administrative Agent shall notify the Lenders (including, without limitation, each Assuming Lender) and the Borrowers, on or before 1:00 P.M. (New York City time), by telecopier or telex, of the occurrence of the Commitment Increase to be effected on such Increase Date and shall record in the Register the relevant information with respect to each Increasing Lender and each Assuming Lender on such date. ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. The obligation of each Lender to make an Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (a) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Notes) in sufficient copies for each Lender Party: (i) The Notes payable to the order of the Lenders to the extent requested in accordance with Section 2.16. (ii) A security agreement in substantially the form of Exhibit D hereto (together with each other security agreement and security agreement supplement delivered pursuant to Section 5.01(j), in each case as amended, the "SECURITY AGREEMENT"), duly executed by each Loan Party, together with: (A) certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt indorsed in blank, (B) acknowledgment copies of proper financing statements, duly filed on or before the day of the Initial Extension of Credit under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral described in the Security Agreement, (C) completed requests for information, dated on or before the date of the Initial Extension of Credit, listing the financing statements referred to in clause (B) above and all other effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements, (D) evidence of the completion of all other recordings and filings of or with respect to the Security Agreement that the Administrative Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby, (E) evidence of the insurance required by the terms of the Security Agreement, (F) copies of the Assigned Agreements referred to in the Security Agreement, together with a consent to such assignment, in substantially the form of Exhibit B to the Security Agreement, duly executed by each party to such Assigned Agreements other than the Loan Parties, (G) the Pledged Account Letters referred to in the Security Agreement, duly executed by each Pledged Account Bank referred to in the Security Agreement, and (H) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, receipt of duly executed payoff letters, UCC-3 termination statements and landlords' and bailees' waiver and consent agreements). (iii) A guaranty in substantially the form of Exhibit E hereto (together with each other guaranty and guaranty supplement delivered pursuant to Section 5.01(j), in each case as amended, the "SUBSIDIARY GUARANTY"), duly executed by each Subsidiary Guarantor. (iv) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate or other action and governmental and other third party approvals and consents, if any, with respect to the transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party. (v) A copy of a certificate of the Secretary of State of the jurisdiction of organization of each Loan Party (other than any Loan Party that is an Immaterial Subsidiary or Foreign Subsidiary), dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter of such Loan Party and each amendment thereto on file in his office and (B) that (1) such amendments are the only amendments to such Loan Party's charter on file in his office, (2) such Loan Party has paid all franchise taxes to the date of such certificate and (C) such Loan Party is duly organized and in good standing or presently subsisting under the laws of the State of the jurisdiction of its organization. (vi) A copy of a certificate of the Secretary of State of the jurisdiction of organization of each Loan Party (other than any Loan Party that is an Immaterial Subsidiary or Foreign Subsidiary), dated reasonably near the date of the Initial Extension of Credit, stating that such Loan Party is duly qualified and in good standing in such State and has filed all annual reports required to be filed to the date of such certificate. (vii) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (A) the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(v), (B) a true and correct copy of the bylaws of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(iv) were adopted and on the date of the Initial Extension of Credit, (C) the due incorporation and good standing or valid existence of such Loan Party under the laws of the jurisdiction of its organization, and the absence of any proceeding for the dissolution or liquidation of such Loan Party (D) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (E) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (viii) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Transaction Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (ix) Certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lender Parties, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall request. (x) Certificates in substantially the form of Exhibit F hereto attesting to the Solvency of each Loan Party after giving effect to the transactions contemplated by the Transaction Documents, from its chief financial officer. (xi) An Intercreditor Agreement, in form and substance satisfactory to the Lender Parties (as amended, to the extent permitted under the Loan Documents, or replaced in accordance with Section 5.02(b)(iii)(I) the "INTERCREDITOR AGREEMENT"), among the Collateral Agent, the applicable Borrower and each respective secured creditor of such Borrower, duly executed by each such secured creditor of such Borrower and such Borrower. (xii) Such financial, business and other information regarding each Loan Party and its Subsidiaries as the Lender Parties shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under Plans, Multiemployer Plans and Welfare Plans, collective bargaining agreements and other arrangements with employees, audited annual financial statements dated November 1, 1998, interim financial statements dated the end of the most recent fiscal quarter for which financial statements are available (or, in the event the Lender Parties' due diligence review reveals material changes since such financial statements, as of a later date within 45 days of the day of the Initial Extension of Credit), pro forma financial statements as to the Parent Guarantor and forecasts prepared by management of the Parent Guarantor, in form and substance satisfactory to the Lender Parties, of balance sheets, income statements and cash flow statements on a monthly basis for the first year following the day of the Initial Extension of Credit and on an annual basis for each year thereafter until the Termination Date. (xiii) A letter, in form and substance satisfactory to the Administrative Agent, from the Parent Guarantor to PricewaterhouseCoopers LLC, its independent certified public accountants, advising such accountants that the Agents and the Lender Parties have been authorized to exercise all rights of the Parent Guarantor to require such accountants to disclose any and all financial statements and any other information of any kind that they may have with respect to the Parent Guarantor and its Subsidiaries and directing such accountants to comply with any reasonable request of any Agent or any Lender Party for such information. (xiv) Evidence of insurance naming the Collateral Agent as additional insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Lender Parties, including, without limitation, business interruption insurance. (xv) Certified copies of each employment agreement and other compensation arrangement with each executive officer of any Loan Party or any of its Subsidiaries. (xvi) A Notice of Borrowing or Notice of Issuance, as applicable, and a Borrowing Base Certificate relating to the Initial Extension of Credit. (xvii) Deeds of trust, trust deeds and mortgages in substantially the form of Exhibit E hereto and covering the properties listed on Schedule 4.01(t) (together with each other mortgage delivered pursuant to Section 5.01(j), in each case as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with their terms, the "MORTGAGES"), duly executed by the appropriate Loan Party, together with evidence that all action that the Administrative Agent may deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the Mortgages has been taken. (xviii) A favorable opinion of Snell & Wilmer, counsel for the Loan Parties, in substantially the form of Exhibit G hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (xix) A favorable opinion of Lionel, Sawyer & Collins, Ballard Spahr Andrews & Ingersoll, Schumaker, Loop and Kendrick, LLP, Winstead, Sechrest & Minick, P.C., local counsel to the Lender Parties in Nevada, New Jersey, Ohio and Texas, respectively, in substantially the form of Exhibit H hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (b) The Lender Parties shall be satisfied with the legal structure and capitalization of each Loan Party and each of its Subsidiaries the capital stock of which Subsidiaries is being pledged pursuant to the Loan Documents, including the terms and conditions of the charter, bylaws and each class of capital stock or other equity interest of each Loan Party and each such Subsidiary and of each agreement or instrument relating to such structure or capitalization. (c) The Lender Parties shall be satisfied that all Existing Debt, other than the Debt identified on Schedule 4.01(u) hereto (the "SURVIVING DEBT"), has been prepaid, redeemed or defeased in full or otherwise satisfied and extinguished and that all such Surviving Debt shall be on terms and conditions satisfactory to the Lender Parties. (d) Before giving effect to the transactions contemplated by the Transaction Documents and except as disclosed in the Parent Guarantor's quarterly report on Form 10-Q for the quarter ended August 1, 1999 or otherwise disclosed to the Lender Parties in writing prior to the date hereof, there shall have occurred no Material Adverse Change since November 1, 1998. (e) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect other than the matters described on Schedule 4.01(f) hereto (the "DISCLOSED LITIGATION") or (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the or the other transactions contemplated by the Transaction Documents, and there shall have been no adverse change in the status, or financial effect on any Loan Party or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule 4.01(f) hereto. (f) All governmental and third party consents and approvals necessary in connection with the transactions contemplated by the Transaction Documents shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect; and no law or regulation shall be applicable in the judgment of the Lender Parties, in each case that restrains, prevents or imposes materially adverse conditions upon the transactions contemplated by the Transaction Documents or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (g) The Lender Parties shall have completed a due diligence investigation of the Parent Guarantor and its Subsidiaries in scope, and with results, satisfactory to the Lender Parties, and nothing shall have come to the attention of the Lender Parties during the course of such due diligence investigation to lead them to believe that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect; without limiting the generality of the foregoing, the Lender Parties shall have been given such access to the management, records, books of account, contracts and properties of the Parent Guarantor and its Subsidiaries as they shall have requested. (h) The Borrowers shall have paid all accrued fees of the Agents and the Lender Parties and all reasonable accrued expenses of the Agents (including the reasonable accrued fees and expenses of counsel to the Administrative Agent and local counsel to the Lender Parties). (i) The Lender Parties shall be satisfied with the Parent Guarantor's and each Borrower's management. (j) The Borrowers shall have entered into one or more committed inbound inventory flooring arrangements for an amount not less than $250,000,000 and for a term ending no earlier than the Termination Date and with terms and conditions satisfactory to the Lender Parties, and the Lender Parties shall be satisfied with the terms and conditions of each other inbound inventory flooring arrangement to which any Loan Party is a party. SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING, INCREASE DATE, ISSUANCE AND INCREASE OF AVAILABLE AMOUNT. The obligation of each Lender to make an Advance (other than a Letter of Credit Advance made by the Issuing Bank or a Lender pursuant to Section 2.03(c) and a Swing Line Advance made by a Lender pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the initial Borrowing) and the obligation of the Issuing Bank to issue a Letter of Credit (including the initial issuance), renew a Letter of Credit or increase the Available Amount of a Flooring Letter of Credit, the right of the Borrowers to request a Swing Line Borrowing and each Commitment Increase shall be subject to the further conditions precedent that on the date of such Borrowing, issuance, renewal or increase (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing, Notice of Issuance, Notice of Renewal, request for increase in Available Amount or request for Commitment Increase and the acceptance by the Borrowers of the proceeds of such Borrowing or of such Letter of Credit or the renewal of such Letter of Credit shall constitute a representation and warranty by the Borrowers that both on the date of such notice and on the date of such Borrowing, issuance, renewal or increase or such Increase Date such statements are true): (i) the representations and warranties contained in each Loan Document are correct on and as of such date, before and after giving effect to such Borrowing, issuance, renewal or increase and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Borrowing, issuance, renewal or increase, in which case as of such specific date; (ii) no Default has occurred and is continuing, or would result from such Borrowing, issuance, renewal or increase or from the application of the proceeds therefrom; and (iii) for each Working Capital Advance or Swing Line Advance made by the Swing Line Bank or issuance or renewal of any Letter of Credit or increase in the Available Amount of a Flooring Letter of Credit, (A) the sum of the Loan Values of the Eligible Collateral MINUS $20,000,000 exceeds (B) the aggregate principal amount of the Working Capital Advances PLUS Swing Line Advances PLUS Letter of Credit Advances to be outstanding PLUS the aggregate Available Amount of all Letters of Credit to be outstanding after giving effect to such Advance, issuance, renewal or increase, respectively; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender Party through the Administrative Agent may reasonably request. SECTION 3.03. DETERMINATIONS UNDER SECTION 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender Party shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the Initial Extension of Credit specifying its objection thereto and if the Initial Extension of Credit consists of a Borrowing, such Lender Party shall not have made available to the Administrative Agent such Lender Party's ratable portion of such Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS AND THE PARENT GUARANTOR. Each Borrower and the Parent Guarantor represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified as a foreign corporation, foreign limited liability company or foreign limited partnership, as the case may be, and in good standing in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its organization, the number of shares of each class of capital stock authorized, and the number outstanding, on the date hereof and the percentage of the outstanding shares of each such class owned (directly or indirectly) by such Loan Party and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof. All of the outstanding capital stock of all of each Loan Party's Subsidiaries has been validly issued, is fully paid and non-assessable and is owned by such Loan Party or one or more of its Subsidiaries free and clear of all Liens, except those created under the Collateral Documents. (c) The execution, delivery and performance by each Loan Party of each Transaction Document to which it is or is to be a party, and the consummation of the transactions contemplated by the Transaction Documents, are within such Loan Party's powers, have been duly authorized by all necessary corporate or other action, and do not (i) contravene such Loan Party's charter or bylaws, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Transaction Document to which it is or is to be a party, or for the consummation of the transactions contemplated by the Transaction Documents, (ii) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (iv) the exercise by any Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notices and filings listed on Schedule 4.01(d) hereto, all of which have been duly obtained, taken, given or made and are in full force and effect. (e) This Agreement has been, and each other Transaction Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Transaction Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation) or (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated by the Transaction Documents, and there has been no adverse change in the status, or financial effect on any Loan Party or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule 4.01(f) hereto. (g) The Consolidated balance sheets of the Parent Guarantor and its Subsidiaries as at November 1, 1998, and the related Consolidated statements of income and Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLC, independent public accountants, and the Consolidated and Consolidating balance sheets of the Parent Guarantor and its Subsidiaries as at August 1, 1999, and the related Consolidated and Consolidating statements of income and Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the nine months then ended, duly certified by the chief financial officer of the Parent Guarantor, copies of which have been furnished to each Lender Party, fairly present, subject, in the case of said balance sheet as at August 1, 1999, and said statements of income and cash flows for the nine months then ended, to year-end audit adjustments, the Consolidated and Consolidating financial condition of the Parent Guarantor and its Subsidiaries as at such dates and the Consolidated and Consolidating results of operations of the Parent Guarantor and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and, except as disclosed in the Parent Guarantor's quarterly report on Form 10-Q for the quarter ended August 1, 1999 or otherwise disclosed to the Lender Parties in writing prior to the date hereof, since November 1, 1998, there has been no Material Adverse Change. (h) The Consolidated and Consolidating pro forma balance sheets of the Parent Guarantor and its Subsidiaries as at September 30, 1999, and the related Consolidated and Consolidating pro forma statements of income and cash flows of the Parent Guarantor and its Subsidiaries for the eleven months then ended, certified by the chief financial officer of the Parent Guarantor, copies of which have been furnished to each Lender Party, fairly present the Consolidated and Consolidating pro forma financial condition of the Parent Guarantor and its Subsidiaries as at such date and the Consolidated and Consolidating pro forma results of operations of the Parent Guarantor and its Subsidiaries for the period ended on such date, in each case giving effect to the transactions contemplated by the Transaction Documents, all in accordance with GAAP. (i) The Consolidated and Consolidating forecasted balance sheets, statements of income and statements of cash flows of the Parent Guarantor and its Subsidiaries delivered to the Lender Parties pursuant to Section 3.01(a)(xvi) or 5.03 were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Parent Guarantor best estimate of its future financial performance. (j) Neither the Information Memorandum nor any other information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender Party in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (k) No Loan Party is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (l) Neither any Loan Party nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither any Loan Party nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" or a "holding company", as such terms are defined int he Public Utility Holding Company Act of 1935, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrowers, nor the consummation of the other transactions contemplated by the Transaction Documents, will violate any provision of any such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (m) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that would be reasonably likely to have a Material Adverse Effect. (n) All filings and other actions necessary or desirable to perfect and protect the security interest in the Collateral created under the Collateral Documents have been duly made or taken and are in full force and effect, and the Collateral Documents create in favor of the Collateral Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. The Loan Parties are the legal and beneficial owners of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Loan Documents. (o) Each Loan Party (other than each Loan Party that is an Immaterial Subsidiary) is, individually and together with its Subsidiaries, Solvent. (p) (i) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan. (ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (iv) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Lender Parties, is complete and accurate and fairly presents the funding status of such Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (q) (i) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, all past non-compliance with such Environmental Laws and Environmental Permits has been resolved without ongoing obligations or costs, and no circumstances exist that would be reasonably likely to (A) form the basis of an Environmental Action against any Loan Party or any of its Subsidiaries or any of their properties that could have a Material Adverse Effect or (B) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) To the best of the Borrowers' knowledge, none of the properties currently or formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; there are no and never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or any of its Subsidiaries or, to the best of its knowledge, on any property formerly owned or operated by any Loan Party or any of its Subsidiaries; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and to the best of the Borrowers' knowledge, Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries in violation of Environmental Laws. (iii) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials in violation of Environmental Laws at any site, location or operation, either voluntarily or pursuant to the order of any governmental or regulatory authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any of its Subsidiaries. (r) (i) Each Loan Party and each of its Subsidiaries and Affiliates has filed, has caused to be filed or has been included in all tax returns (Federal, state, local and foreign) required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties. (ii) Set forth on Schedule 4.01(r) hereto is a complete and accurate list, as of the date hereof, of each taxable year of each Loan Party and each of its Subsidiaries and Affiliates for which Federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an "OPEN YEAR"). (iii) The aggregate unpaid amount, as of the date hereof, of adjustments to the Federal income tax liability of each Loan Party and each of its Subsidiaries and Affiliates proposed by the Internal Revenue Service with respect to Open Years does not exceed $7,500,000. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, would be reasonably likely to have a Material Adverse Effect. (iv) The aggregate unpaid amount, as of the date hereof, of adjustments to the state, local and foreign tax liability of each Loan Party and its Subsidiaries and Affiliates proposed by all state, local and foreign taxing authorities (other than amounts arising from adjustments to Federal income tax returns) does not exceed $7,500,000. No issues have been raised by such taxing authorities that, in the aggregate, would be reasonably likely to have a Material Adverse Effect. (s) Neither the business nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that would be reasonably likely to have a Material Adverse Effect. (t) Set forth on Schedule 4.01(t) hereto is a complete and accurate list of all Existing Debt (other than Surviving Debt), showing as of the date hereof the principal amount outstanding thereunder. (u) Set forth on Schedule 4.01(u) hereto is a complete and accurate list of all Surviving Debt, showing as of the date hereof the principal amount outstanding or, in the case of a revolving credit facility, the aggregate amount of the commitments thereunder, the maturity date thereof and the amortization schedule therefor. (v) Set forth on Schedule 4.01(v) hereto is a complete and accurate list of all real property owned by any Loan Party or any of its Subsidiaries, showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and book and estimated fair value thereof. Each Loan Party or such Subsidiary has good, marketable and insurable fee simple title to such real property, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. (w) Set forth on Schedule 4.01(w) hereto is a complete and accurate list of all leases of real property under which any Loan Party or any of its Subsidiaries is the lessee, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. Each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms. (x) Set forth on Schedule 4.01(x) hereto is a complete and accurate list of all Investments held by any Loan Party or any of its Subsidiaries on the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof. (y) Set forth on Schedule 4.01(y) hereto is a complete and accurate list of all patents, trademarks, trade names, service marks and copyrights, and all applications therefor and licenses thereof, of each Loan Party or any of its Subsidiaries, showing as of the date hereof the jurisdiction in which registered, the registration number, the date of registration and the expiration date. (z) The Parent Guarantor has (i) initiated a review and assessment of all material business areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by the Parent Guarantor or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "YEAR 2000 PROBLEM"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan in accordance with such timetable. Based on the foregoing, the Parent Guarantor believes that all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("YEAR 2000 COMPLIANT"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (aa) The Parent Guarantor has, independently and without reliance upon the Administrative Agent or any Lender Party and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into the Parent Guaranty and each other Loan Document to which it is or is to be a party, and the Parent Guarantor has established adequate means of obtaining from each Loan Party on a continuing basis information pertaining to, and is now and on a continuing basis will be completely familiar with, the business, condition (financial or otherwise), operations, performance, properties and prospects of such Loan Party. ARTICLE V COVENANTS OF THE BORROWERS AND THE PARENT GUARANTOR SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, each Borrower and the Parent Guarantor will: (a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; PROVIDED, HOWEVER, that neither the Parent Guarantor nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors. (c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its Subsidiaries and all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew and cause each of its Subsidiaries to obtain and renew all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove, mitigate and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; PROVIDED, HOWEVER, that neither the Parent Guarantor nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. (d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent Guarantor or such Subsidiary operates. (e) PRESERVATION OF LEGAL EXISTENCE, ETC. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; PROVIDED, HOWEVER, that the Parent Guarantor and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(d) and PROVIDED FURTHER that neither the Parent Guarantor nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent Guarantor or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent Guarantor or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent Guarantor, such Subsidiary or the Lender Parties. (f) VISITATION RIGHTS. At any reasonable time and from time to time and after providing at least two Business Days prior written notice if no Default shall have occurred and be continuing, permit any of the Agents or any of the Lender Parties or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent Guarantor and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent Guarantor and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (g) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent Guarantor and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. (h) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (i) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Parent Guarantor or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (j) COVENANT TO GUARANTEE OBLIGATIONS AND GIVE SECURITY. Upon (x) the request of the Collateral Agent following the occurrence and during the continuance of a Default, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any property by any Loan Party, and such property, in the judgment of the Collateral Agent, shall not already be subject to a perfected first priority security interest in favor of the Collateral Agent for the benefit of the Secured Parties, then the Borrowers shall, in each case at the Borrowers' expense: (i) in connection with the formation or acquisition of a Subsidiary, within 10 days after such formation or acquisition, cause each such Subsidiary, and cause each direct and indirect parent of such Subsidiary (if it has not already done so), to duly execute and deliver to the Collateral Agent a guaranty or guaranty supplement, in form and substance satisfactory to the Collateral Agent, guaranteeing the other Loan Parties' obligations under the Loan Documents, (ii) within 10 days after such request, formation or acquisition, furnish to the Collateral Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Agent, (iii) within 15 days after such request, formation or acquisition, duly execute and deliver, and cause each such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent mortgages, pledges, assignments, security agreement supplements and other security agreements, as specified by and in form and substance satisfactory to the Collateral Agent, securing payment of all the Obligations of the applicable Loan Party, such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Liens on all such properties, (iv) within 30 days after such request, formation or acquisition, take, and cause such Subsidiary or such parent to take, whatever action (including, without limitation, the recording of mortgages, the filing of Uniform Commercial Code financing statements and the giving of notices) may be necessary or advisable in the opinion of the Collateral Agent to vest in the Collateral Agent (or in any representative of the Collateral Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the mortgages, pledges, assignments, security agreement supplements and security agreements delivered pursuant to this Section 5.01(j), enforceable against all third parties in accordance with their terms, (v) within 60 days after such request, formation or acquisition, deliver to the Collateral Agent, upon the request of the Collateral Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Collateral Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Collateral Agent as to the matters contained in clauses (i), (iii) and (iv) above, as to such guaranties, guaranty supplements, pledges, assignments, security agreement supplements and security agreements being legal, valid and binding obligations of each Loan Party thereto enforceable in accordance with their terms and as to such other matters as the Collateral Agent may reasonably request, (vi) as promptly as practicable after such request, formation or acquisition, deliver, upon the request of the Collateral Agent in its sole discretion, to the Collateral Agent with respect to each parcel of real property owned or held by the entity that is the subject of such request, formation or acquisition title reports, surveys and engineering, soils and other reports, and environmental assessment reports, each in scope, form and substance satisfactory to the Collateral Agent, PROVIDED, HOWEVER, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Collateral Agent, (vii) upon the occurrence and during the continuance of a Default, promptly cause to be deposited any and all cash dividends paid or payable to it or any of its Subsidiaries from any of its Subsidiaries from time to time into the Cash Collateral Account, and with respect to all other dividends paid or payable to it or any of its Subsidiaries from time to time, promptly execute and deliver, or cause such Subsidiary to promptly execute and deliver, as the case may be, any and all further instruments and take or cause such Subsidiary to take, as the case may be, all such other action as the Collateral Agent may deem necessary or desirable in order to obtain and maintain from and after the time such dividend is paid or payable a perfected, first priority lien on and security interest in such dividends, and (viii) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Collateral Agent may deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, mortgages, pledges, assignments, security agreement supplements and security agreements. (k) FURTHER ASSURANCES. (i) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, correct, and cause each of its Subsidiaries promptly to correct, any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (ii) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as any Agent, or any Lender Party through the Administrative Agent, may reasonably require from time to time in order to (A) carry out more effectively the purposes of the Loan Documents, (B) to the fullest extent permitted by applicable law, subject any Loan Party's or any of its Subsidiaries' properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so. (l) PERFORMANCE OF RELATED DOCUMENTS. Perform and observe, and cause each of its Subsidiaries to perform and observe, all of the terms and provisions of each Related Document to be performed or observed by it, maintain each such Related Document in full force and effect, enforce such Related Document in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Related Document such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Related Document. (m) COMPLIANCE WITH TERMS OF LEASEHOLDS. Make all payments and otherwise perform all obligations in respect of all leases of real property to which the Parent Guarantor or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so. (n) CASH CONCENTRATION ACCOUNT; L/C CASH COLLATERAL ACCOUNT. (i) Maintain, and cause each of its Subsidiaries to maintain, main cash concentration with Citibank and lockbox accounts into which all proceeds of Collateral are paid with one or more banks acceptable to the Collateral Agent that have accepted the assignment of such accounts to the Collateral Agent for the benefit of the Secured Parties pursuant to the Security Agreement. (ii) Establish and maintain a L/C Cash Collateral Account upon the Collateral Agent's request. (o) INTEREST RATE HEDGING. Enter into prior to April 1, 2000, and maintain at all times thereafter, interest rate Hedge Agreements with Persons acceptable to the Administrative Agent, covering a notional amount of not less than $100,000,000 and providing for such Persons to make payments thereunder for a period of no less than three years to the extent of increases in interest rates greater than 3% above the weighted average Eurodollar Rate on the date hereof. (p) CONDITIONS SUBSEQUENT. (i) Use its best efforts promptly to deliver to the Administrative Agent within 60 days after the Initial Extension of Credit, in form and substance satisfactory to the Administrative Agent, landlord consents and bailee letters from such Persons as the Administrative Agent may request, providing the Administrative Agent with the right to receive notice of default under the applicable lease, the right to repossess such Inventory at any time, and such other rights as may be reasonably acceptable to the Administrative Agent; and (ii) within 30 days after the Initial Extension of Credit, evidence that counterparts of the Mortgages have been duly recorded in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to create a valid first and subsisting Lien on the property described therein in favor of the Secured Parties and that all filing and recording taxes and fees have been paid. SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, neither any Borrower nor the Parent Guarantor will, at any time: (a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or sign or file or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial Code of any jurisdiction, a financing statement that names the Parent Guarantor or any of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents; (ii) Permitted Liens; (iii) Liens existing on the date hereof and described on Schedule 5.02(a) hereto; (iv) Liens arising in connection with Capitalized Leases permitted under Section 5.02(b)(iii)(B); PROVIDED that no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases; (v) Liens arising in connection with Floor Planning Arrangements; (vi) Liens securing Debt permitted under Section 5.02(b)(iii)(E); and (vii) Liens securing Debt permitted under Section 5.02(b)(iii)(H). (b) DEBT. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt, except: (i) in the case of the Borrowers, Debt in respect of Hedge Agreements designed to hedge against fluctuations in interest rates incurred in the ordinary course of business and consistent with prudent business practice with the aggregate Agreement Value thereof not to exceed $10,000,000 at any time outstanding; (ii) in the case of any Subsidiary of any Borrower, Debt owed to such Borrower or to a wholly owned Subsidiary of such Borrower, PROVIDED that, in each case, such Debt (x) shall constitute Pledged Debt, (y) shall be on terms acceptable to the Administrative Agent and (z) shall be evidenced by promissory notes in form and substance satisfactory to the Administrative Agent and such promissory notes shall be pledged as security for the Obligations under the Loan Documents of the holder thereof and delivered to the Collateral Agent pursuant to the terms of the Security Agreement; and (iii) in the case of the Loan Parties, (A) Debt under the Loan Documents, (B) Capitalized Leases not to exceed in the aggregate $25,000,000 at any time outstanding, (D) the Surviving Debt, (E) Debt secured by a mortgage on the real property located at 1330 West Southern, Tempe, Arizona in an aggregate principal amount not to exceed $15,000,000, (F) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (G) Debt under the Floor Planning Arrangements, (H) Debt under inventory flooring arrangements provided by a manufacturer of computer equipment, secured by inventory and equipment bearing the trademark or tradename of such manufacturer, provided that (x) such manufacturer has entered into an intercreditor agreement with the Administrative Agent in substantially the form of Exhibit K hereto and (y) the aggregate principal amount of such Debt shall not exceed $100,000,000; and (I) Debt extending the maturity of , or refunding or refinancing, in whole or in part, Debt described in clauses (D) and (G) (other than the Floor Planning Arrangement to which IBM Credit Corporation is a party) above, PROVIDED that (1) the terms of any such extending, refunding or refinancing Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (2) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such extending, refunding or refinancing Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lender Parties than the terms of any agreement or instrument governing the Debt being extended, refunded or refinanced and the interest rate applicable to such extending refunding or refinancing Debt does not exceed the then applicable market interest rate, (3) in the case of any Surviving Debt, the principal amount of such Surviving Debt shall not be increased above the principal amount thereof outstanding immediately prior to such extension, refunding or refinancing and (4) in the case of any Floor Planning Arrangement, the creditors thereof shall have entered into Intercreditor Agreements with the Collateral Agent and the applicable Borrower that are no less favorable in any material respect to the Loan Parties or the Lender Parties than the terms of the Intercreditor Agreement entered into with the creditor of such Floor Planning Arrangement being extended, refunded or refinanced. (c) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof. (d) MERGERS, ETC. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that any Subsidiary of any Borrower may merge into or consolidate with any other Subsidiary of such Borrower, PROVIDED that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of such Borrower; PROVIDED, HOWEVER, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default and, in the case of any such merger to which any Borrower is a party, such Borrower is the surviving corporation. (e) SALES, ETC., OF ASSETS. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets other than Inventory to be sold in the ordinary course of its business, except: (i) sales of Inventory in the ordinary course of its business; (ii) sales of Receivables in the ordinary course of its business pursuant to the Receivables Sales Agreement; (iii) sales of assets for cash and for fair value in an aggregate amount not to exceed $10,000,000 in any Fiscal Year; and (iv) the sale of any real property listed on Schedule 4.01(v) for cash and for fair value in a sale-leaseback transaction or otherwise; PROVIDED that in the case of sales of assets pursuant to clauses (iii) and (iv) above, the Borrowers shall, on the date of receipt by any Loan Party or any of its Subsidiaries of the Net Cash Proceeds from such sale, prepay the Advances pursuant to, and in the amount and order of priority set forth in, Section 2.06(b)(i), as specified therein. (f) INVESTMENTS IN OTHER PERSONS. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person, except, (i) Investments by the Parent Guarantor and its Subsidiaries in their Subsidiaries outstanding on the date hereof; (ii) loans and advances to employees in the ordinary course of the business of the Parent Guarantor and its Subsidiaries as presently conducted in an aggregate principal amount not to exceed $500,000 at any time outstanding; (iii) Investments by the Parent Guarantor and its Subsidiaries in Cash Equivalents in an aggregate principal amount not to exceed $5,000,000 at any time outstanding; (iv) Investments existing on the date hereof and described on Schedule 4.01(x) hereto; (v) Investments by the Borrowers in Hedge Agreements permitted under Section 5.02(b)(i)(A); (vi) Investments consisting of intercompany Debt permitted under Section 5.02(b)(ii); and (vii) Investments in Subsidiaries not existing on the date hereof that are formed with an initial capitalization of $1,000,000 or less, PROVIDED that the aggregate Investments permitted under this clause (vii) shall not exceed $5,000,000 in any Fiscal Year. (g) RESTRICTED PAYMENTS. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, or permit any of its Subsidiaries to do any of the foregoing or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Parent Guarantor or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) the Parent Guarantor may (A) declare and pay dividends and distributions payable only in common stock of the Parent Guarantor and (B) except to the extent the Net Cash Proceeds thereof are required to be applied to the prepayment of the Advances pursuant to Section 2.06(b), purchase, redeem, retire, defease or otherwise acquire shares of its capital stock with the proceeds received contemporaneously from the issue of new shares of its capital stock with equal or inferior voting powers, designations, preferences and rights, (ii) any Subsidiary of any Borrower may (A) declare and pay cash dividends to such Borrower and (B) declare and pay cash dividends to any other Loan Party of which it is a Subsidiary, (iii) the Borrowers may pay cash dividends or otherwise transfer funds to the Parent Guarantor or MicroAge Computer Centers, Inc. for operating expenses incurred in the normal course of business by the Parent Guarantor or MicroAge Computer Centers, Inc. or paid by the Parent Guarantor or MicroAge Computer Centers, Inc. on behalf of the Borrowers. Such expenses include all payroll and benefits costs for all Subsidiaries of the Parent Guarantor, telephone, travel, rent and other occupancy costs, professional expenses, including consulting, audit, accounting and legal expenses, corporate insurance expenses, data processing costs and other operating expenses. (iv) the Parent Guarantor and the Borrowers may issue stock options to the directors and employees of such Loan Party. (h) AMENDMENTS OF CONSTITUTIVE DOCUMENTS. Amend, or permit any of its Subsidiaries to amend, its certificate of incorporation or bylaws or other constitutive documents in any material respect. (i) ACCOUNTING CHANGES. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) accounting policies or reporting practices, except as required by generally accepted accounting principles or (ii) Fiscal Year. (j) PREPAYMENTS, ETC., OF DEBT. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, except (i) the prepayment of the Advances in accordance with the terms of this Agreement and (ii) regularly scheduled or required repayments or redemptions of Surviving Debt, or amend, modify or change in any manner any term or condition of any Surviving Debt, or permit any of its Subsidiaries to do any of the foregoing other than to prepay any Debt payable to any Borrower. (k) AMENDMENT, ETC., OF RELATED DOCUMENTS. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any Related Document or take any other action in connection with any Related Document that would impair the value of the interest or rights of any Loan Party thereunder or that would impair the rights or interests of any Agent or any Lender Party, or otherwise amend Sections 2.1, 9.2 or 10 of the Agreement for Inventory Financing dated as of October 28, 1999 between IBM Credit Corporation, MTS Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology Services, L.L.C. and Pinacor, or Section I(A) or (B) of Attachment A thereto , or permit any of its Subsidiaries to do any of the foregoing. (m) NEGATIVE PLEDGE. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets except (i) in favor of the Secured Parties or (ii) in connection with (A) any Surviving Debt and (B) any Capitalized Lease permitted by Section 5.02(b)(iii)(C) solely to the extent that such Capitalized Lease prohibits a Lien on the property subject thereto. (n) PARTNERSHIPS, ETC. Become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in such partnership or joint venture. (o) SPECULATIVE TRANSACTIONS. Engage, or permit any of its Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions. (p) CAPITAL EXPENDITURES. Make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Parent Guarantor and its Subsidiaries in any period set forth below to exceed the amount set forth below for such period: Period Amount ------ ------ Fiscal Quarter ended January 31, 2000 $ 7,400,000 Two Fiscal Quarters ended April 30, 2000 $14,800,000 Three Fiscal Quarters ended July 31, 2000 $22,200,000 Four Fiscal Quarters ended October 31, 2000 $29,600,000 Fiscal Quarter ended January 31, 2001 $ 9,300,000 Two Fiscal Quarters ended April 30, 2001 $18,600,000 Three Fiscal Quarters ended July 31, 2001 $27,900,000 Four Fiscal Quarters ended October 31, 2001 $36,200,000 Fiscal Quarter ended January 31, 2002 $11,300,000 Two Fiscal Quarters ended April 30, 2002 $22,600,000 Three Fiscal Quarters ended July 31, 2002 $33,900,000 Four Fiscal Quarters ended October 31, 2002 $45,200,000 (q) FORMATION OF SUBSIDIARIES. Organize or invest, or permit any Subsidiary to organize or invest, in any new Subsidiary other than as permitted by Section 5.02(f) (vii). (r) LIMITATION ON PAYMENT RESTRICTIONS. Enter into or suffer to exist, or permit any Subsidiary to enter into or suffer to exist, any agreement limiting the ability of any of its Subsidiaries to declare or pay dividends or other distributions in respect of its capital stock or make loans or advances to, or otherwise transfer assets to or invest in, the Parent Guarantor or any Subsidiary of the Parent Guarantor (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise), except the Loan Documents. SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Parent Guarantor will furnish to the Agents and the Lender Parties: (a) DEFAULT NOTICE. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent Guarantor setting forth details of such Default and the action that the Parent Guarantor has taken and proposes to take with respect thereto. (b) ANNUAL FINANCIALS. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Parent Guarantor and its Subsidiaries, including therein Consolidated balance sheets of the Parent Guarantor and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and a Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of PricewaterhouseCoopers LLC or other independent public accountants of recognized standing acceptable to the Required Lenders, together with (i) a certificate of such accounting firm to the Lender Parties stating that in the course of the regular audit of the business of the Parent Guarantor and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04, PROVIDED that in the event of any change in GAAP used in the preparation of such financial statements, the Parent Guarantor shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP, (iii) Consolidating balance sheets of the Parent Guarantor and the Borrowers as of the end of such Fiscal Year and Consolidating statements of income and cash flows of the Parent Guarantor and the Borrowers for such Fiscal Year, all in reasonable detail and duly certified by the chief financial officer of the Parent Guarantor as having been prepared in accordance with GAAP and (iv) a certificate of the chief financial officer of the Parent Guarantor stating that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent Guarantor has taken and proposes to take with respect thereto. (c) QUARTERLY FINANCIALS. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated and Consolidating balance sheets of the Parent Guarantor and its Subsidiaries as of the end of such quarter and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Parent Guarantor as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent Guarantor has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Parent Guarantor in determining compliance with the covenants contained in Section 5.04, PROVIDED that in the event of any change in GAAP used in the preparation of such financial statements, the Parent Guarantor shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP. (d) MONTHLY FINANCIALS. As soon as available and in any event within 30 days after the end of each month, a Consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of the end of such month and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the period commencing at the end of the previous month and ending with the end of such month and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent Guarantor and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding month of the preceding Fiscal Year, all in reasonable detail and duly certified by the chief financial officer or controller of the Parent Guarantor. (e) ANNUAL FORECASTS. As soon as available and in any event no later than 45 days after the end of each Fiscal Year, forecasts prepared by management of the Parent Guarantor, in form satisfactory to the Administrative Agent, of balance sheets, income statements and cash flow statements on a monthly basis for the Fiscal Year following such Fiscal Year and on an annual basis for each Fiscal Year thereafter until the Termination Date. (f) LITIGATION. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f), and promptly after the occurrence thereof, notice of any adverse change in the status or the financial effect on any Loan Party or any of its Subsidiaries of the Disclosed Litigation from that described on Schedule 4.01(f) hereto. (g) SECURITIES REPORTS. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (h) CREDITOR REPORTS. Promptly after the furnishing thereof, copies of any statement or report furnished to any holder of Debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender Parties pursuant to any other clause of this Section 5.03. (i) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of all notices, requests and other documents received by any Loan Party or any of its Subsidiaries under or pursuant to any Related Document or instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and copies of any amendment, modification or waiver of any provision of any Related Document or instrument, indenture, loan or credit or similar agreement and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request. (j) REVENUE AGENT REPORTS. Within 10 days after receipt, copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, that propose, determine or otherwise set forth positive adjustments to the Federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Parent Guarantor is a member aggregating $3,000,000 or more. (k) TAX CERTIFICATES. Promptly, and in any event within five Business Days after the due date (with extensions) for filing the final Federal income tax return in respect of each taxable year, a certificate (a "TAX Certificate"), signed by the President or the chief financial officer or controller of the Parent Guarantor, stating that the Parent Guarantor has paid to the Internal Revenue Service or other taxing authority the full amount that the Parent Guarantor is required to pay in respect of Federal income tax for such year. (l) ERISA. (i) ERISA EVENTS AND ERISA REPORTS. (A) Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, a statement of the chief financial officer of the Parent Guarantor describing such ERISA Event and the action, if any, that such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto and (B) on the date any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information. (ii) PLAN TERMINATIONS. Promptly and in any event within two Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan. (iii) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event within five Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B). (iv) PLAN ANNUAL REPORTS. Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan. (m) ENVIRONMENTAL CONDITIONS. Promptly after the assertion or occurrence thereof, notice of any Environmental Action against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could reasonably be expected to have a Material Adverse Effect. (n) REAL PROPERTY. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report supplementing Schedules 4.01(v) and 4.01(w) hereto, including an identification of all real and leased property disposed of by the Parent Guarantor or any of its Subsidiaries during such Fiscal Year, a list and description (including the street address, county or other relevant jurisdiction, state, record owner, book value thereof, and in the case of leases of property, lessor, lessee, expiration date and annual rental cost thereof) of all real property acquired or leased during such Fiscal Year and a description of such other changes in the information included in such Schedules as may be necessary for such Schedules to be accurate and complete. (o) INSURANCE. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries and containing such additional information as any Agent, or any Lender Party through the Administrative Agent, may reasonably specify. (p) BORROWING BASE CERTIFICATE. As soon as available and in any event no later than the close of business on Wednesday of each week, a Borrowing Base Certificate, as at the end of the immediately preceding Monday of such week, certified by the chief financial officer, executive vice president, controller, treasurer or assistant treasurer of the Parent Guarantor. (q) OTHER INFORMATION. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent, or any Lender Party through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. FINANCIAL COVENANTS. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Parent Guarantor will: (a) DEBT TO EBITDA RATIO. Maintain at all times a Debt/EBITDA Ratio of not more than the amount set forth below for each period set forth below: Period Ratio ------ ----- Four Fiscal Quarters ended January 31, 2000 6.70:1.00 Four Fiscal Quarters ended April 30, 2000 5.20:1.00 Four Fiscal Quarters ended July 31, 2000 5.10:1.00 Four Fiscal Quarters ended October 31, 2000 4.60:1.00 Four Fiscal Quarters ended January 31, 2001 3.80:1.00 Four Fiscal Quarters ended April 30, 2001 3.60:1.00 Four Fiscal Quarters ended July 31, 2001 3.40:1.00 Four Fiscal Quarters ended October 31, 2001 3.40:1.00 Four Fiscal Quarters ended January 31, 2002 3.40:1.00 Four Fiscal Quarters ended April 30, 2002 3.40:1.00 Four Fiscal Quarters ended July 31, 2002 3.30:1.00 (b) FIXED CHARGE COVERAGE RATIO. Maintain at all times a Fixed Charge Coverage Ratio of not less than the ratio set forth below for each period set forth below: Period Ratio ------ ----- Fiscal Quarter ended April 30, 2000 1.00:1.00 Two Fiscal Quarters ended July 31, 2000 1.10:1.00 Three Fiscal Quarters ended October 31, 2000 1.20:1.00 Four Fiscal Quarters ended January 31, 2001 1.20:1.00 Four Fiscal Quarters ended April 30, 2001 1.25:1.00 Four Fiscal Quarters ended July 31, 2001 1.25:1.00 Four Fiscal Quarters ended October 31, 2001 1.25:1.00 Four Fiscal Quarters ended January 31, 2002 1.25:1.00 Four Fiscal Quarters ended April 30, 2002 1.25:1.00 Four Fiscal Quarters ended July 31, 2002 1.25:1.00 (c) MINIMUM EBITDA. Maintain at all times EBITDA of the Parent Guarantor and its Subsidiaries not less than the amount set forth below for each period set forth below: Period Amount ------ ------ Fiscal Quarter ended January 31, 2000 $ 7,000,000 Two Fiscal Quarters ended April 30, 2000 $ 26,000,000 Three Fiscal Quarters ended July 31, 2000 $ 47,000,000 Four Fiscal Quarters ended October 31, 2000 $ 70,000,000 Four Fiscal Quarters ended January 31, 2001 $ 85,000,000 Four Fiscal Quarters ended April 30, 2001 $ 90,000,000 Four Fiscal Quarters ended July 31, 2001 $ 95,000,000 Four Fiscal Quarters ended October 31, 2001 $ 95,000,000 Four Fiscal Quarters ended January 31, 2002 $ 95,000,000 Four Fiscal Quarters ended April 30, 2002 $100,000,000 Four Fiscal Quarters ended July 31, 2002 $105,000,000 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("EVENTS OF DEFAULT") shall occur and be continuing: (a) (i) the Borrowers shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) the Borrowers shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) the Parent Guarantor or any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.14, 5.01(e), (f), (i), (j), or (o), 5.02, 5.03 or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 15 days after the earlier of the date on which (A) a Responsible Officer becomes aware of such failure or (B) written notice thereof shall have been given to the Parent Guarantor by any Agent or any Lender Party; or (e) any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt that is outstanding in a principal amount (or, in the case of any Hedge Agreement, an Agreement Value) of at least $7,500,000 either individually or in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries (other than such Loan Party or such Subsidiary that is an Immaterial Subsidiary) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries (other than such Loan Party or such Subsidiary that is an Immaterial Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries (other than such Loan Party or such Subsidiary that is an Immaterial Subsidiary) shall take any corporate or other action to authorize any of the actions set forth above in this subsection (f); or (g) any judgments or orders, either individually or in the aggregate, for the payment of money in excess of $7,500,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that is reasonably likely to have a Material Adverse Effect, and there shall be any period of 15 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 or 5.01(j) shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or (j) any Collateral Document after delivery thereof pursuant to Section 3.01 or 5.01(j) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on and security interest in the Collateral purported to be covered thereby; or (k) Jeffrey McKeever shall at any time for any reason cease to be active in the management of the Parent Guarantor; or (l) a Change of Control shall occur; or (m) any ERISA Event shall have occurred with respect to a Plan and the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Loan Parties and the ERISA Affiliates related to such ERISA Event) exceeds $7,500,000; or (n) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $7,500,000 or requires payments exceeding $3,000,000 per annum; or (o) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs by an amount exceeding $7,500,000; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Commitments of each Lender Party and the obligation of each Lender Party to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, (A) by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by each Borrower, (B) by notice to each party required under the terms of any agreement in support of which a Standby Letter of Credit is issued, request that all Obligations under such agreement be declared to be due and payable and (C) by notice to the Issuing Bank, direct the Issuing Bank to deliver a Default Termination Notice to the beneficiary of each Standby Letter of Credit issued by it, and the Issuing Bank shall deliver such Default Termination Notices; PROVIDED, HOWEVER, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (x) the Commitments of each Lender Party and the obligation of each Lender Party to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by each Borrower. SECTION 6.02. ACTIONS IN RESPECT OF THE LETTERS OF CREDIT UPON DEFAULT. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith upon such demand the Borrowers will, pay to the Collateral Agent on behalf of the Lender Parties in same day funds at the Collateral Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding. If at any time the Administrative Agent or the Collateral Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agents and the Lender Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrowers will, forthwith upon demand by the Administrative Agent or the Collateral Agent, pay to the Collateral Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent or the Collateral Agent, as the case may be, determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank or Lenders, as applicable, to the extent permitted by applicable law. ARTICLE VII PARENT GUARANTY SECTION 7.01. GUARANTY. (a) The Parent Guarantor hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise, of all Obligations of each Loan Party now or hereafter existing under the Loan Documents, (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, fees, expenses or otherwise (such Obligations being the "GUARANTEED OBLIGATIONS"), and agrees to pay any and all expenses (including, without limitation, reasonable counsel fees and expenses) incurred by the Administrative Agent or the Lender Parties in enforcing any rights under this Guaranty or any other Loan Documents. Without limiting the generality of the foregoing, the Parent Guarantor's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by each Loan Party to the Administrative Agent or any Lender Party under or in respect of the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Loan Party. (b) The Parent Guarantor hereby unconditionally and irrevocably agrees that in the event any payment shall be required to be made to the Administrative Agent or any Lender Party under this Guaranty or any other guaranty, the Parent Guarantor will contribute, to the maximum extent permitted by law, such amounts to each other guarantor so as to maximize the aggregate amount paid to the Administrative Agent or any Lender Parties under or in respect of the Loan Documents. SECTION 7.02. GUARANTY ABSOLUTE. The Parent Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent, the Administrative Agents or the Lenders with respect thereto. The Obligations of the Parent Guarantor under this Guaranty are independent of the Guaranteed Obligations or any other Obligations of any Loan Party under the Loan Documents, and a separate action or actions may be brought and prosecuted against the Parent Guarantor to enforce this Guaranty, irrespective of whether any action is brought against any Borrower or whether any Borrower is joined in any such action or actions. The liability of the Parent Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Parent Guarantor hereby irrevocably waives any defenses it may now or hereinafter have in any way relating to, any or all of the following: (a) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under the Loan Documents, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Borrower, the Parent Guarantor or any of their Subsidiaries or otherwise; (c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under the Loan Documents or any other assets of any Borrower, the Parent Guarantor or any of their Subsidiaries; (e) any change, restructuring or termination of the corporate or other legal structure or existence of any Borrower, the Parent Guarantor or any of their Subsidiaries; (f) any failure of the Administrative Agent or any Lender Party to disclose to any Loan Party any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party now or hereafter known to the Administrative Agent or any Lender Party (the Parent Guarantor waiving any duty on the part of the Administrative Agent or any Lender Party to disclose such information); or (h) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Administrative Agent or any Lender Party that might otherwise constitute a defense available to, or a discharge of, any Borrower, the Parent Guarantor or any other guarantor or surety. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender Party upon the insolvency, bankruptcy or reorganization of any Borrower, the Parent Guarantor or any of their Subsidiaries or otherwise, all as though such payment had not been made. SECTION 7.03. WAIVER. (a) The Parent Guarantor hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Administrative Agent or any Lender Party protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Loan Party or any other Person or any Collateral. (b) The Parent Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. (c) The Parent Guarantor hereby unconditionally and irrevocably waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by the Administrative Agent or any Lender Party that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of the Parent Guarantor or other rights of the Parent Guarantor to proceed against any of the Loan Parties, any other guarantor or any other Person or any Collateral and (ii) any defense based on any right of set-off or counterclaim against or in respect of the Obligations of the Parent Guarantor hereunder. (d) The Parent Guarantor acknowledges that the Administrative Agent may, without notice to or demand upon the Parent Guarantor and without affecting the liability of the Parent Guarantor under this Guaranty, foreclose under any mortgage by nonjudicial sale, and the Parent Guarantor hereby waives any defense to the recovery by the Administrative Agent and the other Lender Parties against the Parent Guarantor of any deficiency after such nonjudicial sale and any defense or benefits that may be afforded by applicable law. (e) The Parent Guarantor hereby unconditionally and irrevocably waives any duty on the part of the Administrative Agent or any Lender Party to disclose to the Parent Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any other Loan Party or any of its Subsidiaries now or hereafter known by the Administrative Agent or any Lender Party. (f) The Parent Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in Section 7.02 and this Section 7.03 are knowingly made in contemplation of such benefits. SECTION 7.04. PAYMENTS FREE AND CLEAR OF TAXES, ETC. (a) Any and all payments made by the Parent Guarantor under or in respect of this Guaranty or any other Loan Document shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future Taxes. If the Parent Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender Party or the Administrative Agent, (i) the sum payable by the Parent Guarantor by the Parent Guarantor shall be increased as may be necessary so that after the Parent Guarantor and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 7.04) such Lender Party or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Parent Guarantor shall make such deductions and (iii) the Parent Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Parent Guarantor agrees to pay any present or future Other Taxes that arise from any payment made under or in respect of this Guaranty or any other Loan Document or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Guaranty and the other Loan Documents. (c) The Parent Guarantor will indemnify each Lender Party and the Agents for the full amount of Taxes or Other Taxes and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 7.04, imposed on or paid by such Lender Party or Agent and any liability (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by such Lender Party or any Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender Party or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes by or on behalf of the Parent Guarantor, the Parent Guarantor shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of the Parent Guarantor through an account or branch outside the United States or by or on behalf of the Parent Guarantor by a payor that is not a United States person, if the Parent Guarantor determines that no Taxes are payable in respect thereof, the Parent Guarantor shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 5, the terms "UNITED STATES" and "UNITED STATES PERSON" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Without prejudice to the survival of any other agreement of the Parent Guarantor hereunder, the agreements and obligations of the Parent Guarantor contained in Section 7.01(a) (with respect to enforcement expenses), the last sentence of Section 7.02 and this Section 7.04 shall survive the payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty. SECTION 7.05. CONTINUING GUARANTY; ASSIGNMENTS. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the cash payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, (ii) the Termination Date and (iii) the latest date of expiration or termination of all Letters of Credit and all Secured Hedge Agreements, (b) be binding upon the Parent Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lender Parties, the Administrative Agent and their successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender Party may assign or otherwise transfer all or any portion of its rights and obligations hereunder (including, without limitation, all or any portion of its Commitment, the Advances owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as provided in Section 9.07. The Parent Guarantor shall not have the right to assignment rights hereunder or any interest herein without the prior written consent of the Administrative Agent. SECTION 7.06. SUBROGATION. The Parent Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now or hereafter acquire against any Borrower, any Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of the Parent Guarantor's Obligations under this Agreement or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any Lender Party against any Borrower or any other insider guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Borrower, any Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash, all Letters of Credit and all Secured Hedge Agreements shall have expired or been terminated and the Commitments shall have expired or terminated. If any amount shall be paid to the Parent Guarantor in violation of the preceding sentence at any time prior to the latest of (a) the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, (b) the Termination Date and (c) the latest date of expiration or termination of all Letters of Credit and all Secured Hedge Agreements, such amount shall be received and held in trust for the benefit of the Administrative Agent and the Lender Parties, shall be segregated from other property and funds of the Parent Guarantor and shall forthwith be paid to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as Collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (i) the Parent Guarantor shall make payment to the Administrative Agent or any Lender Party of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall be paid in full in cash, (iii) the Termination Date shall have occurred and (iv) all Letters of Credit and all Secured Hedge Agreements shall have been expired or been terminated, the Administrative Agent and the Lender Parties will, at the Parent Guarantor's request and expense, execute and deliver to the Parent Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Parent Guarantor of an interest in the Guaranteed Obligations resulting from such payment by the Parent Guarantor. SECTION 7.07. SUBORDINATION. The Parent Guarantor hereby subordinates any and all debts, liabilities and other Obligations owed to the Parent Guarantor by each Loan Party (the "SUBORDINATED OBLIGATIONS") to the Guaranteed Obligations to the extent and in the manner hereinafter set forth in this Section 7.07: (a) PROHIBITED PAYMENTS, ETC. Except during the continuance of an Event of Default (including the commencement and continuation of any proceeding under any Bankruptcy Law relating to any Loan Party), the Parent Guarantor may receive regularly scheduled payments from any Loan Party on account of the Subordinated Obligations. After the occurrence and during the continuance of any Event of Default (including the commencement and continuation of any proceeding under any Bankruptcy Law relating to any Loan Party), however, unless the Administrative Agent otherwise agrees, the Parent Guarantor shall not demand, accept or take any action to collect any payment on account of the Subordinated Obligations. (b) PRIOR PAYMENT OF GUARANTEED OBLIGATIONS. In any proceeding under any Bankruptcy Law relating to any Loan Party, the Parent Guarantor agrees that the Secured Parties shall be entitled to receive payment in full in cash of all Guaranteed Obligations (including all interest and expenses accruing after the commencement of a proceeding under any Bankruptcy Law, whether or not constituting an allowed claim in such proceeding ("POST PETITION INTEREST")) before the Parent Guarantor receives payment of any Subordinated Obligations. (c) TURN-OVER. After the occurrence and during the continuance of any Event of Default (including the commencement and continuation of any proceeding under any Bankruptcy Law relating to any other Loan Party), the Parent Guarantor shall, if the Administrative Agent so requests, collect, enforce and receive payments on account of the Subordinated Obligations as trustee for the Lender Parties and deliver such payments to the Administrative Agent on account of the Guaranteed Obligations (including all Post Petition Interest), together with any necessary endorsements or other instruments of transfer, but without reducing or affecting in any manner the liability of the Parent Guarantor under the other provisions of this Guaranty. (d) ADMINISTRATIVE AGENT AUTHORIZATION. After the occurrence and during the continuance of any Event of Default (including the commencement and continuation of any proceeding under any Bankruptcy Law relating to any other Loan Party), the Administrative Agent is authorized and empowered (but without any obligation to so do), in its discretion, (i) in the name of the Parent Guarantor, to collect and enforce, and to submit claims in respect of, Subordinated Obligations and to apply any amounts received thereon to the Guaranteed Obligations (including any and all Post Petition Interest), and (ii) to require the Parent Guarantor (A) to collect and enforce, and to submit claims in respect of, Subordinated Obligations and (B) to pay any amounts received on such obligations to the Administrative Agent for application to the Guaranteed Obligations (including any and all Post Petition Interest). ARTICLE VIII THE AGENTS SECTION 8.01. AUTHORIZATION AND ACTION. Each Lender Party (in its capacities as a Lender, the Swing Line Bank (if applicable), the Issuing Bank (if applicable) and on behalf of itself and its Affiliates as potential Hedge Banks) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lender Parties and all holders of Notes; PROVIDED, HOWEVER, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender Party prompt notice of each notice given to it by the Parent Guarantor or any Borrower pursuant to the terms of this Agreement. SECTION 8.02. AGENTS' RELIANCE, ETC. Neither any Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until, in the case of the Administrative Agent, the Administrative Agent receives and accepts an Assumption Agreement entered into by an Assuming Lender as provided in Section 2.17 or an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any other Agent, such Agent has received notice from the Administrative Agent that it has received and accepted such Assignment and Acceptance, in each case as provided in Section 9.07; (b) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender Party and shall not be responsible to any Lender Party for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. CITIBANK AND AFFILIATES. With respect to its Commitments, the Advances made by it and the Notes issued to it, Citibank shall have the same rights and powers under the Loan Documents as any other Lender Party and may exercise the same as though it were not an Agent; and the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly indicated, include Citibank in its individual capacities. Citibank and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if Citibank were not an Agent and without any duty to account therefor to the Lender Parties. SECTION 8.04. LENDER PARTY CREDIT DECISION. Each Lender Party acknowledges that it has, independently and without reliance upon any Agent or any other Lender Party and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender Party also acknowledges that it will, independently and without reliance upon any Agent or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.05. INDEMNIFICATION. (a) Each Lender Party severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Borrowers) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; PROVIDED, HOWEVER, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender Party agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrowers. (b) Each Lender Party severally agrees to indemnify the Issuing Bank (to the extent not promptly reimbursed by the Borrowers) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Issuing Bank in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Issuing Bank under the Loan Documents; PROVIDED, HOWEVER, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Issuing Bank's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender Party agrees to reimburse the Issuing Bank promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that the Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrowers. (c) For purposes of this Section 8.05, the Lender Parties' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lender Parties, (ii) their respective Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time and (iii) their respective Unused Working Capital Commitments at such time; PROVIDED that the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank shall be considered to be owed to the Lenders ratably in accordance with their respective Working Capital Commitments. The failure of any Lender Party to reimburse any Agent or the Issuing Bank, as the case may be, promptly upon demand for its ratable share of any amount required to be paid by the Lender Parties to such Agent or the Issuing Bank, as the case may be, as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse such Agent or the Issuing Bank, as the case may be, for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse such Agent or the Issuing Bank, as the case may be, for such other Lender Party's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender Party hereunder, the agreement and obligations of each Lender Party contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. SUCCESSOR AGENTS. Any Agent may resign at any time by giving written notice thereof to the Lender Parties and the Borrowers and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lender Parties, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent and, in the case of a successor Collateral Agent, upon the execution and filing or recording of such financing statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Agent's resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Agent's resignation or removal shall become effective, (ii) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 8.07. OTHER AGENTS. Each Lender Party hereby acknowledges that neither the Documentation Agent, Syndication Agent nor any other Lender Party designated as any "Agent" on the signature pages hereof has any responsibilities or liability hereunder other than in its capacity as a Lender, the titles Documentation Agent and Syndication Agent being purely honorary in nature. ARTICLE IX MISCELLANEOUS SECTION 9.01. AMENDMENTS, ETC. (a) No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that (i) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any Lender Party that is, at such time, a Defaulting Lender), do any of the following at any time: (A) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (B) change the number of Lenders or the percentage of (1) the Commitments, (2) the aggregate unpaid principal amount of the Advances or (3) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (C) reduce or limit the obligations of the Parent Guarantor under Section 7.01 or of any Subsidiary Guarantor under Section 1 of the Subsidiary Guaranty or otherwise limit such Guarantor's liability with respect to the Obligations owing to the Agents and the Lender Parties, (D) release all or substantially all of the Collateral in any transaction or series of related transactions or permit the creation, incurrence, assumption or existence of any Lien on all or substantially all of the Collateral in any transaction or series of related transactions to secure any Obligations other than Obligations owing to the Secured Parties under the Loan Documents, (E) amend Section 2.13 or this Section 9.01, (F) increase the Commitments of the Lenders, (G) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (H) postpone any date scheduled for any payment of principal of, or interest on, the Notes pursuant to Section 2.04 or 2.07 or any date fixed for payment of any fees or other amounts payable hereunder, (I) limit the liability of any Loan Party under any of the Loan Documents or (J) increase the percentages included in clauses (a) or (b) of the definition of "Loan Value" and (ii) no amendment, waiver or consent shall, unless in writing and signed by Lenders having 66 2/3% of the Working Capital Commitments at such time (other than any Lender Party that is, at such time, a Defaulting Lender), do any of the following at any time: (A) reduce the dollar amount of the liquidation reserve included in clause (b) of the definition of "Loan Value", (B) decrease the liquidity reserve set forth on the Borrowing Base Certificate, (C) reduce the dollar amount set forth in Section 2.06(b)(ii) or 3.02(a)(iii)(A) or (D) waive the condition specified in Section 3.02(a)(iii); PROVIDED FURTHER that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank or the Issuing Bank, as the case may be, in addition to the Lenders required above to take such action, affect the rights or obligations of the Swing Line Bank or of the Issuing Bank, as the case may be, under this Agreement; and PROVIDED FURTHER that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents. (b) If, in connection with any proposed amendment or waiver of any of the provisions of this Agreement or any other Loan Document as contemplated by clauses (i) through (ix) of Section 9.01(a) above, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is not obtained, then the Administrative Agent shall have the right to purchase (and such Lender shall sell) the interest of each such non-consenting Lender, together with accrued and unpaid interest, and assume each such Lender's Commitment. SECTION 9.02. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy or telex communication) and mailed, telegraphed, telecopied, telexed or delivered, if to the Parent Guarantor, the Borrowers or any other Loan Party, at the address or the Parent Guarantor at 2400 South MicroAge Way, Tempe, Arizona 85282, Attention: Chief Financial Officer, with a copy to Corporate Counsel; if to any Initial Lender or the Initial Issuing Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender Party, at its Domestic Lending Office specified in the Assumption Agreement or the Assignment and Acceptance pursuant to which it became a Lender Party; if to the Collateral Agent, at its address at 399 Park Avenue, New York, New York 10043, Attention: Jeff Nitz; and if to the Administrative Agent, at its address at 399 Park Avenue, New York, New York 10043, Attention: Jeff Nitz; or, as to the Parent Guarantor, any Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrowers and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or confirmed by telex answerback, respectively, except that notices and communications to any Agent pursuant to Article II, III or VII shall not be effective until received by such Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of any Lender Party or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. COSTS AND EXPENSES. (a) The Borrowers jointly and severally agree to pay on demand (i) all reasonable costs and expenses of each Agent in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for each Agent with respect thereto, with respect to advising such Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of each Agent and each Lender Party in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent and each Lender Party with respect thereto). (b) The Borrowers jointly and severally agree to indemnify and hold harmless each Agent, each Lender Party and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Transaction Documents or any of the transactions contemplated thereby or (ii) the actual or alleged presence of Hazardous Materials on any property of any Loan Party or any of its Subsidiaries or any Environmental Action relating in any way to any Loan Party or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Transaction Documents are consummated. The Borrowers also agrees not to assert any claim against any Agent, any Lender Party or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Transaction Documents or any of the transactions contemplated by the Transaction Documents. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrowers to or for the account of a Lender Party other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or if the Borrowers fail to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrowers shall, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or such failure to pay or prepay, as the case may be, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance. (d) If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Administrative Agent or any Lender Party, in its sole discretion. (e) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrowers contained in Sections 2.10 and 2.12 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. RIGHT OF SET-OFF. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and each Lender Party and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender Party or such Affiliate to or for the credit or the account of the Parent Guarantor or any Borrower against any and all of the Obligations of the Parent Guarantor or the Borrowers now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender Party shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Agent and each Lender Party agrees promptly to notify the Parent Guarantor or the applicable Borrower after any such set-off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender Party and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender Party and their respective Affiliates may have. SECTION 9.06. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrowers, the Parent Guarantor and each Agent and the Administrative Agent shall have been notified by each Initial Lender and the Initial Issuing Bank that such Initial Lender and the Initial Issuing Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Parent Guarantor, each Agent and each Lender Party and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender Parties. SECTION 9.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it); PROVIDED, HOWEVER, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of all of the Facilities, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) no such assignments shall be permitted without the consent of the Administrative Agent until the Administrative Agent shall have notified the Lender Parties that syndication of the Commitments hereunder has been completed, and (v) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the case may be, hereunder and (y) the Lender or Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's or Issuing Bank's rights and obligations under this Agreement, such Lender or Issuing Bank shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Lender Party assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender or Issuing Bank, as the case may be. (d) The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assumption Agreement and each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and the Commitment under each Facility of, and principal amount of the Advances owing under each Facility to, each Lender Party from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agents and the Lender Parties may treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender Party and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers and each other Agent. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrowers, at their own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under each Facility pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder under such Facility, a new Note to the order of such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto. (f) The Issuing Bank may assign to an Eligible Assignee all of its rights and obligations under the undrawn portion of its Letter of Credit Commitment at any time; PROVIDED, HOWEVER, that (i) each such assignment shall be to an Eligible Assignee and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500. (g) Each Lender Party may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Note or Notes (if any) held by it); PROVIDED, HOWEVER, that (i) such Lender Party's obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrowers, the Agents and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral. (h) Any Lender Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Parent Guarantor or the Borrowers furnished to such Lender Party by or on behalf of the Borrowers; PROVIDED, HOWEVER, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender Party. (i) Notwithstanding any other provision set forth in this Agreement, any Lender Party may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.08. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Manual delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. NO LIABILITY OF THE ISSUING BANK. The Borrowers assume all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrowers shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the extent of any direct, but not consequential, damages suffered by the Borrowers that the Borrowers prove were caused by (i) the Issuing Bank's willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 9.10. RELEASE OF COLLATERAL. Upon the sale, lease, transfer or other disposition of any item of Collateral of any Loan Party in accordance with the terms of the Loan Documents, the Collateral Agent will, at the Borrowers' expense, execute and deliver to such Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents in accordance with the terms of the Loan Documents. SECTION 9.11. JURISDICTION, ETC. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.12. GOVERNING LAW. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.13. WAIVER OF JURY TRIAL. Each of the Parent Guarantor, the Borrowers, the Agents and the Lender Parties irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. MICROAGE TECHNOLOGY SERVICES, L.L.C., as Borrower By /s/ James R. Daniel ------------------------------------- Title: Treasurer ------------------------------ PINACOR, INC., as Borrower By /s/ James R. Daniel ------------------------------------- Title: Treasurer ------------------------------ MICROAGE, INC., as Parent Guarantor By /s/ James R. Daniel ------------------------------------- Title: CFO, ExVP & Treasurer ------------------------------ CITIBANK, N.A., as Administrative Agent By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ CITIBANK, N.A., as Collateral Agent By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ IBM CREDIT CORPORATION, as Documentation Agent By /s/ Ronald J. Bachner ------------------------------------- Title: Manager, Commercial Financing Solutions Americas ------------------------------ THE CIT GROUP/BUSINESS CREDIT, INC., as Syndication Agent By /s/ J. Lee ------------------------------------- Title: Vice President ------------------------------ INITIAL LENDERS CITIBANK, N.A. By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ IBM CREDIT CORPORATION By /s/ Ronald J. Bachner ------------------------------------- Title: Manager, Commercial Financing Solutions Americas ------------------------------ THE CIT GROUP/BUSINESS CREDIT, INC. By /s/ J. Lee ------------------------------------- Title: Vice President ------------------------------ FLEET CAPITAL CORPORATION By /s/ Peter L. Skavla ------------------------------------- Title: Senior Vice President ------------------------------ MELLON BANK, N.A. By /s/ R. Shirinyam ------------------------------------- Title: Vice President ------------------------------ IBJ WHITEHALL BUSINESS CREDIT CORPORATION By /s/ ------------------------------------- Title: ------------------------------ DEBIS FINANCIAL SERVICES, INC. By /s/ James M. Vandervark ------------------------------------- Title: President ABL Division ------------------------------ FINOVA CAPITAL CORPORATION By /s/ ------------------------------------- Title: ------------------------------ INITIAL ISSUING BANK CITIBANK, N.A. By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ SWING LINE BANK CITIBANK, N.A. By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ INITIAL ISSUING BANK CITIBANK, N.A. By /s/ Claudia Slacik ------------------------------------- Title: Vice President ------------------------------ SCHEDULE I COMMITMENTS AND APPLICABLE LENDING OFFICES ================================================================================ Working Letter of Domestic Eurodollar Capital Credit Lending Lending Name of Initial Lender Commitment Commitment Office Office ================================================================================ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ EXHIBIT A FORM OF PROMISSORY NOTE $_______________ Dated: _________ __, ____ FOR VALUE RECEIVED, the undersigned, MicroAge Technology Services, L.L.C., a Delaware limited liability company, and Pinacor, Inc., a Delaware corporation (collectively, the "BORROWERS"), jointly and severally HEREBY PROMISE TO PAY to the order of _________________________ (the "LENDER") for the account of its Applicable Lending Office (as defined in the Credit Agreement referred to below) the aggregate principal amount of the Working Capital Advances (as defined below) owing to the Lender by the Borrowers pursuant to the Credit Agreement dated as of October 28, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; terms defined therein being used herein as therein defined) among the Borrowers, MicroAge, Inc., the Lender and certain other lender parties party thereto, Citibank, N.A., as Collateral Agent, IBM Credit Corporation, as Documentation Agent, The CIT Group/Business Credit, Inc., as Syndication Agent, and Citibank, N.A., as Administrative Agent and for the Lender and such other lender parties, on the Termination Date. The Borrowers jointly and severally promise to pay interest on the unpaid principal amount of each Working Capital Advance from the date of such Working Capital Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Administrative Agent, at _______________, _______________ __________ in same day funds. Each Working Capital Advance owing to the Lender by the Borrowers and the maturity thereof, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto, which is part of this Promissory Note; PROVIDED, HOWEVER, that the failure of the Lender to make any such recordation or endorsement shall not affect the Obligations of the Borrowers under this Promissory Note. This Promissory Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of advances (the "WORKING CAPITAL ADVANCES") by the Lender to the Borrowers from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrowers resulting from each such Working Capital Advance being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The obligations of the Borrowers under this Promissory Note and the other Loan Documents, and the obligations of the other Loan Parties under the Loan Documents, are secured by the Collateral as provided in the Loan Documents. MICROAGE TECHNOLOGY SERVICES, L.L.C., as Borrower By /s/ James R. Daniel ------------------------------------- Title: Treasurer ------------------------------ PINACOR, INC., as Borrower By /s/ James R. Daniel ------------------------------------- Title: Treasurer ------------------------------ ADVANCES AND PAYMENTS OF PRINCIPAL ================================================================================ Amount of Unpaid Amount of Principal Paid Principal Notation Date Advance or Prepaid Balance Made By ================================================================================ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ EXHIBIT B FORM OF NOTICE OF BORROWING Citibank, N.A., as Administrative Agent under the Credit Agreement referred to below ____________________ ____________________ [Date] Attention: ____________________________ Ladies and Gentlemen: The undersigned, MicroAge Technology Services, L.L.C. and Pinacor, Inc., refer to the Credit Agreement dated as of October 28, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined therein being used herein as therein defined), among the undersigned,, MicroAge, Inc., the Lender Parties party thereto, Citibank, N.A., as Collateral Agent, IBM Credit Corporation, as Documentation Agent, and The CIT Group/Business Credit, Inc., as Syndication Agent, and Citibank, N.A., as Administrative Agent and for the Lender Parties, and hereby jointly gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "PROPOSED BORROWING") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is _________ __, ____. (ii) The Facility under which the Proposed Borrowing is requested is the _______________ Facility. (iii) The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances]. (iv) The aggregate amount of the Proposed Borrowing is $__________. [(v) The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Borrowing is __________ month[s].] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties contained in each Loan Document are correct on and as of the date of the Proposed Borrowing, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of the Proposed Borrowing, in which case, as of such specific date; (B) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (C) the sum of the Loan Values of the Eligible Collateral MINUS $20,000,000 exceeds the aggregate principal amount of the Working Capital Advances PLUS Swing Line Advances PLUS Letter of Credit Advances to be outstanding PLUS the Available Amount of all Letters of Credit then outstanding after giving effect to the Proposed Borrowing. Manual delivery of an executed counterpart of this Notice of Borrowing by telecopier shall be effective as delivery of an original executed counterpart of this Notice of Borrowing. Very truly yours, MICROAGE TECHNOLOGY SERVICES, L.L.C. By: /s/ James R. Daniel ------------------------------------------ Title: Treasurer ------------------------------------- PINACOR, INC. By: /s/ James R. Daniel ------------------------------------------ Title: Treasurer ------------------------------------- EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of October 28, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined therein, unless otherwise defined herein, being used herein as therein defined) among, MicroAge Technology Services, L.L.C., a Delaware limited liability company ("MTS"), Pinacor, Inc., a Delaware corporation ("PINACOR", and together with MTS, the "BORROWERS"), MicroAge, Inc., a Delaware corporation (the "PARENT GUARANTOR"), the Lender Parties party thereto, Citibank, N.A., as Collateral Agent, IBM Credit Corporation, as Documentation Agent, The CIT Group/Business Credit, Inc., as Syndication Agent, and Citibank, N.A., as Administrative Agent and for the Lender Parties. Each "Assignor" referred to on Schedule 1 hereto (each, an "ASSIGNOR") and each "Assignee" referred to on Schedule 1 hereto (each, an "ASSIGNEE") agrees severally with respect to all information relating to it and its assignment hereunder and on Schedule 1 hereto as follows: 1. Such Assignor hereby sells and assigns, without recourse except as to the representations and warranties made by it herein, to such Assignee, and such Assignee hereby purchases and assumes from such Assignor, an interest in and to such Assignor's rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement. After giving effect to such sale and assignment, such Assignee's Commitments and the amount of the Advances owing to such Assignee will be as set forth on Schedule 1 hereto. 2. Such Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest or interests being assigned by it hereunder and that such interest or interests are free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note or Notes held by such Assignor and requests that the Administrative Agent exchange such Note or Notes for a new Note or Notes payable to the order of such Assignee in an amount equal to the Commitments assumed by such Assignee pursuant hereto or new Notes payable to the order of such Assignee in an amount equal to the Commitments assumed by such Assignee pursuant hereto and such Assignor in an amount equal to the Commitments retained by such Assignor under the Credit Agreement, respectively, as specified on Schedule 1 hereto. 3. Such Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon any Agent, any Assignor or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender Party; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.12 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date for this Assignment and Acceptance (the "EFFECTIVE Date") shall be the date of acceptance hereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) such Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender Party thereunder and (ii) such Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement (other than its rights and obligations under the Loan Documents that are specified under the terms of such Loan Documents to survive the payment in full of the Obligations of the Loan Parties under the Loan Documents to the extent any claim thereunder relates to an event arising prior to the Effective Date of this Assignment and Acceptance) and, if this Assignment and Acceptance covers all of the remaining portion of the rights and obligations of such Assignor under the Credit Agreement, such Assignor shall cease to be a party thereto. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to such Assignee. Such Assignor and such Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Manual delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of an original executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, each Assignor and each Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE
ASSIGNOR WORKING CAPITAL FACILITY Percentage interest assigned % % % % % Working Capital Commitment assigned $ $ $ $ $ Aggregate outstanding principal amount of Working Capital Advances assigned $ $ $ $ $ Principal amount of Note payable to ASSIGNOR $ $ $ $ $ LETTER OF CREDIT FACILITY Letter of Credit Commitment assigned $ $ $ $ $ Letter of Credit Commitment retained $ $ $ $ $
ASSIGNEE WORKING CAPITAL FACILITY Percentage interest assigned % % % % % Working Capital Commitment assigned $ $ $ $ $ Aggregate outstanding principal amount of Working Capital Advances assigned $ $ $ $ $ Principal amount of Note payable to ASSIGNEE $ $ $ $ $ LETTER OF CREDIT FACILITY Letter of Credit Commitment assumed $ $ $ $ $
Effective Date (if other than date of acceptance by Administrative Agent): (1) _________ __, ____ ASSIGNORS , as Assignor -------------------------- By ---------------------------------------- Title: ------------------------------------ Dated: _________ __, ____ , as Assignor -------------------------- By ---------------------------------------- Title: ------------------------------------ Dated: _________ __, ____ , as Assignor -------------------------- By ---------------------------------------- Title: ------------------------------------ Dated: _________ __, ____ , as Assignor -------------------------- By ---------------------------------------- Title: ------------------------------------ Dated: _________ __, ____ , as Assignor -------------------------- By ---------------------------------------- Title: ------------------------------------ Dated: _________ __, ____ - ---------- (1) This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Administrative Agent. ASSIGNEES , as Assignee -------------------------- By ----------------------------------------- Title: ---------------------------------- Dated: _________ __, ____ Domestic Lending Office: Eurodollar Lending Office: , as Assignee -------------------------- By ----------------------------------------- Title: ---------------------------------- Dated: _________ __, ____ Domestic Lending Office: Eurodollar Lending Office: , as Assignee -------------------------- By ----------------------------------------- Title: ---------------------------------- Dated: _________ __, ____ Domestic Lending Office: Eurodollar Lending Office: , as Assignee -------------------------- By ----------------------------------------- Title: ---------------------------------- Dated: _________ __, ____ Domestic Lending Office: Eurodollar Lending Office: , as Assignee -------------------------- By ----------------------------------------- Title: ---------------------------------- Dated: _________ __, ____ Domestic Lending Office: Eurodollar Lending Office: Accepted (2)[and Approved] this ____ day of ___________, ____ CITIBANK, N.A., as Administrative Agent By /s/ Claudia Slacik - ------------------------------ Title: Vice President - ------------------------------ (3)[Approved this ____ day of _____________, ____ MICROAGE, INC. By /s/ James R. Daniel - ------------------------------ Title: CFO, ExVP & Treasurer - ------------------------------ - ---------- (2) Required if the Assignee is an Eligible Assignee solely by reason of clause (a)(viii) or (b) of the definition of "Eligible Assignee". (3) See footnote 2. EX-10.56.1 26 AMEND NO. 1 & WAIVER TO CREDIT AGREEMENT AMENDMENT NO. 1 AND WAIVER TO THE CREDIT AGREEMENT Dated as of January 30, 2000 AMENDMENT NO. 1 AND WAIVER TO THE CREDIT AGREEMENT (this "AMENDMENT") among MicroAge Technology Services, L.L.C., a Delaware limited liability company, and Pinacor, Inc., a Delaware corporation (the "BORROWERS"), MicroAge, Inc., a Delaware corporation (the "PARENT GUARANTOR"), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the "LENDERS"), IBM Credit Corporation, as documentation agent, The CIT Group/Business Credit, as syndication agent, and Citibank, N.A., as collateral agent and administrative agent (the "AGENT") for the Lenders. PRELIMINARY STATEMENTS: (1) The Borrowers, the Parent Guarantor, the Lenders and the Agent have entered into a Credit Agreement dated as of October 28, 1999 (the "CREDIT AGREEMENT"). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement. (2) The Borrowers have requested that the Credit Agreement be amended to permit the amendment of Attachment E to the Amended and Restated Agreement for Wholesale Financing dated October 29, 1999 (the "IBMCC AGREEMENT") between IBM Credit Corporation, MicroAge Computer Centers, Inc., MTS Holding Company and the Borrowers from time to time to amend the list of authorized suppliers with the consent of only the Agent. The Borrowers have further requested that the Required Lenders consent to the amendment of the IBMCC Agreement as set forth on Schedule I attached to this Amendment. (3) As described in Schedule II attached to this Amendment, the Borrowers have proposed to create two new bankruptcy-remote Subsidiaries (the "NEW MORTGAGE SUBSIDIARIES") to facilitate a $13,000,000 mortgage financing on the property located at 1330 West Southern, Tempe, Arizona (the "PROPERTY"). The proposed lender of such mortgage financing has requested that the New Subsidiaries be excluded from the operation of Section 5.01(j) of the Credit Agreement (Covenant to Guarantee Obligations and Give Security). (4) As described in Schedule III attached to this Amendment, the Borrowers have proposed to sell the assets of the Latin American Division of Pinacor and Pinacor's Subsidiaries that distribute technology products in Latin America (collectively, "PLA"). The proposed structure of the sale of PLA includes an Investment in the buyer of such assets in the form of intercompany notes and an agreement to provide a $4,000,000 letter of credit for such buyer for a period of six months. 1 (5) The Borrowers have proposed to form a new Subsidiary of MTS (the "BTOB SUBSIDIARY") to which MTS would contribute its business to business Internet assets and business. The Borrowers have requested that up to 20% of the capital stock of the BtoB Subsidiary be made available as stock options or other equity incentives for officers and employees of the BtoB Subsidiary. (6) The Borrowers have requested that the financial covenants contained in Section 5.04 the Credit Agreement be amended as set forth below. (7) The Borrowers have requested that the Required Lenders authorize the Agent to amend the Intercreditor Agreement dated as of October 29, 1999 (the "IBM INTERCREDITOR AGREEMENT") between IBM Credit Corporation and the Agent to permit IBM Credit Corporation to have a first priority Lien on all Receivables owed to the Borrowers from time to time by International Business Machines Corporation and IBM Credit Corporation as security for the Borrowers' obligations under the IBMCC Agreement. (8) The Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrowers and the Borrowers and the Required Lenders have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. PHASE I AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective as of January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 6(a), hereby amended as follows: (a) Section 1.01 is amended as follows: (i) deleting the definition of "Fixed Charge Coverage Ratio" in its entirety; (ii) adding the following definition in the appropriate alphabetical order: "INTEREST COVERAGE RATIO" means, at any date of determination, the ratio of (a) Consolidated EBITDA to (b) interest payable on, and amortization of debt discount in respect of, all Debt for Borrowed Money (including expenses incurred under the Receivables Sales Agreements and flooring subsidies), in each case, of or by the Parent Guarantor and its Subsidiaries during the applicable period most recently ended for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be. (iii) by amending clause (a) of the definition of "Debt/EBITDA Ratio" in full to read as follows: (a) the average of the sum of (i) Consolidated total Debt for Borrowed Money plus (ii) the Available Amount of Letters of Credit, in each case of the Parent Guarantor and its Subsidiaries as at the end of 2 each week ended within the most recently ended fiscal quarter of the Parent Guarantor for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be, (iv) by amending the definition of "Applicable Letter of Credit Fee" by (1) deleting the phrase "4.25:1.0 or greater" below the phrase "LEVEL VI" in the chart and substituting therefor the phrase "4.25:1.0 or greater, but less than 6.00:1.0", and (2) inserting at the bottom of the chart the following new "LEVEL VII": LEVEL VII --------- 6.00:1.0 or greater 3.125% and (3) by deleting in clause (B) of the PROVISO the phrase "Level VI" and substituting therefor the phrase "Level VII"; and (v) by amending the definition of "Applicable Margin" by (1) deleting the phrase "4.25:1.0 or greater" below the phrase "LEVEL VI" in the chart and substituting therefor the phrase "4.25:1.0 or greater, but less than 6.00:1.0", and (2) inserting at the bottom of the chart the following new "LEVEL VII": LEVEL VII --------- 6.00:1.0 or greater 2.50% 3.50% and (3) by deleting in clause (B) of the PROVISO the phrase "Level VI" and substituting therefor the phrase "Level VII". (b) Section 2.06(b)(ii) is hereby amended by inserting immediately after the phrase "the Letter of Credit Advances and the Swing Line Advances" the phrase "and deposit an amount in the L/C Cash Collateral Account". (c) Section 5.02(b)(iii)(E) is amended in full to read as follows: (E) Debt secured by a mortgage on the real property located at 1330 West Southern, Tempe, Arizona in an aggregate principal amount not to exceed $15,000,000, together with indemnification and guaranty of rent obligations customary for such mortgage financings, (d) Section 5.02(g)(iv) is amended in full to read as follows: (iv) the Parent Guarantor and the Borrowers may issue stock options to the directors and employees of such Loan Party and the Subsidiary of MTS capitalized with the business to business Internet assets and business of MTS (the "BTOB SUBSIDIARY") may issue stock options to the officers and employees of the BtoB Subsidiary in an aggregate amount not to exceed 20% of the capital stock of the BtoB Subsidiary. 3 (e) Section 5.02(k) is amended by (i) adding after the date "October 28, 1999" the parenthetical "(the "IBMCC AGREEMENT")" and (ii) adding to the end thereof the following proviso: PROVIDED, that any amendment to Attachment E (Authorized Suppliers) of the IBMCC Agreement may be made with the consent of the Administrative Agent. (f) Section 5.03(b) is amended by inserting immediately after the phrase "As soon as available and" the following language: (x) in any event within 45 days after the end of each Fiscal Year, preliminary Consolidated and Consolidating statements of income and cash flows of the Parent Guarantor and its Subsidiaries for such Fiscal Year, in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Parent Guarantor as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent Guarantor has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Parent Guarantor in determining compliance with the covenants contained in Section 5.04, PROVIDED that in the event of any change in GAAP used in the preparation of such financial statements, the Parent Guarantor shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP and (y) (g) Section 5.03(d) is amended by inserting immediately after the phrase "within 30 days after the end of each month" the parenthetical phrase "(other than any month that is the last month of a Fiscal Year or of the first three fiscal quarters of a Fiscal Year for which financial statements are delivered pursuant to Section 5.03(b) or (c), as the case may be)". (h) Section 5.03(n) is amended by deleting the figure "30" and substituting therefor the figure "60". (i) Section 5.03(o) is amended by deleting the figure "30" and substituting therefor the figure "60". (j) Section 5.04(a) is amended by deleting the table set forth therein and substituting therefor the following: 4 Period Ratio ------ ----- Four Fiscal Quarters ended April 30, 2000 17.00:1.00 Four Fiscal Quarters ended July 31, 2000 22.00:1.00 Four Fiscal Quarters ended October 31, 2000 9.50:1.00 Four Fiscal Quarters ended January 31, 2001 6.00:1.00 Four Fiscal Quarters ended April 30, 2001 5.00:1.00 Four Fiscal Quarters ended July 31, 2001 4.00:1.00 Four Fiscal Quarters ended October 31, 2001 3.50:1.00 Four Fiscal Quarters ended January 31, 2002 3.50:1.00 Four Fiscal Quarters ended April 30, 2002 3.50:1.00 Four Fiscal Quarters ended July 31, 2002 3.50:1.00 (k) Section 5.04(b) is amended in full to read as follows: (b) INTEREST COVERAGE RATIO. Maintain at all times an Interest Coverage Ratio of not less than the ratio set forth below for each period set forth below: Period Ratio ------ ----- Fiscal Quarter ended April 30, 2000 0.25:1.00 Two Fiscal Quarters ended July 31, 2000 0.55:1.00 Three Fiscal Quarters ended October 31, 2000 0.90:1.00 Four Fiscal Quarters ended January 31, 2001 1.10:1.00 Four Fiscal Quarters ended April 30, 2001 1.30:1.00 Four Fiscal Quarters ended July 31, 2001 1.50:1.00 Four Fiscal Quarters ended October 31, 2001 1.75:1.00 Four Fiscal Quarters ended January 31, 2002 2.00:1.00 Four Fiscal Quarters ended April 30, 2002 2.00:1.00 Four Fiscal Quarters ended July 31, 2002 2.00:1.00 (l) Section 5.04(c) is amended by deleting the table set forth therein and substituting therefor the following: Period Amount ------ ------ Fiscal Quarter ended April 30, 2000 $ 2,500,000 Two Fiscal Quarters ended July 31, 2000 $12,000,000 Three Fiscal Quarters ended October 31, 2000 $26,000,000 Four Fiscal Quarters ended January 31, 2001 $51,000,000 Four Fiscal Quarters ended April 30, 2001 $72,000,000 Four Fiscal Quarters ended July 31, 2001 $85,000,000 Four Fiscal Quarters ended October 31, 2001 $90,000,000 Four Fiscal Quarters ended January 31, 2002 $90,000,000 Four Fiscal Quarters ended April 30, 2002 $90,000,000 Four Fiscal Quarters ended July 31, 2002 $90,000,000 5 SECTION 2. PHASE I WAIVERS TO THE CREDIT AGREEMENT. Effective as of January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 6(a), the Required Lenders hereby agree to waive (a) Section 5.02(k) of the Credit Agreement to permit the Borrowers to enter into an amendment to the IBMCC Agreement to reflect the terms set forth on Schedule I to this Amendment, (b) Section 5.02(f) of the Credit Agreement to permit the Borrowers to contribute the Property to the New Mortgage Subsidiaries, Section 5.01(j) of the Credit Agreement to exclude the New Mortgage Subsidiaries from the operation of Section 5.01(j) of the Credit Agreement and Section 5.02(q) to permit the creation of the New Mortgage Subsidiaries, and (c) Section 5.02(f) of the Credit Agreement to permit the contribution of the assets and business of the business to business Internet operations of MTS to the BtoB Subsidiary and further Investments in an aggregate amount outstanding not to exceed $15,000,000 at any time and Section 5.02(q) to permit the creation of the BtoB Subsidiary (it being understood that the provisions of Section 5.01(j) shall be applicable to the BtoB Subsidiary). SECTION 3. CONSENT TO AMENDMENT OF IBM INTERCREDITOR AGREEMENT. Effective as of January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 6(a), the Required Lenders hereby (a) consent and authorize the Agent to enter into an amendment to the IBM Intercreditor Agreement to permit IBM Credit Corporation to have a first priority Lien on the Receivables owed to the Borrowers by International Business Machines as security for the Borrowers' obligations under the IBMCC Agreement and (b) consent to the amendment of the IBMCC Agreement to reflect the terms set forth on Schedule I to this Amendment. SECTION 4. PHASE II AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is, effective as of January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 6(b), hereby amended by inserting at the end of Section 9.01(a)(i)(C) the following parenthetical phrase: "(other than to release any Subsidiary Guarantor, the stock or assets of which have been sold in accordance with Section 5.02(e))". SECTION 5. PHASE II WAIVERS TO THE CREDIT AGREEMENT. Effective as of January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 6(b), the Lenders hereby agree to waive Section 5.02(e) of the Credit Agreement to permit the Borrowers to sell the assets of PLA and Section 5.02(f) of the Credit Agreement to permit the Borrowers to acquire an equity 6 interest in the buyer of the assets of PLA and to provide a letter of credit in an amount not to exceed $4,000,000 to the buyer of the assets of PLA for a period not to exceed six months. SECTION 6. CONDITIONS OF EFFECTIVENESS. (a) PHASE I. Sections 1, 2 and 3 of this Amendment shall become effective as of January 30, 2000 (other than Sections 1(a)(iv) and (v) which shall become effective as of February 17, 2000), and only when, on or before February 17, 2000 the Agent shall have received (i) counterparts of this Amendment executed by the Borrower and the Required Lenders or, as to any of the Lenders, advice satisfactory to the Agent that such Lender has executed this Amendment, (ii) the consent attached hereto executed by each Subsidiary Guarantor, (iii) a notice from the Borrowers delivered in accordance with Section 2.05(a) of the Credit Agreement reducing the Working Capital Facility and the Working Capital Commitments of the Lenders ratably by not less than $150,000,000, (iv) evidence that the provisions of the IBMCC Agreement have been amended or waived in a manner consistent with Sections 1 and 2 of this Amendment and (v) an amendment fee for the account of the Lenders equal to an agreed percentage of the Working Capital Commitments of the Lenders after giving effect to the notice delivered pursuant to clause (c) above. The effectiveness of this Amendment is conditioned upon the accuracy of the factual matters described herein. This Amendment is subject to the provisions of Section 9.01 of the Credit Agreement. (b) PHASE II. Sections 4 and 5 of this Amendment shall become effective as of January 30, 2000, after the satisfaction of the conditions set forth in 6(a) above, when and only when, on or before February 17, 2000 the Agent shall have received counterparts of this Amendment executed by all the Lenders or, as to any of the Lenders, advice satisfactory to the Agent that such Lender has executed this Amendment. SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The Borrowers represent and warrant as follows: (a) Each Loan Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) The execution, delivery and performance by the Borrower of this Amendment and the Loan Documents, as amended hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within each Loan Party's powers, have been duly authorized by all necessary corporate or other action and do not (i) contravene any Loan Party's charter, by-laws or other organizational documents, (ii) violate any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, as amended hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. 7 (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery or performance by any Loan Party of this Amendment or any of the Loan Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment has been duly executed and delivered by each Borrower and the Parent Guarantor. This Amendment and each of the other Loan Documents, as amended hereby, to which any Loan Party is a party are legal, valid and binding obligations of such Loan Party, enforceable against such Loan Party in accordance with their respective terms. (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries (including, without limitation, any Environmental Action) pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation) or (ii) purports to affect the legality, validity or enforceability of this Amendment or any of the other Loan Documents, as amended hereby, or the consummation of any of the transactions contemplated hereby. SECTION 8. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended by this Amendment. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 9. COSTS AND EXPENSES. The Borrowers agree to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder 8 (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. SECTION 10. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 11. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. MICROAGE TECHNOLOGY SERVICES, L.L.C. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman PINACOR, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 9 Agreed as of the date first above written: CITIBANK, N.A., as Agent and as Lender By /s/ Citibank Signatory ------------------------------------- Title: Vice President IBM CREDIT CORPORATION By /s/ Ronald J. Bachner ------------------------------------- Title: Mgr. Com & Specialty Financing THE CIT GROUP/BUSINESS CREDIT, INC. By /s/ Janet Makki ------------------------------------- Title: AVP FLEET CAPITAL CORPORATION By /s/ Carmen Caporrino ------------------------------------- Title: Vice President MELLON BANK, N.A. By /s/ R. Shirinyam ------------------------------------- Title: Vice President IBJ WHITEHALL BUSINESS CREDIT CORPORATION By IBJ Whitehall Signatory ------------------------------------- Title: Vice President 10 DEBIS FINANCIAL SERVICES, INC. By ------------------------------------- Title: FINOVA CAPITAL CORPORATION By ------------------------------------- Title: GMAC COMMERCIAL CREDIT LLC By ------------------------------------- Title: HELLER FINANCIAL INC. By ------------------------------------- Title: TRANSAMERICA BUSINESS CREDIT CORPORATION By ------------------------------------- Title: FIRST SOURCE FINANCIAL, L.L.P. By ------------------------------------- Title: 11 CONSENT Dated as of February 11, 2000 The undersigned, each a Subsidiary Guarantor under the Subsidiary Guaranty dated as of October 28, 1999 (collectively, the "SUBSIDIARY GUARANTY") in favor of the Agent and the Lenders parties to the Credit Agreement referred to in the foregoing Amendment, hereby consents to such Amendment and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment, the Subsidiary Guaranty and each other Loan Document to which the undersigned is a party (including, without limitation, the Security Agreement) is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, and (b) the Collateral Documents to which each of the undersigned is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations (in each case, as defined therein). 153000 CANADA LTD. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman COMPLETE DISTRIBUTION, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman CONNECTWORKS, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 12 CONTRACT PC, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman ECADVANTAGE, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman INTERPC DE COLOMBIA By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman INTERPC DE VENEZUELA By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman INTRACOM MARKETING, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MAXSOURCE, L.L.C. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 13 MCCI HOLDING COMPANY By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MCSS, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE ADMINISTRATION, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE COMPUTER CENTERS, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE DEUTSCHLAND GMBH By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE EUROPE LIMITED By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE GOVERNMENT, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 14 MICROAGE INFOSYSTEMS SERVICES, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE INFOSYSTEMS SERVICES EUROPE LIMITED By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE L & D L.L.C. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE OF CALIFORNIA, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE PAYMASTER, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE TECHNOLOGIES, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 15 MICROAGE TELESERVICES, L.L.C. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE (UK) LIMITED By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MICROAGE VENTURES, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman MTS HOLDING COMPANY By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman PCC CLEARANCE, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman PHOENIX CONNECTIONS, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 16 PINACOR LOGISTICS SERVICES, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman PRI TECH SOLUTIONS, INC. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman QUALITY INTEGRATION SERVICES, L.L.C. By /s/ Jeffrey D. McKeever ------------------------------------- Title: Chairman 17 EX-10.57 27 AMENDED & RESTATED WHOLESALE FINANCE AGR AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING TABLE OF CONTENTS SECTION 1. DEFINITIONS; ATTACHMENTS 1 1.1. Definitions. 1 1.2. Other Defined Terms. 7 1.3. Attachments. 7 SECTION 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES 7 2.1. Credit Line. 7 2.2. Product Advances. 7 2.3. Finance and Other Charges. 9 2.4. Customer Account Statements. 9 2.5. Shortfall. 10 2.6. Application of Payments. 10 2.7. Prepayment and Reborrowing By Customer. 10 SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS 10 3.1. Power of Attorney. 10 SECTION 4. SECURITY -- COLLATERAL 11 4.1. Grant. 11 4.2. Further Assurances. 12 SECTION 5. CONDITIONS PRECEDENT 12 5.1. Conditions Precedent to the Effectiveness of this Agreement. 12 5.2. Conditions Precedent to Each Product Advance. 13 53. Post Closing. 13 SECTION 6. REPRESENTATIONS AND WARRANTIES 13 6.1. Organization and Qualifications. 13 6.2 Subsidiaries 13 6.3. Rights in Collateral; Priority of Liens. 13 6.4. No Conflicts. 14 6.5. Enforceability. 14 6.6. Locations of Offices, Records and Inventory. 14 6.7. Fictitious Business Names. 14 6.8. Organization. 14 6.9. No Judgments or Litigation. 14 6.10. No Defaults. 14 6.11. Labor Matters. 15 6.12. Compliance with Law. 15 6.13. ERISA. 15 6.14. Compliance with Environmental Laws. 15 6.15. Intellectual Property. 15 6.16. Licenses and Permits. 15 6.17. Investment Company. 16 6.18. Taxes and Tax Returns. 16 6.19. Affiliate/Subsidiary Transactions. 16 6.20. Accuracy and Completeness of Information. 16 6.21. Recording Taxes. 16 6.22. Indebtedness. 16 SECTION 7. AFFIRMATIVE COVENANTS 16 7.1. Financial and Other Information. 16 7.2. Location of Collateral. 18 7.3. Changes in Customer. 18 7.4. Corporate Existence. 19 7.5. ERISA. 19 7.6. Environmental Matters. 19 7.7. Collateral Books and Records/Collateral Audit. 19 i 7.8. Insurance; Casualty Loss. 20 7.9. Taxes. 20 7.10. Compliance With Laws. 21 7.11. Fiscal Year. 21 7.12. Intellectual Property. 21 7.13. Maintenance of Property. 21 7.14. Collateral. 21 7.15. Subsidiaries. 21 7.16. Additional Covenants. 22 7.17. Joint and Several Guaranty. 22 7.18. Parentl Guaranty. 23 SECTION 8. NEGATIVE COVENANTS 25 8.1. Liens. 25 8.2. Disposition of Assets. 25 8.3. Corporate Changes. 25 8.4. Mergers, Inc.. 25 8.5. Guaranties. 26 8.6. Restricted Payments. 26 8.7. Investments. 26 8.8. Affiliate/Subsidiary Transactions. 27 8.9. ERISA. 27 8.10 Additional Negative Pledges. 27 8.11. Storage of Collateral with Bailees and Warehousemen. 27 8.12. Indebtedness. 28 8.13. Loans. 28 SECTION 9. DEFAULT 28 9.1. Event of Default. 28 9.2. Acceleration. 29 9.3. Remedies. 29 9.4. Waiver. 30 SECTION 10. FINANCIAL COVENANT DEFINITIONS; FINANCIAL COVENANTS 31 10.1. Financial Covenant Definitions. 31 10.2. Financial Covenants. 34 SECTION 11 MISCELLANEOUS 36 11.1. Term; Termination. 36 11.2. Indemnification. 36 11.3. Additional Obligations. 36 11.4. LIMITATION OF LIABILITY. 36 11.5. Alteration/Waiver. 37 11.6. Severability. 37 11.7. Entire Agreement. 37 11.8. One Loan. 37 11.9. Additional Collateral. 37 11.10. No Merger or Novations. 37 11.11. Paragraph Titles. 38 11.12. Binding Effect; Assignment. 38 11.13. Notices; E-Business Acknowledgment. 38 11.14. Counterparts. 40 11.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. 40 11.16. JURY TRIAL WAIVER. 41 ii AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING This AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING (as amended, supplemented or otherwise modified from time to time, this "Agreement") amends and restates that Agreement for Wholesale Financing dated December 17, 1993 (as amended from time to time, the "AWF") and is hereby dated as of the 29th day of October, 1999, by and between IBM CREDIT CORPORATION, a Delaware corporation with a place of business at North Castle Drive, Armonk, New York 10504 ("IBM Credit"), MTS HOLDING COMPANY, a Delaware corporation with a place of business at 2400 South MicroAge Way, Tempe, Arizona 85282 ("MTSI"), MICROAGE COMPUTER CENTERS, INC., a Delaware corporation with a place of business at 2400 South MicroAge Way, Tempe, Arizona 85282 ("MCCI"), MICROAGE TECHNOLOGY SERVICES, L.L.C., a Delaware corporation with a place of business at 2400 South MicroAge Way, Tempa, Arizona 85282 ("MTS" and PINACOR, INC., a Delaware corporation with a place of business at 2400 South MicroAge Way, Tempe, Arizona 85282 ("Pinacor", and together with , MCCI, MTS and MTSI, the "Customers" and individually a "Customer") and MICROAGE, INC., a Delaware corporation with a place of business at 2400 South MicroAge Way, Tempe, Arizona 85282 (the "Parent"). Notwithstanding the foregoing, and unless otherwise indicated, any obligation of a "Customer" or "Customers" herein shall be the joint and several obligation of MTS, MTSI, MCCI and Pinacor. WITNESSETH WHEREAS, IBM Credit and Customers are parties to that certain AWF pursuant to which IBM Credit finances the Customers' acquisition of inventory and equipment; WHEREAS, Parent has provided a Collateralized Guaranty in favor of IBM Credit to guaranty the Customers' obligations under the AWF; WHEREAS, in the course of Customers' operations, the Customers intend to purchase from Persons approved in writing by IBM Credit for the purposes of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers (the "Products") (as of the date hereof the Authorized Suppliers are as set forth on Attachment E hereto which may be amended from time to time); WHEREAS, the parties hereto desire to amend and restate the AWF for the purposes of, among other things, increasing the credit line under the AWF to finance its purchase of Products from such Authorized Suppliers, subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the AWF is hereby amended and restated in its entirety as follows: SECTION 1. DEFINITIONS; ATTACHMENTS 1.1. DEFINITIONS. The following terms shall have the following respective meaning in this Agreement (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate": with respect to each Loan Party, any Person meeting one of the following: (i) at least 10% of such Person's equity is owned, directly or indirectly, by such Loan Party; (ii) at least 10% of such Loan Party's equity is owned, directly or indirectly, by such Person; or (iii) at least 10% of Customer's equity and at least 10% of such Person's equity is owned, directly or indirectly, by the same Person or Persons. Each of Loan Party's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of such Loan Party for purposes of this Agreement. "Agreement": as defined in the caption. 1 "Auditors": a nationally recognized firm of independent certified public accountants selected by the Loan Parties and satisfactory to IBM Credit. "Authorized Brands": the Products bearing the trandemarks and trade names set forth on Attachment J on which IBM Credit has valid and enforceable first, prior and perfected Liens. "Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Product Advances at such time plus the amount of a Credit Request. "Average Daily Balance": for each Product Advance for a given period of time, the sum of the unpaid principal of such Product Advance as of each day during such period of time, divided by the number of days in such period of time. "Borrowing Base": as defined in Attachment A. "Business Day": any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are generally closed or on which IBM Credit is closed. "Closing Date": the date on which the conditions precedent to the effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied or waived in writing by IBM Credit. "Code": the Internal Revenue Code of 1986, as amended or any successor statute. "Collateral": as defined in Section 4.1. "Collateral Management Report": a report to be delivered by the Loan Parties to IBM Credit from time to time, as provided herein, signed by the chief executive officer, chief financial officer, executive vice president, controller, treasurer or assistant treasurer of the Parent and each Customer, substantially in the form and detail of Attachment F hereto detailing and certifying, among other items: a summary of the Loan Parties' Authorized Brands on hand financed by IBM Credit, the Customers' Authorized Brands on hand (excluding Authorized Brands delivered but not invoiced by an Authorized Supplier) financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice price (net of all applicable price reduction credits) to the Customers (if any Customer acquires Authorized Brands through an Authorized Supplier that is an Affiliate of such Customer the value to be assigned to such Authorized Brands shall be based on the Authorized Supplier's invoice price less the Affiliate's gross profit (net of all applicable price reduction credits)) and the total of the line item values for all Authorized Brands listed on the report, the amounts and aging of the Loan Parties accounts payable as of a specified date, all of the Loan Parties IBM Credit borrowing activity during a specified period and the total amount of the Loan Parties' Borrowing Base as well as the Loan Parties' Outstanding Product Advances, Available Credit and any Shortfall Amount as of a specified date. "Compliance Certificate": a certificate substantially in the form of Attachment C. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidating" refers to the presentation of the Consolidated financial statements of the Parent and the Consolidated financial statements of each Customer. "Credit Agreement": The Credit Agreement as of October 29, 1999 among the Customers and Parent, Citibank, N.A. as Collateral Agent and the lenders that are signatories to the Credit Agreement. "Credit Line": as defined in Section 2.1. "Customer": as defined in the caption. 2 "Default": either (1) an Event of Default or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default. "Delinquency Fee Rate": as defined on Attachment A. "Environmental Laws": all statutes, laws, judicial decisions, regulations, ordinances, and other governmental restrictions relating to pollution, the protection of the environment, occupational health and safety, or to emissions, discharges or release of pollutants, contaminants, hazardous substances or wastes into the environment. "Environmental Liability": any claim, demand, demand letter, obligation, cause of action, allegation, order, notice of non-compliance, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws by any Governmental Authority by any Governmental Authority or third party for damages, contribution, indemnification, cost recovery, compensation or relief. "ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any successor statutes. "Event of Default": as defined in Section 9.1. "Extended Period Finance Charge: as defined in Attachment A. "Financial Statements": the Consolidated and Consolidating balance sheets (including, without limitation, securities such as stocks and investment bonds), statements of operations, statements of cash flows and statements of changes in shareholder's equity of the Parent and the Customers for the period specified, prepared in accordance with GAAP and consistent with prior practices. "Fiscal Year" means a fiscal year of the Parent and its Consolidated Subsidiaries ending on the Sunday nearest to October 31 in any calendar year. "Floor Plan Lender": any Person who now or hereinafter provides inventory financing to either Customer, provided that such Person executes an Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a subordination agreement with IBM Credit in form and substance satisfactory to IBM Credit. "Free Financing Period": for each Product Advance, the period, if any, in which IBM Credit does not charge Customers a financing charge. IBM Credit shall calculate the Customers' Free Financing Period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. Each Customer understands that if an Authorized Supplier withdraws or reduces its funding of a Free Financing Period, IBM Credit may not offer, may change or may cease to offer a Free Financing Period for the Customers' purchases of Products. "Free Financing Period Exclusion Fee": as defined in Attachment A. "GAAP": generally accepted accounting principles in the United States as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Guarantor": the Parent and all Subsidiaries of Parent and each Customer. "Guaranty: each guaranty entered into by a Guarantor for the benefit of IBM Credit. 3 "Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" which exist in measurable quantity in excess of any applicable standard established under any Environmental Laws. "IBM Credit": as defined in the caption. "Immaterial Subsidiary": means any Subsidiary of the Parent for which the total assets of such Subsidiary do not exceed $25,000 . "Indemnified Persons": as defined in Section 11.2. "Indebtedness": with respect to any Person, (1) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (2) all obligations of such Person under capital leases (including obligations under any leases entered into, now or in the future, with IBM Credit), (3) all obligations of such Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (4) liabilities arising under any interest rate protection, future, option swap, cap or hedge agreement or arrangement under which such Person is a party or beneficiary, (5) all obligations under guaranties of such Person and (6) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Intercompany Debt": the Indebtedness owed to any Loan Party or to a wholly owned Subsidiary of such Loan Party from any other Loan Party or its Subsidiaries. "Investment": with respect to any Person (the "Investor"), (1) any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, purchase or other acquisition of a partnership or joint venture interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty by the Investor of any Indebtedness or other obligation of any other Person. "LIBOR" shall mean, as of the date of determination, the thirty (30) day average of the one-month London Interbank Offered Rate as published by Bloomberg L.P. ("Bloomberg") for the previous calendar month or, in the event such average is no longer published by Bloomberg, such other thirty day average as IBM Credit may, in its reasonable discretion, use for determining LIBOR. "Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Loan Parties": means the Customers and the Parent. "Losses": as defined in Section 7.14 (C). "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Parent, the Parent and its Subsidiaries taken as a whole, MTSI, MTSI and its Subsidiaries taken as a whole, Pinacor or Pinacor and its Subsidiaries taken as a whole, (b) the rights and remedies of IBM Credit under this Agreement or any Other Document or (c) the ability of any Loan Party to perform its Obligations under this Agreement or any Other Document to which it is or is to be a party. "Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2) the Borrowing Base at such time. "Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, interest (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, 4 reorganization or like proceeding, relating to any Loan Party, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from such Loan Party to IBM Credit. "Other Documents": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, operating and repurchase agreement, contracts and similar agreements executed by any Loan Party and delivered to IBM Credit, pursuant to this Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time. "Other Charges": as set forth in Attachment A. "Outstanding Product Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Product Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to Product Advances charged to the Customers account with IBM Credit. "Parent": MicroAge, Inc. "Permitted Indebtedness": any of the following: (1) Indebtedness to IBM Credit; (2) Indebtedness described in Section VII of Attachment B; (3) Indebtedness to any Floor Plan Lender; (4) Purchase Money Indebtedness; (5) Capital Leases as defined in Section 10.1 of this Agreement: (6) guaranties in favor of IBM Credit; (7) Intercompany Debt; and 8) other Indebtedness consented to by IBM Credit in writing prior to incurring such Indebtedness. "Permitted Liens": any of the following: (1) Liens which are the subject of an Intercreditor Agreement, in effect from time to time between IBM Credit and any other secured creditor; (2) Purchase Money Security Interests; (3) Liens described in Section I of Attachment B; (4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (5) attachment or judgment Liens individually or in the aggregate not in excess of Five Million Dollars ($5,000,000) (exclusive of (A) any amounts that are duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full); 5 (6) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of each Loan Party; (7) extensions and renewals of the foregoing Permitted Liens; provided that (A) the aggregate amount of such extended or renewed Liens do not exceed the original principal amount of the Indebtedness which it secures, (B) such Liens do not extend to any property other than property already previously subject to the Lien and (C) such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed; (8) Liens arising from deposits or pledges to secure bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature arising in the ordinary course of any Loan Party's business; (9) Liens for taxes, assessments or governmental charges not delinquent or being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (10) Liens arising out of deposits in connection with workers' compensation, unemployment insurance or other social security or similar legislation; (11) Liens arising pursuant to this Agreement or pursuant to Permitted Indebtedness; and (12) other Liens consented to by IBM Credit in writing prior to incurring such Lien. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Policies": all policies of insurance required to be maintained by each Loan Party under this Agreement or any of the Other Documents. "Product Advance": any advance of funds made (excluding funds committed to be made by IBM Credit under this Agreement for which Products have not been delivered by the Authorized Supplier to any Customer) for the account of any Customer to an Authorized Supplier in respect of an invoice delivered or to be delivered by such Authorized Supplier to IBM Credit describing Products purchased by such Customer, including any such advance made as of the date hereof pursuant to the AWF. "Product Financing Period": for each Product Advance, equal to the Free Financing Period for such Product Advance or if there is no Free Financing Period, such period as IBM Credit may determine from time to time. "Purchase Money Indebtedness": any Indebtedness (including capital leases) incurred to finance the acquisition of assets (other than assets manufactured or distributed by or bearing any trademark or trade name of any Authorized Supplier) to be used in any Loan Party's business not to exceed the lesser of (1) the purchase price or acquisition cost of such asset and (2) the fair market value of such asset. 6 "Purchase Money Security Interest": any security interest securing Purchase Money Indebtedness, which security interest applies solely to the particular asset acquired with the Purchase Money Indebtedness, which include Capital Leases (as defined in Section 10,1 of this Agreement . "Requirement of Law": as to any Person, the articles of incorporation and by-laws of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Shortfall Amount": as defined in Section 2.5. "Shortfall Transaction Fee": as defined in Attachment A. "Subsidiary": with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Termination Date": shall mean October 18, 2002 or such other date as IBM Credit and Customer may agree in writing from time to time. "Voting Stock": securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions). 1.2. OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which are defined in the Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") shall have the meanings assigned to them therein. 1.3. ATTACHMENTS. All attachments, exhibits, schedules and other addenda hereto, including, but not limited to, Attachment A and Attachment B, are specifically incorporated herein by reference and made a part of this Agreement. SECTION 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES 2.1. CREDIT LINE. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (i) the date on which this Agreement is terminated pursuant to Section 11.1 and (ii) the date on which IBM Credit terminates the Credit Line pursuant to Section 9.2, IBM Credit agrees to extend to the Customers a credit line ("Credit Line") in the amount set forth in Attachment A pursuant to which IBM Credit will make to the Customers, from time to time, Product Advances in an aggregate amount at any one time outstanding not to exceed the Available Credit. Notwithstanding any other term or provision of this Agreement, IBM Credit may, at any time and from time to time, in its sole and absolute discretion (x) temporarily increase the amount of the Credit Line set forth in Attachment A and subsequently reset the Credit Line to the original amount of the Credit Line set forth in Attachment A, in each case upon written notice to the Customers, and (y) make Product Advances pursuant to this Agreement upon the request of Customers in an aggregate amount at any one time outstanding in excess of the Credit Line. 2.2. PRODUCT ADVANCES. (A) Subject to the terms and conditions of this Agreement, IBM Credit shall make Product Advances in connection with Customers' purchase of Products from Authorized Suppliers (as defined in the recitals to this Agreement) upon at least a two-day prior written notice from Authorized Suppliers. Each Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product Advances directly to the applicable Authorized Supplier in respect of invoices delivered to IBM Credit for such Products by such Authorized Supplier and acknowledges that (i) any delivery to IBM Credit of an invoice by an Authorized Supplier shall be deemed as a request for a Product Advance by such Customer, and (ii) each such Product Advance constitutes a loan by IBM Credit to the Customers pursuant to this Agreement as if the Customers received the proceeds of the Product Advance directly from IBM Credit. IBM Credit may in its sole discretion, upon written notice to Customers, cease to include a supplier as an Authorized Supplier. 7 (B) No finance charge shall accrue on any Product Advance during the Free Financing Period, if any, applicable to such Product Advance. Each Product Advance shall be due and payable the day following the last day of the Free Financing Period; provided, however, IBM Credit shall extend the date payment is due for a period of thirty (30) calendar days commencing on the day after the end of the Free Financing Period to and including the thirtieth day following the end of such Free Financing Period (the "Extended Period") provided that the Customers have adequate Available Credit and provided, further that no Event of Default has occurred under this Agreement, During the Extended Period, each Product Advance shall accrue a finance charge specified in Attachment A as the Extended Period Finance Charge. Each Product Advance shall accrue a finance charge on the Average Daily Balance thereof from and including the first (1st) day following the end of the Free Financing Period, if any, for such Product Advance, or if no such Free Financing Period shall be in effect, from and including the date of invoice for such Product Advance, in each case, to and including the date such Product Advance shall become due and payable in accordance with the terms of this Agreement. In addition, for any Product Advance with respect to which a Free Financing Period shall not be in effect, Customer shall pay a Free Financing Period Exclusion Fee. Such fee shall be due and payable on the date set forth in a statement of transaction or billing statement for such Product Advance. If it is determined that amounts received from Customers were in excess of the highest rate permitted by law, then the amount representing such excess shall be considered reductions to principal of Product Advances. (C) Each Customer acknowledges that IBM Credit does not warrant the Collateral. Customers shall be obligated to pay IBM Credit in full even if the Collateral is defective or fails to conform to the warranties extended by the Authorized Supplier. The Obligations of Customers shall not be affected by any dispute a Customer may have with any manufacturer, distributor or Authorized Supplier. No Customer will assert any claim or defense which it may have against any manufacturer, distributor or Authorized Supplier against IBM Credit. (D) Each Customer hereby authorizes IBM Credit to collect directly from any Authorized Supplier any credits, rebates, bonuses or discounts owed by such Authorized Supplier to such Customer ("Supplier Credits"). Any Supplier Credits received by IBM Credit for a Customer may be applied by IBM Credit to the Outstanding Product Advances of such Customer, provided, however (i) in no event shall IBM Credit refund any proceeds of a Supplier Credit until the indefeasible payment in full of all of the Obligations, and (ii) Customer may direct application as long as no Default exists. Any Supplier Credits collected by IBM Credit shall in no way reduce Customers' debt to IBM Credit in respect of the Outstanding Product Advances until such Supplier Credits are applied by IBM Credit, which in each case shall be applied promptly by IBM Credit; provided, however, that in the event such discount, credit, rebate or bonus must be returned or disgorged or is otherwise unavailable for application, then Customers' obligations will be reinstated as if such discount, credit, rebate or bonus had never been applied. (E) IBM Credit may apply any payments and Supplier Credits received by IBM Credit to reduce finance charges first and then to principal amounts of Product Advances owed by Customers. IBM Credit may apply principal payments to the oldest (earliest) invoices (and related Product Advances) first, but, in any case, all principal payments will be applied in respect of the Outstanding Product Advances made for Products which have been sold, lost, stolen, destroyed, damaged or otherwise disposed of prior to any other application thereof. (F) Each Loan Party will indemnify and hold IBM Credit harmless from and against any claims or demands asserted by any Person relating to or arising from the Collateral for any reason whatsoever, including, without limitation, the condition of the Collateral, any misrepresentation made about the Collateral by any representative of either Customer or the Parent or any of their Subsidiaries, or any act or failure to act by any Loan Party except to the extent such claims or demands are directly attributable to IBM Credit's gross negligence or willful misconduct. Nothing contained in the foregoing shall impair any rights or claims which either Customer may have against any manufacturer, distributor or Authorized Supplier. 8 2.3. FINANCE AND OTHER CHARGES. (A) Finance charges for a Product Advance for a calendar month shall be equal to (i) one twelfth (1/12) of the applicable Product Financing Charge multiplied by (ii) the Average Daily Balance of such Product Advance for the period when such finance charge accrues during such calendar month multiplied by (iii) the actual number of days during such calendar month when such finance charge accrues divided by (iv) thirty (30). Late charges pursuant to subsection (D) of this Section 2.3 for a Product Advance for a calendar month shall be equal to (i) one twelfth (1/12) of the Delinquency Fee Rate multiplied by (ii) the Average Daily Balance of such Product Advance for the period when such Product Advance is past due during such calendar month multiplied by (iii) the actual number of days during such calendar month when such Product Advance is past due divided by (iv) thirty (30). (B) The Customers hereby agree to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customers also agree to pay IBM Credit additional charges for any returned items of payment received by IBM Credit. The Customers hereby acknowledge that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding Product Advances. (C) The finance charges and Other Charges owed under this Agreement, and any charges hereafter agreed to in writing by the parties, are payable monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its sole discretion, add unpaid finance charges and Other Charges to the Customers' Outstanding Product Advances. (D) If any amount owed under this Agreement, including, without limitation, any Product Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear a late charge from and including the day after it was due and payable to and including the date IBM Credit receives payment thereof, at a per annum rate equal to the lesser of (a) the amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to time permitted by applicable law. In addition, if any Shortfall Amount shall not be paid when due pursuant to Section 2.5 hereof, Customers shall pay IBM Credit a Shortfall Transaction Fee. If it is determined that amounts received from Customers were in excess of such highest rate, then the amount representing such excess, shall be considered reductions to principal of Product Advances. 2.4. CUSTOMER ACCOUNT STATEMENTS. (A) IBM Credit will send statements of each transaction ("SOT") hereunder to each Customer with respect to Product Advances and other charges due on Customer's account with IBM Credit. Each SOT shall be deemed, absent manifest error, to be correct and shall constitute an account stated with respect to each transaction or amount described therein unless within sixty (60) calendar days after such SOT is received by such Customer, Customer provides IBM Credit written notice specifying the error(s), if any, contained therein by amount and transaction. In each case, in which a Customer submits to International Business Machines Corporation ("IBM") a credit request for a Supplier Credit ("Credit Request"), IBM Credit will add the amount of the Credit Request to the amount of Available Credit , provided, however, that such request (i) is verifiable by IBM, and (ii) has been submitted to IBM Credit according to the dispute process, including but not limited to submitting all Credit Requests via the Internet within sixty (60) days of the date of invoice, or within thirty (30) days from the date of return of a Product damaged in transit. The Available Credit will be decreased by the amount of the Credit Request if IBM does not deem such Credit Request valid or invalid within thirty (30) days of receipt of such request. For purposes of this Agreement, Credit Request shall mean a request for a Supplier Credit to be issued by IBM for Products (i) invoiced but not delivered, (ii) invoiced in an incorrect amount or (iii) returned to IBM because damaged intransit. (B) IBM Credit will send a monthly billing statements to each Customer with respect to Product Advances, finance charges and Other Charges due. Each billing statement shall be deemed, absent manifest error, to be correct and shall 9 constitute an account stated with respect to each finance charge and Other Charge described therein unless within sixty (60) calendar days after such billing statement is received by such Customer, Customer provides IBM Credit written notice objecting that such amount is incorrectly described therein and specifying the error(s), if any, contained therein. For each Credit Request submitted by a Customer more than thirty (30) days from the date of invoice or the date any damaged Product is returned to IBM, an Extended Period Finance Charge and Delinquency Fee Rate shall be charged on the amount of such Credit Request as applicable, and IBM Credit shall deduct the amount of such Credit Request from the Outstanding Product Advances subject to the process set forth in Section 2.4 of this Agreement. IBM Credit may at any time adjust such SOTs or billing statements to comply with applicable law and this Agreement. 2.5. SHORTFALL. If on any date the Outstanding Product Advances owed by the Customers to IBM Credit exceeds the Maximum Advance Amount (such excess, the "Shortfall Amount"), the Customers shall immediately pay to IBM Credit an amount equal to such Shortfall Amount. 2.6. APPLICATION OF PAYMENTS. The Customers hereby agree that all checks and other instruments delivered to IBM Credit on account of Customers' Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. Subject to Section 2.2 (E) of this Agreement, Customer may direct application of any all application of any and all payment as long as no Default exists. In the Event of a Default, each Customer waives the right to direct the application of any and all payments at any time or times hereafter received by IBM Credit on account of the Customers' Obligations. The Loan Parties agree that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customers' Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. 2.7. PREPAYMENT AND REBORROWING BY CUSTOMERS. (A) Customers may at any time prepay, without notice or penalty, in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by the Customers or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customers. (B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Product Advances may be reborrowed by Customers in accordance with the provisions of this Agreement. SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS 3.1. POWER OF ATTORNEY. Each Loan Party hereby irrevocably appoints IBM Credit, with full power of substitution, as its true and lawful attorney-in-fact with full power, in good faith and in compliance with commercially reasonable standards, in the discretion of IBM Credit, to: (A) sign the name of such Loan Party on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated and given under this Agreement and the Other Documents; upon the occurrence and during the continuance of an Event of Default as defined in Section 9.1 hereof: (B) endorse the name of such Loan Party upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligations; and (C) sign the name of such Loan Party on any document or instrument that IBM Credit shall deem necessary or appropriate to enforce any and all remedies it may have under this Agreement, at law or otherwise; and 10 (D) make, settle and adjust claims under the Policies with respect to the Collateral and endorse such Loan Party's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral. The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement and the Other Documents are in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any Loan Parties' Obligations other than Customers' payment Obligations to the extent IBM Credit has received monies. SECTION 4. SECURITY -- COLLATERAL 4.1. GRANT. To secure the Loan Parties' full and punctual payment and performance of the Obligations (including obligations under any leases any Loan Party may enter into, now or in the future, with IBM Credit) when due (whether at the stated maturity, by acceleration or otherwise), each Loan Party hereby grants IBM Credit a security interest in all of each Loan Party's right, title and interest in and to the following property, whether now owned or hereafter acquired or existing and wherever located: (A) all inventory and equipment and all parts thereof, attachments, accessories and accessions thereto and raw materials and work in progress therefor, finished goods, thereof and materials used or consumed in manufacture, production, preparation or shipping thereof, interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Loan Party has an interest or right as consignee), products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owing to such Loan Party, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services whether or not earned by performance, and all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing; (C) general intangibles; (D) all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the accounts, contract rights, chattel paper, instruments, deposit accounts, obligations or general intangibles; and (E) all substitutions and replacements for all of the foregoing, all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets, together with all security interests in property under any Other Document, shall be collectively defined herein as the "Collateral". Each Loan Party covenants and agrees with IBM Credit that: (a) the security constituted to by this Agreement is in addition to any other security from time to time held by IBM Credit and (b) the security hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of each Loan Party to IBM Credit. 4.2. FURTHER ASSURANCES. Each Loan Party shall, from time to time upon the request of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and delivered, at such time or times as IBM Credit may reasonably request such other and further documents, certificates and instruments that IBM Credit may deem necessary to perfect and maintain perfected IBM Credit's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement and the Other Documents. Each Loan Party shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral. 11 SECTION 5. CONDITIONS PRECEDENT 5.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The effectiveness of this Agreement and the obligation of IBM Credit to make an initial Product Advance is subject to the satisfaction of , or waiver in writing by IBM Credit of compliance with, the following conditions precedent: (A) this Agreement executed and delivered by each Customer, the Parent and IBM Credit; (B) a favorable opinion of counsel for the Loan Parties in substantially the form of Attachment H; (C) a certificate of the secretary or an assistant secretary of each Loan Party, in a form and substance acceptable to IBM Credit, certifying that, among other items, (i) such Loan Party is a corporation organized under the laws of the State of its incorporation and has its principal place of business as stated therein, (ii) such Loan Party is registered to conduct business in specified states and localities, (iii) true and complete copies of the articles of incorporation and by-laws of such Loan Party are delivered therewith, together with all amendments and addenda thereto as in effect on the date thereof, (iv) the resolution as stated in the certificate is a true, accurate and compared copy of the resolution adopted by such Loan Party's Board of Directors authorizing the execution, delivery and performance of this Agreement and each Other Document executed and delivered in connection herewith, and (v) the names and true signatures of the officers of such Loan Party authorized to sign this Agreement and the Other Documents; (D) copies of certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of each Loan Party in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business; (E) copies of all approvals and consents from any Person in each case in form and substance reasonably satisfactory to IBM Credit, which are required to enable each Loan Party to authorize, or required in connection with, (a) the execution, delivery or performance of this Agreement and each of the Other Documents, and (b) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Documents; (F) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of each Loan Party as set forth in Attachment A; (G) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by each Loan Party and each Guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets; (H) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; (I) the Credit Agreement, with terms and conditions satisfactory to IBM Credit, shall be executed and delivered by the parties thereto; and (J) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested. 5.2. CONDITIONS PRECEDENT TO EACH PRODUCT ADVANCE. No Product Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Product Advance, the following statements shall be true to the satisfaction of IBM Credit: 12 (A) The representations and warranties contained in this Agreement and in each Other Document are true and correct in all material respects on and as of the date of such Product Advance as though made on and as of such date; (B) No event has occurred and is continuing or after giving effect to such Product Advance or the application of the proceeds thereof would result in or would constitute an Event of Default; (C) No event has occurred and is continuing which could reasonably be expected to have a Material Adverse Effect; (D) Both before and after giving effect to the making of such Product Advance, no Shortfall Amount exists. Except as Customers have otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.2 (A)) for an Product Advance hereunder shall be deemed to be a representation and warranty by Customers that, as of and on the date of such Product Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customers to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Product Advance that are set forth in this Section 5.2. 5.3. POST CLOSING. Parent agrees to use its best efforts to provide, within sixty (60) days after the Closing Date, an executed waiver of landlord lien, in a for the seven (7) major distribution facilities, in each case in form and substance satisfactory to IBM Credit. SECTION 6. REPRESENTATIONS AND WARRANTIES To induce IBM Credit to enter into this Agreement, each Loan Party represents and warrants to IBM Credit as follows: 6.1. ORGANIZATION AND QUALIFICATIONS. Each Loan Party and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its properties and assets and to transact the businesses in which it presently is engaged and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is engaged in business and is required to be so qualified. 6.2. SUBSIDIARIES. Set forth in Attachment B hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing (as to each such Subsidiary) the jurisdiction of its incorporation, and its chief executive office. 6.3. RIGHTS IN COLLATERAL; PRIORITY OF LIENS. Each Loan Party and each of its Subsidiaries owns the property granted by it respectively as Collateral to IBM Credit, free and clear of any and all Liens in favor of third parties except for the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by each Loan Party and each of its Subsidiaries pursuant to this Agreement, the Guaranties and the Other Documents in the Collateral constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase Money Security Interests in product of a brand that is not financed by IBM Credit or (iii) a Permitted Lien. 6.4. NO CONFLICTS. The execution, delivery and performance by each Loan Party of this Agreement and each of the Other Documents (i) are within its corporate power; (ii) are duly authorized by all necessary corporate action; (iii) are not in contravention in any respect of any Requirement of Law or any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it or any of its properties are bound; (iv) do not require the consent, registration or approval of any Governmental Authority or any other Person (except such as have been duly obtained, made or given, and are in full force and effect); and (v) will not, except as contemplated herein, result in the imposition of any Liens upon any of its properties. 13 6.5. ENFORCEABILITY. This Agreement and all of the Other Documents executed and delivered by each Loan Party in connection herewith are the legal, valid and binding obligations of such Loan Party, and are enforceable in accordance with their terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors' rights generally or the general equitable principles relating thereto. 6.6. LOCATIONS OF OFFICES, RECORDS AND INVENTORY. The address of the principal place of business and chief executive office of each Loan Party and each of its Subsidiaries as set forth on Attachment B or on any notice provided by such Loan Party to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of each Loan Party are maintained exclusively at such location. There is no jurisdiction in which any Loan Party or any of its Subsidiaries has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other than those jurisdictions identified on Attachment B or on any notice provided by the Loan Parties to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time to time by any notice provided by any Loan Party to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains a complete list of the legal names and addresses of each warehouse at which such Loan Party's and its Subsidiaries' inventory is stored. None of the receipts received by any Loan Party or its Subsidiaries from any warehouseman states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.7. FICTITIOUS BUSINESS NAMES. To the best of each Loan Party's knowledge after due inquiry, no Loan Party nor any of its Subsidiaries has used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B. 6.8. ORGANIZATION. All of the outstanding capital stock of each Loan Party has been validly issued, is fully paid and nonassessable. 6.9. NO JUDGMENTS OR LITIGATION. Except as set forth on Attachment B, no judgments, orders, writs or decrees in excess of Five Million Dollars ($5,000,000) are outstanding against any Loan Party nor is there now pending or, to the best of such Loan Parties' knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against any Loan Party. 6.10. NO DEFAULTS. Except as set forth in Attachment B and to the best of each Loan Party's knowledge after due inquiry, no Loan Party is in default under any term of any indenture, contract, lease, agreement, instrument or other commitment in excess of Five Million Dollars ($5,000,000) to which it is a party or by which it, or any of its properties are bound. No Loan Party has knowledge of any dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment. No Default or Event of Default has occurred and is continuing. 6.11. LABOR MATTERS. Except as set forth on any notice provided by Loan Parties to IBM Credit pursuant to Section 7.1(H) of this Agreement, no Loan Party is a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against any Loan Party which could reasonably be expected to have a Material Adverse Effect. 6.12. COMPLIANCE WITH LAW. No Loan Party has violated or failed to comply with any Requirement of Law or any requirement of any self regulatory organization. 6.13. ERISA. Each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi-employer benefit plan", which each Customer has established, maintained, or to which it is required to contribute 14 (collectively, the "Plans") is in compliance with all applicable provisions of ERISA and the Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no "prohibited transactions" and no "reportable event" has occurred within the last 60 months with respect to any Plan. No Loan Party has a "multi-employer benefit plan". As used in this Agreement the terms "employee benefit plan", "employee pension benefit plan", "defined benefit plan", and "multi-employer benefit plan" have the respective meanings assigned to them in Section 3 of ERISA and any applicable rules and regulations thereunder. No Loan Party has incurred any "accumulated funding deficiency" within the meaning of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than for premiums due in the ordinary course). 6.14. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as otherwise disclosed in Attachment B: (A) Each Loan Party has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law. (B) (i) no Loan Party has generated, transported or disposed of any Hazardous Substances in violation of any Environmental Laws; (ii) no Loan Party is currently generating, transporting or disposing of any Hazardous Substances in violation of any Environmental Laws; (iii) no Loan Party has knowledge that (a) any of its real property (whether owned, leased, or otherwise directly or indirectly controlled) has been used for the disposal of or has been contaminated by any Hazardous Substances in violation of any Environmental Laws; or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substances in violation of any Environmental Laws; (iv) no Loan Party and its respective assets are subject to any Environmental Liability and, to the best of any Loan Party's knowledge, any threatened Environmental Liability; (v) no Loan Party has received any notice of or otherwise learned of any governmental investigation evaluating whether any remedial action is necessary to respond to a release or threatened release of any Hazardous Substance for which any Loan Party may be liable; (vi) no Loan Party is in violation of any Environmental Law in violation of any Environmental Laws; (vii) there are no proceedings or investigations pending against any Loan Party with respect to any violation or alleged violation of any Environmental Law; provided however, that the parties acknowledge that any generation, transportation, use, storage and disposal of certain such Hazardous Substances in any Loan Party's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that each Loan Party is at all times generating, transporting, utilizing, storing and disposing such Hazardous Substances in accordance with all applicable Environmental Laws and in a manner designed to minimize the risk of any spill, contamination, release or discharge of Hazardous Substances other than as authorized by Environmental Laws. 6.15. INTELLECTUAL PROPERTY. Each Loan Party possesses such assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trade names and trade secrets and all rights and other property relating thereto or arising therefrom ("Intellectual Property") as are necessary or advisable to continue to conduct its present and proposed business activities. 6.16. LICENSES AND PERMITS. Each Loan Party has obtained and holds in full force and effect all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its businesses as presently conducted. No Loan Party is in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 6.17. INVESTMENT COMPANY. No Loan Party is (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding company, or an Affiliate of a holding company or of a subsidiary of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the Other Documents or to perform its obligations hereunder or thereunder. 15 6.18. TAXES AND TAX RETURNS. Each Loan Party has timely filed all federal, state, and local tax returns and other reports which it is required by law to file, and has either duly paid all taxes, fees and other governmental charges indicated to be due on the basis of such reports and returns or pursuant to any assessment received by any Loan Party, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of each Loan Party in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against any Loan Party or any of its property. 6.19. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party is a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of such Loan Party is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of such Loan Party's business and (ii) upon fair and reasonable terms no less favorable to such Loan Party than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 6.20. ACCURACY AND COMPLETENESS OF INFORMATION. All factual information furnished by or on behalf of each Loan Party to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any of the Other Documents, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. 6.21. RECORDING TAXES. All recording taxes, recording fees, filing fees and other charges payable in connection with the filing and recording of this Agreement have either been paid in full by Loan Parties or arrangements for the payment of such amounts by Loan Parties have been made to the satisfaction of IBM Credit. 6.22. INDEBTEDNESS. No Loan Party (i) has Indebtedness, other than Permitted Indebtedness; and (ii) has guaranteed the obligations of any other Person (except as permitted by Section 8.5). SECTION 7. AFFIRMATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations: 7.1. FINANCIAL AND OTHER INFORMATION. Each Loan Party shall cause to be furnished to IBM Credit the following information within the following time periods: (A) Annual Financial Statements. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Parent and its Subsidiaries, including therein Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to IBM Credit of Auditor, together with (i) a certificate of such Auditor to IBM Credit stating that in the course of the regular audit of the business of the Parent and its Subsidiaries, which audit was conducted by such Auditor in accordance with generally accepted auditing standards, such Auditor has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such Auditor, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to IBM Credit of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 10.2, provided that in the event of any change in GAAP used in the preparation of such Financial Statements, the Parent shall also provide, if necessary for the determination of compliance with Section 10.2 a statement of reconciliation conforming such Financial Statements to GAAP, (iii) Consolidating balance sheets of the Parent and the Customers as of the end of such Fiscal Year and Consolidating statements of income and cash flows of the Parent and the Borrowers for such Fiscal Year, all in reasonable detail and duly certified by the chief financial officer of the Parent as having been prepared in accordance with GAAP and (iv) a certificate of the chief financial officer of the Parent stating that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto; 16 (B) Quarterly Financial Statement. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated and Consolidating balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to IBM Credit of the computations used by the Parent in determining compliance with the covenants contained in Section 10.2, provided that in the event of any change in GAAP used in the preparation of such Financial Statements, the Parent shall also provide, if necessary for the determination of compliance with Section 10.2, a statement of reconciliation conforming such financial statements to GAAP; (C) Monthly Financial Statement. As soon as available and in any event within 30 days after the end of each month, a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such month and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous month and ending with the end of such month and Consolidated and Consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding month of the preceding Fiscal Year, all in reasonable detail and duly certified by the chief financial officer or controller of the Parent; (D) Annual Forecasts. As soon as available and in any event no later than 45 days after the end of each Fiscal Year, forecasts prepared by management of the Parent, in form satisfactory to IBM Credit, of balance sheets, income statements and cash flow statements on a monthly basis for the Fiscal Year following such Fiscal Year and on an annual basis for each Fiscal Year thereafter until the Termination Date; (E) promptly after any Loan Party obtains knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the existence of any condition or event which would result in such Loan Party's failure to satisfy the conditions precedent to Product Advances set forth in Section 5, a certificate of the chief executive officer or chief financial officer of such Loan Party specifying the nature thereof and the Loan Party's proposed response thereto, each in reasonable detail; (F) promptly after any Loan Party obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against such Loan Party in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), or (ii) any actual or prospective change, development or event which, in any such case, has had or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief executive officer or chief financial officer of such Loan Party specifying the nature thereof and the Loan Party's proposed response thereto, each in reasonable detail; (G) promptly after any Loan Party obtains knowledge that (i) any order, judgment or decree in excess of Five Million Dollars ($5,000,000) shall have been entered against such Loan Party or any of its properties or assets, or (ii) it has received any notification of a material violation of any Requirement of 17 Law from any Governmental Authority, a certificate of the chief executive officer or chief financial officer of such Loan Party specifying the nature thereof and the Loan Party's proposed response thereto, each in reasonable detail; (H) promptly after any Loan Party learns of any material labor dispute to which such Loan Party may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which the Loan Party is a party or by which it is bound, a certificate of the chief executive officer or chief financial officer of such Loan Party specifying the nature thereof and the Loan Party's proposed response thereto, each in reasonable detail; (I) within five (5) Business Days after request by IBM Credit, any written certificates, schedules and reports together with all supporting documents as IBM Credit may reasonably request relating to the Collateral or any Loan Party's business affairs and financial condition; (J) on the second Business Day of each week, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the first Business Day of the same week; (K) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange Each certificate, schedule and report provided by any Loan Party to IBM Credit shall be signed by an authorized officer of such Loan Party, which signature shall be deemed a representation and warranty that the information contained in such certificate, schedule or report is true and accurate in all material respects on the date as of which such certificate, schedule or report is made and does not omit to state a material fact necessary in order to make the statements contained therein not misleading at such time. Each financial statement delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods. 7.2. LOCATION OF COLLATERAL. The inventory, equipment and other tangible Collateral shall be kept or sold at the addresses as set forth on Attachment B or on any notice provided by any Loan Party to IBM Credit in accordance with Section 7.7(C). Such locations shall be certified quarterly to IBM Credit substantially in the form of Attachment G. Each Loan Party shall certify to IBM Credit on a monthly basis the legal name and, if any, the fictitious names, of such Loan Party and all of its Subsidiaries and identify the address of all locations such Loan Party and Subsidiaries have Collateral. 7.3. CHANGES IN CUSTOMERS. Each Loan Party shall provide thirty (30) days prior written notice to IBM Credit of any change in such Loan Party's or any of its Subsidiaries' name including the addition of fictitious names, chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that each Loan Party's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any of the Other Documents limiting actions of the type described in this Section. 7.4. CORPORATE EXISTENCE. Each Loan Party shall (A) maintain , and cause each of its Subsidiaries to maintain its corporate existence and each Loan Party and each of its Subsidiaries shall maintain, in full force and effect all licenses, bonds, franchises, leases and qualifications to do business, and all contracts and other rights necessary to the profitable conduct of its business, provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 8.4 and provided further that neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or IBM Credit, (B) continue in, and limit its operations to, the same general lines of business as presently conducted by it unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law. 18 7.5. ERISA. Each Loan Party shall promptly notify IBM Credit in writing after it learns of the occurrence of any event which would constitute a "reportable event" under ERISA or any regulations thereunder with respect to any Plan, or that the PBGC (as defined in Section 6.12 of this Agreement) has instituted or will institute proceedings to terminate any Plan. Notwithstanding the foregoing, no Loan Party shall have the obligation to notify IBM Credit as to any "reportable event" as to which the 30-day notice requirement of Section 4043(b) has been waived by the PBGC, until such time as such Loan Party is required to notify the PBGC of such reportable event. Such notification shall include a certificate of the chief financial officer of such Loan Party's setting forth details as to such "reportable event" and the action which such Loan Party proposes to take with respect thereto, together with a copy of any notice of such "reportable event" which may be required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its intent to institute such proceedings. Upon request of IBM Credit, each Loan Party shall furnish, or cause the plan administrator to furnish, to IBM Credit the most recently filed annual report for each Plan. 7.6. ENVIRONMENTAL MATTERS. (A) Each Loan Party and any other Person under each Loan Party's control (including, without limitation, agents and Affiliates under such control) shall (i) comply with all Environmental Laws in all material respects, and (ii) undertake to use commercially reasonable efforts to prevent any unlawful release of any Hazardous Substance in violation of any Environmental Laws by each Loan Party or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by such Loan Party. (B) Each Loan Party shall notify IBM Credit, promptly upon its obtaining knowledge of (i) any non-routine proceeding or investigation by any Governmental Authority with respect to the presence of any Hazardous Substances on or in any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by such Loan Party, (ii) all claims made or threatened by any Person or Governmental Authority such against any Loan Party or any of Loan Party's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) any Loan Party's discovery of evidence of unlawful disposal of or environmental contamination by any Hazardous Substance on any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by such Loan Party, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law. 7.7. COLLATERAL BOOKS AND RECORDS/COLLATERAL AUDIT. (A) Each Loan Party agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice, and agrees that such books and records will reflect IBM Credit's interest in the Collateral. (B) Each Loan Party agrees that IBM Credit or its agents may enter upon the premises of any Loan Party at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Loan Parties' expense) any and all records pertaining thereto, and (iii) discussing the affairs, finances and business of the Loan Party with any officers, employees and directors of such Loan Party or with the Auditors. Each Loan Party also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities. Upon the occurrence and during the continuance of an Event of Default which has not been waived by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities in any manner that IBM Credit deems reasonably necessary. (C) Each Loan Party shall give IBM Credit thirty (30) days prior written notice of any change in the location of any Collateral, the location of its books and records or in the location of its chief executive office or place of business from the locations specified in Attachment B, and will execute in advance of such change and cause to be filed and/or delivered to IBM Credit any financing statements, landlord or other lien waivers, or other documents reasonably required by IBM Credit, all in form and substance reasonably satisfactory to IBM Credit. 19 (D) Each Loan Party agrees to advise IBM Credit promptly, in reasonably sufficient detail, of any substantial change relating to the type, quantity or quality of the Collateral, or any event which could reasonably be expected to have a Material Adverse Effect on the value of the Collateral or on the security interests granted to IBM Credit herein. 7.8. INSURANCE; CASUALTY LOSS. (A) Each Loan Party agrees to maintain with financially sound and reputable insurance companies: (i) insurance on its properties, (ii) public liability insurance against claims for personal injury or death as a result of the use of any products sold by it and (iii) insurance coverage against other business risks, in each case, in at least such amounts and against at least such risks as are usually and prudently insured against in the same general geographical area by companies of established repute engaged in the same or a similar business. Each Loan Party will furnish to IBM Credit, upon its written request, the insurance certificates with respect to such insurance. In addition, all Policies so maintained are to name IBM Credit as an additional insured as its interest may appear. (B) Without limiting the generality of the foregoing, each Loan Party, shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth on Attachment A from time to time opposite the caption "Collateral Insurance Amount" against all loss or damage under an "all risk" Policy with companies mutually acceptable to IBM Credit and each Loan Party with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on account of the Customers' Outstanding Product Advances. Each Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished to IBM Credit, at least ten (10) days written notice before any Policy shall be altered or canceled and that no act or default of any Loan Party or any other person shall affect the right of IBM Credit to recover under the Policies. Each Loan Party hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit. If any Loan Party fails to pay any cost, charges or premiums, or if any Loan Party fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Loan Parties to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 7.9. TAXES. Each Loan Party agrees to pay, when due, all taxes lawfully levied or assessed against such Loan Party or any of the Collateral before any penalty or interest accrues thereon unless such taxes are being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and an adequate reserve or other appropriate provisions have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect. 7.10. COMPLIANCE WITH LAWS. Each Loan Party agrees to comply with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business. 7.11. FISCAL YEAR. Each Loan Party agrees to maintain its Fiscal Year unless such Loan Party provides IBM Credit at least thirty (30) days prior written notice of any change thereof. 7.12. INTELLECTUAL PROPERTY. Each Loan Party shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of Intellectual Property which the failure to do or cause to be done could reasonably be expected to have a Material Adverse Effect. 7.13. MAINTENANCE OF PROPERTY. Each Loan Party shall maintain all of its material properties (business and otherwise) in good condition and repair (ordinary wear and tear excepted) and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto and not commit or permit any waste with respect to any of its material properties. 20 7.14. COLLATERAL. Each Loan Party shall: (A) promptly notify IBM Credit of any loss, theft or destruction of or damage to any of the Collateral in excess of Five Million Dollars ($5,000,000), provided, however Loan Party shall promptly notify IBM Credit, in any event, if such loss, theft or destruction of or damage to any of the Collateral causes a Shortfall Amount. Each Loan Party shall diligently file and prosecute its claim for any award or payment in connection with any such loss, theft, destruction of or damage to Collateral. Each Loan Party shall, upon demand of IBM Credit, make, execute and deliver any assignments and other instruments sufficient for the purpose of assigning any such award or payment to IBM Credit, free of encumbrances of any kind whatsoever; (B) consistent with reasonable commercial practice, observe and perform all matters and things necessary or expedient to be observed or performed under or by virtue of any lease, license, concession or franchise forming part of the Collateral in order to preserve, protect and maintain all the rights of IBM Credit thereunder; (C) consistent with reasonable commercial practice, maintain, use and operate the Collateral and carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, incomes, rents, issues and profits thereof; and (D) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of each Loan Party, each Loan Party will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith. 7.15. SUBSIDIARIES. IBM Credit may require that a Subsidiary other than an Immaterial Subsidiary become a party to this Agreement and may require all Subsidiaries, Immaterial or otherwise, to become a party to any other agreement executed in connection with this Agreement as a Guarantor or surety. Each Customer will comply, and cause all Subsidiaries to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such Subsidiaries. 7.16. ADDITIONAL COVENANTS. Each Loan Party acknowledges and agrees that such Loan Party shall comply with the other covenants set forth in the attachments, exhibits and other addenda incorporated herein and made a part of this Agreement. 7.17. JOINT AND SEVERAL GUARANTY. (A) Each Customer hereby jointly and severally guarantees to IBM Credit the prompt payment when due and the full, prompt, and faithful performance of any and all Obligations upon which any Customer is in any manner obligated, heretofore, now, or hereafter owned, contracted or acquired by IBM Credit pursuant to this Agreement, whether the same are individual, joint or several, primary, secondary, direct, contingent or otherwise. Each Customer irrevocably subordinates to the full payment of amounts due IBM Credit any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder (i) to be subrogated to the rights of IBM Credit against another Customer hereto with respect to such payment or otherwise to be reimbursed, indemnified or exonerated by another Customer in respect thereof, or (ii) to receive any payment, in the nature of contribution or for any other reason, from another Customer hereto with respect to such payment. (B) Notwithstanding any provision herein to the contrary, the liability of each Customer hereunder shall in no event exceed the maximum amount that is valid and enforceable in any action or proceeding involving any applicable state corporate law or any applicable state or federal bankruptcy, insolvency, reorganization, fraudulent conveyance or other law involving the rights of creditors generally. 21 (C) The liability of each Customer hereunder is direct, absolute and unconditional and shall not be affected by any extension, renewal or other change in the terms of payment or performance thereof, or the release, settlement or compromise of or with any party liable for the payment or performance thereof, the release or nonperfection of any security thereunder, or any change in any Customer's financial condition. Each Customer's obligation pursuant to this Section 7.17 shall continue for so long as any sums owing to IBM Credit by either Customer remains outstanding and unpaid, unless terminated in the manner provided herein. Each Customer acknowledges that its obligations hereunder are in addition to and independent of any agreement or transaction between IBM Credit and any other Customer or any other Person creating or reserving any lien, encumbrance or security interest in any property of any other Customer or any other Person as security for any obligation of such Customer. (D) Each Customer has made an independent investigation of the financial condition of each other Customer and guarantees the Obligations based on that investigation and not upon any representations made by IBM Credit. Each Customer acknowledges that it has access to current and future Customer financial information which will enable each Customer to continuously remain informed of each other Customer's financial condition. Each Customer also consents to and agrees that the guarantees provided in this Section 7.17 and the Obligations shall not be affected by IBM Credit's subsequent increases or decreases in the credit line that IBM Credit may grant to any Customer; substitutions, exchanges or releases of all or any part of the Collateral now or hereafter securing any of the Obligations; sales or other dispositions of any or all of the Collateral now or hereafter securing any of the Obligations without demands, advertisement or notice of the time or place of the sales or other dispositions, realizing on the Collateral to the extent IBM Credit, in its sole discretion deems proper. (E) With respect to the guarantees provided hereunder, each Customer, in its capacity as a guarantor, waives if permitted by applicable law (1) demand, protest and all notices of protest or dishonor, (2) all notices of payment and nonpayment, (3) all notices required by law, (4) any and all defenses, including but not limited to any defense which it may have against any manufacturer, distributor or Authorized Supplier, (5) any and all rights of set-off Customers may have against IBM Credit and (6) all notices of nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by IBM Credit on which any Customer may, in any way, be liable and each Customer hereby ratifies and confirms whatever IBM Credit may do in that regard. (F) This guaranty obligation and any and all obligations, liabilities, terms and provisions herein shall survive any and all bankruptcy or insolvency proceedings, actions and/or claims brought by or against either Customer, whether such proceedings, actions and/or claims are federal and/or state. 7.18. PARENT GUARANTY. A. Guaranty. (i) The Parent hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise, of all Obligations of each Customer and its Subsidiaries now or hereafter existing under this Agreement and any Other Document, (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, fees, expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including, without limitation, reasonable counsel fees and expenses) incurred by IBM Credit in enforcing any rights under this Guaranty or any Other Document. Without limiting the generality of the foregoing, the Parent's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by each Customer to IBM Credit under or in respect of this Agreement or any Other Document but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Loan Party. (ii) The Parent hereby unconditionally and irrevocably agrees that in the event any payment shall be required to be made to IBM Credit under this Guaranty or any other guaranty, the Parent will contribute, to the maximum extent permitted 22 by law, such amounts to each other guarantor so as to maximize the aggregate amount paid to IBM Credit under or in respect of this Agreement or any Other Document. B. Guaranty Absolute. The Parent guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of this Agreement or any Other Document, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of IBM Credit with respect thereto. The Obligations of the Parent under this Guaranty are independent of the Guaranteed Obligations or any other Obligations of any Loan Party under this Agreement or any Other Document, and a separate action or actions may be brought and prosecuted against the Parent to enforce this Guaranty, irrespective of whether any action is brought against any Loan Party or whether any Loan Party is joined in any such action or actions. The liability of the Parent under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Parent hereby irrevocably waives any defenses it may now or hereinafter have in any way relating to, any or all of the following: (i) any lack of validity or enforceability of this Agreement or any Other Document or any agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under this Agreement or any Other Document, or any other amendment or waiver of or any consent to departure from this Agreement or any Other Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Customer, the Parent or any of their Subsidiaries or otherwise; (iii) any taking, exchange, release or non perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under this Agreement or any Other Document or any other assets of either Customer, the Parent or any of their Subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of either Customer, the Parent or any of their Subsidiaries; (vi) any failure of IBM Credit to disclose to any Loan Party or any of their Subsidiaries any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party now or hereafter known to IBM Credit (the Parent waiving any duty on the part of IBM Credit to disclose such information); or (vii) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by IBM Credit that might otherwise constitute a defense available to, or a discharge of, either Customer, the Parent or any other guarantor or surety. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by IBM Credit upon the insolvency, bankruptcy or reorganization of either Customer, the Parent or any of their Subsidiaries or otherwise, all as though such payment had not been made. C. Waiver. (i) The Parent hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that IBM Credit protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Loan Party or any other Person or any Collateral. 23 (ii) The Parent hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. (iii) The Parent hereby unconditionally and irrevocably waives (x) any defense arising by reason of any claim or defense based upon an election of remedies by IBM Credit that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of the Parent or other rights of the Parent to proceed against any of the Loan Parties, any other guarantor or any other Person or any Collateral and (y) any defense based on any right of set off or counterclaim against or in respect of the Obligations of the Parent hereunder. (iv) The Parent hereby unconditionally and irrevocably waives any duty on the part of IBM Credit to disclose to the Parent any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any other Loan Party or any of its Subsidiaries now or hereafter known by IBM Credit. (v) The Parent acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by this Agreement and the Other Documents and that the waivers set forth in Sections 7.18 B. and 7.18 C. are knowingly made in contemplation of such benefits. D. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the cash payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, (ii) the Termination Date and, (b) be binding upon the Parent, its successors and assigns and (c) inure to the benefit of and be enforceable by IBM Credit and its successors, transferees and assigns. E. Subrogation. The Parent hereby unconditionally and irrevocably agrees not to exercise any rights that it may now or hereafter acquire against either Customer or any other insider guarantor that arise from the existence, payment, performance or enforcement of the Parent's Obligations under this Agreement or any Other Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of IBM Credit against either Customer or any other insider guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from either Customer or any other insider guarantor, directly or indirectly, in cash or other property or by set off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash. If any amount shall be paid to the Parent in violation of the preceding sentence at any time prior to the latest of (a) the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, and (b) the Termination Date such amount shall be received and held in trust for the benefit of IBM Credit, shall be segregated from other property and funds of the Parent and shall forthwith be paid to IBM Credit in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of this Agreement or any Other Document, or to be held as Collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. . SECTION 8. NEGATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations hereunder: 24 8.1. LIENS. No Loan Party will, directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any Lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens. 8.2. DISPOSITION OF ASSETS. No Loan Party will, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory and receivables (pursuant "Receivables Sales Agreement": as defined in Section 10.1 of this Agreement) in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to it, and (ii) voluntary dispositions of individual assets and obsolete or worn out property in the ordinary course of business, provided, that the aggregate book value of all such assets and property so sold or disposed of under this section 8.2 (ii) in any Fiscal Year shall not exceed 5% of the consolidated assets of the Loan Party or its Subsidiaries as of the beginning of such Fiscal Year; (iii) sales of assets for cash and for fair market value in an aggregate amount not to exceed Ten Million Dollars ($10,000,000) in any Fiscal Year; and (iv) the sale of the assets [Real Property] listed on Attachment B for cash and for fair market value in a sale-leaseback transaction or otherwise. 8.3. CORPORATE CHANGES. No Loan Party will, or permit any of its Subsidiaries to, without the prior written consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in any operation or activity materially different from that presently being conducted by any Loan Party or any Guarantor, provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 8.4 of this Agreement and provided further that neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or IBM Credit. 8.4. MERGERS, ETC. No Loan Party shall merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that any Subsidiary of any Customer may merge into or consolidate with any other Subsidiary of such Customer, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of such Customer; provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default and, in the case of any such merger to which any Customer is a party, such Customer is the surviving corporation. 8.5. GUARANTIES. No Loan Party will, directly or indirectly, assume, guaranty, endorse, or otherwise become liable upon the obligations of any other Person except (i) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) by the giving of indemnities in connection with the sale of inventory or other asset dispositions permitted hereunder, (iii) for guaranties solely in favor of IBM Credit (iv) as provided for under Permitted Indebtedness, (v) any corporate guaranties and (vi) real estate. 8.6. RESTRICTED PAYMENTS. Except that (A) Parent may (i) declare and pay dividends and distributions payable only in common stock of the Parent and (ii) except to the extent the net cash proceeds thereof are required to be applied to the prepayment of the advances pursuant to Section 2.06(b) of the Credit Agreement, purchase, redeem, retire, defease or otherwise acquire shares of its capital stock with the proceeds received contemporaneously from the issue of new shares of its capital stock with equal or inferior voting powers, designations, preferences and rights, (B) any Subsidiary of any Customer may (i) declare and pay cash dividends to such Customer and (ii) declare and pay cash dividends to any other Loan Party of which it is a Subsidiary, (C) the Customers may pay cash dividends or otherwise transfer funds to the Parent or MCCI. for operating expenses incurred in the normal course of business by the Parent or MCCI or paid by the Parent or MCCI on behalf of the Customers. Such expenses include all 25 payroll and benefits costs for all Subsidiaries of the Parent, telephone, travel, rent and other occupancy costs, professional expenses, including consulting, audit, accounting and legal expenses, corporate insurance expenses, data processing costs and other operating expenses, and (D) the Parent and the Customers may issue stock options to the directors and employees of such Loan Party, no Loan Party will, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of any Loan Party or any Guarantor) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of any Loan Party or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Loan Party or any Guarantor; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations). 8.7. INVESTMENTS. No Loan Party will, directly or indirectly, make, maintain or acquire any Investment in any Person other than: (A) interest bearing deposit accounts (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program; (B) direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations guaranteed as to principal and interest by the United States of America or any agency thereof; (C) stock or obligations issued to any Loan Party or any Guarantor in settlement of claims against others by reason of an event of bankruptcy or a composition or the readjustment of debt or a reorganization of any debtor of any Loan Party or any Guarantors; and (D) commercial paper of any corporation organized under the laws of any State of the United States or any bank organized or licensed to conduct a banking business under the laws of the United States or any State thereof having the short-term highest rating then given by Moody's Investor's Services, Inc. or Standard & Poor's Corporation. (E) Investments by the Parent and its Subsidiaries in their Subsidiaries outstanding on the date hereof; (F) loans and advances to employees in the ordinary course of the business of the Parent and its Subsidiaries as presently conducted in an aggregate principal amount not to exceed Five Hundred Thousand Dollars ($500,000) at any time outstanding; (G) Investments by the Parent and its Subsidiaries in cash equivalents in an aggregate principal amount not to exceed Five Million Dollars ($5,000,000) at any time outstanding; (H) Investments existing on the date hereof and described on Attachment B hereto; (I) Investments by the Borrowers in Hedge Agreements (as defined in Section 10 of this Agreement); (J) Investments in Subsidiaries not existing on the date hereof that are formed with an initial capitalization of One Million Dollars ($1,000,000) or less, provided that the aggregate Investments permitted under this clause (J) shall not exceed ($5,000,000) in any Fiscal Year. 8.8. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party will, directly or indirectly, enter into any transaction with any Affiliate or Subsidiary, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Affiliate or Subsidiary of either Customer or any Guarantor except in the ordinary course of business and pursuant to the reasonable requirements of any Loan Party's or any Guarantor's business upon 26 fair and reasonable terms no less favorable to such Loan Party or Guarantor than could be obtained in a comparable arm's-length transaction with an unaffiliated Person, provided, however no Loan Party will, or permit any of its Subsidiaries to, transfer, sell, exchange or dispose of any Collateral to any Affiliate or Subsidiary of any Loan Party except if such transfer, sale, exchange or disposition is subject to IBM Credit's security interest in such Collateral. 8.9. ERISA. No Loan Party will (A) terminate any Plan so as to incur a material liability to the PBGC (as defined in Section 6.12 of this Agreement), (B) permit any "prohibited transaction" involving any Plan (other than a "multi-employer benefit plan") which would subject any Loan Party or any Guarantor to a material tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan any contribution which they are obligated to pay under the terms of such Plan, if such failure would result in a material "accumulated funding deficiency", whether or not waived, (D) allow or suffer to exist any occurrence of a "reportable event" or any other event or condition, which presents a material risk of termination by the PBGC of any Plan (other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in this Agreement, the terms "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. For purposes of this Section 8.9, the terms "material liability", "tax", "penalty", "accumulated funding deficiency" and "risk of termination" shall mean a liability, tax, penalty, accumulated funding deficiency or risk of termination which could reasonably be expected to have a Material Adverse Effect. 8.10. ADDITIONAL NEGATIVE PLEDGES. No Loan Party will, directly or indirectly, create or otherwise cause or permit to exist or become effective any contractual obligation which may restrict or inhibit IBM Credit's rights or ability to sell or otherwise dispose of Collateral or any part thereof after the occurrence and during the continuance of an Event of Default. 8.11. STORAGE OF COLLATERAL WITH BAILEES AND WAREHOUSEMEN. Collateral shall not be stored with a bailee, warehouseman or similar party without the prior written consent of IBM Credit unless the Loan Party or Guarantor will, concurrently with the delivery of such Collateral to such party, cause such party to issue and deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing the storage of such Collateral. 8.12. INDEBTEDNESS. No Loan Party will create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness. 8.13. LOANS. No Loan Party will make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or Parent or to any officer, director or stockholder of any Loan Party or of any such corporation (except for compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement, and (i) stock option plans, (ii) employee loans and (iii) Permitted Indebtedness. SECTION 9. DEFAULT 9.1. EVENT OF DEFAULT. Any one or more of the following events shall constitute an Event of Default by any Loan Party under this Agreement and the Other Documents: (A) The failure to make timely payment of the Obligations or any part thereof when due and payable if such failure is not cured within five (5) days of the date due during which period Customer shall be charged the Delinquency Fee Rate set forth in Attachment A beginning on the day after the payment was due and including the day payment is received; (B) The failure to comply with or observe any term, covenant or agreement contained in this Agreement or any of the Other Documents and such failure is not cured within fifteen (15) Business Days after the earlier of the date on which (A) a chief executive officer, chief financial officer, executive vice 27 president, controller, treasurer or assistant treasurer of any Loan Party becomes aware of such failure or (B) written notice thereof shall have been given to the Parent by IBM Credit; (C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of any Loan Party or any of its officers, employees or agents or by or on behalf of any Guarantor to IBM Credit was false in any material respect at the time when made or deemed made; (D) Any Loan Party or any of its any Subsidiaries or any Guarantor shall generally not pay its debts as such debts become due, become or otherwise declare itself insolvent, file a voluntary petition for bankruptcy protection, have filed against it any involuntary bankruptcy petition, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for any Loan Party, any Subsidiary or any Guarantor or any of its respective properties or have any of its respective properties seized or attached, or take any action to authorize, or for the purpose of effectuating, the foregoing, provided, however, that any Loan Party or any of its Subsidiaries or any Guarantor shall have a period of sixty (60) days within which to discharge any involuntary petition for bankruptcy or similar proceeding; (E) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement; (F) The entry of any judgment against any Loan Party or any Guarantor in an amount in excess of Seven Million Five Hundred Thousand Dollars ($7,500,000) and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the day of entry thereof (and in the event of a stay or supersedeas bond, such judgment is not discharged within thirty (30) days after termination of any such stay or bond) or such judgment is not fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full; (G) Any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any amount payable in respect of the Credit Agreement and such failure shall continue after the applicable cure period, if any, specified in the Credit Agreement; or any other event shall occur or condition shall exist under the Credit Agreement or any agreement or instrument relating thereto, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of the Credit Agreement or otherwise to cause the debt to mature; (H) The dissolution or liquidation of any Loan Party or any of Subsidiaries or its directors or stockholders shall take any action to dissolve or liquidate either Customer, any Subsidiary or any Guarantor unless otherwise provided for herein; (I) Any "going concern" or like qualification or exception, or qualification arising out of the scope of an audit by an Auditor of its opinion relative to any Financial Statement delivered to IBM Credit under this Agreement; (J) There issues a warrant of distress for any rent or taxes with respect to the warehouse facilities located in Tempe, AZ, Miami, FL, Paulsboro, NJ, Sparks, NV, Allen, TX and Cincinnati, OH and any additional warehouse locations occupied by any Loan Party or any of its Subsidiaries Af in or upon which the Collateral, or any part thereof, may at any time be situated and such warrant shall continue for a period of ten (10) Business Days from the date such warrant is issued; (K) Any Loan Party (other than an Immaterial Subsidiary suspends business for a period of five (5) consecutive days; (L) The occurrence of any event or condition that permits the holder of any Indebtedness in excess of Five Million Dollars ($5,000,000) arising in one or more related or unrelated transactions to accelerate the maturity thereof or the failure of any Loan Party to pay when due any such Indebtedness; 28 (M) Any Guaranty of any or all of the Obligations executed by any Guarantor (other than an Immaterial Guarantor) in favor of IBM Credit, shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction or the validity or enforceability thereof shall be contested or denied by any such Guarantor, or any such Guarantor shall deny that it has any further liability or obligation thereunder or any such Guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in any such Guaranty; (N) Any Loan Party is in default under the material terms of any of the Other Documents after the expiration of any applicable cure periods; (O) There shall occur a "reportable event" with respect to any Plan, or any Plan shall be subject to termination proceedings (whether voluntary or involuntary) and there shall result from such "reportable event" or termination proceedings a liability of Customer to the PBGC which exceeds Seven Million Five Hundred Thousand Dollars ($7,500,000); (P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or more of the Voting Stock of any Loan Party. 9.2. ACCELERATION. Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit may, in its sole discretion, take any or all of the following actions, without prejudice to any other rights it may have at law or under this Agreement to enforce its claims against any Loan Party: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(D) hereof, in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of IBM Credit; and (b) immediately terminate the Credit Line hereunder. 9.3. REMEDIES. (A) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit may exercise all rights and remedies of a secured party under the U.C.C. Without limiting the generality of the foregoing, IBM Credit may: (i) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Collateral, or IBM Credit may use (at the expense of the Loan Parties) such of the supplies or space of the Loan Parties business or otherwise, as may be necessary to properly administer and control the Collateral or the handling of collections and realizations thereon; and (ii) foreclose the security interests created pursuant to this Agreement by any available judicial procedure, or to take possession of any or all of the Collateral without judicial process and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same. (B) Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of each Loan Party or IBM Credit, or in the name of such other party as IBM Credit may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as IBM Credit in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in its sole discretion determines that any of the Collateral requires rebuilding, repairing, maintenance or preparation, IBM Credit shall have the right, at its option, to do such of the aforesaid as it deems necessary for the purpose of putting such Collateral in such saleable form as IBM Credit shall deem appropriate. Each Loan Party hereby agrees that any disposition by IBM Credit of any Collateral pursuant to and in accordance with the terms of a repurchase agreement between IBM Credit and the manufacturer or any supplier (including any Authorized Supplier) of such Collateral constitutes a commercially reasonable sale. Each Loan Party agrees, at the request of IBM Credit, to assemble the Collateral and to make it available to IBM Credit at places which IBM Credit shall select, whether at the premises of the Loan Party or elsewhere, and to make available to IBM Credit the premises and facilities of the Loan Parties for the purpose of IBM Credit's 29 taking possession of, removing or putting such Collateral in saleable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) Business Days notice shall constitute reasonable notification. (C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit is hereby granted, upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, an irrevocable, non-exclusive license to use, assign, license or sublicense all computer software programs, data bases, processes and materials used by each Loan Party in its businesses or in connection with any of the Collateral. (D) The net cash proceeds resulting from IBM Credit's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by IBM Credit to the payment of Loan Parties' Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Loan Parties shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Loan Parties or their successors or assigns, any surplus resulting therefrom. (E) The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 9.4. WAIVER. If IBM Credit seeks to take possession of any of the Collateral by any court process each Loan Party hereby irrevocably waives to the extent permitted by applicable law any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. In addition, each Loan Party waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Each Loan Party further waives to the extent permitted by applicable law presentment, demand and protest, and notices of non-payment, non-performance, any right of contribution, dishonor, and any other demands, and notices required by law. SECTION 10. FINANCIAL COVENANT DEFINITIONS; FINANCIAL COVENANTS 10.1. FINANCIAL COVENANT DEFINITIONS. Solely for purposes of this Section 10, the following terms shall have the following meanings: "Administrative Agent": Citibank, N.A.. "Agreement Value": means, for each Hedge Agreement, on any date of determination, an amount determined by the Administrative Agent equal to: (a) in the case of a Hedge Agreement documented pursuant to the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc. (the "Master Agreement"), the amount, if any, that would be payable by any Loan Party or any of its Subsidiaries to its counterparty to such Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on such date of determination, (ii) such Loan Party or Subsidiary was the sole "Affected Party", and (iii) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of the form of Master Agreement); or (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party to such Hedge Agreement determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date of determination, or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party to such Hedge Agreement determined by the Administrative Agent as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of the future cash flows to be received by such Loan Party or Subsidiary pursuant to such Hedge Agreement; capitalized terms used and not otherwise defined in this definition shall have the respective meanings set forth in the above described Master Agreement 30 Borrowers: as defined in the Credit Agreement. "Capital Expenditures": means, for any Person for any period, the sum of, without duplication, (a) all expenditures made, directly or indirectly, by such Person or any of its Subsidiaries during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of such Person or have a useful life of more than one year plus (b) the aggregate principal amount of all Debt (including Obligations under Capitalized Leases) assumed or incurred in connection with any such expenditures. For purposes of this definition, the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such proceeds, as the case may be. "Capitalized Leases": means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Cash Concentration Account": has the meaning specified in the Security Agreement. "Contingent Obligation": means, with respect to any Person, any Obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment Obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Obligation of a primary obligor, (b) the Obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any Obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Debt": of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable Preferred Stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, valued at the Agreement Value 31 thereof, (i) all Contingent Obligations of such Person and (j) all indebtedness and other payment Obligations referred to in clauses (a) through (i) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment Obligations. "Debt/EBITDA Ratio": means, at any date of determination, the ratio of (a) the average Consolidated total Debt for Borrowed Money of the Parent Guarantor and its Subsidiaries as at the end of each week ended within the most recently ended fiscal quarter of the Parent Guarantor for which Financial Statements are required to be delivered to the Lender Parties pursuant to Section 7.1(A) or (B) of this Agreement, as the case may be, to (b) Consolidated EBITDA of the Parent Guarantor and its Subsidiaries for such fiscal quarter and the immediately preceding three fiscal quarters. "Debt for Borrowed Money": of any Person means all Debt of the types described in clauses (a) through (e) of the definition of "Debt" less amounts on deposit in the Cash Concentration Account. "EBITDA": means, for any period, the sum, determined on a Consolidated basis, of (a) net income (or net loss), (b) interest expense (including implied interest expenses incurred under the Receivables Sales Agreement and flooring subsidies, in each case determined on a basis consisted with past practice, (c) income tax expense, (d) depreciation expense, (e) amortization expense, (f) extraordinary, non-recurring, transactional or unusual losses deducted in calculating net income less extraordinary, non-recurring, transactional or unusual gains added in calculating net income and (g) any non-cash expenses, non-cash losses or other non-cash charges resulting from the writedown in the valuation of any assets in each case of the Parent Guarantor and its Subsidiaries, determined in accordance with GAAP for such period. The amounts referred to in clauses (f) and (g) are agreed to be $152,298,000 and $5,411,000 for the second and third quarters of Fiscal Year 1999, respectively. "Fee Letter": means the fee letter dated September 9, 1999 between the Parent Guarantor and the Administrative Agent, as amended. "Fixed Charge Coverage Ratio" means, at any date of determination, the ratio of (a) Consolidated EBITDA minus Capital Expenditures to (b) interest payable on, and amortization of debt discount in respect of, all Debt for Borrowed Money (including expenses incurred under the Receivables Sales Agreements and floorplanning subsidies, in each case determined on a basis consistent with past practice), in each case, of or by the Parent Guarantor and its Subsidiaries during the applicable period most recently ended for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) of the Credit Agreement or (c), as the case may be. "Guarantors" means the Parent Guarantor and the Subsidiary Guarantors. "Hedge Agreements": means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Hedge Bank": means any Lender Party or an Affiliate of a Lender Party in its capacity as a party to a Secured Hedge Agreement. "Issuing Bank": as defined in the Credit Agreement. "Lender Party": as defined in the Credit Agreement. "Lenders: as defined in the Credit Agreement. "Letter of Credit Advance": means an advance made by the Issuing Bank or any Lender pursuant to Section 2.03(c) of the Credit Agreement. 32 "Letter of Credit Agreement": has the meaning specified in Section 2.03(a) of the Credit Agreement. "Letter of Credit Commitment": means, with respect to the Issuing Bank at any time, the amount set forth opposite the Issuing Bank's name on Schedule I hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into one or more Assignment and Acceptances, set forth for the Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) of the Credit Agreement as the Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05 of the Credit Agreement. "Letter of Credit Facility": means, at any time, an amount equal to the lesser of (a) the amount of the Issuing Bank's Letter of Credit Commitment at such time and (b) $150,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05 of the Credit Agreement. "Letters of Credit": has the meaning specified in Section 2.01(c) of the Credit Agreement. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Parties": means the Borrowers and the Guarantors. "Loan Documents": means (a) for purposes of the Credit Agreement and the Notes and any amendment, supplement or modification hereof or thereof, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement and (vii) each Intercreditor Agreement and (b) for purposes of the Guaranties and the Collateral Documents and for all other purposes other than for purposes of the Credit Agreement and the Notes, (i) the Credit Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement, (vii) each Secured Hedge Agreement and (viii) each Intercreditor Agreement, in each case as amended. "Note": means a promissory note of any Borrower payable to the order of any Lender, in substantially the form of Exhibit A to the Credit Agreement, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Working Capital Advances, Letter of Credit Advances and Swing Line Advances made by such Lender to such Borrower, as amended. "Obligation": means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f) of the Credit Agreement. Without limiting the generality of the foregoing, the Obligations of any Loan Party under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by such Loan Party under the Loan Document and (b) the obligation of such Loan Party to reimburse any amount in respect of any of the foregoing that any Lender Party, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "Parent Guarantor": MicroAge, Inc.. "Preferred Stock": means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation's assets, whether by dividend or upon liquidation. 33 "Receivables Sales Agreement": means the Purchase Agreement dated as of April 30, 1997, between MicroAge Computer Centers, Inc., Pinacor, Inc., and NationsCredit Commercial Corporation of America dba MicroAge National Credit.. "Redeemable": means, with respect to any capital stock or other ownership or profit interest, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Security Agreement": has the meaning specified in Section 3.01(a)(ii) of the Credit Agreement. "Subsidiary Guarantors" means all Subsidiaries of the Parent Guarantor and each other Subsidiary of any of them that shall be required to execute and deliver a guaranty pursuant to Section 5.01(j) or Section 5.01(k) of the Credit Agreement.. "Swing Line Advance": means an advance made by (a) Citibank, N.A. pursuant to Section 2.01(b)or (b) any Lender pursuant to Section 2.02(b) of the Credit Agreement. "Working Capital Advance": as defined in Section 2.01(a) of the Credit Agreement. 10.2. FINANCIAL COVENANTS. So long as any Product Advance or any other Obligation of any Loan Party under this Agreement or any Other Documents shall remain unpaid, the Parent will: (a) DEBT TO EBITDA RATIO. Maintain at all times a Debt/EBITDA Ratio of not more than the amount set forth below for each period set forth below: PERIOD RATIO ------ ----- Four Fiscal Quarters ended January 31, 2000 6.70:1.00 Four Fiscal Quarters ended April 30, 2000 5.20:1.00 Four Fiscal Quarters ended July 31, 2000 5.10:1.00 Four Fiscal Quarters ended October 31, 2000 4.60:1.00 Four Fiscal Quarters ended January 31, 2001 3.80:1.00 Four Fiscal Quarters ended April 30, 2001 3.60:1.00 Four Fiscal Quarters ended July 31, 2001 3.40:1.00 Four Fiscal Quarters ended October 31, 2001 3.40:1.00 Four Fiscal Quarters ended January 31, 2002 3.40:1.00 Four Fiscal Quarters ended April 30, 2002 3.40:1.00 Four Fiscal Quarters ended July 31, 2002 3.30:1.00 (b) FIXED CHARGE COVERAGE RATIO. Maintain at all times a Fixed Charge Coverage Ratio of not less than the ratio set forth below for each period set forth below. PERIOD RATIO ------ ----- Fiscal Quarter ended April 30, 2000 1.00:1.00 Two Fiscal Quarters ended July 31, 2000 1.10:1.00 Three Fiscal Quarters ended October 31, 2000 1.20:1.00 Four Fiscal Quarters ended January 31, 2001 1.20:1.00 Four Fiscal Quarters ended April 30, 2001 1.25:1.00 Four Fiscal Quarters ended July 31, 2001 1.25:1.00 34 Four Fiscal Quarters ended October 31, 2001 1.25:1.00 Four Fiscal Quarters ended January 31, 2002 1.25:1.00 Four Fiscal Quarters ended April 30, 2002 1.25:1.00 Four Fiscal Quarters ended July 31, 2002 1.25:1.00 (c) MINIMUM EBIDTA. Maintain at all times EBITDA of the Parent Guarantor and its Subsidiaries not less than the amount set forth below for each period set forth below. PERIOD $ AMOUNT ------ -------- Fiscal Quarter ended January 31, 2000 7,000,000 Two Fiscal Quarters ended April 30, 2000 26,000,000 Three Fiscal Quarters ended July 31, 2000 47,000,000 Four Fiscal Quarters ended October 31, 2000 70,000,000 Four Fiscal Quarters ended January 31, 2001 85,000,000 Four Fiscal Quarters ended April 30, 2001 90,000,000 Four Fiscal Quarters ended July 31, 2001 95,000,000 Four Fiscal Quarters ended October 31, 2001 95,000,000 Four Fiscal Quarters ended January 31, 2002 95,000,000 Four Fiscal Quarters ended April 30, 2002 100,000,000 Four Fiscal Quarters ended July 31, 2002 105,000,000 SECTION 11. MISCELLANEOUS 11.1. TERM; TERMINATION. (A) This Agreement shall remain in force until the earlier of (i) the Termination Date, (ii) the date specified in a written notice by the Loan Parties that they intend to terminate this Agreement which date shall be no less than ninety (90) days following the receipt by IBM Credit of such written notice, and (iii) termination by IBM Credit after the occurrence and during the continuance of an Event of Default. Upon the date that this Agreement is terminated, all of the Obligations shall be immediately due and payable in their entirety, even if they are not yet due under their terms. (B) Until the indefeasible payment in full of all of the Obligations, no termination of this Agreement or any of the Other Documents shall in any way affect or impair (i) the Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to and after such termination, or (ii) IBM Credit's rights hereunder, including, without limitation, IBM Credit's security interest in the Collateral. On and after a Termination Date IBM Credit may, but shall not be obligated to, upon the request of Loan Parties, continue to provide Product Advances hereunder. 11.2. INDEMNIFICATION. Each Loan Party hereby agrees to indemnify and hold harmless IBM Credit and each of its officers, directors, agents and assigns (collectively, the "Indemnified Persons") against all losses, claims, damages, liabilities or other expenses (including reasonable attorneys' fees and court costs now or hereinafter arising from the enforcement of this Agreement, the "Losses") to which any of them may become subject insofar as such Losses arise out of or are based upon any event, circumstance or condition (a) occurring or existing on or before the date of this Agreement relating to any financing arrangements IBM Credit may from time to time have with (i) Loan Parties, (ii) any Person that shall be acquired by any Loan Party or (iii) any Person that any Loan Party may acquire all or substantially all of the assets of, or (b) directly or indirectly, relating to the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral or to any act or omission of either Customer in connection therewith. Notwithstanding the foregoing, no Loan Party shall be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of IBM Credit's gross negligence or willful misconduct. The indemnity provided herein shall survive the termination of this Agreement. 35 11.3. ADDITIONAL OBLIGATIONS. IBM Credit, without waiving or releasing any Obligation or Default of the Loan Parties, may perform any Obligations of the Loan Parties that the Loan Parties shall fail or refuse to perform and IBM Credit may, at any time or times hereafter, but shall be under no obligation to do so, pay, acquire or accept any assignment of any security interest, lien, encumbrance or claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral. 11.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSONS SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY ANY LOAN PARTY IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT, ANY DELAY, OMISSION OR ERROR IN THE ELECTRONIC TRANSMISSION OR RECEIPT OF ANY E-DOCUMENT, OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSONS HAVE ANY LIABILITY TO ANY LOAN PARTY OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE EVENT ANY LOAN PARTY REQUESTS IBM CREDIT TO EFFECT A WITHDRAWAL OR DEBIT OF FUNDS FROM AN ACCOUNT OF SUCH LOAN PARTY, THEN IN NO EVENT SHALL IBM CREDIT BE LIABLE FOR ANY AMOUNT IN EXCESS OF ANY AMOUNT INCORRECTLY DEBITED, EXCEPT IN THE EVENT OF IBM CREDIT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. NO PARTY SHALL BE LIABLE FOR ANY FAILURE TO PERFORM ITS OBLIGATIONS IN CONNECTION WITH ANY E-DOCUMENT, WHERE SUCH FAILURE RESULTS FROM ANY ACT OF GOD OR OTHER CAUSE BEYOND SUCH PARTY'S REASONABLE CONTROL (INCLUDING, WITHOUT LIMITATION, ANY MECHANICAL, ELECTRONIC OR COMMUNICATIONS FAILURE) WHICH PREVENTS SUCH PARTY FROM TRANSMITTING OR RECEIVING E-DOCUMENTS. 11.5. ALTERATION/WAIVER. This Agreement and the Other Documents may not be altered or amended except by an agreement in writing signed by each Loan Party and by IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy hereunder, whether before or after the occurrence of any Event of Default, shall impair any such right or remedy or shall operate as a waiver thereof or as a waiver of any such Event of Default. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the requirements specified in this Agreement or any of the Other Documents, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such requirement subsequent thereto. IBM Credit's failure at any time or times to require strict compliance and performance by any Loan Party of any undertakings, agreements, covenants, warranties and representations of this Agreement or any of the Other Documents shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance thereof. Any waiver by IBM Credit of any Default by any Loan Party under this Agreement or any of the Other Documents shall not waive or affect any other Default by such Loan Party under this Agreement or any of the Other Documents, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the undertakings, agreements, warranties, covenants, and representations of each Loan Party contained in this Agreement or the Other Documents and no Default by any Loan Party shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit. 11.6. SEVERABILITY. If any provision of this Agreement or the Other Documents or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the Other Documents and the application of such provision to other Persons or circumstances will not be affected thereby, the provisions of this Agreement and the Other Documents being severable in any such instance. 11.7. ENTIRE AGREEMENT. This Agreement and the Other Documents constitute the entire agreement among the parties relative to the subject matter hereof. Any previous agreement among the parties with respect hereof is superseded by this Agreement and the Other Documents. 36 11.8. ONE LOAN. All Product Advances heretofore, now or at any time or times hereafter made by IBM Credit to any Loan Party under this Agreement or the Other Documents shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances heretofore, now or from time to time hereafter granted by the Loan Parties to IBM Credit or any assignor of IBM Credit. 11.9. ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or collected by IBM Credit with respect to other property of any Loan Party in possession of IBM Credit at any time or times hereafter are hereby pledged by such Loan Party to IBM Credit as security for the payment of the Obligations and shall be applied promptly by IBM Credit on account of the Obligations; provided, however, IBM Credit may release to the Loan Parties such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 11.10. NO MERGER OR NOVATIONS. (A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by each Loan Party that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of the Loan Parties' under the AWF. Each Loan Party acknowledges and agrees that such Obligations outstanding as of the date hereof have not been satisfied or discharged and that this Agreement is not intended to effect a novation of the Obligations under the AWF. (B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of each Loan Party to IBM Credit secured by this Agreement and shall not operate as a merger of any covenant in this Agreement, and the acceptance of any payment or alternate security shall not constitute or create a novation and the obtaining of a judgment or judgments under a covenant herein contained shall not operate as a merger of that covenant or affect IBM Credit's rights under this Agreement. 11.11. PARAGRAPH TITLES. The Section titles used in this Agreement and the Other Documents are for convenience only and do not define or limit the contents of any Section. 11.12. BINDING EFFECT; ASSIGNMENT. This Agreement and the Other Documents shall be binding upon and inure to the benefit of IBM Credit and the Loan Parties and their respective successors and assigns; provided, that the Loan Parties shall have no right to assign this Agreement or any of the Other Documents without the prior written consent of IBM Credit. 11.13. NOTICES; E-BUSINESS ACKNOWLEDGMENT. (A) Except as otherwise expressly provided in this Agreement, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) upon receipt if deposited in the United States mails, first class mail, with proper postage prepaid, (ii) upon receipt of confirmation or answerback if sent by telecopy, or other similar facsimile transmission, (iii) one Business Day after deposit with a reputable overnight courier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows: (i) If to IBM Credit at: (ii) If to Customer at: IBM Credit Corporation MTS Holding Company 5000 Executive Parkway, Suite 450 2400 South MicroAge Way San Ramon, CA Tempe, AZ 85282 Attention: Region Manager, West Attention: VP, Corporate Counsel Facsimile: 925-277-5675 Facsimile: 480-366-2157 37 (iii) If to Customer at: (iv) If to Customer at: Pinacor, Inc. MicroAge Computer Centers, Inc. 2400 South MicroAge Way 2400 South MicroAge Way Tempe, AZ 85282 Tempe, AZ 85282 Attention: VP, Corporate Counsel Attention: VP, Corporate Counsel Facsimile: 480-366-2157 Facsimile: 480-366-2157 (v) If to Parent at: (vi) If to Customer at: MicroAge, Inc. MicroAge Technology Services, L.L.C. 2400 South MicroAge Way 2400 South MicroAge Way Tempe, AZ 85282 Tempe, AZ 85282 Attention: VP, Corporate Counsel Attention: VP, Corporate Counsel Facsimile: 480-366-2157 Facsimile: 480-366-2157 or to such other address or number as each party designates to the other in the manner prescribed herein. (B) (i) Each party may electronically transmit to or receive from the other party certain documents set forth in Attachment I ("E-Documents") via the Internet or electronic data interchange ("EDI"). Any transmission of data which is not an E-Document shall have no force or effect between the parties. EDI transmissions may be sent directly or through any third party service provider ("Provider") with which either party may contract. Each party shall be liable for the acts or omissions of its Provider while handling E-Documents for such party, provided, that if both parties use the same Provider, the originating party shall be liable for the acts or omissions of such Provider as to such E-Document. Some information to be made available to each Loan Party will be specific to each Customer and will require each Loan Party's registration with IBM Credit before access is provided. After IBM Credit has approved the registration submitted by each Loan Party, IBM Credit shall provide an ID and password(s) to an individual designated by each Loan Party ("Loan Party Recipient"). Each Loan Party accepts responsibility for the designated individual's distribution of the ID and password(s) within its organization and each Loan Party will take reasonable measures to ensure that passwords are not shared or disclosed to unauthorized individuals. Each Loan Party will conduct an annual review of all IDs and passwords to ensure they are accurate and properly authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT ITS DISCRETION AT ANY TIME. E-Documents shall not be deemed to have been properly received, and no E-Document shall give rise to any obligation, until accessible to the receiving party at such party's receipt computer at the address specified herein. Upon proper receipt of an E-Document, the receiving party shall promptly transmit a functional acknowledgment in return. A functional acknowledgment shall constitute conclusive evidence that an E-Document has been properly received. If any transmitted E-Document is received in an unintelligible or garbled form, the receiving party shall promptly notify the originating party in a reasonable manner. In the absence of such a notice, the originating party's records of the contents of such E-Document shall control. (ii) Each party shall use those security procedures which are reasonably sufficient to ensure that all transmissions of E-Documents are authorized and to protect its business records and data from improper access. Any E-Document received pursuant to this Section 11.13 shall have the same effect as if the contents of the E-Document had been sent in paper rather than electronic form. The conduct of the parties pursuant to this Section 11.13 shall, for all legal purposes, evidence a course of dealing and a course of performance accepted by the parties. The parties agree not to contest the validity or enforceability of E-Documents under the provisions of any applicable law relating to whether certain agreements are to be in writing or signed by the party to be bound thereby. The parties agree, as to any E-Document accompanied by each Loan Party's, that IBM Credit can reasonably rely on the fact that such E-Document is properly authorized by each Loan Party. E-Documents, if introduced as evidence on paper in any judicial, arbitration, mediation or administrative proceedings, will be admissible as between the parties to the same extent and under the same 38 conditions as other business records originated and maintained in documentary form. No party shall contest the admissibility of copies of E-Documents under either the business records exception to the hearsay rule or the best evidence rule on the basis that the E-Documents were not originated or maintained in documentary form. LOAN PARTY RECIPIENT INFORMATION for Internet transmissions: (PLEASE PRINT) Name of Loan Party's Designated Central Contact Authorized to Receive IDs and Passwords: James Domaz for MTSI e-mail Address: JDOMAZ@MICROAGE.COM Phone Number: 480- 366- James Domaz for MCCI e-mail Address: JDOMAZ@MICROAGE.COM Phone Number: 480-366- 39 James Domaz for Pinacor e-mail Address: JDOMAZ@MICROAGE.COM Phone Number: 480-366 James Domaz for MTS e-mail Address: JDOMAZ@MICROAGE.COM Phone Number: 480- 366 James Domaz for MicroAge, Inc. e-mail Address: JDOMAZ@MICROAGE.COM Phone Number: 480-366 11.14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 11.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, EACH LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK. (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO EACH LOAN PARTY AT ITS ADDRESS SET FORTH IN SECTION 11.13 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. 11.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE LOAN PARTIES ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH. 11.17. INTERCREDITOR AGREEMENTS. EACH OF THE PARTIES HERETO HEREBY ACKNOWLEDGES THAT ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE OTHER DOCUMENTS DEFINED HEREIN ARE SUBJECT OF THE PROVISIONS OF THE INTERCREDITOR AGREEMENT. 40 IN WITNESS WHEREOF, each Loan Party has read this entire Agreement, and has caused its authorized representatives to execute this Agreement and has caused its corporate seal to be affixed hereto as of the date first written above. IBM CREDIT CORPORATION MTS HOLDING COMPANY By: /s/ Ronald J. Bachner____________ By: /s/ James R. Daniel_________________ Print Name: Ronald J. Bachner Print Name: James R. Daniel_____________ Title: Mgr, Commercial Financing Title: Treasurer________________________ Solutions Americas PINACOR, INC. MICROAGE COMPUTER CENTERS, INC. By: /s/ James R. Daniel______________ By: /s/ James R. Daniel_________________ Print Name: James R. Daniel__________ Print Name: James R. Daniel_____________ Title: Treasurer_____________________ Title: Treasurer________________________ MICROAGE, INC. MICROAGE TECHNOLOGY SERVICES, L.L.C. By: /s/ James R. Daniel______________ By: /s/ James R. Daniel_________________ Print Name: James R. Daniel__________ Print Name: James R. Daniel_____________ Title: CFO, ExVP & Treasurer_________ Title: Treasurer________________________ EX-10.57.1 28 ACKNOWLEDGMENT & WAIVER DATED 1/30/00 ACKNOWLEDGMENT, WAIVER AND AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING ACKNOWLEDGMENT, WAIVER AND AMENDMENT NO. 1 TO THE AMENDED AND RESTATED AGREEMENT FOR WHOLESALE FINANCING (this "Amendment") is made as of January 30, 2000 by and among IBM CREDIT CORPORATION, a Delaware corporation, MTS HOLDING COMPANY, a Delaware corporation ("MTSI"), MICROAGE COMPUTER CENTERS, INC., a Delaware corporation ("MCCI"), MICROAGE TECHNOLOGY SERVICES, L.L.C., a Delaware limited liability company ("MTS") and PINACOR, INC., a Delaware corporation ("Pinacor", and together with, MCCI, MTS and MTSI, the "Customers" and individually a "Customer") and MICROAGE, INC., a Delaware corporation (the "Parent", and together with MTSI, MCCI, MTS and Pinacor, the "Loan Parties"). Notwithstanding the foregoing, and unless otherwise indicated, any obligation of a "Customer" or "Customers" herein shall be the joint and several obligation of MTS, MTSI, MCCI and Pinacor. RECITALS A. Customers, Parent and IBM Credit have entered into that certain Amended and Restated Agreement for Wholesale Financing dated as of October 29,1999 (as amended by this Amendment and as further amended, supplemented or otherwise modified from time to time, the "Agreement"). All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. B. As described in Schedule I attached to this Amendment, the Loan Parties have proposed to create two new bankruptcy-remote Subsidiaries (the "New Mortgage Subsidiaries") to facilitate a $13,000,000 mortgage financing on the property at 1003 West Southern, Tempe, Arizona (the "Property"). The proposed lender of such mortgage financing has requested that the New Subsidiaries be excluded from the operation of Section 7.15 of the Agreement (Subsidiaries). C. As described in Schedule II attached to this Amendment, the Loan Parties have proposed to sell the assets of Latin America Division of Pinacor and Pinacor's Subsidiaries that distribute technology product in Latin America (Collectively, "PLA"). The proposed structure of the sale of PLA includes an Investment in the buyer of such assets in the form of intercompany notes and an agreement to arrange to have issued a $4,000,000 letter of credit for the account of such buyer for a period of six months. D. The Loan Parties have proposed to form a new Subsidiary of MTS (the "BtoB Subsidiary") to which MTS would contribute its business to business Internet assets and business. The Loan Parties have requested that up to 20% of the capital stock of the BtoB Subsidiary be made available as stock options or other equity incentives for officers, directors and employees of the BtoB Subsidiary. E. The Loan Parties have requested that (i) the financial covenants contained in Section 10.2 of the Agreement be amended as set forth below, (ii) certain other covenants contained in the Agreement be amended as set forth below, and (iii) IBM Credit waive certain terms and provisions of the Agreement as set forth below. F. IBM Credit is willing to waive such terms and provisions, on the terms and conditions stated below, and is willing to grant the request of the Loan Parties and the Loan Parties and IBM Credit have agreed to amend the Agreement as hereinafter set forth. Page 1 of 12 AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Loan Parties and IBM Credit hereby agree as follows: SECTION 1. MODIFICATION OF AGREEMENT. The Amendment is effective as of January 30, 2000 and, subject to the satisfaction of the conditions precedent set forth in Section 3, the Agreement is hereby amended as follows: A. Attachment A to the Amended and Restated Agreement for Wholesale Financing is hereby amended by deleting such Attachment A in its entirety and substituting, in lieu thereof, the Attachment A attached hereto. Such new Attachment A shall be effective as of the date specified in the new Attachment A. The changes contained in the new Attachment A include, without limitation, the following: (a) Section I. (A) is amended by decreasing the Credit Line from Two Hundred Fifty Million Dollars ($250,000,000) to Two Hundred Twenty Million Dollars ($220,000,000); (b) Section I. (B) (ii) is amended by decreasing the percentage of collateral value IBM Credit willl give for an Irrevocable Letter of Credit, issued by an Issuing Bank under the Credit Agreement to IBM Credit ("ILOC") from (i) 150% to 133% for the period beginning February 8, 2000 and ending April 7, 2000 May 14, 2000, (ii) 125% to 110% for the period beginning April 8May 15, 2000 and ending on the Termination Date of the amount available to be drawn under such ILOC. (c) Section I. (B) is further amended by adding the following paragraph at the end of this Section: "Notwithstanding any other provision of the Agreement, the Borrowing Base as defined in Section I(B) of this Attachment A shall not exceed the sum of (i) the value of the Authorized Brand Borrowing Base and (ii) the available amount of the ILOC and (iii) Thirty Million Dollars ($30,000,000)." (d) Section I.(D) is amended by increasing the Extended Period Finance Charge from LIBOR plus 300 basis points to LIBOR plus 375 basis points. (e) Section I.(E) is amended by increasing the Delinquency Fee Rate from LIBOR plus 550 basis points to LIBOR plus 650 basis points. B. Section 1.1 of the Agreement is hereby amended by deleting item (8) of the definition of "Permitted Indebtedness" in its entirety, and substituting, in lieu thereof, the following: "(8) Indebtedness secured by a mortgage on the real property located at 1330 West Southern, Tempe, Arizona in an aggregate principal amount not to exceed $15,000,000, together with indemnification and guaranty of rent obligations customary for such mortgage financings; and" C. Section 1.1 of the Agreement is hereby amended by inserting immediately following (8) of the definition "Permitted Indebtedness", the following: "(9) other Indebtedness consented to by IBM Credit in writing prior to incurring such Indebtedness." D. Section 1.1. of the Agreement is hereby amended by adding the following definition of "BtoB Subsidiary" in the proper alphabetical order: "BtoB Subsidiary" means the Subsidiary of MTS capitalized with business to business Internet assets and business to business of MTS." Page 2 of 12 E. Section 8.6(D) is hereby amended in full to read as follows: "(D) the Parent and the Customers and the BtoB Subsidiary may issue stock options to the directors, officers and employees of such Loan Party:" F. Section 7.1(A) of the Agreement is hereby amended by inserting, immediately following the phrase "As soon as available and", the following language: "(x) in any event within 45 days after the end of each Fiscal Year, preliminary Consolidated and Consolidating statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating no Default has occurred and is continuing or, if a Default had occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to IBM Credit of the computations used by the Parent in determining compliance with the covenants contained in Section 10.2, PROVIDED that in the event of any change in GAAP used in the preparation of such Financial Statements, the Parent shall also provide, if necessary for the determination of compliance with Section 10.2, a statement of reconciliation conforming such Financial Statements to GAAP and (y)" G. Section 7.1(C) of the Agreement is hereby amended by inserting, immediately following the phrase "within 30 days after the end of each month", the parenthetical phrase "(other than any month that is the last month of a Fiscal Year or of the first three fiscal quarters of a Fiscal Year for which Financial Statements are delivered pursuant to Section 7.1(A) or (B), as the case may be)". H. Section 7.1(J) of the Agreement is hereby amended by deleting this Section in its entirety and substituting, in lieu thereof, the following: "on each Business Day, or as otherwiase agreed in writing, a Collateral Management Report, as of the end of the previous Business Day;" I. Section 10.1 of the Agreement is hereby amended by (i) deleting the definition of "Fixed Charged Coverage Ratio" in its entirety, and (ii) adding the following definition in the appropriate alphabetical order: "'Interest Coverage Ratio' means, at any date of determination, the ratio of (a) Consolidated EBITDA to (b) interest payable on, and amortization of debt discount in respect of, all Debt for Borrowed Money (including expenses incurred under the Receivables Sales Agreements and flooring subsidiaries, in each case, of or by the Parent Guarantor and its Subsidiaries during the applicable period most recently ended for which financial statements are required to the delivered to IBM Credit pursuant to Section 7.1(A) or (B), as the case may be." and (iii) by amending clause (a) of the definition of "Debt/EBITDA Ratio" in full to read as follows: "(a) the average of the sum of (i) Consolidated total Debt for Borrowed Money plus (ii) the Available Amount of Letters of Credit, in each case of the Parent Guarantor and its Subsidiaries as at the end of each week ended within the most recently ended fiscal quarter of the Parent Guarantor for which financial statements are required to be delivered to IBM Credit pursuant to Section 7.1 (A) or (B), as the case may be". J. Section 10.2(a) of the Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting therefor the following table: Page 3 of 12 PERIOD RATIO ------ ----- Four Fiscal Quarters ended April 30, 2000 17.00:1.00 Four Fiscal Quarters ended July 31, 2000 17.00:1.00 Four Fiscal Quarters ended October 31, 2000 8.00:1.00 Four Fiscal Quarters ended January 31, 2001 6.00:1.00 Four Fiscal Quarters ended April 30, 2001 5.00:1.00 Four Fiscal Quarters ended July 31, 2001 4.00:1.00 Four Fiscal Quarters ended October 31, 2001 3.50:1.00 Four Fiscal Quarters ended January 31, 2002 3.50:1.00 Four Fiscal Quarters ended April 30, 2002 3.50:1.00 Four Fiscal Quarters ended July 31, 2002 3.50:1.00 K. Section 10.2(b) of the Agreement is hereby amended in full to read as follows: (b) INTEREST COVERAGE RATIO. Maintain at all times an Interest Coverage Ratio of not less than the ratio set forth for each period set forth below. PERIOD RATIO ------ ----- For the Month ended February 29, 2000 0.20:1.00 For the Month ended March 31, 2000 0.30:1.00 Fiscal Quarter ended April 30, 2000 0.30:1.00 Two Fiscal Quarters ended July 31, 2000 0.60:1.00 Three Fiscal Quarters ended October 31, 2000 1.00:1.00 Four Fiscal Quarters ended January 31, 2001 1.10:1.00 Four Fiscal Quarters ended April 30, 2001 1.30:1.00 Four Fiscal Quarters ended July 31, 2001 1.50:1.00 Four Fiscal Quarters ended October 31, 2001 1.75:1.00 Four Fiscal Quarters ended January 31, 2002 2.00:1.00 Four Fiscal Quarters ended April 30, 2002 2.00:1.00 Four Fiscal Quarters ended July 31, 2002 2.00:1.00 L. Section 10.2(c) of the Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting therefor the following table: PERIOD $ AMOUNT ------ -------- Two Fiscal Quarters ended April 30, 2000 5,000,000 Three Fiscal Quarters ended July 31, 2000 18,000,000 Four Fiscal Quarters ended October 31, 2000 41,000,000 Four Fiscal Quarters ended January 31, 2001 65,000,000 Four Fiscal Quarters ended April 30, 2001 80,000,000 Four Fiscal Quarters ended July 31, 2001 85,000,000 Four Fiscal Quarters ended October 31, 2001 90,000,000 Four Fiscal Quarters ended January 31, 2002 90,000,000 Four Fiscal Quarters ended April 30, 2002 90,000,000 Four Fiscal Quarters ended July 31, 2002 95,000,000 Page 4 of 12 M. The Agreement is hereby modified by deleting Attachment F in its entirety and substituting, in lieu thereof, the Attachment F attached hereto. SECTION 2. ADDITIONAL WAIVERS TO THE AGREEMENT. Effective January 30, 2000 and subject to the satisfaction of the conditions precedent set forth in Section 3, IBM Credit hereby agrees to waive compliance with the representations requirements of (a) (i) Section 8.7(E) of the Agreement to but only to permit the Loan Parties to contribute the Property to the New Mortgage Subsidiaries and (ii) Section 7.15 of the Agreement to the extent required to exclude the New Mortgage Subsidiaries from the operation of Section 7.15 of the Agreement, (b) (i) Section 8.2 of the Agreement to but only to permit the Loan Parties to sell the assets of PLA, (ii) Section 8.7 of the Agreement to but only to permit the Loan Parties to acquire an equity interest in the buyer of the assets of PLA and (iii) Section 8.12 of the Agreement to but only to provide a letter of credit in an amount not to exceed $4,000,000 to the buyer of the assets for a period not to exceed six months, (c) Section 8.7 of the Agreement to but only to permit the contribution of the assets and business of the business Internet operations of MTS to the BtoB Subsidiary and further investment in an aggregate amount outstanding not to exceed $15,000,000 at any time and (d) Section 8.8 to but only to permit the creation of the BtoB Subsidiary. SECTION 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as of January 30, 2000, and only when, on or before February 11, 2000 IBM Credit shall have received (a) counterparts of this Amendment duly executed by the Loan Parties, (b) the consent attached hereto duly executed by each Subsidiary, (c) evidence that the provisions of the Credit Agreement have been waived or amended in a manner consistent with Sections 1 and 2 of this Amendment, and (d) an amendment and waiver fee in immediately available funds equal to Seven Hundred Seventy Thousand Dollars ($770,000), (e) the Acknowledgement attached hereto, duly executed by Citibank N.A., as Administrative Agent and (f) amendment to the Irrevocable Letter of Credit NO. NY-20511-30026459, to provide for adjustments in the Available Amount (as defined therein) consistent with Attachment F to the Agreement. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES. The Loan Parties represent and warrant as follows: (a) Each Loan Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified and authorized to do business and is in good standing in each jurisdiction it presently is engaged in business and is required to be so qualified. (b) The execution, delivery and performance by the Loan Parties of this Amendment and the Agreement and Other Documents, as amended hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within each Loan Party's powers, have been duly authorized by all necessary corporate or other action and do not (i) contravene any Loan Party's charter, by-laws or other organizational documents, (ii) violate any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens contemplated under the Agreement, as amended hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery or performance by any Loan Party of this Amendment or the Agreement or any of the Other Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment has been duly executed and delivered by each Loan Party. This Amendment and each of the Agreement and Other Documents, as amended hereby, to which any Loan Party, is a party are legal, valid and binding obligations of such Loan Party, enforceable against such Loan Party in accordance with their respective terms. Page 5 of 12 (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries (including, without limitation, any Environmental Liability) pending or threatened before any court, Governmental Authority or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation set forth in Attachment B) or (ii) purports to affect the legality, validity or enforceability of this Amendment or any Other Documents, as amended hereby, or the consummation of any of the transactions contemplated hereby. SECTION 5. REFERENCE TO AND EFFECT ON THE AGREEMENT. (a) On and after the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Agreement, and each reference in the Other Documents to "the Agreement", thereunder", "thereof" or words of like import referring to the Agreement shall mean and be a reference to the Agreement, as amended by this Amendment. (b) The Agreement, and each of the Other Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Agreement and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Agreement and Other Documents, in each case as amended by this Amendment. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as an amendment or waiver of, or an indication of IBM Credit's willingness to amend or waive, any right, power or remedy of IBM Credit under the Agreement or the Other Documents, nor constitute an amendment or waiver of any provision of the Agreement or the Other Documents or the same Sections of the Agreement amended hereby for any other date or time period other than specified herein (whether or not such other provisions or compliance with such Sections for another date or time period are effected by the circumstances addressed in this Amendment). SECTION 6. COSTS AND EXPENSES. The Loan Parties agree to pay on demand all costs and expenses of IBM Credit in connection with the preparation, execution, delivery and administrations, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for IBM Credit). SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement. Delivery of any executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 8. GOVERNING LAW. This Amendment and the rights and obligations of the parties under this Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York without regard to the principles of the conflicts of laws thereof. Page 6 of 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly undersigned, as of the date first above written. IBM CREDIT CORPORATION MTS HOLDING COMPANY By: /s/ Ronald J. Bachner By: /s/ James R. Daniel --------------------------------- ------------------------------------ Print Name: Ronald J. Bachner Print Name: James R. Daniel Title: Mgr, Commercial Financing Title: Treasurer Solutions Americas PINACOR, INC. MICROAGE COMPUTER CENTERS, INC. By: /s/ James R. Daniel By: /s/ James R. Daniel --------------------------------- ------------------------------------ Print Name: James R. Daniel Print Name: James R. Daniel Title: Treasurer Title: Treasurer MICROAGE, INC. MICROAGE TECHNOLOGY SERVICES, L.L.C. By: /s/ James R. Daniel By: MTS HOLDING COMPANY, MANAGER --------------------------------- Print Name: James R. Daniel By: /s/ James R. Daniel Title: Treasurer ------------------------------------ Print Name: James R. Daniel Title: Treasurer Page 7 of 12 CONSENT Dated as of February 17, 2000 The undersigned, each a Guarantor under the Amended and Restated Collateralized Guaranty dated as of October 29, 1999 (collectively the "undersigned") in favor of IBM Credit, hereby consents to the attached Amendment and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment, the Amended and Restated Collateralized Guaranty and each Other Document to which the undersigned is a party is and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, and (b) the Amended and Restated Collateralized Guaranty to which each of the undersigned is a party and all of the Collateral described therein do, and shall continue to, secure the payment of the Obligations (in each case, as defined therein). MCCI HOLDING COMPANY By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE TELESERVICES, L.L.C. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- QUALITY INTEGRATION SERVICES, L.L.C. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MAXSOURCE, L.L.C. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- Page 8 of 12 MICROAGE L&D L.L.C. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE OF CALIFORNIA, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MCSS, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- CLERIS, INC. (F/K/A ECADVANTAGE, INC.) By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- PINACOR LOGISTICS SERVICES, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- COMPLETE DISTRIBUTION, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- Page 9 of 12 CONTRACT PC, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- CONNECTWORKS, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- PHOENIX CONNECTIONS, INC. By: /s/ Kandi Egan ------------------------------------- Print Name: Kandi Egan ----------------------------- Title: President ---------------------------------- MICROAGE ADMINISTRATION, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE TECHNOLOGIES, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE VENTURES, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- Page 10 of 12 MICROAGE PAYMASTER, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- INTRACOM MARKETING, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- PCCLEARANCE, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE INFOSYSTEMS SERVICES, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- PRITECH SOLUTIONS, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- MICROAGE GOVERNMENT, INC. By: /s/ Jeffrey D. McKeever ------------------------------------- Print Name: Jeffrey D. McKeever ----------------------------- Title: Chairman ---------------------------------- Page 11 of 12 ACKNOWLEDGMENT The undersigned, Citibank, N.A., as Administrative Agent on behalf of the Lenders under the Credit Agreement (as defined in the Agreement defined below) acknowledges receipt of a copy of the foregoing amendment to the Amended and Restated Agreement for Wholesale Financing, dated as of October 29, 1999 (as amended, supplemented or otherwise modified from to time, the "Agreement") between IBM Credit Corporation, MTS Holding Company, MicroAge Computer Centers, Inc., MicroAge Technology Services, L.L.C., Pinacor, Inc. and MicroAge, Inc., and consents to the terms thereof. Executed this 17th day of February 2000. CITIBANK, N.A., as Administrative Agent By: /s/ Citibank Signatory -------------------------------- Title: -------------------------- Page 12 of 12 EX-11 29 CALCULATION OF NET INCOME (LOSS) PER SHARE EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE MICROAGE, INC NET INCOME (LOSS) PER COMMON SHARE CALCULATION (in thousands, except per share data) Fiscal years ended -------------------------------------- October 31, November 3, November 2, 1999 1998 1997 ---- ---- ---- Basic Weighted average common shares 20,571 19,783 16,731 ======= ======= ======= Diluted Weighted average shares from basic 20,571 19,783 16,731 Dilutive effect of stock options and warrants -- -- 904 ------- ------- ------- Weighted average common and common equivalent shares outstanding - fully diluted 20,571 19,783 17,635 ======= ======= ======= Net income (loss) $(169,022) $(8,325) $25,197 Net income (loss) per common and common equivalent share: Basic $ (8.22) $ (0.42) $ 1.51 Diluted $ (8.22) $ (0.42) $ 1.43 EX-21 30 SUBSIDIARIES SUBSIDIARIES (AS OF 10/31/99) I. MicroAge Computer Centers, Inc., a Delaware corporation, Subsidiaries: A. 153000 Canada Limited, a Canadian corporation B. MCCI Holding Company, a Delaware corporation, Subsidiaries: 1. ECadvantage, Inc., a Delaware corporation 2. MTS Holding Company, a Delaware corporation, Subsidiaries: (A) MicroAge of California, Inc., a California corporation (B) MicroAge Deutschland GmbH, a German corporation (C) MicroAge Infosystems Services Europe, Limited, a United Kingdom corporation, Subsidiaries: (1) MicroAge Europe Limited, a United Kingdom corporation (2) MicroAge (UK) Limited, a United Kingdom corporation (D) MaxSource, L.L.C., a Delaware limited liability company (E) MicroAge Technology Services, L.L.C., a Delaware limited liability company (F) MicroAge Teleservices, L.L.C., a Delaware limited liability company (G) Quality Integration Services, L.L.C., a Delaware limited liability company (H) MCSS, Inc., a Delaware corporation 3. Pinacor, Inc., a Delaware corporation, Subsidiaries: (A) Pinacor Logistics Services, Inc., a Delaware corporation (B) Complete Distribution, Inc., a Delaware corporation (C) Contract PC, Inc., a Delaware corporation (D) InterPC de Venezuela, a Venezuela corporation (E) InterPC de Bolivia, a Bolivia corporation (F) InterPC de Ecuador, an Ecuador corporation (G) InterPC de Colombia, a Colombia corporation (H) ConnectWorks, Inc., a Delaware corporation, Subsidiaries: (1) Phoenix Connections, Inc., a Delaware corporation II. MicroAge Administration, Inc., a Delaware corporation III. MicroAge Technologies, Inc., a Delaware corporation IV. MicroAge Ventures, Inc., a Delaware corporation V. IntraCom Marketing, Inc., a Delaware corporation VI. PCClearance, Inc., a Delaware corporation VII. MicroAge Government, Inc., a Delaware corporation VIII. MicroAge Paymaster, Inc., a Delaware corporation IX. MicroAge Infosystems Services, Inc., a Delaware corporation X. PriTech Solutions, Inc., a Delaware corporation EX-23 31 CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-18967, No. 33-26351, No. 33-26565, No. 33-33370, No. 33-51978, No. 33-58899, No. 33-58901, No. 33-81040, No. 333-26247, No. 333-42939, No. 333-49961, No. 333-73273 and No. 333-82033), on Form S-3 (No. 33-35674, No. 333-27349, No. 333-35613, No. 333-36281, No. 333-40007, No. 333-41145, No. 333-58435 and No. 333-62763) and Form S-2 (No. 33-38764 and No. 33-33094) of MicroAge, Inc. of our report dated February 17, 2000 appearing on page F-2 of this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Phoenix, Arizona February 17, 2000 EX-27 32 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT. 1,000 U.S. DOLLARS YEAR OCT-31-1999 NOV-02-1998 OCT-31-1999 1 67,656 0 250,066 29,680 336,653 651,845 225,833 123,708 786,643 592,514 0 0 0 208 132,894 786,643 6,149,613 6,149,613 5,776,633 5,776,633 41,217 0 5,042 (194,610) (25,588) (169,022) 0 0 0 (169,022) (8.22) (8.22)
EX-99.1 33 SAFE HARBOR COMPLIANCE STATEMENT PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENT In passing the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. MicroAge, Inc. ("MicroAge" or the "Company") intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those and other uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of MicroAge. The Company undertakes no obligation to update or revise this Safe Harbor Compliance Statement for Forward-Looking Statements to reflect future developments. In addition, MicroAge undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. MicroAge provides the following risk factor disclosure in connection with its continuing effort to qualify its written and oral forward-looking statements under the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Annual Report on Form 10-K to which this statement is appended as an exhibit and also include the following: RISK FACTORS INTENSE COMPETITION The Company operates in intensely competitive markets in both the systems integration industry as well as the microcomputer products distribution industry. The principal competitive factors in the systems integration industry include the breadth and quality of product and service offerings, product availability, pricing, and expertise and size of workforce. The microcomputer products distribution industry is characterized by intense competition based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services, availability of technical and product information, and recruitment and retention of resellers. The Company also faces increasing competition from direct marketers, such as Dell Computer Corporation and Gateway, Inc., that distribute products directly to end-users. While the Company believes that it competes favorably with respect to each of these factors, there can be no assurance that it will continue to do so in the future. Additionally, certain of the Company's current and potential competitors, in both the systems integration industry and the microcomputer products distribution industry, have greater financial, technical, marketing, and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than the Company. NARROW MARGINS The Company has experienced low operating and gross profit margins caused by intense price competition within its industry. The Company's margins decreased in fiscal 1999 versus fiscal 1998. Future operating and gross profit margins may be adversely affected by market pressures, the introduction of new Company initiatives, changes in revenue mix, the Company's utilization of early payment discount opportunities, vendor pricing actions, changes in supplier incentive funds, and other competitive and economic pressures. DEPENDENCE ON SUPPLIER INCENTIVE FUNDS The Company receives funds from certain suppliers which are earned through marketing programs or meeting purchasing, sales, or other objectives established by the supplier. Supplier incentive funds decreased in fiscal 1999 versus fiscal 1998. There can be no assurance that these programs will be continued by the suppliers. A substantial reduction in the supplier funds available to the Company would have a material adverse effect on the Company's business, financial condition, and results of operations. PRODUCT SUPPLY; DEPENDENCE ON KEY VENDORS The computer reseller industry continues to experience product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply certain products. In addition, certain vendors have initiated new channels of distribution that increase competition for the available product supply. There can be no assurance that vendors will be able to maintain an adequate supply of products to fulfill all of the Company's customer orders on a timely basis. Although the Company has not historically encountered such conditions, the failure to obtain adequate product supplies, if competitors were able to obtain them, could have a material adverse effect on the Company's business, financial condition, and results of operations. Three vendors of the Company each represented more than 10% of total product sales for the fiscal year ended October 31, 1999. They were Compaq Computer Corporation ("Compaq"), Hewlett-Packard Company ("Hewlett- Packard"), and International Business Machines Corporation ("IBM"). In fiscal 1999, sales of products from Compaq, Hewlett-Packard, and IBM represented 22%, 20%, and 15%, respectively, of the Company's total product sales. During fiscal 1999 and fiscal 1998, sales of these three manufacturers' products represented approximately 57% and 58%, respectively, of the Company's revenue from product sales. -2- During the quarter ended August 1, 1999, the Company announced a change in the Pinacor product sourcing relationship with Compaq. In October, 1999, the Company began sourcing certain Compaq products from other Compaq distributors instead of sourcing directly from Compaq. Compaq has indicated that Pinacor remains an authorized distributor and reseller and will be able to distribute the full range of Compaq products. In addition, Pinacor will continue to order some products directly from Compaq. During the quarter ended August 1, 1999, Compaq sales decreased approximately $75 million, or 20%, when compared to the quarter ended May 2, 1999, and for the quarter ended October 31, 1999 Compaq sales decreased an additional $97 million compared to the quarter ended May 2, 1999. The Company expects a further decline in Compaq revenue as the full impact of the change in the sourcing relationship is realized. In addition to the expected declines in Compaq revenue, the Company believes that sales of other suppliers' products may decrease as customers that purchase Compaq products from other sources move purchases of other products to those sources. This change will have a negative impact on the Company's operating results; however, the amount of the impact cannot be determined at this time. The Company's agreements with its vendors generally are renewed periodically and permit termination by the vendor without cause, generally upon 30 to 90 days' notice, depending on the vendor. In addition, the Company's business is dependent upon price and related terms and product availability provided by its key vendors. Although the Company considers its relationships with Hewlett-Packard and IBM to be good, there can be no assurance that these relationships will continue as presently in effect or that changes by one or more of these key vendors in their volume discount schedules or other marketing programs would not adversely affect the Company. Termination or nonrenewal of the Company's agreements with Hewlett-Packard or IBM would have a material adverse effect on the Company's business, financial condition, and results of operations. In the past year, the Company has experienced dramatic changes in its suppliers' terms and conditions. A number of larger OEMs reduced rebates or incentive funds, returns allowances, and price protection offered to resellers. Further negative changes in these terms and conditions would have a material adverse effect on the Company's business. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services; the amount of supplier incentive funds received by the Company (see "Dependence on Supplier Incentive Funds" above); the results of acquired businesses; product availability; competitive conditions; new product introductions; changes in customer order patterns; and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments, and interest rates. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's -3- financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special vendor promotions and year-end business purchases. RISK OF DECLINES IN INVENTORY VALUE The Company's business is subject to the risk that the value of its inventory will be adversely affected by price reductions by suppliers or by technological changes affecting the usefulness or desirability of the products comprising the inventory. It is the policy of most suppliers of the Company's products to protect distributors such as the Company, who purchase directly from such suppliers, from the loss in value of inventory due to technological change or the supplier's price reductions. Under the terms of many of the Company's distribution agreements, suppliers will credit the Company for inventory losses resulting from the supplier's price reductions if the Company complies with certain conditions. However, suppliers are taking steps to reduce such price protection. In addition, under many of the Company's agreements, the Company has the right to return for credit or exchange for other products a portion of the inventory items purchased, within a designated period of time. Since the Company can return only a portion of its inventory, the Company could be forced to liquidate nonreturnable aged inventory at prices below the Company's cost. A supplier who elects to terminate a distribution agreement may repurchase from the distributor the supplier's products carried in the distributor's inventory. The industry practices discussed above are sometimes not embodied in written agreements and do not protect the Company in all cases from declines in inventory value. No assurance can be given that such practices will continue, that unforeseen new product developments will not materially adversely affect the Company, or that the Company will be able to successfully manage its existing and future inventories. The Company establishes reserves for estimated losses due to obsolete inventory in the normal course of business. Historically, the Company has not experienced losses due to obsolete inventory materially in excess of established inventory reserves. However, significant declines in inventory value in excess of established inventory reserves could have a material adverse affect on the Company's business, financial condition, or results of operations. CAPITAL INTENSIVE NATURE OF BUSINESS The Company's business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings, and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. If the Company is successful in achieving continued revenue growth, its working capital requirements will continue to increase. On October 28, 1999, the Company replaced its existing financing agreements with new financing facilities (the "Facilities"). The Facilities, as amended, provide for borrowing of up to $540 million and include a $300 million revolving credit facility (the "Credit Facility") and $240 million in inventory financing facilities (the "New Inventory Facilities"). The Credit Facility includes a $145 million sublimit for the issuance of letters of credit. -4- Borrowings under the Facilities are secured by substantially all of the Company's assets, subject to other liens permitted under the Facilities. The Facilities contain certain restrictive covenants, including capital expenditure limitations, a minimum fixed charge coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) amount and a minimum debt to EBITDA ratio. Borrowings under the Facilities are limited based on borrowing base formulas which consider eligible inventories, eligible accounts receivable, and letters of credit. Borrowings are also subject to the satisfaction of customary conditions, including the absence of any material adverse change in the Company's business or financial condition. The Company anticipates lower revenue in its fiscal quarter ending January 30, 2000 due to the Company sourcing relationship and to lower customer demand related to Y2K concerns. With lower operating activity, eligible assets in the borrowing base calculations are likely to decrease. There can be no assurances that the Company will be able to borrow adequate amounts on terms acceptable to the Company. The unavailability of a significant portion of, or the loss of, the Facilities or trade credit from vendors would have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will be able to borrow adequate amounts on terms acceptable to the Company. DEPENDENCE ON INFORMATION SYSTEMS The Company depends on a variety of information systems for its operations, particularly its centralized information processing system which supports, among other things, inventory management, order processing, shipping, receiving, and accounting. Although the Company has not in the past experienced significant failures or down time of its centralized information processing system or any of its other information systems, any such failure or significant down time could prevent the Company from taking customer orders, printing product pick-lists, and/or shipping product and could prevent customers from accessing price and product availability information from the Company. In such event, the Company could be at a severe disadvantage in determining appropriate product pricing or the adequacy of inventory levels or in reacting to rapidly changing market conditions. A failure of the Company's information systems which impacts any of these functions could have a material adverse effect on the Company's business, financial condition, or results of operations. In addition, the inability of the Company to attract and retain the highly-skilled personnel required to implement, maintain, and operate its centralized information processing system and the Company's other information systems could have a material adverse effect on the Company's business, financial condition, or results of operations. In order to react to changing market conditions, the Company must continuously expand and improve its centralized information processing system and its other information systems. There can be no assurance that the Company's information systems will not fail, that the Company will be able to attract and retain qualified personnel necessary for the operation of such systems, or that the Company will be able to expand and improve its information systems. -5- DEPENDENCE ON INDEPENDENT SHIPPING COMPANIES The Company relies almost entirely on arrangements with independent shipping companies for the delivery of its products. Products are shipped from suppliers to the Company through a variety of independent common carriers. Currently, United Parcel Service ("UPS") delivers a majority of the Company's products to its reseller customers. The termination of the Company's arrangements with UPS or other independent shipping companies, or the failure or inability of one or more of these independent shipping companies to deliver products from suppliers to the Company, or products from the Company to its reseller customers or their end-user customers could have a material adverse effect on the Company's business, financial condition, or results of operations. For instance, an employee work stoppage or slow-down at one or more of these independent shipping companies could materially impair that shipping company's ability to perform the services required by the Company. There can be no assurance that the services of any of these independent shipping companies will continue to be available to the Company on terms as favorable as those currently available or that these companies will choose or be able to perform their required shipping services for the Company. TECHNOLOGICAL CHANGE The Company's industry is subject to rapid technological change, new and enhanced product specification requirements, and evolving industry standards. These changes may cause inventory and stock to decline substantially in value or to become obsolete. In addition, suppliers may give the Company limited or no access to new products being introduced. Although the Company believes that it has adequate price protection and other arrangements with its suppliers to avoid bearing the costs associated with these changes, no assurance can be given that future technological or other changes will not have a material adverse effect on the Company's business, financial condition, or results of operations. See "Risk of Declines in Inventory Value." POSSIBLE VOLATILITY OF STOCK PRICE The market price of the Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's results of operations, changes in earnings estimates by research analysts, conditions in the computer industry, or general market or economic conditions, among other factors. In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations have had a substantial effect on the market prices of many technology companies, often unrelated to the operating performance of the specific companies. Such market fluctuations could materially adversely affect the market price for the Common Stock. -6- -----END PRIVACY-ENHANCED MESSAGE-----