-----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, TUqRFnnVbQ2dJLJnCCepwWNQTjAoFcFHFq/yK45fOoEkwmJv/j8hKR0YP1FLFSTC wXmL0mj4HC67+2BcaU5NDA== 0000930661-99-001968.txt : 19990817 0000930661-99-001968.hdr.sgml : 19990817 ACCESSION NUMBER: 0000930661-99-001968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEGUARD SCIENTIFICS INC ET AL CENTRAL INDEX KEY: 0000086115 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 231609753 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05620 FILM NUMBER: 99693778 BUSINESS ADDRESS: STREET 1: 435 DEVON PARK DR STREET 2: 800 THE SAFEGUARD BLDG CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6102930600 FORMER COMPANY: FORMER CONFORMED NAME: SAFEGUARD INDUSTRIES INC DATE OF NAME CHANGE: 19810525 FORMER COMPANY: FORMER CONFORMED NAME: SAFEGUARD CORP DATE OF NAME CHANGE: 19690521 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1999 Commission File Number 1-5620 ------------- ------ SAFEGUARD SCIENTIFICS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1609753 - -------------------------------------------------------------------------------- (state or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 800 The Safeguard Building, 435 Devon Park Drive Wayne, PA 19087 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (610) 293-0600 -------------- 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 and 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 __________ -------- Number of shares outstanding as of August 13, 1999 Common Stock 34,760,485 SAFEGUARD SCIENTIFICS, INC. QUARTERLY REPORT FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION Page ------------------------------ ---- Item 1 - Financial Statements: Consolidated Balance Sheets - June 30, 1999 (unaudited) and December 31, 1998.......................................... 3 Consolidated Statements of Operations (unaudited) - Three and Six Months Ended June 30, 1999 and 1998........................................ 4 Consolidated Statements of Cash Flows (unaudited) - Six Months Ended June 30, 1999 and 1998.................................................. 5 Notes to Consolidated Financial Statements............................................... 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk......................... 28 PART II - OTHER INFORMATION --------------------------- Item 4 - Submission of Matters to a Vote of Security Holders................................ 29 Item 6 - Exhibits and Reports on Form 8-K................................................... 30 Signatures.................................................................................. 32
2 SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, ASSETS 1999 1998 -------------------- ----------------- (UNAUDITED) Current Assets Cash and cash equivalents $ 55,933 $ 6,257 Short-term investments - 143,103 Receivables less allowances 435,803 296,093 Inventories 214,365 138,551 Other current assets 3,021 5,006 ------------------ ----------------- Total current assets 709,122 589,010 Property, Plant, and Equipment, Net 69,560 96,840 Other Assets Equity ownership in partner companies 577,888 288,336 Notes and other receivables 23,249 20,182 Excess of cost over net assets of businesses acquired, net 122,246 65,137 Other 20,059 9,185 ------------------ ----------------- Total other assets 743,442 382,840 ------------------ ----------------- Total Assets $1,522,124 $1,068,690 ================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current debt obligations $ 2,442 $ 2,366 Accounts payable 334,753 161,700 Accrued expenses 155,439 172,953 ----------------- ----------------- Total current liabilities 492,634 337,019 Long-Term Debt 172,360 205,044 Deferred Taxes - 12,562 Minority Interest 96,221 98,544 Other Long-Term Liabilities 104,290 1,317 Convertible Subordinated Notes 200,000 71,345 Commitments and Contingencies Shareholders' Equity Common stock 3,480 3,280 Additional paid-in capital 133,666 62,470 Retained earnings 297,255 261,594 Accumulated other comprehensive income 24,630 37,294 Treasury stock, at cost (2,412) (21,779) ----------------- ----------------- Total shareholders' equity 456,619 342,859 ----------------- ----------------- Total Liabilities and Shareholders' Equity $1,522,124 $1,068,690 ================= =================
See notes to consolidated financial statements. 3 SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data)
Three Months Ended, Six Months Ended, June 30 June 30 ------------------------------------- --------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ---------------- ------------------ (UNAUDITED) (UNAUDITED) Revenues Net Sales Product $730,137 $534,099 $1,155,604 $ 913,370 Service 79,246 68,435 153,664 131,062 ---------------- ---------------- ---------------- ------------------ Total net sales 809,383 602,534 1,309,268 1,044,432 Other income, net 34,785 12,579 90,195 23,928 ---------------- ---------------- ---------------- ------------------ Total revenues 844,168 615,113 1,399,463 1,068,360 Costs and Expenses Cost of sales- product 671,596 479,669 1,059,908 813,089 Cost of sales- service 51,131 45,901 99,122 87,024 Selling and service 42,445 43,370 78,942 80,766 General and administrative 34,116 23,063 61,484 44,258 Depreciation and amortization 9,612 5,638 15,337 9,911 Interest and financing 8,796 6,691 16,528 12,494 (Income) loss from equity holdings, net 6,486 (2,742) 12,956 (4,247) ---------------- ---------------- ---------------- ------------------ Total costs and expenses 824,182 601,590 1,344,277 1,043,295 ---------------- ---------------- ---------------- ------------------ Earnings Before Minority Interest and Taxes on Income 19,986 13,523 55,186 25,065 Minority interest (2,274) (3,480) (323) (6,589) ---------------- ---------------- ---------------- ------------------ Earnings Before Taxes On Income 17,712 10,043 54,863 18,476 Provision for taxes on income 6,199 4,017 19,202 7,390 ---------------- ---------------- ---------------- ------------------ Net Earnings $ 11,513 $ 6,026 $ 35,661 $ 11,086 ================ ================ ================ ================== Earnings Per Share Basic $ .34 $ .19 $ 1.09 $ .35 Diluted $ .33 $ .18 $ 1.04 $ .33 Average Common Shares Outstanding Basic 33,473 32,032 32,617 31,874 Diluted 35,670 32,750 35,318 32,582
See notes to consolidated financial statements. 4 SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended June 30, ------------------------------------------ 1999 1998 ----------------- ---------------- (UNAUDITED) Operating Activities Net earnings $ 35,661 $ 11,086 Adjustments to reconcile net earnings to cash provided (used) by operating activities Depreciation and amortization 15,337 9,911 Deferred income taxes (7,306) 5,322 (Income) loss from equity holdings, net 12,956 (4,247) Other income, net from sales of securities and other gains (82,414) (16,566) Minority interest, net 194 3,953 Cash provided (used) by changes in working capital items, excluding the effect of business acquisitions Receivables (140,864) (49,936) Inventories 19,013 3,007 Accounts payable, accrued expenses, and other 138,700 73,849 ----------------- ---------------- Cash provided (used) by operating activities (8,723) 36,379 Proceeds from sales of securities and other gains, net 65,193 29,303 ----------------- ---------------- Cash provided by operating activities and sales of securities and other gains, net 56,470 65,682 Other Investing Activities Equity ownership and notes acquired, net (125,768) (50,141) Business acquisitions, net of cash acquired (147,235) (45,490) Capital expenditures (5,634) (10,796) Proceeds from sale of building 39,791 - Other, net (1,137) (1,057) ----------------- ---------------- Cash used by other investing activities (239,983) (107,484) Financing Activities Net borrowings (repayments) on revolving credit facilities (9,145) 40,268 Net borrowings (repayments) on term debt (25,372) 2,042 Issuance of convertible subordinated notes, net 193,998 - Proceeds from financial instruments, net 71,205 - Repurchase of Company common stock (2,695) (854) Issuance of Company common stock 4,510 1,120 Issuance of subsidiary common stock 688 291 ----------------- ---------------- Cash provided by financing activities 233,189 42,867 ----------------- ---------------- Increase in Cash and Cash Equivalents 49,676 1,065 Cash and Cash Equivalents - beginning of year 6,257 5,382 ----------------- ---------------- Cash and Cash Equivalents - End of Period $ 55,933 $ 6,447 ================= ================
See notes to consolidated financial statements. 5 SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 1. General ------- The accompanying unaudited interim consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The 1998 Form 10-K should be read in conjunction with the accompanying statements. These statements include all adjustments (consisting only of normal recurring adjustments) which the Company believes are necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. 2. Reclassifications ----------------- Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. 3. Business Combinations --------------------- In February 1999, the Company acquired an 80% fully diluted ownership in aligne, Inc. in exchange for 441,518 shares of the Company's common stock with a market value of approximately $17 million. aligne is a strategic technology management consulting firm whose services include high level and in-depth evaluations of complex sourcing alternatives, IT cost baselining and benchmarking, vendor/customer negotiations, interim CIO services, IT strategy, and IT process re-engineering. The transaction was accounted for as a purchase and, accordingly, the consolidated financial statements reflect the operations of aligne since the acquisition date. The acquisition resulted in goodwill of approximately $17 million, which is being amortized over ten years. One of the principal's of aligne was appointed as the Company's new President and Chief Operating Officer. In June 1999, the Company acquired a 75% fully diluted ownership in SOTAS, Inc. for $10 million. SOTAS develops, markets, and sells telecommunications technology and related products and services. The transaction was accounted for as a purchase and, accordingly, the consolidated financial statements reflect the operations of SOTAS since the acquisition date. The acquisition resulted in goodwill of approximately $10 million, which is being amortized over ten years. During 1998, CompuCom completed three business combinations for approximately $49 million in cash. In addition, CompuCom assumed liabilities of approximately $95 million. These business combinations were accounted for as purchases and, accordingly, the consolidated financial statements reflect the operations of the acquired entities since the respective acquisition dates. In May 1999, CompuCom purchased from ENTEX Information Services, Inc. certain assets of its Technology Acquisition Services Division (TASD) in a cash transaction. This acquisition was structured as an asset purchase. Under the terms of the agreement, CompuCom paid approximately $137 million for the acquired assets, which consisted primarily of inventory, certain fixed assets, and the Erlanger, Kentucky distribution center. The transaction was accounted for as a purchase and, accordingly, the consolidated financial statements reflect the operations of the acquired entity since the acquisition date. CompuCom has allocated the purchase price to the assets and liabilities acquired based on estimated fair value as of the date of acquisition. Such allocations have been based on preliminary estimates of fair value which may be revised at a later date. 6 The following unaudited pro forma financial information (in thousands except per share amounts) presents the combined results of operations of the Company as if the acquisitions had occurred as of January 1, 1998, after giving effect to certain adjustments, including amortization of goodwill, increased interest expense on debt related to the acquisitions, and related income tax effects. The pro forma results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the period presented and is not intended to be a projection of future results. Three Months Ended Six Months Ended June 30, 1998 June 30, 1998 ------------- ------------- Total Revenues $1,170,905 $2,227,601 Net Earnings $ 3,262 $ 6,842 Diluted earnings per share $ 0.10 $ 0.20 The following unaudited pro forma financial information (in thousands except per share amounts) presents the combined results of operations of the Company as if the acquisitions had occurred as of January 1, 1999, after giving effect to certain adjustments, including amortization of goodwill, increased interest expense on debt related to the acquisitions, and related income tax effects. The pro forma results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the period presented and is not intended to be a projection of future results. Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 ------------- ------------- Total Revenues $1,032,712 $2,023,392 Net Earnings $ 8,497 $ 30,335 Diluted earnings per share $ 0.25 $ 0.89 4. Comprehensive Income -------------------- Comprehensive income is the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. Excluding net earnings, the Company's source of comprehensive income is from net unrealized appreciation on its public holdings classified as available-for-sale. The following summarizes the components of comprehensive income (loss), net of income taxes, (in thousands):
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ---------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------- (Unaudited) Net Earnings $11,513 $6,026 $35,661 $11,086 -------- ---------------- -------------- ---------------- Other Comprehensive Income (Loss), Before Taxes: Unrealized holding gains (losses) (4,815) (5,717) (10,982) 19,133 Reclassification adjustments (2,630) 2,178 (8,502) 1,058 Related Tax (Expense) Benefit: Unrealized holding gains (losses) 1,685 1,944 3,844 (6,505) Reclassification adjustments 921 (741) 2,976 (360) -------- ---------------- -------------- ----------------- Other Comprehensive Income (Loss) (4,839) (2,336) (12,664) 13,326 -------- ---------------- -------------- ----------------- Comprehensive Income $ 6,674 $3,690 $22,997 $24,412 ======== ================ ============== =================
7 5. Financial Instruments --------------------- The Company may selectively enter into agreements to reduce the impact of stock market volatility on its ownership in publicly traded companies. These may include agreements to protect against a possible decline in the market value of the particular company. The Company does not enter into agreements for trading or speculative purposes. The counterparties to these agreements are major financial institutions. In March 1999, the Company entered into a forward sale contract related to two million shares of its holdings in Tellabs, Inc. The Company pledged two million shares of Tellabs for three years and in return received approximately $71 million of cash. At the end of the term, the Company has the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 1.6 million to two million shares (or the cash value thereof). The proceeds from this transaction were used to pay down a portion of the Company's bank revolving credit facility. The liability related to this transaction is included in "Other Long-Term Liabilities" on the Consolidated Balance Sheets. In the third quarter of 1999, the Company intends to enter into an additional forward sale contract on its remaining Tellabs holdings. Under these contracts, all of the Company's holdings in Tellabs will be pledged under forward sale contracts that expire in 2002. As a result of the restrictions on the sale of these shares under the contracts, the Company intends to change the classification of these holdings to available for sale in the third quarter of 1999. As a result, the Company's holdings in Tellabs are included in non-current assets under the caption "Equity Ownership in Partner Companies" as of June 30, 1999. All share data related to Tellabs common stock have been retroactively adjusted to reflect a two-for-one stock split effective May 17, 1999. 6. Equity Ownership in Partner Companies ------------------------------------- The following summarizes the Company's non-current holdings in partner companies (in thousands). These holdings are classified according to the applicable accounting method at June 30, 1999. Market value reflects the price of publicly traded securities at the close of business at the respective date. Unrealized appreciation reflects the net excess of market value over carrying value of publicly traded securities classified as available-for-sale under the cost method.
June 30, 1999 December 31, 1998 ------------------------------------------ ------------------------------------------- Carrying Market Carrying Market Value Value Value Value ------------------ ------------------- ------------------ -------------------- (Unaudited) Equity Method Cambridge $ 48,723 $168,554 $ 35,248 $190,217 ChromaVision 15,609 52,433 11,304 22,419 DocuCorp 9,942 11,805 3,226 8,035 OAO 16,222 20,735 16,472 16,551 Sanchez 10,914 217,728 10,620 91,965 USDATA 7,234 12,629 7,053 5,545 Non-public companies 142,578 99,648 ------------------ ------------------ 251,222 183,571 Cost Method Tellabs 227,983 227,983 - -(A) Diamond 2,583 21,553 3,120 21,337 e4L 1,457 17,646 2,035 32,299 First Consulting Group 9,115 6,185 8,490 11,308 Other public companies 8,836 14,492 5,579 11,648 Unrealized appreciation 37,885 57,368 Non-public companies 38,807 28,173 ------------------ ------------------ $577,888 $288,336 ================== ==================
(A) The market value of Tellabs of $143 million at December 31, 1998 is included in "Short-term Investments" on the Consolidated Balance Sheets. 8 The following summarized unaudited financial information for partner companies accounted for on the equity method at June 30, 1999 has been compiled from the unaudited financial statements of the respective companies and reflects certain historical adjustments (in thousands):
Three Months Ended June 30, Six Months Ended June 30, -------------------------------------------- -------------------------------------------- 1999 1998 1999 1998 ------------------- -------------------- ------------------- -------------------- Net Sales Public companies $236,393 $205,082 $452,443 $395,783 Non-public companies: Intellisource 35,667 34,381 72,708 68,476 Kanbay 11,092 8,680 20,464 15,825 MultiGen-Paradigm 6,286 3,798 9,762 8,930 QuestOne 4,295 1,600 8,231 3,709 Other 37,192 25,308 71,026 50,561 ------------------- -------------------- ------------------- -------------------- $330,925 $278,849 $634,634 $543,284 =================== ==================== =================== ====================
7. Debt ---- The Company has available $200 million under its bank revolving credit facilities. Of the $200 million, $150 million matures in May 2002 and is secured by certain equity securities the Company holds of its publicly traded partner companies (the Pledged Securities), including CompuCom. The remaining $50 million is unsecured, with availability limited to the lesser of $50 million or 10% of the value of the Pledged Securities. The $50 million facility had an original maturity date of April 1999, which the Company has extended to April 2000. There were no borrowings outstanding under the total facility at June 30, 1999. In the first quarter of 1999, CompuCom sold its corporate headquarters building in a sale/leaseback transaction. The proceeds from the sale were used to pay down CompuCom's long-term debt. As part of the transaction, CompuCom entered into a 20-year operating lease on the building. In May 1999, CompuCom replaced its credit agreements with a $225 million working capital facility and a $175 million receivables securitization facility. The new $225 million working capital facility bears interest at a rate of LIBOR plus an agreed upon spread and is secured by certain assets of CompuCom. This facility is fully available subject to a borrowing base and compliance with certain covenants. As of June 30, 1999, CompuCom had sufficient collateral to enable it to fully utilize the working capital facility, and had $155 million outstanding as of June 30, 1999. The working capital facility will be reduced by $25 million in September 1999 and an additional $25 million in May 2000, and matures in May 2002. On the new $175 million receivables securitization, the effective rate is based on a designated short-term interest rate plus an agreed upon spread. This securitization has a term of three years, subject to certain covenant compliance. The securitization facility allows CompuCom to sell an interest in its accounts receivable on a revolving basis and is accounted for as a sale of accounts receivable in accordance with Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The securitization facility was fully utilized at June 30, 1999. CompuCom plans to increase the securitization facility to $250-$300 million in the second half of 1999. 9 The following is a summary of long-term debt (in thousands):
June 30, December 31, 1999 1998 -------------------- ---------------------- (Unaudited) Parent Company and Other Recourse Debt Revolving credit facilities $ - $108,107 Other 15,649 15,874 -------------------- ---------------------- 15,649 123,981 Subsidiary Debt (Non-Recourse to Parent) CompuCom 157,391 83,429 Other 1,762 - -------------------- ---------------------- Total debt 174,802 207,410 Current debt obligations (2,442) (2,366) -------------------- ---------------------- Long-term debt $172,360 $205,044 ==================== ======================
8. Convertible Subordinated Notes ------------------------------ In June 1999, the Company issued $200 million of 5% Convertible Subordinated Notes (1999 Notes) due June 15, 2006. The 1999 Notes are convertible into the Company's Common Stock at $77.625 per share, subject to adjustment under certain conditions including rights offerings and Directed Share Subscription Programs (DSSP) to the Company's shareholders. Interest is payable semi- annually. The 1999 Notes are redeemable in whole or in part at the option of the Company on or after June 18, 2002, for a maximum of 102.5% of face value depending on the date of redemption and subject to certain restrictions. The Company used approximately $111 million of the net proceeds to repay all of the Company's outstanding indebtedness under its revolving credit facility and borrowings from partner companies. In August 1999, the Company's shareholders were given the opportunity to participate in the initial public offering of Internet Capital Group through a DSSP. As a result, pursuant to the terms of the 1999 Notes, the conversion rate of the Notes was adjusted to $76.0786 per share as a result of the initial public offering of Internet Capital. In April 1999, the Company notified the holders of its previously issued Convertible Subordinated Notes (1996 Notes) of its intent to redeem all of the outstanding 1996 Notes on June 2, 1999. All holders converted the 1996 Notes into Common Stock and, as a result of the conversions, the Company issued approximately 2.4 million shares. 10 9. Other Income ------------ Other income consists of the following (in thousands):
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- -------------------------------- 1999 1998 1999 1998 ----------------------------------------------------------------------- (Unaudited) Unrealized gain on Tellabs $35,910 $ - $ 79,605 $ - Distributions from Venture Funds 1,889 6,161 4,590 6,161 Sales of securities 3,546 7,419 15,362 15,016 Administrative Service Fees 3,199 3,112 6,206 5,880 Other (9,759) (4,113) (15,568) (3,129) =========== ========== =========== ========== $34,785 $12,579 $ 90,195 $23,928 =========== ========== =========== ==========
The Company's holdings in Tellabs are classified as a trading security and, accordingly, the effect of the change in market value of Tellabs is reflected in the Company's results of operations. As discussed in Note 5, the Company intends to change this classification in the third quarter of 1999, and future changes in the fair value of the Company's Tellabs holdings following this change in classification will be recorded in shareholders' equity. Sales of securities in 1999 include the sale of the Company's holdings in Excite and a portion of its holdings in Tellabs. Sales of securities in 1998 included the sale of a portion of its holdings in Cambridge. Administrative service fees represent charges to certain partner companies for operational and management services provided through a team of Safeguard professionals dedicated to that partner company. Each team has expertise in the areas of business/technology strategy, sales and marketing, operations, finance, and legal and transactional support, and provides hands-on assistance to the management of the partner companies in support of their growth. Other includes interest income, charges incurred in the disposition of certain partner companies, and provisions for equity ownership in partner companies and notes. 10. Restructuring ------------- During the fourth quarter of 1998, CompuCom recorded a $16.4 million restructuring charge, primarily consisting of costs associated with the closing of facilities and disposing of related fixed assets as well as employee severance and benefits related to a reduction in workforce. Of the total amount, $2.4 million had been paid through December 31, 1998 and $9.4 million was paid in 1999 through June 30. The following is a summary of the components of the restructuring charge (in thousands):
Restructuring Accrued at Accrued at Charge December 31, 1998 June 30, 1999 ------------- ----------------- ------------- Lease termination costs $ 7,259 $ 6,415 $2,007 Employee severance and related benefits 3,804 2,986 998 Disposal of assets, net of estimated proceeds 3,044 2,907 1,607 Other 2,330 1,780 107 ------------- ----------------- ------------- Total $16,437 $14,088 $4,719 ============= ================= =============
CompuCom expects the restructuring activities to be substantially completed by the end of 1999 and believes the restructuring accrual is adequate. 11 11. Earnings Per Share ------------------ The calculations of Earnings Per Share (EPS) were (in thousands except per share amounts):
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------------- 1999 1998 1999 1998 ----------- --------------- --------------- --------------- (Unaudited) (Unaudited) Basic EPS --------- Net earnings $11,513 $ 6,026 $35,661 $11,086 =========== =============== =============== =============== Average common shares outstanding 33,473 32,032 32,617 31,874 =========== =============== =============== =============== Basic EPS $ .34 $ .19 $ 1.09 $ .35 =========== =============== =============== =============== Diluted EPS ----------- Net earnings $11,513 $ 6,026 $35,661 $11,086 Effect of: Public holdings (a) (160) (194) (44) (420) Dilutive securities (b) 365 - 1,090 - =========== =============== =============== =============== $11,718 $ 5,832 $36,707 $10,666 =========== =============== =============== =============== Average common shares outstanding 33,473 32,032 32,617 31,874 Effect of: Dilutive options 982 718 866 708 Dilutive securities (b) 1,215 - 1,835 - ----------- --------------- --------------- --------------- Average number of common shares assuming dilution 35,670 32,750 35,318 32,582 =========== =============== =============== =============== Diluted EPS $ .33 $ .18 $ 1.04 $ .33 =========== =============== =============== ===============
(a) Represents the dilutive effect of public company common stock equivalents and convertible securities. (b) Represents the dilutive effect of the Company's 1996 Notes for the three and six months ended June 30, 1999. For the three months and six months ended June 30, 1998, the 1996 notes were anti-dilutive; and therefore, they do not impact the calculation of diluted EPS in 1998. The 1999 Notes are excluded from all periods presented, as they are anti-dilutive. 12. Shareholders' Equity -------------------- In May 1999, the Company approved an increase in the number of authorized common shares to 500 million from 100 million and authorized 1 million shares of blank check preferred stock in lieu of the 55,424 currently authorized shares of preferred stock. In connection with the conversion of the 1996 Notes into Common Stock (see Note 8), the Company recorded in shareholders equity the principal amount of the converted 1996 Notes as well as forfeited interest and the related unamortized deferred charges totaling approximately $71.6 million. 12 13. Parent Company Financial Information ------------------------------------ Condensed Financial Information is provided to reflect the results of operations and financial position of the "Parent Company", or the Company without the effect of consolidating its less than wholly owned subsidiaries. The following summarizes the Parent Company Balance Sheets of Safeguard Scientifics, Inc. and its wholly owned subsidiaries (in thousands). These Parent Company Balance Sheets differ from the Consolidated Balance Sheets due to the exclusion of the assets and liabilities of the Company's less than wholly owned subsidiaries, primarily CompuCom and Tangram, and, at June 30, 1999, aligne and SOTAS, with the carrying values of these companies included in "Equity ownership in partner companies".
June 30, December 31, 1999 1998 ----------------------- ------------------------ ASSETS (Unaudited) Short-term investments $ - $143,103 Other current assets 66,889 30,766 Equity ownership in partner companies 730,857 413,596 Other 61,747 49,830 ------------------- ------------------- Total assets $859,493 $637,295 =================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 77,434 $ 80,824 Long-term debt 14,696 123,115 Other liabilities 110,744 19,152 Convertible subordinated notes 200,000 71,345 Shareholders' equity 456,619 342,859 ------------------- ------------------- Total liabilities & shareholders' equity $859,493 $637,295 =================== ===================
The following summarizes the Parent Company's holdings in less than wholly owned subsidiaries (in thousands). Market value reflects the price of publicly traded securities at the close of business at the respective date.
June 30, 1999 December 31, 1998 ---------------------------------------- ---------------------------------------- Carrying Market Carrying Market Value Value Value Value ----------------- ------------------ ------------------ ----------------- (Unaudited) Tellabs $227,983 $227,983 $ - $ -(a) CompuCom 123,215 115,724 121,832 98,538 Tangram 3,935 30,693 3,428 41,795 Cambridge 48,723 168,554 35,248 190,217 Other public 122,274 375,206 130,076 221,107 Other 204,727 123,012 ----------------- ------------------ $730,857 $413,596 ================= ==================
(a) The market value of Tellabs of $143 million at December 31, 1998 is included in "Short-term Investments" on the Consolidated Balance Sheets. 13 Parent Company Financial Information (continued) ------------------------------------------------ The following summarizes the Parent Company Statements of Operations of Safeguard Scientifics, Inc. and its wholly owned subsidiaries (in thousands). These Parent Company Statements of Operations differ from the Consolidated Statements of Operations by excluding the revenues and related costs and expenses of the Company's less than wholly owned subsidiaries, primarily CompuCom and Tangram, and for the three and six months ended June 30, 1999, aligne and SOTAS, with the Company's share of the earnings or losses of these companies reflected in the caption "(Income) loss from equity holdings, net''.
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- ---------------------------------- 1999 1998 1999 1998 ------------ ------------------ ----------- ------------------ (UNAUDITED) (UNAUDITED) Revenues Other Income $33,403 $12,855 $89,085 $24,531 Costs and Expenses Cost of sales and operating expenses 12,263 9,127 22,657 16,926 (Income) loss from equity holdings, net 4,357 (4,797) 11,798 (7,982) ------------ ------------------ ----------- ------------------ Total costs and expenses 16,620 4,330 34,455 8,944 ------------ ------------------ ----------- ------------------ Earnings Before Taxes On Income 16,783 8,525 54,630 15,587 Provision for taxes on income 5,270 2,499 18,969 4,501 ------------ ------------------ ----------- ------------------ Net Earnings $11,513 $ 6,026 $35,661 $11,086 ============ ================== =========== ==================
14. Operating Segments ------------------ The Company's reportable segments consist of CompuCom, Tangram, general corporate operations, and other. CompuCom's operations are defined in two segments - sales of distributed desktop computer products (product); and service and other, which includes configuration, network integration, and technology support (service and other). Tangram's operations include the design, development, sale, and implementation of enterprise-wide asset tracking and software management solutions. General corporate operations consist of identifying, acquiring, managing, and operating partner companies, most of which are engaged in information technology businesses. Other includes the operations of aligne and SOTAS. 14 The following summarizes information related to the Company's segments (in thousands). All significant intersegment activity has been eliminated.
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- -------------------------------- 1999 1998 1999 1998 ------------- -------------- ------------- ------------- Net Sales (UNAUDITED) (UNAUDITED) CompuCom Product $ 728,043 $ 530,495 $ 1,149,335 $ 907,273 Service and Other 74,552 67,062 146,580 128,036 ------------- -------------- ------------- ------------- 802,595 597,557 1,295,915 1,035,309 Tangram 4,003 4,977 9,905 9,123 Other 2,785 - 3,448 - ------------- -------------- ------------- ------------- $ 809,383 $ 602,534 $ 1,309,268 $ 1,044,432 ============= ============== ============= ============= Gross Margin(a) CompuCom Product $ 56,537 $ 50,528 $ 90,085 $ 94,408 Service and Other 25,355 21,626 50,278 41,911 ------------- -------------- ------------- ------------- 81,892 72,154 140,363 136,319 Tangram 3,419 4,810 8,180 8,000 Other 1,345 - 1,695 - ------------- -------------- ------------- ------------- $ 86,656 $ 76,964 $ 150,238 $ 144,319 ============= ============== ============= ============= Operating Profit (Loss) CompuCom Product $ 2,060 $ 8,251 $ (6,717) $ 15,565 Service and Other 8,350 3,152 17,642 5,998 ------------- -------------- ------------- ------------- 10,410 11,403 10,925 21,563 Interest and financing, net (6,207) (4,260) (10,537) (8,015) ------------- -------------- ------------- ------------- 4,203 7,143 388 13,548 ------------- -------------- ------------- ------------- Tangram 283 396 755 447 ------------- -------------- ------------- ------------- General Corporate Other income, net 34,785 12,579 90,195 23,928 (Income) loss from equity holdings, net (6,486) 2,742 (12,956) 4,247 Interest and financing, net (2,589) (2,431) (5,991) (4,479) General corporate expense, net (9,499) (6,662) (16,336) (12,131) Minority interest (2,274) (3,480) (323) (6,589) ------------- -------------- ------------- ------------- 13,937 2,748 54,589 4,976 ------------- -------------- ------------- ------------- Other (711) (244) (869) (495) ------------- -------------- ------------- ------------- Earnings Before Taxes on Income $ 17,712 $ 10,043 $ 54,863 $ 18,476 ============= ============== ============= =============
(a) Total gross margin reconciles to the Consolidated Statements of Operations by subtracting cost of sales from net sales. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations General ------- Safeguard Scientifics, Inc. (the Company) is an information technology (IT) holding company that identifies, acquires, operates and manages Internet- focused companies and has interests in private equity funds. The Company is now focusing on IT companies engaged in e-commerce, network infrastructure activities and enterprise applications. The Company believes that these sectors provide compelling opportunities for success driven by the rapid growth of the Internet as a fundamental business tool. The Company generally acquires ownership interests in companies that allow it to have a significant influence over their direction and management. These positions may represent either a majority or minority ownership interest, although the Company is generally the largest shareholder of our partner companies. The Company assigns a dedicated team assigned to each partner company and actively assists our partner companies in their management, operations and finances. The Company's principal mission is to promote long-term shareholder value. Safeguard's approach reflects its belief that shareholder value is maximized by retaining and promoting the entrepreneurial energy and creativity of the managers of our partner companies. The entrepreneurs of its partner companies generally retain significant equity interests in their businesses, and their interests as shareholders remain aligned with the Company's. Safeguard provides a full range of operational and management services through a team of Safeguard professionals dedicated to that partner company. Each team has expertise in the areas of business/technology strategy, sales and marketing, operations, finance, and legal and transactional support, and provides hands- on assistance to the management of the partner companies in support of their growth. The level of involvement varies and in some circumstances includes the provision of full-time interim personnel. Since Safeguard partners with an indeterminate time frame, it seeks different ways to maximize the long-term value of its partner companies. This is achieved through Rights IPOs directed solely to holders of Safeguard Common Stock, Directed Share Subscription Programs as part of traditional IPOs, mergers, sales, open-market transactions, follow-on acquisitions or the divestiture of Safeguard's position over time. Safeguard typically retains a significant ownership position in a partner company after the partner company conducts its IPO. The Company believes the best way to build future value for its shareholders is to be involved in Internet markets. As the Company acquires interests in more Internet-related companies, it could experience increased volatility in its earnings, as many early stage Internet companies have operating losses. For several years, the Company has had a financial model of exceeding the prior year's quarterly earnings per share (EPS) by $.01. This was essentially accomplished through sales of securities. Given the volatility of the technology market, especially Internet-related stocks, the Company will no longer sell securities solely to achieve a targeted EPS. As a result, the Company's net earnings could fluctuate significantly from quarter to quarter. There can be no guarantee that the Company will report net earnings in each period. As discussed in Note 5 to the Consolidated Financial Statements, the Company intends to change the classification of its Tellabs holdings in the third quarter of 1999. As a result, changes in the fair value of Tellabs holdings will no longer be included in the Company's net earnings subsequent to the change in classification. As disclosed in Note 9 to the Consolidated Financial Statements, this amount has been significant in 1999. Because many of our partner companies are not majority-owned subsidiaries, changes in the value of our interests in partner companies and the income/loss attributable to them could require us to register as an investment company at some point in the future, unless we take action to avoid being required to register. However, we believe that we can take steps to avoid being required to register under the Investment Company Act which would not adversely affect our operations or shareholder value. 16 Effect of Various Accounting Methods on the Consolidated Financial Statements ----------------------------------------------------------------------------- Consolidation. The net sales and related costs and expenses of a partner company are included in the Company's consolidated operating results if the Company owns more than 50% of the outstanding voting securities of the partner company. Participation of shareholders other than the Company in the earnings or losses of a more than 50% owned partner company is reflected in the caption "Minority interest" in the Consolidated Statements of Operations. Minority interest adjusts consolidated net earnings to reflect only the Company's share of the earnings or losses of the partner company. CompuCom Systems, Inc. and Tangram Enterprise Solutions, Inc. are consolidated in 1999 and 1998. In February and June 1999, the Company acquired an 80% and 75% fully diluted ownership in aligne, Inc. and SOTAS. Inc., respectively. These transactions were accounted for as purchases and, accordingly, the consolidated financial statements reflect the operations of these companies since the acquisition dates. Equity Method. Partner companies in which the Company owns 50% or less of the outstanding voting securities, in which significant influence is exercised, are generally accounted for on the equity method of accounting. Significant influence is presumed at a 20% ownership level; however, the Company applies the equity method for certain companies in which it owns less than 20% of the voting interest when it exerts significant influence through representation on those companies' Boards of Directors and other means. On the equity method of accounting, a partner company's revenues and related costs and expenses are not included in the Company's consolidated operating results; however, the Company's share of the earnings or losses of the partner company is reflected in the caption "(Income) loss of equity holdings, net" in the Consolidated Statements of Operations. The net effect of a partner company's results of operations on the Company's net earnings is the same under either consolidation accounting or the equity method of accounting, as only the Company's share of the earnings or losses of a partner company is included in the Company's net earnings in the Consolidated Statements of Operations. Cost Method. Partner companies not consolidated or accounted for on the equity method are accounted for on the cost method of accounting under which the Company's share of the earnings or losses of such companies is not included in the Company's Consolidated Statements of Operations. However, the effect of the change in market value of cost method holdings classified as trading securities is reflected in the Company's results of operations each reporting period. Effect of Various Accounting Methods on the Presentation of the Consolidated ---------------------------------------------------------------------------- Financial Statements -------------------- If the Company's ownership in any of the partner companies changes significantly, the Company's consolidated revenues and related costs and expenses may fluctuate primarily due to the applicable accounting method used for recognizing its participation in the operating results of that company. As mentioned below in Operations Overview, the Company's consolidated revenues and related costs and expenses are significantly influenced by the results of operations of CompuCom. At June 30, 1999, the Company owns approximately 51% of CompuCom's outstanding common stock and owns preferred stock which gives it 60% of the vote for CompuCom's directors. CompuCom competes in the computer reseller industry which has been undergoing significant transformation and consolidation. Several of CompuCom's competitors have been growing through acquisitions and others have been acquired. In addition, companies previously engaged in the retail channel have begun to enter the corporate reseller market, and several computer manufacturers are beginning to sell directly to corporate customers, heightening the competition. 17 As a result, while growing internally, CompuCom is also looking to strengthen its market share through acquisitions, including one which was completed in May 1999. If CompuCom were to use its stock for the acquisitions or if some other dilutive event were to occur, the Company's voting interest in CompuCom could decrease below 50%. Under current generally accepted accounting principles, the Company would cease consolidating CompuCom's results and instead would account for its holdings in CompuCom on the equity method provided the Company maintained the ability to exercise significant influence over CompuCom's ordinary course of business. The Company's share of CompuCom's earnings on the equity method versus consolidation would differ only to the extent that the Company's ownership of CompuCom changed. However, the presentation of the Consolidated Statements of Operations and Balance Sheets would change dramatically. Note 13 to the Company's Consolidated Financial Statements summarizes the Parent Company Statements of Operations and Balance Sheets of the Company for the same periods presented in the Consolidated Financial Statements. These statements differ from the Consolidated Financial Statements by excluding the revenues, costs, expenses, assets, and liabilities of the Company's less than wholly owned subsidiaries (primarily CompuCom and Tangram) and instead treating these companies as if they were accounted for on the equity method. The Company's share of the results of operations of less than wholly owned subsidiaries is included in "(Income) loss of equity holdings, net" and the carrying value of these companies is included in "Equity ownership in partner companies" in the Parent Company Statements of Operations and Balance Sheets, respectively. Although the Parent Company Statements of Operations and Balance Sheets presented in Note 13 are accurate relative to the Company's historical Consolidated Financial Statements, they are not necessarily indicative of future Parent Company Statements of Operations and Balance Sheets. Operations Overview -------------------- The Company's operations have been classified into the following business segments: CompuCom, Tangram, general corporate operations, and other. CompuCom's operations are further defined into two segments-sales of distributed desktop computer products (product) and configuration, network integration, and technology support (service and other). Tangram's operations include the design, development, sale, and implementation of enterprise-wide asset tracking and software management solutions. General corporate operations consists of developing and operating partner companies, most of which are engaged in information technology businesses. Other includes the operations of aligne and SOTAS. Three Months Ended June 30, 1999 Compared to June 30, 1998 Net sales increased 34% to $809 million in 1999 compared to $603 million in 1998 as CompuCom experienced a 34% sales increase. The increase at CompuCom was due primarily to the acquisition of the Technology Acquisition Services Division (TASD) of Entex Information Services, Inc. during the second quarter of 1999. CompuCom's products have traditionally exhibited relatively short life cycles and rapidly declining prices. As a result, CompuCom must sell more units to generate the same amount of revenue as the prior year. During the three months ended June 30, 1999, CompuCom continued to experience a decline in average selling prices (ASPs) in desktops, laptops and servers when compared to the prior year. However, the rate of decline in ASPs has slowed compared to recent history. Due to the declining ASPs, CompuCom's growth in desktop, laptop and server units shipped has outpaced its product revenue growth. CompuCom's service sales increased 17% to $74 million in 1999 from $63 million in 1998, which was primarily due to increases in both configuration 18 and field engineering, both of which benefited by the increase in product unit sales volume. CompuCom represented 99% of the Company's total consolidated net sales in 1999. The Company's overall gross margin was 10.7% in 1999 compared to 12.8% in 1998. The decrease is primarily attributable to reduced product gross margins at CompuCom, which decreased to 7.8% in 1999 compared to 9.5% in 1998. CompuCom attributes this decline to heightened competition from direct marketers and other corporate resellers and a reduction in manufacturer sponsored incentives. In the short term, CompuCom expects to continue to experience lower product gross margin percentages when compared to the comparable prior year period. CompuCom's service gross margin was 33.9% in 1999 compared to 31.3% in 1998. The increase was primarily caused by increased performance in its field engineering business. In the short term, the Company expects to continue to experience improved service gross margin percentages when compared to the comparable prior year period. Other income in 1999 includes an unrealized $35.9 million gain resulting from the increase in the market price of Tellabs. Other income in 1999 also includes the sale of a portion of the Company's holdings in Diamond and distributions received from the Company's affiliated venture funds. Other income in 1998 included the sales of a portion of the Company's interest in Cambridge Technology Partners and distributions received from the Company's affiliated venture funds. Partially offsetting other income in these years were charges incurred in the disposition of certain partner companies, and provisions for equity ownership in partner companies and notes. Other income of varying magnitude has been realized in recent years, primarily as a result of the change in the fair value of the Company's holdings in Tellabs and the timing of sales of securities. Prior amounts are not necessarily indicative of amounts which may be realized in the future. As discussed in Note 5 to the Consolidated Financial Statements, the Company intends to change the classification of its Tellabs holdings in the third quarter of 1999. As a result, charges in the fair value of Tellabs holdings will no longer be included in the Company's net earnings. Subsequent to the change in classification. (Income) loss from equity holdings, fluctuates with the Company's ownership percentage and the operating results of partner companies accounted for on the equity method. The change in income (loss) from equity holdings for the three months ended June 30, 1999 compared to the same period in 1998 reflects increased operating losses at certain partner companies, the elimination of the Company's share of earnings of Coherent as a result of the Coherent/Tellabs merger, an increase in the number of companies accounted for on the equity method, a majority of which have operating losses, and reduced operating results at Cambridge as a result of approximately $9 million of non-recurring charges. The Company expects certain of its partner companies to continue to invest in their products and services and to recognize operating losses. Additionally, the Company expects to acquire interests in more Internet-related companies, and many early stage Internet companies have operating losses. As a result, losses from equity holdings could increase significantly. In 1999, the Company's public partner companies accounted for on the equity method include Cambridge, ChromaVision, DocuCorp, OAO Technology Solutions (OAOT), Sanchez, and USDATA Corporation. Cambridge announced its second quarter 1999 results with revenue growth driven by increased global demand for its Customer Management Solutions (up 45%) and Interactive Solutions Services (up 41%). Net income was $1.2 million, or $.02 per share (diluted) compared to net income of $13.5 million, or $.21 per share for the same period in 1998. Adjusted for certain items including a repositioning charge of $8.9 million, charges for client receivables of $4.2 million and a gain of $2.2 million on the sale of an equity security, net income would have been $7.9 million, or $.13 per share (diluted). Safeguard owns approximately 16% of Cambridge's common stock at June 30, 1999. 19 During July 1999, the FDA cleared for marketing ChromaVision's ACIS(TM) system, a powerful new tool that may help physicians detect cancer, infectious diseases and genetic conditions earlier and more accurately, potentially leading to improved patient treatment. This system can be applied to a vast number of existing laboratory diagnostic tests and is designed to greatly enhance a physician's ability to detect disease with detection sensitivity more than 300 percent over existing manual testing methods. The FDA clearance obtained is for use of the ACIS(TM) with a widely used staining method called immunohistochemistry, commonly used in the evaluation of numerous disease conditions. This single clearance enables the commercialization of five ACIS(TM) tests scheduled for release in 1999 and paves the way for rapid introduction of future ACIS(TM) tests. ChromaVision reported increased losses in the second quarter of 1999 primarily due to planned increases in its sales and marketing staff and technical personnel to support the commercialization of ACIS(TM). Safeguard owns approximately 30% of ChromaVision's common stock at June 30, 1999. OAOT revenues increased 93% for the quarter due primarily to the acquisition of OAO Services, Inc. in July 1998 and the consolidation of OAOT's United Kingdom subsidiary which was previously accounted for under the equity method. OAOT's return to profitability for the quarter ended June 30, 1999 compared to the corresponding 1998 quarter was achieved through the improved profitability of its traditional businesses coupled with reduced general and administrative costs. Safeguard owns approximately 33% of OAOT's common stock at June 30, 1999. Sanchez announced revenues for the quarter ended June 30, 1999 of $13.9 million, compared to $11.1 million for the same period in 1998. Net earnings for the quarter approximated the results for the same period in 1998. Sanchez played a lead role in the project integration and management for WingspanBank.com. Sanchez's PROFILE/Anyware is the core production application software that integrates the various systems required to offer WingspanBank.com's full range of financial products and services. In addition, Sanchez's e-commerce outsourcing center for top-tier financial service providers, e-PROFILE, Inc., is providing data-center and back office operations for WingspanBank.com. Sanchez also signed a licensing agreement with Irish League of Credit Unions and announced that American Express successfully implemented PROFILE/Anyware in the second quarter. Safeguard owns approximately 27% of Sanchez's common stock at June 30, 1999. USDATA announced its third consecutive profitable quarter with net income of $.04 per share, for the quarter ended June 30, 1999, compared to a net loss of $.03 per share, for the same period in 1998. In August 1999, USDATA completed the acquisition of Smart Shop Software, Inc., which provides business software to make-to-order small and medium manufacturers. Safeguard owns approximately 26% of USDATA's common stock at June 30, 1999, and increased its ownership to 38% in August 1999. Selling and service expenses decreased slightly in absolute dollars primarily due to CompuCom's cost reduction efforts related to the 1998 restructuring, partially offset by costs related to the TASD acquisition, which resulted in an increase in sales and sales support personnel and professional services fees related to the integration of TASD into CompuCom's operations. Selling and service expenses decreased as a percentage of sales to 5.2% from 7.2% for the comparable period in 1998 primarily due to increased leverage of CompuCom's infrastructure resulting from the TASD acquisition and its own cost reduction efforts. General and administrative expenses increased in absolute dollars and as a percentage of sales primarily due to increased expenditures at CompuCom to continue the expansion of its electronic commerce capabilities, increases in distribution and administrative personnel to support CompuCom's revenue growth related to the TASD acquisition, and increased expenses at the Company to support the growing activities of its partner companies. CompuCom's general and 20 administrative expenses are reported net of reimbursements by certain manufacturers for specific training, promotional, and marketing programs. These reimbursements offset the expenses incurred by CompuCom. Depreciation and amortization increased primarily due to increased amortization at CompuCom as a result of the acquisitions completed during the second quarter of 1998. Interest and financing expense increased in 1999 compared to 1998 primarily as a result of amortization of fees at CompuCom resulting from the early termination of CompuCom's financing arrangements, and higher borrowing levels at CompuCom due to the acquisition of TASD. The increase was also due to higher average borrowing levels by the Company to fund interests in new or existing partner companies, and interest expense related to the issuance by the Company of $200 million of Convertible Subordinated Notes in June 1999. These increases were partially offset by the elimination of interest due to the conversion of $71 million of the Company's 1996 Notes into the Company's Common Stock in the second quarter of 1999. Minority interest decreased as a result of decreased operating results at CompuCom. Future profitability at CompuCom will depend on its ability to successfully integrate the TASD acquisition into its operations, to effectively manage inventory levels in response to changes in its major suppliers' price protection and return programs, to grow its services business, to effectively manage the utilization of service personnel, and to respond to increased competition from its suppliers' direct selling initiatives. It also depends on CompuCom's ability to reduce operating expenses at a pace equal to the decline in margin percentages, competitive pricing, short-term interest rate fluctuations, general economic conditions, employee turnover and possible future litigation, as well as the risks and uncertainties set forth from time to time in CompuCom's other public reports and filings and public statements. The Company's effective tax rate decreased to 35% in 1999 compared to 40% for 1998 due to the realization of previously unrecorded tax benefits attributable to the difference between the book basis and tax basis of certain of the Company's holdings as well as the application of lower tax rates against realized investment gains. The Company's net earnings increased in 1999 compared to 1998 primarily due to higher gains related to the Company's holdings in Tellabs, partially offset by decreased earnings at CompuCom and reduced operating results for partner companies accounted for on the equity method. Other income of varying magnitude have been realized in recent years. The Company's net earnings could fluctuate significantly from period to period, depending on the operations of its holdings accounted for on the equity method and the timing of sales of securities. There can be no guarantee that the Company will report net earnings in each period. Six Months Ended June 30, 1999 Compared to June 30, 1998 Net sales increased 25% to $1.3 billion in 1999 compared to $1.0 billion in 1998 as CompuCom experienced a 25% sales increase. The increase at CompuCom was due primarily to the acquisition of TASD during the second quarter of 1999. During the six months ended June 30, 1999, CompuCom continued to experience a decline in ASPs in desktops, laptops and servers when compared to the prior year. However, the rate of decline in ASPs has slowed compared to recent history. Due to the declining ASPs, CompuCom's growth in desktop, laptop and server units shipped has outpaced its product revenue growth. CompuCom's service sales increased 19% to $143 million in 1999 from $120 million in 1998, which was primarily due to increases in both configuration and field engineering, which are typically driven in part by product unit sales volume. CompuCom represented 99% of the Company's total consolidated net sales in 1999. 21 The Company's overall gross margin was 11.5% in 1999 compared to 13.8% in 1998. The decrease is primarily attributable to reduced product gross margins at CompuCom, which decreased to 7.8% in 1999 compared to 10.4% in 1998. CompuCom attributes this decline primarily to heightened competition from direct marketers and other corporate resellers and a reduction in manufacturer sponsored incentives. CompuCom's service gross margin was 33.9% in 1999 compared to 31.7% in 1998. The increase was primarily caused by increased performance in its field engineering business. Other income in 1999 includes a $79.6 million gain resulting from the increase in the market price of Tellabs and a $5.9 million gain on the sales of Tellabs stock. Other income in 1999 also includes the sale of the Company's holdings in Excite and a portion of its holdings in Diamond and distributions received from the Company's affiliated venture funds. Other income in 1998 included the sales of a portion of the Company's interest in Cambridge and distributions received from the Company's affiliated venture funds. Partially offsetting in these years were charges incurred in the disposition of certain partner companies, and provisions for equity ownership in partner companies and notes. Other income of varying magnitude has been realized in recent years, primarily as a result of the change in the fair value of the Company's holdings in Tellabs and the timing of sales of securities. Prior amounts are not necessarily indicative of amounts which may be realized in the future. As discussed in Note 5 to the Consolidated Financial Statements, the Company intends to change the classification of its Tellabs holdings in the third quarter of 1999. As a result, changes in the fair value of Tellabs holdings will no longer be included in the Company's net earnings. (Income) loss from equity holdings fluctuates with the Company's ownership percentage and the operating results of partner companies accounted for on the equity method. The change in income (loss) from equity holdings for the six months ended June 30, 1999 compared to the same period in 1998 reflects increased operating losses at certain partner companies, the elimination of the Company's share of earnings of Coherent a result of the Coherent/Tellabs merger, an increase in the number of companies accounted for on the equity method, a majority which have operating losses, and reduced operating results at Cambridge as a result of approximately $9 million of non-recurring charges. Selling and service expenses decreased in absolute dollars primarily due to CompuCom's cost reduction efforts related to the 1998 restructuring, partially offset by costs related to the TASD acquisition, which resulted in an increase in sales and sales support personnel and professional services fees related to the integration of TASD into CompuCom's operations. Selling and service expenses decreased as a percentage of sales primarily due to increased leverage of CompuCom's infrastructure resulting from the TASD acquisition and its own cost reduction efforts. General and administrative expenses increased in absolute dollars and as a percentage of sales primarily due to increased expenditures at CompuCom to continue the expansion of its electronic commerce capabilities, increases in distribution and administrative personnel to support CompuCom's revenue growth related to the TASD acquisition and increased expenses at the Company to support the growing activities of its partner companies. CompuCom's general and administrative expenses are reported net of reimbursements by certain manufacturers for specific training, promotional, and marketing programs. These reimbursements offset the expenses incurred by CompuCom. Depreciation and amortization increased primarily due to increased amortization at CompuCom as a result of the acquisitions completed during the second quarter of 1998. Interest and financing expense increased in 1999 compared to 1998 primarily as a result of amortization of fees at CompuCom resulting from the early termination of CompuCom's financing arrangements, and higher borrowing levels at CompuCom due to the acquisition of TASD. The increase was also due to higher average borrowing levels by the Company to fund interests in new or existing partner companies. 22 Minority interest decreased as a result of decreased operating results at CompuCom. The Company's effective tax rate decreased to 35% in 1999 compared to 40% for 1998 due to the realization of previously unrecorded tax benefits attributable to the difference between the book basis and tax basis of certain of the Company's holdings as well as the application of lower tax rates against realized securities gains. The Company's net earnings increased significantly in 1999 compared to 1998 primarily due to higher gains related to the Company's holdings in Tellabs, partially offset by decreased earnings at CompuCom and reduced operating results for partner companies accounted for on the equity method. Other income of varying magnitude have been realized in recent years. The Company's net earnings could fluctuate significantly from period to period, depending on the operations of its holdings accounted for on the equity method and the timing of sales of securities. There can be no guarantee that the Company will report net earnings in each period. Liquidity and Capital Resources ------------------------------- The Company has historically used its bank credit facility and proceeds from sales of securities to fund its cash requirements. In addition, in February 1996, the Company issued $115 million of 6% Convertible Subordinated Notes primarily to pay down its outstanding borrowings and fund commitments to new and existing partner companies. These notes were all converted into the Company's Common Stock prior to June 30, 1999. In June 1999, the Company issued $200 million of 5% Convertible Subordinated Notes due June 2006. The Notes are convertible into the Company's Common Stock at $77.625 per share, subject to adjustment under certain conditions. The Company used approximately $111 million of the net proceeds to repay all of the Company's outstanding indebtedness under its revolving credit facility and borrowings from partner companies. In April 1999, the Company notified the holders of its 1996 Convertible Subordinated Notes (1996 Notes) of its intent to redeem all of the outstanding 1996 Notes on June 2, 1999. Each 1996 Note was converted into shares of the Company's Common Stock at $28.985 per share prior to the redemption date. The Company issued 2.4 million shares as a result of the conversions. In March 1999, the Company entered into a forward sale contract relating to two million shares of its holdings in Tellabs, Inc. The Company pledged two million shares of Tellabs for three years and in return received approximately $71 million of cash. At the end of the term, the Company has the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 1.6 million to two million shares (or the cash value thereof). The proceeds from this financing transaction were used to pay down a portion of the Company's bank revolving credit facility. The Company has availability under its bank revolving credit facility of $200 million. Of the $200 million, $150 million matures in May 2002 and is secured by certain equity securities the Company holds of its publicly traded partner companies (the Pledged Securities), including CompuCom. The value of these Pledged Securities exceeds the total availability under the bank revolving credit facility. The remaining $50 million is unsecured, with availability limited to the lesser of $50 million or 10% of the value of the Pledged Securities. The $50 million facility matures in April 2000. There were no borrowings outstanding under the facilities at June 30, 1999. The Company has revolving credit facilities with certain partner companies whereby the Company may borrow up to $20 million from these partner companies on a revolving basis at a rate that varies with the Company's effective borrowing rate. At June 30, 1999, there were no borrowings under these agreements. 23 During the first half of 1999, the Company utilized approximately $41 million to acquire interests in five new partner companies, including 4anything.com, Extant, SOTAS and Vitts. The Company also utilized approximately $71 million to acquire interests in its existing private partner companies and affiliated venture funds. In addition, the Company acquired an interest in aligne in exchange for 441,518 shares of the Company's Common Stock with a market value of approximately $17 million, and purchased approximately $30 million of shares of its publicly traded partner companies. During the first quarter of 1999, the Company sold a portion of its interests in Tellabs for net proceeds totaling $47 million. Availability under the Company's revolving credit facilities, cash and cash equivalents at June 30, 1999, and other internal sources of cash flow are expected to be sufficient to fund the Company's cash requirements through 1999, including commitments to new or existing partner companies and general corporate requirements. The Company is contingently obligated for approximately $32 million of guarantee commitments, and has committed capital of approximately $115 million to various partner companies, venture funds, and private equity partnerships, to be funded over the next several years. Availability under the Company's bank credit facility is determined by the market value of the publicly traded partner companies pledged as collateral. If the stock markets experience a significant decline, availability under the credit facilities could be reduced significantly and could have an adverse effect on the Company's ability to borrow under the facilities. In addition, the Company's ability to raise proceeds from sales of securities could also be adversely effected. As a result, the Company's ability to acquire interests in new partner companies and support its existing partner companies with additional funding could be limited. CompuCom maintains separate, independent financing arrangements, which are non-recourse to the Company and are secured by certain assets of CompuCom. During recent years, CompuCom has utilized bank financing arrangements and internally generated funds to fund its cash requirements. During the quarter ended March 31, 1999 CompuCom sold its corporate headquarters building in a sale/leaseback transaction. The proceeds for the sale were approximately $40 million, of which $36 million was used to pay down long-term debt. As part of the transaction, CompuCom entered into a 20-year operating lease on the building. In May 1999, CompuCom replaced its credit agreements with a $225 million working capital facility and a $175 million receivables securitization facility. The new $225 million working capital facility bears interest at a rate of LIBOR plus an agreed upon spread and is secured by certain assets of CompuCom. This facility is fully available subject to a borrowing base and compliance with certain covenants. As of June 30, 1999, CompuCom had sufficient collateral to enable it to fully utilize the working capital facility, and had $155 million outstanding as of June 30, 1999. The working capital facility will be reduced by $25 million in September 1999 and an additional $25 million in May 2000, and matures in May 2002. On the new $175 million receivables securitization, the effective rate is based on a designated short-term interest rate plus an agreed upon spread. This securitization has a term of 3 years, subject to certain covenant compliance. The securitization facility was fully utilized at June 30, 1999. CompuCom plans to increase the securitization facility to $250-$300 million in the second half of 1999. CompuCom does not expect its effective interest rate under the new facilities to be materially different from the levels it experienced in 1998. CompuCom's liquidity continues to be negatively impacted by the increase in the dollar volume of the rebate programs of its principal suppliers. Under these programs, CompuCom is required to pay a higher initial price for product and claim a rebate to reduce that price. The collection of these rebates can take several months. Due to the increased volume of product sold under these programs, 24 CompuCom's initial price for the product is often higher than the sales price CompuCom can obtain from its customers. At June 1999, these programs are a major factor in CompuCom's financing needs. At June 30, 1999, CompuCom was owed approximately $83 million under these programs. In May 1999, CompuCom purchased from ENTEX Information Services, Inc. certain assets of its Technology Acquisition Services Division (TASD) in a cash transaction. Under the terms of the agreement, CompuCom paid approximately $137 million for the acquired assets. Consolidated working capital decreased to $216 million at June 30, 1999 from $252 million at December 31, 1998, primarily as a result of an increase in receivables and inventory, and the change in classification of Tellabs to non- current, partially offset by an increase in accounts payable, all a result of the TASD acquisition by CompuCom. The Company's operations are not capital intensive, and capital expenditures in any year normally would not be significant in relation to the overall financial position of the Company. Capital asset requirements are generally funded through bank credit facilities, internally generated funds or other financing sources. There were no material capital asset purchase commitments at June 30, 1999. Year 2000 Readiness Disclosure ------------------------------ The Company is currently addressing the Year 2000 issue, which results from the fact that many computer programs were previously written using two digits rather than four to define the applicable year. Programs written in this way may recognize a date ending in "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations. The Company has completed its assessment of its computer information systems. The Company has replaced all computer systems and software which were determined to be non-compliant. These replacements were generally part of the Company's program of regularly upgrading its computer systems, and the Company has not incurred and does not expect to incur any material extraordinary expense to remediate its systems. The Company has completed testing and implementation of its computer systems. The Company has received verification from its vendors that its information systems are Year 2000 ready. If the Company determines that any of its non-information systems are non-compliant and are at risk to not be remedied in time, it will develop a contingency plan. The Company has engaged in a regular program of surveying its partner companies regarding their Year 2000 readiness. The Company's most significant consolidated subsidiary, CompuCom, has completed initial assessment of its computer information systems, and plans to complete testing, remediation and validation by September 1999. CompuCom completed three business acquisitions during 1998 and one during 1999. CompuCom has integrated the operations of those companies, including replacing their major information systems with CompuCom's information systems. CompuCom has surveyed its vendors and suppliers regarding their Year 2000 readiness, and has received confirmation of compliance for the systems currently in use. CompuCom upgraded, replaced, or decommissioned all non-compliant vendors' systems. As a reseller of computer products, CompuCom only passes through to its customers the applicable vendor's warranties; it makes no warranties regarding Year 2000 compliance on any of the products it resells. However, if one of CompuCom's major vendors or suppliers is found to be Year 2000 non-compliant, CompuCom could experience a material adverse effect on its results of operations. CompuCom is currently developing a contingency plan to operate in the event its computer systems or those of its vendors, suppliers, or customers are not Year 2000 compliant. CompuCom currently anticipates that it will spend approximately $1.4 million on Year 2000 compliance, of which approximately $934,000 has been spent through June 1999. 25 The Company's other partner companies have completed or nearly completed assessing their internal systems for Year 2000 readiness. The partner companies are in varying stages of assessing Year 2000 readiness of their vendors, business partners, and customers. The partner companies are also in varying stages of developing contingency plans to operate in the event of a Year 2000 problem. Most of the partner companies are in the business of providing software products, information technology services, or outsourcing services. Those partner companies which produce software or products with embedded programming believe that the current version of their products are Year 2000 compliant. Certain partner companies are continuing to determine the extent to which previously sold software products and services were non- compliant. Some older companies may not be able to assess products sold many years ago. The partner companies generally have attempted to enter into software license agreements and service agreements with their customers that limit their liability, including for Year 2000 problems. Many of the software companies' customers have maintenance agreements under which the company will upgrade previously sold software to Year 2000 compliant versions. They are generally encouraging their other customers to upgrade older non-compliant versions to new compliant versions. The total cost and time which will be incurred by the partner companies on the Year 2000 readiness effort cannot presently be determined. There can be no assurance that all necessary work will be completed in time, or that such costs will not materially adversely impact one or more of such partner companies. In addition, required spending on the Year 2000 effort will cause customers of most of the Company's partner companies to reallocate at least part of their information systems budgets. Although several partner companies have offerings which may be useful in such efforts, such reallocations could materially adversely affect the results of operations of many partner companies. A most reasonably likely worst case scenario for the Company would arise if its partner companies were to be held responsible by their clients for failure in the clients' IT systems due to Year 2000 non compliance. Such claims could be complicated and costly to defend, regardless of the merit of the claims. Recent Accounting Pronouncement ------------------------------- The Financial Accounting Standards Board (FASB) has issued Statements of Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 135, "Recision of FASB Statement No. 75 and Technical Corrections." SFAS No. 137 delays the effective date of SFAS No. 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the accounting for derivative instruments, including derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS No. 135 provides technical corrections to some 29 accounting pronouncements. It is effective for fiscal years ending after February 15, 1999. Management has not yet determined the impact that the adoption of these statements may have on earnings, financial condition and liquidity of the Company. The Company plans to adopt SFAS No. 133 by January 1, 2001 and SFAS No. 135 by December 31, 1999, respectfully, as permitted by these accounting standards. Safe Harbor Statement --------------------- Certain statements in this document describing the plans, goals, strategies, intentions, forecasts, and expectations of the Company or its partner companies constitute what are sometimes termed "forward-looking statements." The following important factors could cause actual results to differ materially from those in such forward-looking statements. The information technology industry is highly competitive, characterized by rapid product development cycles, frequent price reductions, and early product obsolescence, and is generally dominated by companies with greater resources than the Company and its partner companies. Certain of the Company's partner companies offer complex products or services which have lengthy sales cycles, which makes sales forecasts difficult to make, and can lead to substantial fluctuations in quarterly operating results. Emerging technology companies, including many of the Company's partner companies, often encounter obstacles and delays in developing products, service offerings, and markets. Competition to acquire successful emerging information technology companies is substantial, particularly in the areas the Company is targeting. The Company may not be able to invest in companies in the targeted areas at valuations it considers to be reasonable. The Company is dependent on the financial market for information technology companies in general and for initial public offerings of those companies in particular. The market for securities of internet-related companies in particular is extremely volatile. If those markets become unfavorable for an extended period of time, the Company's ability to complete rights offerings and IPO's of its partner companies when planned and the Company's ability to generate gains from sales of securities could be materially 26 adversely affected. In addition, the Company's ability to borrow under its revolving credit facilities could be adversely affected as availability under these facilities is determined by the value of the publicly traded securities pledged by the Company as collateral. As a result, the Company's ability to acquire interests in new partner companies and support its existing partner companies with additional funding could be limited. Clients of the Company's partner companies could reallocate part or all of their information systems budgets to address the Year 2000 issue, which could materially reduce the demand for the products and services of the Company's partner companies. The Company's and its partner companies' business operations could be materially adversely affected if they or their vendors, business partners, or customers do not timely complete any necessary remediation efforts to their own systems and products. There is likely to be an extraordinary amount of litigation regarding the Year 2000 issue over the next several years, and information technology providers may be attractive targets for such litigation. Such litigation could have a material adverse impact on the Company's and its partner companies' operations and financial conditions. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Safeguard is exposed to equity price risks on its ownership interests in publicly traded and other securities, most of which we acquired as private companies and took public through rights offerings. These securities are generally in companies in the information technology industry sector. Many of the companies are considered small capitalization stocks. Safeguard typically does not attempt to reduce or eliminate its market exposure on securities. A 20% decrease in equity prices would result in an approximate $140 million decrease in the fair value of our publicly traded securities accounted for on the equity method or classified as available-for-sale at June 30, 1999. Approximately $218 million of the value of these equity securities at June 30, 1999 consisted of our holdings in Sanchez Computer Associates, and $169 million consisted of our holdings in Cambridge. A 20% decrease in equity prices at June 30, 1999 would result in an approximate $46 million decrease in the fair value of our holdings in Tellabs. Our Tellabs shares are classified as trading securities. Fluctuations in the market price of trading securities are included in net earnings. In March 1999, the Company entered into a forward sale contract related to two million shares of its holding in Tellabs, Inc. The Company pledged two million shares of Tellabs for three years and in return received approximately $71 million in cash. At the end of the term, the Company has the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 1.6 million to two million shares (or the cash value thereof). Availability under Safeguard's bank credit facilities is determined by the market value of the publicly traded securities pledged as collateral. As of June 30, 1999, Safeguard had sufficient collateral to enable it to fully utilize this facility. Additionally, Safeguard is exposed to interest rate risk primarily through its bank credit facility. At June 30, 1999, there were no borrowings outstanding. CompuCom is exposed to interest rate risk primarily through its receivables securitization and working capital facilities. CompuCom utilizes borrowings on these facilities to meet its working capital needs and other borrowing needs. At June 30, 1999, the securitization facility had borrowings of approximately $175 million and the working capital facility had borrowings of $115 million. If CompuCom's effective interest rate were to increase 75 basis points (.75%), the effect on the Company's financial statements would not be material. 28 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company held its Annual Meeting of Shareholders on May 20, 1999. At the meeting, the shareholders voted in favor of the following items listed in the Proxy Statement dated April 12, 1999: I. ELECTION OF DIRECTORS
FOR WITHHELD ---------- -------- Warren V. Musser 29,858,761 101,202 Judith Areen 29,851,636 108,327 Vincent G. Bell, Jr. 29,856,907 103,056 Michael J. Emmi 29,860,212 99,751 Robert A. Fox 29,857,262 102,701 Robert E. Keith, Jr. 29,864,450 95,513 Jack L. Messman 29,859,245 100,718 Russell E. Palmer 29,863,945 96,018 John W. Poduska, Sr., Ph.D. 29,865,620 94,343 Heinz Schimmelbusch, Ph.D. 29,860,960 99,003 Hubert J.P. Schoemaker, Ph.D. 29,380,606 579,357 Harry Wallaesa 29,862,016 97,947 Carl J. Yankowski 29,841,965 117,998
II. PROPOSAL TO ADOPT THE 1999 EQUITY COMPENSATION PLAN FOR AGAINST ABSTAIN ---------- ------- ------- 16,213,431 3,645,193 167,268 III. PROPOSAL TO APPROVE AN ADMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK FOR AGAINST ABSTAIN ---------- --------- ------- 26,484,479 3,379,663 95,121 IV. PROPOSAL TO APPROVE AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF PREFERRED STOCK FOR AGAINST ABSTAIN ---------- ------- ------- 16,018,677 3,862,360 144,855 29 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Number Description ------ ----------- 2.1 Asset Purchase Agreement, dated as of May 10, 1999 by and between CompuCom Systems, Inc. and Entex Information Services, Inc./(2)/ 4.1 Safeguard Scientifics, Inc. 1999 Equity Compensation Plan* 4.2 Registration Rights Agreement between Safeguard Scientifics, Inc. and Credit Suisse First Boston Corporation* 4.3 Purchase Agreement of Safeguard Scientifics, Inc. to issue and sell to Credit Suisse First Boston Corporation Convertible Subordinated Notes due June 15, 2006. (Exhibits omitted)* 10.1 Amendment to Amended and Restated Credit Agreement, dated April 12, 1999, among Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc. and PNC Bank, N.A. (Exhibits omitted)./(1)/ 10.2 Form of Promissory Notes dated June 11, 1999 given by certain executives for advances by Safeguard of income tax withholdings on restricted stock grants* 10.3 Non-Competition, Referral and Non-Disclosure Agreement dated as of May 10, 1999, by and between CompuCom Systems, Inc. and ENTEX Information Services, Inc./(2)/ 10.4 CompuCom Receivables MasterTrust I Pooling and Servicing Agreement, dated as of May 7, 1999, between Norwest Bank Minnesota National Association, CompuCom Systems, Inc., and CSI Funding, Inc.* 10.5 CompuCom Receivables MasterTrust I Pooling and Servicing Agreement Series 1999-1 Supplement, dated as of May 7, 1999, among PNC Bank, National Association, Market Street Capital Corporation, Norwest Bank Minnesota, National Association, CompuCom Systems, Inc., and CSI Funding, Inc.* 10.6 Inventory and Working Capital Financing Agreement, dated as of May 11, 1999, between IBM Credit Corporation and CompuCom Systems, Inc.* 10.7 Attachment A to Inventory and Working Capital Financing Agreement dated May 11, 1999.* 30 10.8 Receivables Contribution and Sale Agreement dated May 7, 1999 between CompuCom Systems, Inc. and CSI Funding, Inc.* 27 Financial Data Schedule (electronic filing only)* * filed herewith (1) Incorporated by reference from registrant's Form 10-Q for the quarter ended March 31, 1999 dated May 17, 1999 and made a part hereof by such reference. (2) Incorporated by reference from registrant's 8-K dated May 10, 1999 and made a part hereof by such reference. (b) On May 25, 1999, the Company filed a report on Form 8-K dated May 10, 1999 in conjunction with the acquisition of certain assets of Entex Information Systems, Inc.'s Technology Acquisition Services Division by CompuCom Systems, Inc., the Company's majority-owned subsidiary. CompuCom purchased product inventory, certain fixed assets and Entex's Kentucky distribution center for approximately $137 million in cash. On July 26, 1999, the Company filed a report on Form 8-K/A which amended Item 7 of the Form 8-K filed by the Company on May 25, 1999 to include financial statements that were not available at the time of the filing of the initial report. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAFEGUARD SCIENTIFICS, INC. (Registrant) Date: August 16, 1999 /s/ Harry Wallaesa ------------------------------------------------------ Harry Wallaesa President and Chief Operating Officer Date: August 16, 1999 /s/ Michael W. Miles ------------------------------------------------------ Michael W. Miles Senior Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) 32 EX-4.1 2 SAFEGUARD 1999 EQUITY COMPENSATION PLAN EXHIBIT 4.1 SAFEGUARD SCIENTIFICS, INC. 1999 EQUITY COMPENSATION PLAN ----------------------------- The purpose of the Safeguard Scientifics, Inc. 1999 Equity Compensation Plan (the "Plan") is to provide (i) designated employees of Safeguard Scientifics, Inc. (the "Company") and its subsidiaries, (ii) individuals to whom an offer of employment has been extended, (iii) certain advisors who perform services for the Company or its subsidiaries, and (iv) non-employee members of the Board of Directors of the Company (the "Board") with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and performance units. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company's shareholders, and will align the economic interests of the participants with those of the shareholders. 1. Administration -------------- (a) Committee. The Plan shall be administered and interpreted by a --------- committee appointed by the Board (the "Committee"). The Committee shall consist of two or more persons appointed by the Board, all of whom may be "outside directors" as defined under section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and related Treasury regulations and may be "non- employee directors" as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members or may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. (b) Committee Authority. The Committee shall have the sole authority ------------------- to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, and (iv) deal with any other matters arising under the Plan. (c) Committee Determinations. The Committee shall have full power and ------------------------ authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committee's interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. 2. Grants ------ Awards under the Plan may consist of grants of incentive stock options as described in Section 5 ("Incentive Stock Options"), nonqualified stock options as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock Options and Nonqualified Stock Options are collectively referred to as "Options"), restricted stock as described in Section 6 (Restricted Stock"), stock appreciation rights as described in Section 7 ("SARs"), and performance units as described in Section 8 ("Performance Units") (hereinafter collectively referred to as "Grants"). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan as the Committee deems appropriate and as are specified in writing by the Committee to the individual in a grant instrument (the "Grant Instrument") or an amendment to the Grant Instrument. The Committee shall approve the basic form and provisions of each Grant Instrument. Grants under a particular Section of the Plan need not be uniform as among the grantees. 3. Shares Subject to the Plan -------------------------- (a) Shares Authorized. Subject to the adjustment specified below, the ----------------- aggregate number of shares of common stock of the Company ("Company Stock") that may be issued or transferred under the Plan is 3,000,000 shares. The maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall be 500,000 shares. The shares may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options or SARs granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any shares of Restricted Stock or Performance Units are forfeited, the shares subject to such Grants shall again be available for purposes of the Plan. (b) Adjustments. If there is any change in the number or kind of ----------- shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split or combination or exchange of shares, (ii) by reason of a merger, reorganization or consolidation in which the Company is the surviving corporation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Company Stock as a class without the Company's receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced as a result of a spinoff or the Company's payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock that any individual participating in the Plan may be granted in any year, the number of shares covered by outstanding Grants, the kind of shares issued under the Plan, and the price per share or the applicable market value of such Grants shall be appropriately adjusted by the Committee to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated by rounding any portion of a 2 share equal to .5 or greater up, and any portion of a share equal to less than .5 down, in each case to the nearest whole number. Any adjustments determined by the Committee shall be final, binding and conclusive. 4. Eligibility for Participation ----------------------------- (a) Eligible Persons. All employees of the Company and its ---------------- subsidiaries ("Employees"), including Employees who are officers or members of the Board, individuals to whom an offer of employment has been extended ("New Hire"), and members of the Board who are not Employees ("Non-Employee Directors") shall be eligible to participate in the Plan. Advisors who perform services to the Company or any of its subsidiaries ("Key Advisors") shall be eligible to participate in the Plan if the Key Advisors render bona fide services and such services are not in connection with the offer or sale of securities in a capital-raising transaction. (b) Selection of Grantees. The Committee shall select the Employees, --------------------- New Hires, Non-Employee Directors and Key Advisors to receive Grants and shall determine the number of shares of Company Stock subject to a particular Grant in such manner as the Committee determines. Employees, New Hires, Key Advisors, and Non-Employee Directors who receive Grants under this Plan shall hereinafter be referred to as "Grantees." 5. Granting of Options ------------------- (a) Number of Shares. The Committee shall determine the number of ---------------- shares of Company Stock that will be subject to each Grant of Options to Employees, New Hires, Non-Employee Directors, and Key Advisors. (b) Type of Option and Price. ------------------------ (i) The Committee may grant Incentive Stock Options that are intended to qualify as "incentive stock options" within the meaning of section 422 of the Code, Nonqualified Stock Options that are not intended so to qualify, or any combination of Incentive Stock Options and Nonqualified Stock Options, all in accordance with the terms and conditions set forth herein. Incentive Stock Options may be granted only to Employees. Nonqualified Stock Options may be granted to Employees, New Hires, Non-Employee Directors, and Key Advisors. (ii) The purchase price (the "Exercise Price") of Company Stock subject to an Option shall be determined by the Committee and may be equal to, greater than, or less than the Fair Market Value (as defined below) of a share of Company Stock on the date the Option is granted, provided, however, that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or greater than, the Fair Market Value of a share of Company Stock on the date the Incentive Stock Option is granted and (y) an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, unless the Exercise Price per share is not less than I 10% of the Fair Market Value of Company Stock on the date of grant. 3 (iii) If the Company Stock is publicly traded, then, except as otherwise determined by the Committee, the following rules regarding the determination of Fair Market Value per share apply: (x) if the principal trading market for the Company Stock is a national securities exchange or the Nasdaq National Market, the mean between the highest and lowest quoted selling prices on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or (y) if the Company Stock is not principally traded on such exchange or market, the mean between the last reported "bid" and "asked" prices of Company Stock on the relevant date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Committee determines. If the Company Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or "bid" or "asked" quotations as set forth above, the Fair Market Value per share shall be as determined by the Committee. (c) Option Term. The Committee shall determine the term of each Option. ----------- The term of any Option shall not exceed ten years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, may not have a term that exceeds five years from the date of grant. (d) Exercisability of Options. ------------------------- (i) Options shall become exercisable in accordance with such terms and conditions, consistent with the Plan, as may be determined by the Committee and specified in the Grant Instrument or an amendment to the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. (ii) Notwithstanding the foregoing, the Option may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Non-Employee Director, or Key Advisor to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price, and any other restrictions the Committee determines to be appropriate. 4 (e) Termination of Employment, Disability or Death. ---------------------------------------------- (i) Except as provided below, an Option may only be exercised while the Grantee is employed by the Company as an Employee, Key Advisor or member of the Board. In the event that a Grantee ceases to be employed by the Company for any reason other than a "disability," death or "termination for cause," any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within 90 days after the date on which the Grantee ceases to be employed by the Company (or within such other period of time as may be specified by the Committee), but in any event no later than the date of expiration of the Option term. Any of the Grantee's Options that are not otherwise exercisable as of the date on which the Grantee ceases to be employed by the Company shall terminate as of such date. (ii) In the event the Grantee ceases to be employed by the Company on account of a "termination for cause" by the Company, any Option held by the Grantee shall terminate as of the date the Grantee ceases to be employed by the Company. (iii) In the event the Grantee ceases to be employed by the Company because the Grantee is "disabled," any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date on which the Grantee ceases to be employed by the Company (or within such other period of time as may be specified by the Committee), but in any event no later than the date of expiration of the Option term. Any of the Grantee's Options which are not otherwise exercisable as of the date on which the Grantee ceases to be employed by the Company shall terminate as of such date. (iv) If the Grantee dies while employed by the Company or within 90 days after the date on which the Grantee ceases to be employed on account of a termination of employment specified in Section 5(e)(i) above (or within such other period of time as may be specified by the Committee), any Option that is otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date on which the Grantee ceases to be employed by the Company (or within such other period of time as may be specified by the Committee), but in any event no later than the date of expiration of the Option term. Any of the Grantee's Options that are not otherwise exercisable as of the date on which the Grantee ceases to be employed by the Company shall terminate as of such date. (v) For purposes of Sections 5(e), 6, 7, and 8: (A) "Company," when used in the phrase "employed by the Company," shall mean the Company and its parent, subsidiary corporations, and any business venture in which the Company has a significant interest. (B) "Employed by the Company" shall mean employment or service as an Employee of Safeguard or any subsidiary or business venture in which the Company has a significant interest, Key Advisor, or member of the Board (so that, for purposes of exercising Options and SARs and satisfying conditions with respect to Restricted Stock and Performance Units, a Grantee 5 shall not be considered to have terminated employment or service until the Grantee ceases to be an Employee of Safeguard or any subsidiary or business venture in which the Company has a significant interest, Key Advisor, and member of the Board), unless the Committee determines otherwise. The Committee's determination as to a participant's employment or other provision of services, termination of employment or cessation of the provision of services, leave of absence, or reemployment shall be conclusive on all persons unless determined to be incorrect. (C) "Disability" shall mean a Grantee's becoming disabled within the meaning of section 22(e)(3) of the Code. (D) "Termination for cause" shall mean the determination of the Committee that any one or more of the following events has occurred: (1) the Grantee's conviction of any act which constitutes a felony under applicable federal or state law, either in connection with the performance of the Grantee's obligations on behalf of the Company or which affects the Grantee's ability to perform his or her obligations as an employee, board member or advisor of the Company or under any employment agreement, non-competition agreement, confidentiality agreement or like agreement or covenant between the Grantee and the Company (any such agreement or covenant being herein referred to as an "Employment Agreement"); (2) the Grantee's willful misconduct in connection with the performance of his or her duties and responsibilities as an employee, board member or advisor of the Company or under any Employment Agreement, which willful misconduct is not cured by the Grantee within 10 days of his or her receipt of written notice thereof from the Committee; (3) the Grantee's commission of an act of embezzlement, fraud or dishonesty which results in a loss, damage or injury to the Company; (4) the Grantee's substantial and continuing neglect, gross negligence or inattention in the performance of his or her duties as an employee, board member or advisor of the Company or under any Employment Agreement which is not cured by the Grantee within 10 days of his or her receipt of written notice thereof from the Committee; (5) the Grantee's unauthorized use or disclosure or any trade secret or confidential information of the Company which adversely affects the business of the Company, provided that any disclosure of any trade secret or confidential information of the Company to a third party in the ordinary course of business who signs a confidentiality agreement shall not be deemed a breach of this subparagraph; 6 (6) the Grantee's material breach of any of the provisions of any Employment Agreement, which material breach is not cured by the Grantee within 10 days of his or her receipt of a written notice from the Company specifying such material breach; or (7) the Grantee has voluntarily terminated his or her employment or service with the Company and breaches his or her noncompetition agreement with the Company. (f) Exercise of Options. A Grantee may exercise an Option that has ------------------- become exercisable, in whole or in part, by delivering a notice of exercise to the Company with payment of the Exercise Price. The Grantee shall pay the Exercise Price for an Option as specified by the Committee: (i) in cash, (ii) by delivering shares of Company Stock owned by the Grantee for the period necessary to avoid a charge to the Company's earnings for financial reporting purposes (including Company Stock acquired in connection with the exercise of an Option, subject to such restrictions as the Committee deems appropriate) and having a Fair Market Value on the date of exercise equal to the Exercise Price, (iii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iv) by such other method of payment as the Committee may approve. Shares of Company Stock used to exercise an Option shall have been held by the Grantee for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. The Grantee shall pay the Exercise Price and the amount of any withholding tax due (pursuant to Section 9) at the time of exercise. (g) Limits on Incentive Stock Options. Each Incentive Stock Option shall --------------------------------- provide that if the aggregate Fair Market Value of the stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, exceeds $100,000, then the option, as to the excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any person who is not an Employee of the Company or a parent or subsidiary (within the meaning of section 424(f) of the Code). 7 6. Restricted Stock Grants ----------------------- The Committee may issue or transfer shares of Company Stock to a Grantee under a Grant of Restricted Stock upon such terms as the Committee deems appropriate. The following provisions are applicable to Restricted Stock: (a) General Requirements. Shares of Company Stock issued or -------------------- transferred pursuant to Restricted Stock Grants may be issued or transferred for consideration or for no consideration, as determined by the Committee. The Committee may establish conditions under which restrictions on shares of Restricted Stock shall lapse over a period of time or according to such other criteria as the Committee deems appropriate. The period of time during which the Restricted Stock will remain subject to restrictions will be designated in the Grant Instrument as the "Restriction Period." (b) Number of Shares. The Committee shall determine the number of ---------------- shares of Company Stock to be issued or transferred pursuant to a Restricted Stock Grant and the restrictions applicable to such shares. (c) Requirement of Employment. If the Grantee ceases to be employed by ------------------------- the Company (as defined in Section 5(e)) during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Restricted Stock Grant shall terminate as to all shares covered by the Grant as to which the restrictions have not lapsed, and those shares of Company Stock must be immediately returned to the Company. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate. (d) Restrictions on Transfer and Legend on Stock Certificate. During -------------------------------------------------------- the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of Restricted Stock except to a Successor Grantee under Section 10(a). Each certificate for a share of Restricted Stock shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Committee may determine that the Company will not issue certificates for shares of Restricted Stock until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Restricted Stock until all restrictions on such shares have lapsed. (e) Right to Vote and to Receive Dividends. Unless the Committee -------------------------------------- determines otherwise, during the Restriction Period, the Grantee shall have the right to vote shares of Restricted Stock and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee. (f) Lapse of Restrictions. All restrictions imposed on Restricted --------------------- Stock shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Committee. The Committee may determine, as to any or all Restricted Stock Grants, that the restrictions shall lapse without regard to any Restriction Period. 8 7. Stock Appreciation Rights ------------------------- (a) General Requirements. The Committee may grant stock appreciation -------------------- rights ("SARs") to a Grantee separately or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the time of the Grant of the Incentive Stock Option. The Committee shall establish the base amount of the SAR at the time the SAR is granted. Unless the Committee determines otherwise, the base amount of each SAR shall be equal to the per share Exercise Price of the related Option or, if there is no related Option, the Fair Market Value of a share of Company Stock as of the date of Grant of the SAR. (b) Tandem SARs. In the case of tandem SARs, the number of SARs ----------- granted to a Grantee that shall be exercisable during a specified period shall not exceed the number of shares of Company Stock that the Grantee may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Company Stock. (c) Exercisability. A SAR shall be exercisable during the period -------------- specified by the Committee in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Grantee is employed by the Company or during the applicable period after termination of employment as described in Section 5(e). A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable. No SAR may be exercised for cash by an officer or director of the Company or any of its subsidiaries who is subject to Section 16 of the Exchange Act, except in accordance with Rule 16b-3 under the Exchange Act. (d) Value of SARs. When a Grantee exercises SARs, the Grantee shall ------------- receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised, payable in cash, Company Stock or a combination thereof. The stock appreciation for a SAR is the amount by which the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described in Subsection (a). (e) Form of Payment. The Committee shall determine whether the --------------- appreciation in a SAR shall be paid in the form of cash, shares of Company Stock, or a combination of the two, in such proportion as the Committee deems appropriate. For purposes of calculating the number of shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. If shares of Company Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share. 9 8. Performance Units ----------------- (a) General Requirements. The Committee may grant performance units -------------------- ("Performance Units") to a Grantee. Each Performance Unit shall represent the right of the Grantee to receive an amount based on the value of the Performance Unit, if performance goals established by the Committee are met. A Performance Unit shall be based on the Fair Market Value of a share of Company Stock or on such other measurement base as the Committee deems appropriate. The Committee shall determine the number of Performance Units to be granted and the requirements applicable to such Units. (b) Performance Period and Performance Goals. When Performance Units ---------------------------------------- are granted, the Committee shall establish the performance period during which performance shall be measured (the "Performance Period"), performance goals applicable to the Units ("Performance Goals") and such other conditions of the Grant as the Committee deems appropriate. Performance Goals may relate to the financial performance of the Company or its operating units, the performance of Company Stock, individual performance, or such other criteria as the Committee deems appropriate. (c) Payment with respect to Performance Units. At the end of each ----------------------------------------- Performance Period, the Committee shall determine to what extent the Performance Goals and other conditions of the Performance Units are met and the amount, if any, to be paid with respect to the Performance Units. Payments with respect to Performance Units shall be made in cash, in Company Stock, or in a combination of the two, as determined by the Committee. (d) Requirement of Employment. If the Grantee ceases to be employed by ------------------------- the Company (as defined in Section 5(e)) during a Performance Period, or if other conditions established by the Committee are not met, the Grantee's Performance Units shall be forfeited. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate. 9. Qualified Performance-Based Compensation. ----------------------------------------- (a) Designation as Qualified Performance-Based Compensation. The ------------------------------------------------------- Committee may determine that Performance Units or Restricted Stock granted to an Employee shall be considered "qualified performance-based compensation" under Section 162(m) of the Code. The provisions of this Section 9 shall apply to Grants of Performance Units and Restricted Stock that are to be considered "qualified performance-based compensation" under Section I 62(m) of the Code. (b) Performance Goals. When Performance Units or Restricted Stock that ----------------- are to be considered "qualified performance-based compensation" are granted, the Committee shall establish in writing (i) the objective performance goals that must be met in order for restrictions on the Restricted Stock to lapse or amounts to be paid under the Performance Units, (ii) the Performance Period during which the performance goals must be met, (iii) the threshold, target and maximum amounts that may be paid if the performance goals are met, and (iv) any other 10 conditions, including without limitation provisions relating to death, disability, other termination of employment or Reorganization, that the Committee deems appropriate and consistent with the Plan and Section 162(m) of the Code. The performance goals may relate to the Employee's business unit or the performance of the Company and its subsidiaries as a whole, or any combination of the foregoing. The Committee shall use objectively determinable performance goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in assets, unit volume, sales, market share, or strategic business criteria consisting of one or more objectives based on meeting specific revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures. (c) Establishment of Goals. The Committee shall establish the ---------------------- performance goals in writing either before the beginning of the Performance Period or during a period ending no later than the earlier of (i) 90 days after the beginning of the Performance Period or (ii) the date on which 25% of the Performance Period has been completed, or such other date as may be required or permitted under applicable regulations under Section 162(m) of the Code. The performance goals shall satisfy the requirements for "qualified performance- based compensation," including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met. The Committee shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals. (d) Maximum Payment. If Restricted Stock, or Performance Units --------------- measured with respect to the fair market value of the Company Stock, are granted, not more than 500,000 shares may be Granted to any Grantee for any Performance Period. If Performance Units are measured with respect to other criteria, the maximum amount that may be paid to a Grantee with respect to a Performance Period is $ 1,000,000. (e) Announcement of Grants. The Committee shall certify and announce ---------------------- the results for each Performance Period to all Grantees immediately following the announcement of the Company's financial results for the Performance Period. If and to the extent that the Committee does not certify that the performance goals have been met, the grants of Restricted Stock or Performance Units for the Performance Period shall be forfeited. 10. Withholding of Taxes -------------------- (a) Required Withholding. All Grants under the Plan shall be subject -------------------- to applicable federal (including FICA), state and local tax withholding requirements. The Company shall have the right to deduct from all Grants paid in cash, or from other wages paid to the Grantee, any federal, state or local taxes required by law to be withheld with respect to such Grants. In the case of Options and other Grants paid in Company Stock, the Company may require the Grantee or other person receiving such shares to pay to the Company the amount of any such taxes that the Company is required to withhold with respect to such Grants, or the 11 Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants. (b) Election to Withhold Shares. If the Committee so permits, a --------------------------- Grantee may elect to satisfy the Company's income tax withholding obligation with respect to an Option, SAR, Restricted Stock or Performance Unit paid in Company Stock by having shares withheld up to an amount that does not exceed the Grantee's maximum marginal tax rate for federal (including FICA), state and local tax liabilities. The election must be in a form and manner prescribed by the Committee and shall be subject to the prior approval of the Committee. 11. Transferability of Grants ------------------------- (a) Nontransferability of Grants. Except as provided below, only the ---------------------------- Grantee may exercise rights under a Grant during the Grantee's lifetime. A Grantee may not transfer those rights except by will or by the laws of descent and distribution or, with respect to Grants other than Incentive Stock Options, if permitted in any specific case by the Committee, pursuant to a domestic relations order (as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder). When a Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee's will or under the applicable laws of descent and distribution. (b) Transfer of Nonqualified Stock Options. Notwithstanding the -------------------------------------- foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to family members or other persons or entities according to such terms as the Committee may determine; provided that the Grantee receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer. 12. Reorganization of the Company. ----------------------------- (a) Reorganization. As used herein, a "Reorganization" shall be deemed -------------- to have occurred if the shareholders of the Company approve (or, if shareholder approval is not required, the Board approves) an agreement providing for (i) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote), (ii) the sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company. (b) Assumption of Grants. Upon a Reorganization where the Company is -------------------- not the surviving corporation (or survives only as a subsidiary of another corporation), unless the 12 Committee determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation. (c) Other Alternatives. Notwithstanding the foregoing, in the event of ------------------ a Reorganization, the Committee may take one or both of the following actions: the Committee may (i) require that Grantees surrender their outstanding Options and SARs in exchange for a payment by the Company, in cash or Company Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options or the base amount of the SARs, as applicable, or (ii) after giving Grantees an opportunity to exercise their outstanding Options and SARs, terminate any or all unexercised Options and SARs at such time as the Committee deems appropriate. Such surrender or termination shall take place as of the date of the Reorganization or such other date as the Committee may specify. (d) Limitations. Notwithstanding anything in the Plan to the contrary, ----------- in the event of a Reorganization, the Committee shall not have the right to take any actions described in the Plan (including without limitation actions described in Subsection (b) above) that would make the Reorganization ineligible for pooling of interests accounting treatment or that would make the Reorganization ineligible for desired tax treatment if, in the absence of such right, the Reorganization would qualify for such treatment and the Company intends to use such treatment with respect to the Reorganization. 13. Change of Control of the Company. -------------------------------- (a) As used herein, a "Change of Control" shall be deemed to have occurred if. (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing a majority of the voting power of the then outstanding securities of the Company except where the acquisition is approved by the Board; or (ii) Any person has commenced a tender offer or exchange offer for a majority of the voting power of the then outstanding shares of the Company. (b) Notice and Acceleration. Unless the Committee determines ----------------------- otherwise, a Change of Control shall not result in the acceleration of vesting of outstanding Options and SARs, the removal of restrictions and conditions on outstanding Restricted Stock grant, or any accelerated payments in connection with outstanding Performance Units. (c) Other Alternatives. Notwithstanding the foregoing, in the event of ------------------ a Change of Control, the Committee may take one or both of the following actions: the Committee may (i) require that Grantees surrender their outstanding Options and SARs in exchange for a 13 payment by the Company, in cash or Company Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options or the base amount of the SARs, as applicable, or (ii) after giving Grantees an opportunity to exercise their outstanding Options and SARs, terminate any or all unexercised Options and SARs at such time as the Committee deems appropriate. Such surrender or termination shall take place as of the date of the Change of Control or such other date as the Committee may specify. (d) Limitations. Notwithstanding anything in the Plan to the contrary, ----------- in the event of a Change of Control, the Committee shall not have the right to take any actions described in the Plan (including without limitation actions described in Subsection (c) above) that would make the Change of Control ineligible for pooling of interests accounting treatment or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. 14. Requirements for Issuance or Transfer of Shares ----------------------------------------------- (a) Shareholder's Agreement. The Committee may require that a Grantee ----------------------- execute a shareholder's agreement, with such terms as the Committee deems appropriate, with respect to any Company Stock distributed pursuant to this Plan. (b) Limitations on Issuance or Transfer of Shares. No Company Stock --------------------------------------------- shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Grantee hereunder on such Grantee's undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon. 15. Amendment and Termination of the Plan ------------------------------------- (a) Amendment. The Board may amend or terminate the Plan at any time. --------- (b) Termination of Plan. The Plan shall terminate on the day ------------------- immediately preceding the tenth anniversary of its effective date, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the shareholders. 14 (c) Termination and Amendment of Outstanding Grants. A termination or ----------------------------------------------- amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended in accordance with the Plan or may be amended by agreement of the Company and the Grantee consistent with the Plan. (d) Governing Document. The Plan shall be the controlling document. No ------------------ other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns. 16. Funding of the Plan ------------------- This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants. 17. Rights of Grantees ------------------ Nothing in this Plan shall entitle any Grantee or other person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment rights. 18. No Fractional Shares -------------------- No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 19. Headings -------- Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control. 20. Effective Date of the Plan -------------------------- Subject to the approval of the Company's shareholders, the Plan shall be effective on February 11, 1999. 15 21. Miscellaneous ------------- (a) Grants in Connection with Corporate Transactions and Otherwise. -------------------------------------------------------------- Nothing contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees of the Company, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of this Plan. Without limiting the foregoing, the Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a stock option or restricted stock grant made by such corporation. The terms and conditions of the substitute grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives. The Committee shall prescribe the provisions of the substitute grants. (b) Compliance with Law. The Plan, the exercise of Options and SARs ------------------- and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. The Committee may, in its sole discretion, agree to limit its authority under this Section. (c) Governing Law. The validity, construction, interpretation and ------------- effect of the Plan and Grant Instruments issued under the Plan shall exclusively be governed by and determined in accordance with the law of the Commonwealth of Pennsylvania. 16 EX-4.2 3 REGISTRATION RIGHTS AGREEMENT Exhibit 4.2 SAFEGUARD SCIENTIFICS, INC. TO CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION Trustee INDENTURE Dated as of June 9, 1999 5.0% Convertible Subordinated Notes due 2006 SAFEGUARD SCIENTIFICS, INC. Reconciliation and Tie Between the Trust Indenture Act of 1939 and Indenture, dated as of June 9, 1999, between Safeguard Scientifics, Inc. and Chase Manhattan Trust Company, National Association, as Trustee.
Trust Indenture Act Section Indenture Section (S) 310(a)(1).............................................................. 8.11 (a)(2)..................................................................... 8.11 (a)(3)........................................................... Not Applicable (a)(4)........................................................... Not Applicable (a)(5)..................................................................... 8.11 (b)................................................................... 8.6;.8.10 (S) 311(a)................................................................. 8.13 (b)........................................................................ 8.13 (b)(2)..................................................................... 8.13 (S) 312(a).......................................................... 6.1; 6.2(a) (b)...................................................................... 6.2(b) (c)...................................................................... 6.2(c) (S) 313(a)............................................................... 6.3(a) (b)...................................................................... 6.3(a) (c)...................................................................... 6.3(a) (d)...................................................................... 6.3(b) (S) 314(a).................................................................. 6.4 (b).............................................................. Not Applicable (c)(1)..................................................................... 16.5 (c)(2)..................................................................... 16.5 (c)(3)........................................................... Not Applicable (d).............................................................. Not Applicable (e)........................................................................ 16.5 (S) 315(a).................................................................. 8.1 (b)......................................................................... 7.8 (c)......................................................................... 8.1 (d)......................................................................... 8.1 (d)(1)...................................................................... 8.1 (d)(2)...................................................................... 8.2 (d)(3)...................................................................... 8.2 (e)......................................................................... 7.9 (S) 316(a).................................................................. 7.7 (a)(1)(A)................................................................... 7.7 (a)(1)(B)................................................................... 7.7 (a)(2)........................................................... Not Applicable (b)......................................................................... 7.4 (S) 317(a)(1)............................................................... 7.5 (a)(2)...................................................................... 7.5 (b)......................................................................... 5.4 (S) 318(a)..................................................................16.7
________________ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS
Page I. Definitions.............................................................. 1 Section 1.1 Definitions............................................... 1 Affiliate........................................................... 1 Board of Directors.................................................. 1 Business Day........................................................ 2 Closing Price....................................................... 2 Commission.......................................................... 2 Common Stock........................................................ 2 Company............................................................. 2 Conversion Price.................................................... 2 Corporate Trust Office.............................................. 2 Credit Agreement.................................................... 2 Current Event....................................................... 2 Custodian........................................................... 2 Default............................................................. 2 Defaulted Interest.................................................. 2 Depositary.......................................................... 2 Event of Default.................................................... 3 Exchange Act........................................................ 3 Expiration Date..................................................... 3 Expiration Time..................................................... 3 Fundamental Change.................................................. 3 Fundamental Change Expiration Time.................................. 4 Global Note......................................................... 4 Indebtedness........................................................ 4 Indenture........................................................... 5 Initial Purchaser................................................... 5 IPO Rights.......................................................... 5 Liquidated Damages Amount........................................... 5 Majority Subsidiary................................................. 5 Note or Notes....................................................... 5 Note register....................................................... 5 Noteholder or holder................................................ 5 Officers' Certificate............................................... 5 Opinion of Counsel.................................................. 5 Optional Redemption................................................. 5 Original Conversion Ratio........................................... 5 Other Event......................................................... 5 outstanding......................................................... 5 Partnership Company................................................. 6 Person.............................................................. 6 Portal Market....................................................... 6 Predecessor Note.................................................... 6 Principal Amount.................................................... 6 QIB................................................................. 6 Reference Date...................................................... 6 Registration Rights Agreement....................................... 6 Relevant Conversion Ratio........................................... 6 Relevant Closing Date............................................... 6 Representative...................................................... 6
-1- Repurchase Date..................................................................... 6 Responsible Officer................................................................. 7 Restricted Securities............................................................... 7 Rights Value per Note............................................................... 7 Rights Value per Share.............................................................. 7 Rule 144A........................................................................... 7 Securities Act...................................................................... 7 Senior Indebtedness................................................................. 7 Subscription Value per Note......................................................... 7 Subscription Value per Share........................................................ 7 Trading Day......................................................................... 7 Trust Indenture Act or TIA.......................................................... 7 Trustee............................................................................. 7 Voting Shares....................................................................... 8 II. Issue, Description, Execution, Registration and Exchange of Notes................... 8 Section 2.1 Designation Amount and Issue of Notes..................................... 8 Section 2.2 Form of Notes............................................................. 8 Section 2.3 Date and Denomination of Notes; Payments of Interest (Including Any Liquidated Damages Amount)............................................ 8 Section 2.4 Execution of Notes........................................................ 9 Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary................................................... 10 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes................................ 14 Section 2.7 Temporary Notes........................................................... 15 Section 2.8 Cancellation of Notes Paid, Etc........................................... 15 Section 2.9 CUSIP Numbers............................................................. 16 III. Redemption of Notes................................................................. 16 Section 3.1 Optional Redemption by the Company........................................ 16 Section 3.2 Notice of Redemptions; Selection of Notes for Redemption.................. 16 Section 3.3 Payment of Notes Called for Redemption.................................... 17 Section 3.4 Conversion Arrangement on Call for Redemption............................. 18 Section 3.5 Repurchase at Option of Holders........................................... 18 IV. Subordination of Notes.............................................................. 19 Section 4.1 Agreement of Subordination................................................ 19 Section 4.2 Payments to Noteholders................................................... 19 Section 4.3 Subrogation of Notes...................................................... 20 Section 4.4 Authorization to Effect Subordination..................................... 21 Section 4.5 Notice to Trustee......................................................... 21 Section 4.6 Trustee's Relation to Senior Indebtedness................................. 22 Section 4.7 No Impairment of Subordination............................................ 22 Section 4.8 Certain Conversions Not Deemed Payment.................................... 22 Section 4.9 Article Applicable to Paying Agents....................................... 23 Section 4.10 Senior Indebtedness Entitled to Rely...................................... 23 Section 4.11 Reliance on Judicial Order or Certificate of Liquidating Agent............ 23 Section 4.12 Trustee's Compensation Not Prejudiced..................................... 23 V. Particular Covenants of the Company................................................. 23 Section 5.1 Payment of Principal, Premium and Interest................................ 23 Section 5.2 Maintenance of Office or Agency........................................... 23 Section 5.3 Appointments to Fill Vacancies in Trustee's Office........................ 24 Section 5.4 Provisions as to Paying Agent............................................. 24 Section 5.5 Existence................................................................. 24
-2- Section 5.6 Payment of Taxes and Other Claims......................................... 25 Section 5.7 Rule 144A Information Requirement......................................... 25 Section 5.8 Stay, Extension and Usury Laws............................................ 25 Section 5.9 Compliance Certificate.................................................... 25 VI. Noteholders' Lists and Reports by the Company and the Trustee....................... 26 Section 6.1 Noteholders' Lists........................................................ 26 Section 6.2 Preservation and Disclosure of Lists...................................... 26 Section 6.3 Reports by Trustee........................................................ 26 Section 6.4 Reports by Company........................................................ 26 VII. Remedies of the Trustee and Noteholders on an Event of Default...................... 27 Section 7.1 Events of Default......................................................... 27 Section 7.2 Payments of Notes on Default; Suit Therefor............................... 28 Section 7.3 Application of Monies Collected by Trustee................................ 29 Section 7.4 Proceedings by Noteholder................................................. 30 Section 7.5 Proceedings by Trustee.................................................... 31 Section 7.6 Remedies Cumulative and Continuing........................................ 31 Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders............................................................... 31 Section 7.8 Notice of Defaults........................................................ 31 VIII. Concerning the Trustee.............................................................. 31 Section 8.1 General................................................................... 31 Section 8.2 Certain Rights of Trustee................................................. 32 Section 8.3 Individual Rights of Trustee.............................................. 33 Section 8.4 Trustee's Disclaimer...................................................... 33 Section 8.5 Notice of Default......................................................... 33 Section 8.6 Conflicting Interests of Trustee.......................................... 33 Section 8.7 Compensation and Indemnity................................................ 33 Section 8.8 Replacement of Trustee.................................................... 34 Section 8.9 Successor Trustee by Merger, Etc.......................................... 34 Section 8.10 Eligibility............................................................... 35 Section 8.11 Money Held in Trust....................................................... 35 Section 8.12 Withholding Taxes......................................................... 35 Section 8.13 Preferential Collection of Claims......................................... 35 Section 8.14 Trustee's Application for Instructions from the Company................... 35 IX. Concerning the Noteholders.......................................................... 35 Section 9.1 Action by Noteholders..................................................... 35 Section 9.2 Proof of Execution by Noteholders......................................... 36 Section 9.3 Who Are Deemed Absolute Owners............................................ 36 Section 9.4 Company-Owned Notes Disregarded........................................... 36 Section 9.5 Revocation of Consents; Future Holders Bound.............................. 36 X. Noteholders' Meetings............................................................... 36 Section 10.1 Purpose of Meetings....................................................... 36 Section 10.2 Call of Meetings by Trustee............................................... 37 Section 10.3 Call of Meetings by Company or Noteholders................................ 37 Section 10.4 Qualifications for Voting................................................. 37 Section 10.5 Regulations............................................................... 37 Section 10.6 Voting.................................................................... 38 Section 10.7 No Delay of Rights by Meeting............................................. 38 Section 10.8 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting.................................... 38
-3- Section 10.9 Procedures Not Exclusive.................................................. 38 XI. Supplemental Indentures............................................................. 38 Section 11.1 Supplemental Indentures Without Consent of Noteholders.................... 38 Section 11.2 Supplemental Indenture with Consent of Noteholders........................ 39 Section 11.3 Effect of Supplemental Indenture.......................................... 40 Section 11.4 Notation on Notes......................................................... 40 Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished to Trustee...................................................... 40 XII. Consolidation, Merger, Sale, Conveyance and Lease................................... 40 Section 12.1 Company May Consolidate, Etc., on Certain Terms........................... 40 Section 12.2 Successor Corporation to Be Substituted................................... 41 Section 12.3 Opinion of Counsel to Be Given Trustee.................................... 41 XIII. Satisfaction and Discharge of Indenture............................................. 41 Section 13.1 Discharge of Indenture.................................................... 41 Section 13.2 Deposited Monies to Be Held in Trust by Trustee........................... 42 Section 13.3 Paying Agent to Repay Monies Held......................................... 42 Section 13.4 Return of Unclaimed Monies................................................ 42 Section 13.5 Reinstatement............................................................. 42 XIV. Immunity of Incorporators, Stockholders, Officers and Directors..................... 42 Section 14.1 Indenture and Notes Solely Corporate Obligations.......................... 42 XV. Conversion of Notes................................................................. 42 Section 15.1 Right to Convert.......................................................... 43 Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends.................... 43 Section 15.3 Cash Payments in Lieu of Fractional Shares................................ 44 Section 15.4 Conversion Price.......................................................... 44 Section 15.5 Adjustment of Conversion Price............................................ 44 Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale................. 50 Section 15.7 Taxes on Shares Issued.................................................... 50 Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock........................ 50 Section 15.9 Responsibility of Trustee................................................. 51 Section 15.10 Notice to Holders Prior to Certain Actions................................ 51 XVI. Miscellaneous Provisions............................................................ 52 Section 16.1 Provisions Binding on Company's Successors................................ 52 Section 16.2 Official Acts by Successor Corporation.................................... 52 Section 16.3 Addresses for Notices, Etc................................................ 52 Section 16.4 Governing Law............................................................. 53 Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee................................................................ 53 Section 16.6 Legal Holidays............................................................ 53 Section 16.7 Trust Indenture Act....................................................... 53 Section 16.8 No Security Interest Created.............................................. 53 Section 16.9 Benefits of Indenture..................................................... 53 Section 16.10 Table of Contents, Headings, Etc.......................................... 54 Section 16.11 Authenticating Agent...................................................... 54 Section 16.12 Execution in Counterparts................................................. 54
Exhibit A: Form of Note -4- INDENTURE INDENTURE, dated as of June 9, 1999, between Safeguard Scientifics, Inc., a Pennsylvania corporation (hereinafter called the "Company," as more fully set forth in Section 1.1), and Chase Manhattan Trust Company, National Association, a national banking corporation, as trustee hereunder (hereinafter called the "Trustee," as more fully set forth in Section 1.1). WITNESSETH: Whereas, for its lawful corporate purposes, the Company has duly authorized the issue of its 5.0% Convertible Subordinated Notes due 2006 (the "Notes"), in an aggregate principal amount not to exceed $230,000,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and Whereas, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Fundamental Change, and a form of conversion notice to be borne by the Notes are to be substantially in the forms hereinafter provided for; and Whereas, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized. Now, Therefore, This Indenture Witnesseth: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below), as follows: I. Definitions Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture that are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein," "hereof," "hereunder, " and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. The terms defined in this Article include the plural as well as the singular. Affiliate: The term "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control, " (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. Board of Directors: The term "Board of Directors" shall mean the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder. Business Day: The term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the commercial banks in The City of New York or the city in which the Corporate Trust Office is located are authorized by law to close. Closing Price: The term "Closing Price" shall have the meaning specified in Section 15.5(h)(1). Commission: The term "Commission" shall mean the Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean the common stock, par value $.10, of the Company, and any other stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Company: The term "Company" shall mean Safeguard Scientifics, Inc., a Pennsylvania corporation, having its principal office at 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087 and, subject to the provisions of Article XII, shall include its successors and assigns. Conversion Price: The term "Conversion Price" shall have the meaning specified in Section 15.4. Corporate Trust Office: The term "Corporate Trust Office" or other similar term, shall mean the office of the Trustee in Philadelphia, Pennsylvania, which office is, at the date as of which this Indenture is dated, located at Chase Manhattan Trust Company, One Liberty Place, 52nd Floor, 1650 Market Street, Suite 5210, Philadelphia, PA 19103, Attention: Chase Capital Markets Fiduciary Services (Safeguard Scientifics 5.0% Convertible Subordinated Notes due 2006). Credit Agreement: The term "Credit Agreement" shall mean the current Amended and Restated Credit Agreement among the Company, Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc. and PNC Bank, N.A., as administrative and collateral agent, and the other lenders party thereto, as such agreement may be amended, supplemented or modified from time to time. Current Event: The Term "Current Event" shall have the meaning specified in Section 15.5(i). Custodian: The term "Custodian" shall mean Chase Manhattan Trust Company, National Association as custodian with respect to the Global Notes, or any successor entity thereto. Default: The term "default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default. Defaulted Interest: The term "Defaulted Interest" shall have the meaning specified in Section 2.3. Depositary: The term "Depositary" shall mean, with respect to the Global Notes issuable or issued in whole or in part, the Person specified in Section 2.5(d) as the Depositary with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. -2- Directed Share Subscription Program: The term "Directed Share Subscription Program" shall mean a program whereby all shareholders of the Company are entitled to purchase a portion of the shares offered by a Partnership Company in that Partnership Company's initial public offering. Event of Default: The term "Event of Default" shall mean any event specified in Section 7.1(a), (b), (c), (d), (e), (f), (g) or (h). Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Expiration Date: The term "Expiration Date" shall have the meaning specified in Section 15.5(e)(ii). Expiration Time: The Term "Expiration Time" shall have the meaning specified in Section 15.5(h). Fundamental Change: The term "Fundamental Change" shall mean: (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becoming the "beneficial owner" of Voting Shares (as defined below) of the Company entitled to exercise more than 50% of the total voting power of all outstanding Voting Shares of the Company (including any right to acquire Voting Shares that are not then outstanding of which such person or group is deemed the beneficial owner); or (b) a change in the Board of Directors of the Company to the extent that less than a majority of the directors who constituted the Board of Directors one year prior to the date of the Fundamental Change remain in office at such date; or (c) the occurrence of any transaction or event in connection with which (i) all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of, in each case unless the Closing Price of the Common Stock for any of the five Trading Days before the announcement of such event or transaction is at least equal to 105% of the Conversion Price at that time, or if the consideration is in the form of cash or common stock listed (or, upon consummation of or immediately following such transaction or event which will be listed), on a United States national securities exchange or approved for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices, and the aggregate fair market value of such cash and securities (based upon the Closing Price of any such securities on any of the five Trading Days after such event or transaction) given in consideration is at least 105% of the Conversion Price of the Notes in effect on the day preceding the closing date of such transaction; or (d) the liquidation or dissolution of the Company. For the purpose of this definition: a "beneficial owner" shall be determined in accordance with Rule 13d-3 under the Exchange Act, as in effect on the date of the Indenture, except that the number of shares of Voting Shares of the Company shall be deemed to include, in addition to all outstanding Voting Shares of the Company and unissued shares (as defined below) deemed to be held by the "person" or "group" (as defined above) or other person with respect to which the Fundamental Change determination is being made, all unissued shares deemed to be held by all other persons; the term "beneficially owned" shall have a meaning correlative to that of beneficial owner; -3- "unissued shares" means Voting Shares not outstanding that are subject to options, warrants, rights to purchase or conversion privileges exercisable within 60 days of the date of determination of a Fundamental Change; and the term "all or substantially all" in the context of a sale of assets means the sale of more than 50% of the book value of the Company's assets in one or a related series of transactions; provided that the sale of any of the Company's interest in any one Majority Subsidiary or Partnership Company, including, for the avoidance of doubt, CompuCom Systems, Inc., shall not be deemed the sale of "all or substantially all" of the Company's assets. Fundamental Change Expiration Time: The term "Fundamental Change Expiration Time" shall have the meaning set forth in Section 3.5(b). Global Note: The term "Global Note" shall have the meaning set forth in Section 2.5(b). Indebtedness: The term "Indebtedness" shall mean, with respect to any Person, and without duplication: (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments, and all commitment, standby and other fees due and payable to financial institutions with respect to credit facilities available to such Person) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), and all obligations of such Person issued or assumed as the deferred purchase price of property or services other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances; (c) all obligations and liabilities (contingent or otherwise) in respect of leases of real or personal property or other assets of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related documents to purchase or to cause a third party to purchase such leased property; (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d); (f) any indebtedness or other obligations described in clauses (a) through (e) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and -4- (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). Indenture: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. Initial Purchaser: The term "Initial Purchaser" shall mean Credit Suisse First Boston Corporation. IPO Rights: The terms "IPO Rights" shall have the meaning specified in Section 15.5(e). Liquidated Damages Amount: The term "Liquidated Damages Amount" shall have the meaning specified in Section 2(e) of the Registration Rights Agreement. Majority Subsidiary: The term "Majority Subsidiary" shall mean any corporation, association or other business entity of which the Company owns, directly or indirectly, securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions. Note or Notes: The term "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture, including the Global Note. Note register: The term "Note register" shall have the meaning specified in Section 2.5(a). Noteholder or holder: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), shall mean any Person in whose name at the time a particular Note is registered on the Notes registrar's books. Officers' Certificate: The term "Officers' Certificate," when used with respect to the Company, shall mean a certificate signed by both (a) the Chairman of the Board of Directors or the President or any Vice President (whether or not designated by numbers or words added before or after the title Vice President) and (b) the Chief Financial Officer, General Counsel, Corporate Controller, Secretary or any Assistant Secretary of the Company. Each Officers' Certificate (other than the certificate provided pursuant to the Trust Indenture Act Section 314(a)(4)) shall include the statements provided for in Trust Indenture Act Section 314(e). Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or outside counsel to the Company, that meets the requirements of Section 16.5 hereof. Each such Opinion of Counsel shall include the statements provided for in Trust Indenture Act Section 314(e). Optional Redemption: The term "Optional Redemption" shall have the meaning specified in Section 3.1. Original Conversion Ratio: The term "Original Conversion Ratio" shall have the meaning specified in Section 15.5(e). Other Event: The term "Other Event" shall have the meaning specified in Section 15.5(i). outstanding: The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 9.4, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; -5- (b) Notes, or portions thereof, (i) for the redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or (ii) which shall have been otherwise discharged in accordance with Article XIII; (c) Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6; and (d) Notes converted into Common Stock pursuant to Article XV and Notes deemed not outstanding pursuant to Article III. Partnership Company: The term "Partnership Company" means, in the context of this Indenture, an entity in which the Company either directly or indirectly through its Subsidiaries has an equity interest. Person: The term "Person" shall mean a corporation, an association, a partnership, a limited liability company, an individual, a joint venture, a joint stock company, a trust, or any other entity or organization, including government or political subdivision or agency or instrumentality thereof. Portal Market: The term "Portal Market" shall mean The Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. Predecessor Note: The term "Predecessor Note" of any particular Note shall mean every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note that it replaces. Principal Amount: The Term "Principal Amount" shall have the meaning specified in Section 2.5(b). QIB: The term "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. Reference Date: The term "Reference Date" shall have the meaning specified in Section 15.5(d). Registration Rights Agreement: The term "Registration Rights Agreement" shall mean the Registration Rights Agreement, dated as of June 3, 1999, between the Company and the Initial Purchaser, and certain permitted assigns specified therein, as amended from time to time in accordance with its terms. Relevant Conversion Ratio: The term "Relevant Conversion Ratio" shall have the meaning specified in Section 15.5(f). Relevant Closing Date: The term "Relevant Closing Date" shall have the meaning specified in Section 15.5(e). Representative: The term "Representative" shall mean (a) the indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required Persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. Repurchase Date: The term "Repurchase Date" shall have the meaning specified in Section 3.5(a). -6- Responsible Officer: The term "Responsible Officer," when used with respect to the Trustee, shall mean an officer of the Trustee in the Corporate Trust Office assigned and duly authorized from to time to time by the Trustee to administer this Indenture. Restricted Securities: The term "Restricted Securities" shall have the meaning specified in Section 2.5(d). Rights IPO: The term Rights IPO shall mean an initial public offering of the common stock of a Partnership Company solely through the issuance of rights, by such Partnership Company, to purchase such common stock to the shareholders of the Company. Rights Value per Note: The term "Rights Value per Note" shall have the meaning specified in Section 15.5(e). Rights Value per Share: The term "Rights Value per Share" shall have the meaning specified in Section 15.5(e). Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated under the Securities Act. Securities Act: The term "Securities Act" shall mean the Securities Act of 1933, as amended. Senior Indebtedness: The term "Senior Indebtedness" shall mean the principal of, premium, if any, interest, including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing, unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is pari passu with or junior to the Notes. Notwithstanding the foregoing, the term "Senior Indebtedness" shall not include any Indebtedness of the Company to any of its subsidiaries, a majority of the voting stock of which is owned, directly or indirectly, by the Company, or Indebtedness evidenced by the Notes. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. Subscription Value per Note: The term "Subscription Value per Note" shall have the meaning specified in Section 15.5(f). Subscription Value per Share: The term "Subscription Value per Share" shall have the meaning specified in Section 15.5(f). Trading Day: The term "Trading Day" shall have the meaning specified in Section 15.5(i)(3). Trust Indenture Act or TIA: The terms "Trust Indenture Act" or "TIA" shall mean the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 11.3. Trustee: The term "Trustee" shall mean Chase Manhattan Trust Company, National Association until a successor replaces it in accordance with the provisions of Article VIII of this Indenture and thereafter means such successor. -7- Voting Shares: The term "Voting Shares" means all the Company's outstanding shares of any class or series of capital stock entitled to vote generally in the election of members to the Board of Directors. The definitions of certain other terms are as specified in Sections 2.5 and 3.5 and Article XV. II. Issue, Description, Execution, Registration and Exchange of Notes Section 2.1 Designation Amount and Issue of Notes. The Notes shall be designated as "5.0% Convertible Subordinated Notes due 2006." Notes not to exceed the aggregate principal amount of $230,000,000 (except pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its (a) Chief Executive Officer, President, Chief Financial Officer, Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) Treasurer, Assistant Treasurer, Corporate Controller or its Secretary or any Assistant Secretary, or by two officers listed in clause (a), without any further action by the Company hereunder. Section 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by such Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this Indenture. --------- Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed, or to conform to usage. Any Global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Notes in accordance with this Indenture. Payment of principal of and interest (including any Liquidated Damages Amount) and premium, if any, on any Global Note shall be made to the holder of such Note. The terms and provisions contained in the form of Note attached as Exhibit ------- A hereto shall constitute, and are hereby expressly made, a part of this - - Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest (Including Any Liquidated Damages Amount). The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication and shall bear interest from the applicable date in each case as specified on the face of the form of Note attached as Exhibit A hereto. --------- Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve (12) 30-day months. The Person in whose name any Note (or its Predecessor Note) is registered on the Note register at the close of business on any record date with respect to any interest payment date shall be entitled to receive the interest (including any Liquidated Damages Amount) payable on such interest payment date, except (i) that the interest (including any Liquidated Damages Amount) payable upon redemption (unless the date of redemption is an interest payment date) will be payable to the Person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) which is converted into Common Stock during the period from (but excluding) a record date to (but excluding) the next succeeding interest payment date either (i) if such Note (or portion thereof) has been called for redemption on a redemption date which occurs during such period, or is to be redeemed in connection with -8- a Fundamental Change on a Repurchase Date (as defined in Section 3.5) which occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) except to the extent required to be paid upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5 hereof or (ii) if otherwise, any Note (or portion thereof) submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. Interest (including any Liquidated Damages Amount) shall be payable at the office of the Company maintained by the Company for such purposes at 1201 Main Street, Dallas, Texas 75202, which shall initially be an office or agency of the Trustee and may, as the Company shall specify to the paying agent in writing by each record date, be paid either (i) by check mailed to the address of the Person entitled thereto as it appears in the Note register (provided that the holder of Notes with an aggregate principal amount in excess of $10,000,000 shall, at the written election of such holder, be paid by wire transfer in immediately available funds to an account in the United States) or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The term "record date" with respect to any interest payment date shall mean June 1 or December 1 preceding the relevant June 15 or December 15, respectively. Any interest (including any Liquidated Damages Amount) on any Note which is payable, but is not punctually paid or duly provided for, on any June 15 or December 15 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment, and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment, the Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (b) of this Section 2.3. (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.4 Execution of Notes. The Notes shall be (i) signed in the name and on behalf of the Company by the manual or facsimile signature of its Chief Executive Officer, President, Chief Financial Officer, any Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") or Treasurer and (ii) attested by the manual or facsimile signature of its Secretary or any of its Assistant Secretaries or its Corporate Controller or any of its Assistant Treasurers or any other officer listed in clause (a) (which may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of -9- Note attached as Exhibit A hereto, manually executed by the Trustee (or an --------- authenticating agent appointed by the Trustee as provided by Section 16.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary. (a) The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 5.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Note register shall be in written form or in any form capable of being converted into written form within a reasonably prompt period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars in accordance with Section 5.2. Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section 5.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Noteholder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. All Notes presented or surrendered for registration of transfer or for exchange, redemption or conversion shall (if so required by the Company or the Note registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes. Neither the Company nor the Trustee nor any Note registrar shall be required to exchange or register a transfer of (i) any Notes for a period of fifteen (15) days next preceding any selection of Notes to be redeemed or (ii) any Notes or portions thereof called for redemption pursuant to Section 3.2 or (iii) any Notes or portions thereof surrendered for conversion pursuant to Article XV or (iv) any Notes or portions thereof tendered for redemption (and not withdrawn) pursuant to Section 3.5. -10- (b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes that, upon initial issuance are beneficially owned by QIBs or as a result of a sale or transfer after initial issuance are beneficially owned by QIBs, will be represented by one or more Global Notes registered in the name of the Depositary or the nominee of the Depositary (the "Global Note"), except as otherwise specified below. The transfer and exchange of beneficial interests in any such Global Note shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of any such Global Note as set forth on the face of the Note ("Principal Amount") to reflect any such transfers. Except as provided below, beneficial owners of a Global Note shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered holders of such Global Note. (c) So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note to a QIB in accordance with Rule 144A, and upon receipt of the definitive Note or Notes being so transferred, together with a certification, substantially in the form on the reverse of the Note, from the transferor that the transfer is being made in compliance with Rule 144A (or other evidence satisfactory to the Trustee), the Trustee shall make an endorsement on the Global Note to reflect an increase in the aggregate Principal Amount of the Notes represented by such Global Note, and the Trustee shall cancel such definitive Note or Notes in accordance with the standing instructions and procedures of the Depositary, the aggregate Principal Amount of the Notes represented by such Global Note to be increased accordingly; provided that no definitive Note, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in such Global Note until such definitive Note is freely tradable in accordance with Rule 144(k); provided further that the Trustee shall issue Notes in definitive form upon any transfer of a beneficial interest in the Global Note to the Company or any Affiliate of the Company. Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on The Portal Market or as may be required for the Notes to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (d) Every Note that bears or is required under this Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(d) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Security, by such holder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Note (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(e), if applicable) shall bear a legend in substantially the following form, unless such Note has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee: THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING -11- SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO SAFEGUARD SCIENTIFICS, INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(D) ABOVE), IT WILL FURNISH TO CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in the second paragraph of Section 2.5(c) and in this Section 2.5(d)), a Global Note may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Notes. Initially, the Global Note shall -12- be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co. If at any time the Depositary for a Global Note notifies the Company that it is unwilling or unable to continue as Depositary for such Note, the Company may appoint a successor Depositary with respect to such Note. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, will authenticate and deliver, Notes in certificated form, in aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note. If a Note in certificated form is issued in exchange for any portion of a Global Note after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such Note, but will be payable on such interest payment date, subject to the provisions of Section 2.3, only to the Person to whom interest in respect of such portion of such Global Note is payable in accordance with the provisions of this Indenture. Notes in certificated form issued in exchange for all or a part of a Global Note pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Notes in certificated form to the Persons in whose names such Notes in certificated form are so registered. At such time as all interests in a Global Note have been redeemed, converted, canceled, exchanged for Notes in certificated form, or transferred to a transferee who receives Notes in certificated form thereof, such Global Note shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a global Note is exchanged for Notes in certificated form, redeemed, converted, repurchased or canceled, exchanged for Notes in certificated form or transferred to a transferee who receives Notes in certificated form therefor or any Note in certificated form is exchanged or transferred for part of a Global Note, the principal amount of such Global Note shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an endorsement shall be made on such Global Note, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. (e) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of any Note shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Notes that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent: THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, THE HOLDER HEREOF AGREES THAT, UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO SAFEGUARD SCIENTIFICS, INC. OR ANY -13- SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (1)(D) ABOVE), IT WILL FURNISH TO CHASE MELLON SHAREHOLDER SERVICES L.L.C., AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (1)(D) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall bear any restrictive legend required by this Section 2.5(e). (f) Any Note or Common Stock issued upon the conversion or exchange of a Note that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Notes or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated, defaced or be destroyed, lost or stolen, the Company will execute, and upon its written request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery, a new Note, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the -14- Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Note and make available for delivery such Note. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note which has matured or is about to mature or has been called for redemption or has been tendered for redemption (and not withdrawn) or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. Section 2.7 Temporary Notes. Pending the preparation of Notes in certificated form, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon the written request of the Company, authenticate and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the Notes in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the Notes in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or such authenticating agent Notes in certificated form (other than in the case of Global Notes) and thereupon any or all temporary Notes (other than any such Global Note) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 5.2 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Notes an equal aggregate principal amount of Notes in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Notes in certificated form authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall dispose of such canceled Notes in accordance with its customary procedures. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. -15- Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Noteholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. III. Redemption of Notes Section 3.1 Optional Redemption by the Company. At any time on or after June 18, 2002, and prior to maturity, the Notes may be redeemed at the option of the Company (an "Optional Redemption"), in whole or in part, upon notice as set forth in Section 3.2, at the following optional redemption prices (expressed as percentages of the principal amount), together in each case with accrued and unpaid interest, if any (including any Liquidated Damages Amount), to, but excluding, the date fixed for redemption. If redeemed during the period beginning June 18, 2002 and ending on June 15, 2003, at a redemption price of 102.50% and if redeemed during the 12-month period beginning June 16: Year Redemption Price ---- ---------------- 2003..............101.67% 2004..............100.83% 2005..............100.00% and 100% at June 15, 2006; provided that if the date fixed for redemption is after an interest payment record date and on or before June 15 or December 15, then the interest payable on such date shall be paid to the holder of record on the preceding June 1 or December 1, respectively. Section 3.2 Notice of Redemptions; Selection of Notes for Redemption. In case the Company shall desire to exercise the right of Optional Redemption in respect of all or, as the case may be, any part of the Notes, it shall fix a date for redemption and at its written request received by the Trustee not fewer than thirty (30) days prior (or such shorter period of time as may be acceptable to the Trustee) to the date fixed for redemption, the Trustee in the name of and at the expense of the Company, shall send a notice of such redemption not fewer than twenty (20) days or more than sixty (60) days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part, at their last addresses as the same appear on the Note register; provided that if the Company shall give such notice, it shall also give written notice, and written notice of the Notes to be redeemed in the case of a redemption, to the Trustee. The Company may not give notice of any redemption of any of the Notes if a default in payment of interest on the Notes has occurred and is continuing. Such mailing shall be sent in accordance with Section 16.3. The notice if sent in the manner therein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. In the case of a redemption, each notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the CUSIP number or numbers of the Notes being redeemed, the date fixed for redemption (which shall be a Business Day), the redemption price at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert such Notes or portions thereof into Common Stock will expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers, if any). In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount -16- thereof to be redeemed and shall state that, on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued. On or prior to the redemption date specified in the notice of redemption given as provided in this Section 3.2, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money in immediately available funds sufficient to redeem on the redemption date all the Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to, but excluding, the date fixed for redemption; provided that if such payment is made on the redemption date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time on such date. If any Note called for redemption is converted pursuant hereto prior to such redemption, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its written request, or, if then held by the Company, shall be discharged from such trust. Whenever any Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers' Certificate not fewer than thirty (30) days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof of the Global Note or the Notes in certificated form to be redeemed (in principal amounts of $1,000 or integral multiples thereof), by lot or by another method the Trustee deems fair and appropriate. Upon any redemption of fewer than all Notes, the Company and the Trustee may (but need not), solely for purposes of determining the pro rata allocation among such Notes as are unconverted and outstanding at the time of redemption, treat as outstanding any Notes surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a notice of redemption and may (but need not) treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to (but excluding) the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and such Notes shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 8.11 and 13.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to (but excluding) the date fixed for redemption. On presentation and surrender of such Notes at a place of payment specified in said notice, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to (but excluding) the date fixed for redemption; provided that, if the applicable redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date instead of the holders surrendering such Notes for redemption on such date. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any notice of redemption during the continuance of a default in payment of interest on the Notes. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear -17- interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to (but excluding) the date fixed for redemption shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XV) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture. Section 3.5 Repurchase at Option of Holders. (a) If there shall occur a Fundamental Change at any time prior to maturity of the Notes, then each Noteholder shall have the right, at such holder's option, to require the Company to repurchase all of such holder's Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, on the date (the "Repurchase Date") that is thirty (30) days after the date of the Company Notice (as defined in Section 3.5(b) below) of such Fundamental Change (or, if such 30th day is not a Business Day, the immediately succeeding Business Day) at a repurchase price equal to 100% of the principal amount thereof, together with accrued interest to (but excluding) the Repurchase Date; provided that, if such Repurchase Date is after June 1 or December 1 and prior to the next June 15 or December 15, respectively, then the interest payable on the Repurchase Date shall be paid to the holders of record of the Notes on the aforementioned June 1 or December 1, respectively. Upon presentation of any Note redeemed in part only, the Company shall execute and, upon the Company's written direction to the Trustee, the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. (b) On or before the 20th day after the occurrence of a Fundamental Change, the Company or, at its written request (which must be received by the Trustee at least five (5) Business Days prior to the date the Trustee is requested to give notice as described below, unless the Trustee shall agree in writing to a shorter period), the Trustee in the name of and at the expense of the Company, shall give to all holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the repurchase right at the option of the holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in the first paragraph of Section 3.2 (without regard for the time limits set forth therein). If the Company shall give such notice, the Company shall also deliver a copy of the Company Notice to the Trustee at such time as it is mailed to Noteholders. Each Company Notice shall specify the circumstances constituting the Fundamental Change, the Repurchase Date, the price at which the Company shall be obligated to repurchase Notes, that the holder must exercise the repurchase right on or prior to the close of business on the Repurchase Date (the "Fundamental Change Expiration Time"), a description of the procedure which a Noteholder must follow to exercise such repurchase right, the place or places where the holder is to surrender such holder's Notes, and the amount of interest accrued on each Note to the Repurchase Date. No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders' repurchase rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 3.5. -18- (c) For a Note to be so repaid at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose or, at the option of such holder, the Corporate Trust Office, such Note with the form entitled "Option to Elect Repayment Upon A Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the Fundamental Change Expiration Time and submission of such duly completed form shall be irrevocable on the part of such holder. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment shall be determined by the Company, whose determination shall be final and binding absent manifest error. (d) On or prior to the Repurchase Date, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to repay on the Repurchase Date all the Notes to be repaid on such date at the appropriate repurchase price, together with accrued interest to (but excluding) the Repurchase Date; provided that if such payment is made on the Repurchase Date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time, on such date. Payment for Notes repurchased for redemption prior to the Fundamental Change Expiration Time will be made promptly (but in no event more than five (5) Business Days) following the Repurchase Date for the amount payable to the holders of such Notes entitled thereto as they shall appear on the registry books of the Company. (e) The Company will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act to the extent then applicable in connection with the repurchase rights of the holders of Notes in the event of a Fundamental Change. IV. Subordination of Notes Section 4.1 Agreement of Subordination. The Company covenants and agrees, and each holder of Notes issued hereunder by its acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article IV; and each Person holding any Note, whether upon original issue or upon registration of transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest (including Liquidated Damages Amount, if any) on all Notes (including, but not limited to, the redemption or repurchase price with respect to the Notes called for repurchase in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in this Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash or other payment satisfactory to the holders of Senior Indebtedness of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article IV shall prevent the occurrence of any default or Event of Default hereunder. Section 4.2 Payments to Noteholders. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest (including Liquidation Damages Amount, if any) on the Notes (except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding up, liquidation or reorganization); and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provisions of this Article IV, shall (except as aforesaid) be paid by the Company or by any receiver, -19- trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee. For purposes of this Article IV, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article IV with respect to the Notes to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.2 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption or repurchase in accordance with Section 3.2 or submitted for repurchase at the option of the holder in accordance with Section 3.5, as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 4.2, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. Nothing in this Section 4.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.7. This Section 4.2 shall be subject to the further provisions of Section 4.5. Section 4.3 Subrogation of Notes. Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article IV (equally and ratably with the holders of all indebtedness of the Company that by its express terms, is subordinated to other indebtedness of the Company to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior -20- Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal, premium, if any, and interest (including Liquidated Damages Amount, if any) on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article IV, and no payment over pursuant to the provisions of this Article IV, to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article IV, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article IV are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the principal of, premium, if any, and interest (including Liquidated Damages Amount, if any) on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article IV of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article IV, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article IV. Section 4.4 Authorization to Effect Subordination. Each holder of a Note, by its acceptance thereof, authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article IV and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 7.2 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes. Section 4.5 Notice to Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article IV. Notwithstanding the provisions of this Article IV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article IV, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative or a holder or holders of Senior Indebtedness or from any trustee thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not less than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest (including Liquidated Damages Amount, if any) on any Note) the Trustee shall not have received, with respect -21- to such monies, the notice provided for in this Section 4.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to apply monies received to the purpose for which they were received, and shall not be affected by any notice to the contrary that may be received by it on or after such prior date. Notwithstanding anything in this Article IV to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1, and any such payment shall not be subject to the provisions of Section 4.1 or 4.2. The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. The Trustee shall not be required to make any payment or distribution to or on behalf of a holder of Senior Indebtedness pursuant to this Article IV unless it has received satisfactory evidence as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article IV and, if such evidence is not furnished to the Trustee, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee, in its individual capacity, shall be entitled to all the rights set forth in this Article IV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article IV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and, subject to the provisions of Section 8.1, the Trustee shall not be liable to any holder of Senior Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver to holders of Notes, the Company or any other Person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise. Section 4.7 No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Section 4.8 Certain Conversions Not Deemed Payment. For the purposes of this Article IV only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.3), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on such Note. For the purposes of this Section 4.8, the term "junior securities" means (a) shares of any stock of any class of the Company or (b) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Noteholders, the right, which is absolute and unconditional, of the holder of any Note to convert such Note in accordance with Article XV. -22- Section 4.9 Article Applicable to Paying Agents. If at any time any paying agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 4.5 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as paying agent. The Trustee shall not be responsible for the actions or inactions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents. Section 4.10 Senior Indebtedness Entitled to Rely. The holders of Senior Indebtedness shall have the right to rely upon this Article IV, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. Section 4.11 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Noteholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, distribution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or dissolution, delivered to the Trustee or to the Noteholders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 4.12 Trustee's Compensation Not Prejudiced. Nothing in this Article IV will apply to amounts due to the Trustee pursuant to other sections of this Indenture. V. Particular Covenants of the Company Section 5.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any (including the redemption price upon redemption pursuant to Article III), and interest (including Liquidated Damages Amount, if any), on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Section 5.2 Maintenance of Office or Agency. The Company will maintain an office or agency in the Borough of Manhattan, The City of New York (currently at Chase Manhattan Bank, 55 Water Street, New York, NY 10041 (attn: CTWindow)) where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate co-registrars and one or more offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Trustee as paying agent, Note registrar, Custodian and conversion agent and the corporate trust office of the Trustee in Dallas, Texas, as the office or agency of the Company for each of the aforesaid purposes. -23- So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 8.8. If co-registrars have been appointed in accordance with this Section, the Trustee shall mail such notices only to the Company and the holders of Notes it can identify from its records. Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.8, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.4 Provisions as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee, or if the Trustee shall appoint such a paying agent, the Company will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.4: (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of and premium, if any, or interest on the Notes when the same shall be due and payable; and (3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust. The Company shall, on or before each due date of the principal of, premium, if any, or interest on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided that if such deposit is made on the due date, such deposit shall be received by the paying agent by 10:00 a.m. New York City time, on such date. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest (including Liquidated Damages Amount, if any) so becoming due and will promptly notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on the Notes when the same shall become due and payable. (c) Anything in this Section 5.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 5.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums. (d) Anything is this Section 5.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 5.4 is subject to Sections 13.3 and 13.4. The Trustee shall not be responsible for the actions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents. Section 5.5 Existence. Subject to Article XII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights (charter and statutory); provided, however, -24- that the Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the holders. Section 5.6 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (a) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (b) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 5.7 Rule 144A Information Requirement. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Notes or any Common Stock issued upon conversion thereof which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Notes or such Common Stock from such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Notes or such Common Stock and it will take such further action as any holder or beneficial holder of such Notes or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Notes or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Notes or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. Section 5.8 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest (including Liquidated Damages Amount, if any) on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.9 Compliance Certificate. The Company shall deliver to the Trustee, within ninety (90) days after the end of each fiscal year of the Company, a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and the status thereof of which the signer may have knowledge. The Company will deliver to the Trustee, forthwith (and in any event within five Business Days) upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, any event which, with notice or the lapse of time or both, would constitute an Event of Default or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. -25- Any notice required to be given under this Section 5.9 shall be delivered to a Responsible Officer of the Trustee at its Corporate Trust Office. VI. Noteholders' Lists and Reports by the Company and the Trustee Section 6.1 Noteholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semiannually, not more than fifteen (15) days after each June 1 and December 1 in each year beginning with December 1, 1999, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Notes as of a date not more than fifteen (15) days (or such other date as the Trustee may reasonably request in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished by the Company to the Trustee so long as the Trustee is acting as the sole Note registrar. Section 6.2 Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes contained in the most recent list furnished to it as provided in Section 6.1 or maintained by the Trustee in its capacity as Note registrar or co-registrar in respect of the Notes, if so acting. The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (b) The rights of Noteholders to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Noteholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of holders of Notes made pursuant to the Trust Indenture Act. Section 6.3 Reports by Trustee. (a) Within sixty (60) days after June 15 of each year commencing with the year 2000, the Trustee shall transmit to holders of Notes such reports dated as of June 15 of the year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of such report shall, at the time of such transmission to holders of Notes, be filed by the Trustee with each stock exchange and automated quotation system upon which the Notes are listed and with the Company. The Company will promptly notify the Trustee in writing when the Notes are listed on any stock exchange or automated quotation system or delisted therefrom. Section 6.4 Reports by Company. The Company shall file with the Trustee (and the Commission if at any time after the Indenture becomes qualified under the Trust Indenture Act), and transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act, whether or not the Notes are governed by such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information -26- contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). VII. Remedies of the Trustee and Noteholders on an Event of Default Section 7.1 Events of Default. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: (a) default in the payment of any installment of interest (including Liquidated Damages Amount, if any) upon any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is permitted under Article IV hereof; or (b) default in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall become due and payable either at maturity or in connection with any redemption pursuant to Article III, by acceleration or otherwise, whether or not such payment is permitted under Article IV hereof; or (c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section 7.1 specifically dealt with) continued for a period of sixty (60) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee in accordance with the provision of Section 8.2 hereof, or to the Company and a Responsible Officer of the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or (d) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it, or 50% or more of the total assets of the Company or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (e) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or 50% or more of the total assets of the Company, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) consecutive days; or (f) default by the Company in the conversion of any Note in accordance with Article XV hereof; or (g) failure on the part of the Company or any Majority Subsidiary to pay principal at maturity of, or where an event of default shall have occurred, and be continuing under and resulted in the acceleration of, any loan agreement, mortgage, indenture or other instrument under which there is issued or by which there is secured or evidenced any Indebtedness (other than the Notes) of the Company or any Majority Subsidiary, whether such Indebtedness exists on the date of the issuance of the Notes or shall be created hereafter, and the principal amount of such Indebtedness which, together with any such other Indebtedness so accelerated or not paid at maturity, aggregates an amount equal to or greater than $25,000,000; or -27- (h) a final judgment, order or decree other than a judgment, order or decree in respect of any Indebtedness which, together with other such outstanding final judgments, orders or decrees entered against the Company and/or any Majority Subsidiary, is equal to or exceeds an aggregate of $15,000,000 (not covered by valid and collectible insurance from solvent unaffiliated insurers) shall be entered against the Company and/or any Majority Subsidiaries and within forty-five (45) days after entry thereof such judgment or judgments shall not have vacated, satisfied or discharged or execution thereof stayed or, within 45 days after expiration of any such stay, such judgment shall not have vacated, satisfied or discharged, then, unless the principal of all of the Notes shall have already become due and payable, and so long as such Event of Default is continuing, in the case of an Event of Default specified in Section 7.1(a) or (b) the Trustee, and in any other case (other than an Event of Default if specified in Section 7.1(d) or (e)) the Trustee at the direction of the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), shall declare the principal of and premium, if any, on all the Notes and the interest accrued thereon (including Liquidated Damages Amount, if any) to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 7.1(d) or (e) occurs, the principal of all the Notes and the interest accrued thereon shall (including Liquidated Damages Amount, if any) be immediately and automatically due and payable without necessity of further action. This provision, however, is subject to the conditions that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon (including Liquidated Damages Amount, if any) all Notes and the principal of and premium, if any, on any and all Notes which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (including Liquidated Damages Amount, if any) (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the same rate as the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 8.7, and if any and all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on (including Liquidated Damages Amount, if any) Notes which shall have become due by acceleration, shall have been cured or waived pursuant to Section 7.7, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Company shall notify a Responsible Officer of the Trustee, promptly (and in any event within five Business Days) upon becoming aware thereof, of any Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes, and the Trustee shall continue as though no such proceeding had been taken. Section 7.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (i) in case default shall be made in the payment of any installment of interest upon (including Liquidated Damages Amount, if any) any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (ii) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption, upon a declaration of acceleration or otherwise and upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal and premium, if any, or interest (including Liquidated Damages Amount, if any), as the case may be, with interest to the date of such payment upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest (including Liquidated Damages Amount, if any) at the same rate as the rate borne by the Notes; and, in addition -28- thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and all other amounts due the Trustee under Section 8.6. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on (including Liquidated Damages Amount, if any) the Notes to the registered holders, whether or not the Notes are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and shall enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee at the direction of holders of not less than 25% of aggregate principal amount of the Notes then outstanding, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 7.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest (including Liquidated Damages Amount, if any) owing and unpaid in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 8.7; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, be for the ratable benefit of the holders of the Notes. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 7.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article VII shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: -29- First: To the payment of all amounts due the Trustee under Section 8.7; Second: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on (including Liquidated Damages Amount, if any) the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest (including Liquidated Damages Amount, if any) at the same rate as the rate borne by the Notes, such payments to be made ratably to the Persons entitled thereto; Third: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon the Notes for principal and premium, if any, and interest (including Liquidated Damages Amount, if any), with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest (including Liquidated Damages Amount, if any) at the same rate as the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest (including Liquidated Damages Amount, if any) without preference or priority of principal and premium, if any, over interest (including Liquidated Damages Amount, if any), or of interest (including Liquidated Damages Amount, if any) over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest; and Fourth: Subject to the provisions of Article IV, to the payment of the remainder, if any, to the Company. Section 7.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 7.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of and premium, if any (including the redemption price pursuant to Article III), and accrued interest on (including Liquidated Damages Amount, if any) such Note, on or after the respective due dates expressed in such Note or in the event of redemption, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder. Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in its own behalf and for its own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, its rights of conversion as provided herein. -30- Section 7.5 Proceedings by Trustee. In case of an Event of Default, the Trustee (but only in the case of an Event of Default as specified in Section 7.1(c), (f), (g) and (h), at the request of the holders of not less than 25% in the aggregate principal amount of the Notes then outstanding) shall proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as are necessary to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 7.6 Remedies Cumulative and Continuing. Except as provided in Section 2.6, all powers and remedies given by this Article VII to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, however, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action which is not inconsistent with such direction, (c) the Trustee may decline to take any action that would benefit some Noteholders to the detriment of other Noteholders and (d) the Trustee may refuse to follow any direction that may involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may, on behalf of the holders of all of the Notes, waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest (including Liquidated Damages Amount, if any) or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock, (iii) a default in the payment of the redemption price pursuant to Article III or (iv) a default in respect of a covenant or provisions hereof which under Article XI cannot be modified or amended without the consent of the holders of each or all Notes then outstanding or affected thereby. Upon any such waiver, the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 7.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 7.8 Notice of Defaults. If any default occurs and if such default is known to a Responsible Officer of the Trustee, the Trustee shall mail to all Noteholders in the manner and to the extent provided in TIA Section 313(c) notice of such default within ninety (90) days after it occurs, unless such default shall have been cured or waived before the giving of such notice; and provided that, except in the case of default in the payment of the principal of, or premium, if any, or interest (including Liquidated Damages Amount, if any) on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Noteholders. VIII. Concerning the Trustee Section 8.1 General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in -31- the exercise of any of its rights or powers, if it in its sole discretion shall believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII. Section 8.2 Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) the Trustee may rely, and shall be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, facsimile transmission, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, made or presented by the proper person and may accept and rely upon the same as conclusive evidence of the truth and accuracy of the statement and opinions contained therein. The Trustee need not investigate any fact or matter stated in any such document; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 16.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; (iii) the Trustee may consult with counsel and the written advice of such counsel shall be full and complete authorization and protection with respect to any action taken, suffered or omitted by it hereunder in good faith and reliance thereon and may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care; (iv) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the holders, unless such holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; (v) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the written direction of the holders of a majority in principal amount of the outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (vi) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney; (viii) the Trustee shall not be required to take notice or be deemed to have notice of any default hereunder unless the Trustee be specifically notified of such default in writing by the Company or any holder of the Notes, and in the absence of such notice the Trustee may conclusively assume that there is no default; provided that the Trustee shall be required to take and be deemed to have notice of its failure to receive payments of interest or principal hereunder; (ix) except for information provided by the Trustee concerning the Trustee, the Trustee shall have no responsibility with respect to any information in any offering memorandum or other disclosure -32- material distributed with respect to the Notes, and the Trustee shall have no responsibility for compliance with securities laws in connection with the issuance and sale of the Notes; (x) in the event the Trustee shall receive inconsistent or conflicting requests and indemnity from two or more groups of holders of the Notes, each representing at least 25% (but less than 50%) of the aggregate principal amount of the Notes then outstanding, the Trustee will act in accordance with instructions received by the holders of the greater percentage thereof; (xi) except as otherwise expressly provided by the provisions of this Indenture, the Trustee shall not be obligated and may not be required to give or furnish any notice, demand, report, request, reply, statement, advice or opinion to the holder of any Note or to the Company or any other Person, and the Trustee shall not incur any liability for its failure or refusal to give or furnish the same unless obligated or required to do so by the express provisions hereof; and (xii) the Trustee shall not be required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture. Section 8.3 Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any registrar, co-registrar, paying agent, conversion agent or authenticating agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. Section 8.4 Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of this Indenture or the Notes, (ii) shall not be accountable for the Company's use or application of the proceeds from the Notes and (iii) shall not be responsible for any statement in the Notes other than its certificate of authentication. Section 8.5 Notice of Default. If any Event of Default occurs and is continuing and if the Trustee has actual knowledge of such Event of Default, the Trustee shall mail to each holder in the manner and to the extent provided in TIA Section 313(c) notice of the Event of Default within 90 days after it occurs, unless such Event of Default has been cured. Section 8.6 Conflicting Interests of Trustee. If the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of the TIA and this Indenture. Section 8.7 Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing for its services. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses and advances incurred or made by the Trustee in accordance with this Indenture. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify and hold harmless the Trustee and its directors, agents and employees (collectively the "Indemnities") against any and all losses, liabilities, obligations, damages, penalties, fines, judgments, actions, suits, proceedings, reasonable costs and expenses (including reasonable fees and disbursements of counsel) of any kind whatsoever which may be incurred by or imposed on the Indemnities or any of them in connection with any investigative, administrative or judicial proceeding (whether or not such indemnified party is designated a party to such proceeding) arising out of or in connection with the acceptance or administration of its duties under this Indenture; provided, however, that the Company need not reimburse any expense or indemnify against any loss, obligation, damage, penalty, fine, judgment, action, suit, proceeding, reasonable cost or expense (including reasonable fees and disbursements of counsel) of any kind whatsoever which may be incurred by Indemnities or any of them in connection with any investigative, administrative or judicial proceeding (whether or not such indemnified party is designated a party to such proceeding) in which (i) the Trustee is not following any instructions or other direction upon which it is authorized to rely and (ii) it is determined that the Indemnities or any of them acted with negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure -33- by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder, unless the Company is materially prejudiced thereby. The Company shall defend the claim and the Trustee shall cooperate in the defense. Unless otherwise set forth herein, the Indemnities of any of them may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The provisions of this Section 8.7 shall survive the termination of this Indenture and the resignation or removal of the Trustee for any reason. To secure the Company's payment obligations in this Section 8.7, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (d) or (e) of Section 7.1, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. Section 8.8 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 8.8. The Trustee may resign at any time by so notifying the Company in writing at least thirty (30) days prior to the date of the proposed resignation. The holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the prior consent of the Company. The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 8.10; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the holders of a majority in principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 8.8 within thirty (30) days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 8.7, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each holder. If the Trustee is no longer eligible under Section 8.10, any holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee pursuant to this Section 8.8, the Company's obligation under Section 8.7 shall continue for the benefit of the retiring Trustee. Section 8.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking -34- association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. Section 8.10 Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee (or the bank holding company to which the Trustee is a member) shall have a combined capital and surplus of at least $25 million as set forth in its most recent published annual report of condition. Section 8.11 Money Held in Trust. Subject to the provisions of Section 13.4 and Section 4.2, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article XIII of this Indenture. Section 8.12 Withholding Taxes. The Trustee, as agent for the Company, shall exclude and withhold from each payment of principal and interest and other amounts due hereunder or under the Notes any and all withholding taxes applicable thereto as required by law. The Trustee agrees to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the holders of the Notes, that it will file any necessary withholding tax returns or statements when due, and that, as promptly as possible after the payment thereof, it will deliver to each holder of a Note appropriate documentation showing the payment thereof, together with such additional documentary evidence as such holders may reasonably request from time to time. Section 8.13 Preferential Collection of Claims. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). Section 8.14 Trustee's Application for Instructions from the Company. Any application by the Trustee for written instructions from the Company (other than with regard to any action proposed to be taken or omitted to be taken by the Trustee that affects the rights of the holders of the Notes or holders of Senior Indebtedness under this Indenture, including, without limitation, under Article IV hereof) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than ten (10) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. IX. Concerning the Noteholders Section 9.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article X, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. -35- Section 9.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a Noteholder or its agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the registry of such Notes or by a certificate of the Note registrar. The record of any Noteholders' meeting shall be proved in the manner provided in Section 10.6. Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any paying agent, any conversion agent and any Note registrar may deem the Person in whose name such Note shall be registered upon the Note register to be, and may treat it as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Note. Section 9.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes which are owned by the Company or any other obligor on the Notes or any Affiliate of the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action, only Notes which a Responsible Officer knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 9.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or any Affiliate of the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described Persons; and, subject to Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination. Section 9.5 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 9.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefore, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefore. X. Noteholders' Meetings. Section 10.1 Purpose of Meetings. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes: (1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VII; -36- (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VIII; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.2; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law. Section 10.2 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses as they shall appear on the Note register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than forty-five (45) days prior to the date fixed for the meeting. Any meeting of Noteholders shall be valid without notice if the holders of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3 Call of Meetings by Company or Noteholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Noteholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 10.1, by mailing notice thereof as provided in Section 10.2. Section 10.4 Qualifications for Voting. To be entitled to vote at any meeting of Noteholders a person shall (a) be a holder of one or more Notes on the record date pertaining to such meeting or (b) be a person appointed by an instrument in writing as proxy by a holder of one or more Notes on the record date pertaining to such meeting. The only persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.5 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote at the meeting. Subject to the provisions of Section 9.4, at any meeting each Noteholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes -37- held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Notes represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballot on which shall be subscribed the signatures of the holders of Notes or of their representatives by proxy and the principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.2. The record shall show the principal amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. Section 10.8 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article X will be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or the Notes. Section 10.9 Procedures Not Exclusive. The procedures set forth in this Article X are not exclusive and the rights and obligations of the Company, the Trustee and the Noteholders under other Articles of this Indenture will in no way be limited by the provisions of this Article X. XI. Supplemental Indentures Section 11.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by the resolutions of the Board of Directors (as evidenced by a Board Resolution delivered to the Trustee), and the Trustee may, from time to time, and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.6 and the repurchase obligations of the Company pursuant to the requirements of Section 3.5(e); (b) subject to Article IV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company pursuant to Article XII; -38- (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors shall consider to be for the benefit of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture that shall not materially adversely affect the interests of the holders of the Notes; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualifications of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any supplemental indenture, the Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations that may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 11.2. Notwithstanding any other provision of the Indenture or the Notes, the Registration Rights Agreement and the obligation to pay Liquidated Damages Amount thereunder may be amended, modified or waived in accordance with the provisions of the Registration Rights Agreement. Section 11.2 Supplemental Indenture with Consent of Noteholders. With the consent (evidenced as provided in Article IX) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when authorized by the resolutions of the Board of Directors, and the Trustee shall, from time to time and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to repurchase any Note upon the happening of a Fundamental Change in a manner adverse to the holder of Notes, or impair the right to convert the Notes -39- into Common Stock subject to the terms set forth herein, including Section 15.6, or reduce the percentage of Notes necessary to waive any Event of Default, in each case, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary and authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.3 Effect of Supplemental Indenture. Any supplemental indenture executed pursuant to the provisions of this Article XI shall comply with the Trust Indenture Act, as then in effect, provided that this Section 11.3 shall not require such supplemental indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments and all the term and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 11.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article XI may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished to Trustee. Prior to entering into any supplemental indenture, the Trustee may request and shall be fully protected in relying on an Officers' Certificate and an Opinion of Counsel meeting the requirements set forth in Section 16.5 as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article XI. The Opinion of Counsel shall also state that the Supplemental Indenture will be valid and binding upon the Company, subject to customary exceptions. XII. Consolidation, Merger, Sale, Conveyance and Lease Section 12.1 Company May Consolidate, Etc., on Certain Terms. Subject to the provisions of Section 12.2, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of the Company with or into any other Person or Persons (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other Person (whether or not affiliated with the Company), authorized to acquire and -40- operate the same and that shall be organized under the laws of the United States of America, any state thereof or the District of Columbia; provided that upon any such consolidation, merger, sale, conveyance or lease, the due and punctual payment of the principal of and premium, if any, and interest (including Liquidated Damages Amount, if any) on all of the Notes, according to their tenor and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the Person that shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 15.6. Section 12.2 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of this first part. Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of Safeguard Scientifics, Inc., any or all of the Notes, issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes that such successor Person thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or lease, the Person named as the "Company" in the first paragraph of this Indenture or any successor that shall thereafter have become such in the manner prescribed in this Article XII may be dissolved, wound up and liquidated at any time thereafter and such Person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. Section 12.3 Opinion of Counsel to Be Given Trustee. The Trustee shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance or lease and any such assumption complies with the provisions of this Article XII. XIII. Satisfaction and Discharge of Indenture Section 13.1 Discharge of Indenture. When (a) all sums due and payable under the terms of the Notes and the Indenture have been paid, or (b) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes that have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (c) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Notes (other than any Notes that shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of principal of and premium, if any, and interest on, the Notes and the other rights, duties and obligations of Noteholders, as beneficiaries hereof with respect to the amounts, -41- if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on written demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes. Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1, provided such deposit was not in violation of Article IV, shall be held in trust for the sole benefit of the Noteholders and not to be subject to the subordination provisions of Article IV, and such monies shall be applied by the Trustee to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any. Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Notes (other than the Trustee) shall, upon written request of the Company set forth in an Officer's Certificate, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such monies. Section 13.4 Return of Unclaimed Monies. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or interest on Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Notes shall thereafter look only to the Company for any payment that such holder may be entitled to collect unless an applicable abandoned property law designates another Person. Section 13.5 Reinstatement. If the Trustee or the paying agent is unable to apply any money in accordance with Section 13.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.1 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 13.2; provided, however, that if the Company makes any payment of interest on or principal of any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the money held by the Trustee or paying agent. XIV. Immunity of Incorporators, Stockholders, Officers and Directors Section 14.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. XV. Conversion of Notes -42- Section 15.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, including, without limitation, Article IV, the holder of any Note shall have the right, at its option, at any time following the original issuance of the Notes hereunder to the close of business on the final maturity date of the Notes (except that, with respect to any Note or portion of a Note that shall be called for redemption, such right shall terminate, except as provided in Section 15.2 or Section 3.4, at the close of business on the Business Day next preceding the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof to convert the principal amount of any such Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Note or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 15.2). A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted its Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XV. Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in certificated form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 15.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to the office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a Global Note, a Noteholder must complete the appropriate instruction form for conversion pursuant to the Depository's book-entry conversion program, deliver by book-entry delivery an interest in such Global Note, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or conversion agent, and pay the funds, if any, required by this Section 15.2 and any transfer taxes if required pursuant to Section 15.7. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 5.2, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 15.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 15.2 have been satisfied as to such Note (or portion thereof), and the Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall be surrendered. -43- Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding the following interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption on a redemption date that occurs during the period from the close of business on such record date to the close of business on the Business Day next preceding the following interest payment date) be accompanied by payment, in same day funds or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted. Except as provided above in this Section 15.2, no payment or other adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article. Upon the conversion of an interest in a Global Note, the Trustee (or other conversion agent appointed by the Company), or the Custodian at the direction of the Trustee (or other conversion agent appointed by the Company), shall make a notation on such Global Note as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Notes effected through any conversion agent other than the Trustee. Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted thereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment and payment therefore in cash at the current market price thereof to the holder of Notes. The current market price of a share of Common Stock shall be the Closing Price on the last Business Day immediately preceding the day on which the Notes (or specified portions thereof) are deemed to have been converted. Section 15.4 Conversion Price. The Conversion Price shall be as specified in the form of Note (herein called the "Conversion Price") attached as Exhibit A hereto and which is, at the date of this Indenture, $77.625, subject - --------- to adjustment as provided in this Article XV. Section 15.5 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall pay or make a dividend or other distribution on its Common Stock exclusively in Common Stock or shall pay or make a dividend or other distribution on any other class of capital stock of the Company which dividend or distribution includes Common Stock, the Conversion Price in effect at the opening of business on the day next following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day next following the date fixed for such determination. For the purposes of this Section 15.5(a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (b) In case the Company shall pay or make a dividend or other distribution on its Common Stock consisting exclusively of, or shall otherwise issue to all holders of the Company's Common Stock, rights, warrants or options entitling the holders thereof for a period not exceeding 60 days to subscribe for or purchase shares of the Company's Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (i) of this Section 15.5) of the Company's Common Stock on the date fixed for the determination of shareholders entitled to receive such rights, warrants or options, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by -44- a fraction of which the numerator shall be the number of shares of the Company's Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of the Company's Common Stock which the aggregate of the offering price of the total number of shares of the Company's Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of the Company's Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this Section 15.5(b), the number of shares of the Company's Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of the Company's Common Stock. The Company shall not issue any rights, warrants or options in respect of shares of the Company's Common Stock held in the treasury of the Company. (c) In case outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares of the Company's Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of the Company's Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) Subject to the last sentence of this Section 15.5(d), in case the Company shall, by dividend or otherwise, distribute to all holders of the Company's Common Stock (i) evidences of its indebtedness, (ii) shares of any class of its capital stock (other than Common Stock), or (iii) securities, cash or assets (excluding any rights, warrants or options referred to in Section 15.5(b), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in Section 15.5(a), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this Section 15.5(d) by a fraction of which the numerator shall be the current market price per share (determined as provided in Section 15.5(h) of the Common Stock on the date of such effectiveness less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution and shall, in the case of securities being distributed for which prior thereto there is an actual or when issued trading market, be no less than the value determined by reference to the average of the closing prices in such market over the period specified in the succeeding sentence), on the date of such effectiveness, of the portion of the evidences of indebtedness, shares of capital stock, securities, cash and property so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day next following the later of (a) the date fixed for the payment of such distribution and (b) the date 20 days after the notice relating to such distribution is given pursuant to Section 15.10(a) (such later date of (a) and (b) being referred to as the "Reference Date"). The provisions of this Section 15.5(d) shall not be applicable to a Rights IPO or any other public offering by a Partnership Company that includes a Directed Share Subscription Program. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 15.5(d) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to Section 15.5(i). For purposes of this Section 15.5(d), any dividend or distribution that includes shares of Common Stock or rights, warrants or options to subscribe for or purchase shares of Common Stock shall be deemed instead to be (a) a dividend or distribution of the evidences of indebtedness, cash, property, shares of capital stock or securities other than such shares of Common Stock or such rights, warrants or options (making any Conversion Price reduction required by this Section 15.5(d) immediately followed by (b) a dividend or distribution of such shares of Common Stock or such rights, warrants or options (making any further Conversion Price reduction required by Section 15.5(a) or (b) except (i) the Reference Date of such dividend or distribution as defined in this paragraph (d) shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distributions", "the date fixed for the determination of shareholders entitled to receive such rights, warrants or options" and "the date fixed for such determination" within the meaning of paragraphs (a) and (b) of this Section 15.5 and (ii) any shares of Common Stock -45- included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of paragraph (a) of this Section 15.5). (e) In case a Partnership Company shall issue rights ("IPO Rights") in a Rights IPO, effective on the date of such Partnership Company's initial public offering (the "Relevant Closing Date"), the Conversion Price on the date immediately following the Relevant Closing Date shall be obtained by making the following adjustment calculation: (i) dividing the average closing price of the IPO Rights on the last ten trading days that the IPO Rights were publicly traded, by the number of shares of Common Stock that are required, under the terms of the IPO Rights, to allow a holder of Common Stock to receive one IPO Right (the "Rights Value Per Share"), then (ii) multiplying (A) the Rights Value Per Share by (B) the principal amount of each Note divided by the Conversion Price in effect on the last day (the "Expiration Date") that the IPO Rights are publicly traded (the "Original Conversion Ratio" and, the product of such function, the "Rights Value Per Note"), then (iii) dividing (A) the Rights Value Per Note by (B) the Closing Price for the Company's Common Stock on the Expiration Date minus the Rights Value per Share, and then (iv) dividing (A) the principal amount of each Note by (B) the sum of (iii) plus the Original Conversion Ratio. Any adjustment shall be successively made whenever any Rights IPO is completed, and shall become effective on the Business Day following the closing of a Rights IPO. (f) In case a Partnership Company shall undertake, as part of the initial public offering of its common stock pursuant to a registration statement filed on Form S-1 under the Securities Act that includes a Directed Share Subscription Program, the Conversion Price shall be subject to the following adjustment: (i) dividing the difference (if any, and in each case only where (A) is a higher number than (B) between (A) the average closing or last sale prices, as applicable, of the common stock of that Partnership Company on the first four Days its common stock is publicly traded and (B) the initial public offering price of its common stock, by (C) the number of shares of the Company's Common Stock required to subscribe for one share of common stock of that Partnership Company (the "Subscription Value per Share"), then (ii) multiplying (A) the Subscription Value per Share by (B) the principal amount of each Note divided by the Conversion Price in effect on the fourth day that the common stock of the Partnership Company was publicly traded (the "Relevant Conversion Ratio"), the product of such calculation being the "Subscription Value per Note", then (iii) taking the Subscription Value per Note and dividing by the Conversion Price in effect immediately prior to the adjustment made hereunder, and then (iv) dividing (A) the principal amount of each Note by (B) the sum of (iii) plus the Relevant Conversion Ratio. Any adjustment shall be successively made whenever Partnership's Company completes an initial public offering which includes a Directed Share Subscription Program, if any, and will be effective on the fifth Business Day following the Relevant Closing Date. -46- (g) In case the Company shall, by dividend or otherwise, make a distribution to all holders of its Common Stock exclusively in cash in an aggregate amount that, together with (i) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no Conversion Price adjustment pursuant to this Section 15.5(g) has been made and (ii) the aggregate of any cash plus the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of the tender or exchange offer referred to below, of consideration payable in respect of any tender or exchange offer by the Company or any of the Company's subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no Conversion Price adjustment pursuant to Section 15.5(h) has been made, exceeds ten percent (10%) of the product of the current market price per share (determined as provided in Section 15.5(i)) of the Common Stock on the date fixed for shareholders entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this Section 15.5(g) by a fraction of which the numerator shall be the current market price per share (determined as provided in Section 15.5(i)) of the Common Stock on the date of such effectiveness less the amount of cash so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the later of (a) the day following the date fixed for the payment of such distribution and (b) the date 20 days after the notice relating to such distribution is given pursuant to Section 15.10(a). (h) In case a successful tender or exchange offer made by the Company or any of the Company's subsidiaries for all or any portion of the Common Stock shall involve an aggregate consideration having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) that, together with (i) the aggregate of the cash plus the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of the other tender or exchange offer referred to below, of consideration payable in respect of any other tender or exchange offer by the Company or any of the Company's subsidiaries for all or any portion of the Common Stock concluded within the preceding 12 months and in respect of which no Conversion Price adjustment pursuant to this Section 15.5(h) has been made and (ii) the aggregate amount of any distributions to all holders of the Common Stock made exclusively in cash within the preceding 12 months and in respect of which no Conversion Price adjustment pursuant to Section 15.5(g) has been made, exceeds ten percent (10%) of the product of the current market price per share (determined as provided in Section 15.5(i)) of the Common Stock on the Expiration Time times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, the Conversion Price shall be reduced (but not increased) so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be (i) the product of the current market price per share (determined as provided in Section 15.5(i)) of the Common Stock at the Expiration Time times the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time minus (ii) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and the denominator shall be the product of (i) such current market price per share at the Expiration Time times (ii) such number of outstanding shares at the Expiration Time less the number of Purchased Shares, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (i) For the purpose of any computation under this Section 15.5(i) and paragraphs (b), (d) and (g) (but not for (e) and (f)) of this Section 15.5, the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than twenty (20) Trading Days before, and ending not later than, the date in question; provided, however, that (i) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to paragraph (a), (b), (c), (d), (g) or (h) above (but not (e) or (f)) ("Other Event") occurs on or after the twentieth (20th) Trading Day -47- prior to the date in question and prior to the "ex" date for the issuance or distribution requiring such computation (the "Current Event"), the Closing Price for each Trading Day prior to the "ex" date for such Other Event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such Other Event, (ii) if the "ex" date for any Other Event occurs after the "ex" date for the Current Event and on or prior to the date in question, the Closing Price for each Trading Day on and after the "ex" date for such Other Event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such Other Event, (iii) if the "ex" date for any Other Event occurs on the "ex" date for the Current Event, one of those events shall be deemed for purposes of clauses (i) and (ii) of this proviso to have an "ex" date occurring prior to the "ex" date for the other event, and (iv) if the "ex" date for the Current Event is on or prior to the date in question, after taking into account any adjustment required pursuant to clause (ii) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value on the date in question (as determined in good faith by the Board of Directors in a manner consistent with any determination of such value for purposes of paragraph (d) or (g) of this Section 15.5, whose determination shall be conclusive and described in a Board Resolution) of the portion of the rights, warrants, options, evidences of indebtedness, shares of capital stock, securities, cash or property being distributed applicable to one share of Common Stock. For the purpose of any computation under paragraph (h) of this Section 15.5, the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing on or after the latest (the "Commencement Date") of (i) the date twenty (20) Trading Days before the date in question, (ii) the date of commencement of the tender or exchange offer requiring such computation and (iii) the date of the last amendment, if any, of such tender or exchange offer involving a change in the maximum number of shares for which tenders are sought or a change in the consideration offered, and ending not later than the date of the Expiration Time of such tender or exchange offer (or, if such Expiration Time occurs before the close of trading on a Trading Day, not later than the Trading Day immediately preceding the date of such Expiration Time); provided, however, that if the "ex" date for any Other Event (other than the tender or exchange offer requiring such computation) occurs on or after the Commencement Date and on or prior to the date of the Expiration Time for the tender or exchange offer requiring such computation, the Closing Price for each Trading Day prior to the "ex" date for such Other Event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (i) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (ii) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (iii) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such tender or exchange offer. For purposes of this Section 15.5, the following terms shall have the meaning indicated: (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price, regular way, on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case as quoted on the Nasdaq National Market or, if such security is not quoted or listed or admitted to trading on such Nasdaq National Market, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (2) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such -48- cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (3) "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (j) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f), (g), (h) or (i) (as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall give holders of record of the Notes a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (k) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such price; provided, however, that any adjustments that by reason of this Section 15.5(k) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XV shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth (1/100) of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. (l) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Price and may assume without inquiry that the last Conversion Price of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall give such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (m) In any case in which this Section 15.5 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 15.3. (n) For purposes of this Section 15.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of -49- scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5(c) applies), (ii) any consolidation, merger or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of all or substantially all of the properties and assets of the Company to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share")), then for the purposes of this Section 15.6 the kind and amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non- electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at its address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 15.6 applies to any event or occurrence, Section 15.5 shall not apply. Section 15.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate -50- action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that, if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that, if at any time the Common Stock shall be listed on the New York Stock Exchange, the Nasdaq National Market or any other national securities exchange or automated quotation system, the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Note; provided, however, that, if the rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time. Section 15.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine the Conversion Price or whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 15.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 15.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 8.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 15.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 15.5; or (b) the Company shall authorize the granting by it to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any capital stock of the Company; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any Significant Subsidiary; or -51- (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company or any Significant Subsidiary, the Company shall cause to be filed with the Trustee and to be given to each holder of Notes pursuant to Section 16.3 at its address appearing on the Note register provided for in Section 2.5 of this Indenture, as promptly as possible but in any event at least ten (10) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. XVI. Miscellaneous Provisions Section 16.1 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements by the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not. Section 16.2 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any Person that shall at the time be the lawful sole successor of the Company. Section 16.3 Addresses for Notices, Etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes, if sent by reputable guaranteed overnight delivery service or hand delivery addressed (until another address is filed by the Company with the Trustee) to Safeguard Scientifics, Inc., at the Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087, Attention: General Counsel. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited, postage prepaid, by registered or certified mail in a post office letter box addressed to the Corporate Trust Office, which office is, at the date as of which this Indenture is dated, located at One Liberty Place, 52nd Floor, 1650 Market Street, Suite 5210, Philadelphia, PA 19103, Attention: Chase Capital Markets Fiduciary Services (Safeguard Scientifics, Inc., 5% Convertible Subordinated Notes due 2006). The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Note register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. -52- In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 16.4 Governing Law. This Indenture and each Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of the State of New York. The Trustee, the Company and the Noteholders agree to submit to the jurisdiction of the federal courts of the state of New York, Borough of Manhattan in any action or proceeding arising out of or relating to this Indenture or the Notes. Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 16.6 Legal Holidays. In any case in which the date of maturity of interest on or principal of the Notes or the date fixed for redemption of any Note will not be a Business Day, then payment of such interest on or principal of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period from and after such date. Section 16.7 Trust Indenture Act. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act; provided, however, that, unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Notes issued hereunder shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as hereafter amended or modified; provided further that this Section 16.7 shall not require this Indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to the Indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in an indenture qualified under the Trust Indenture Act, such required provision shall control. Section 16.8 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction in which property of the Company or its subsidiaries is located. Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any paying agent, any authenticating agent, any Note registrar and their successors hereunder, the holders of Notes and the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. -53- Section 16.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 16.11 Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf, and subject to its direction, in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a Person eligible to serve as trustee hereunder pursuant to Section 8.10. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section 16.11, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall either promptly appoint a successor authenticating agent or itself assume the duties and obligations of the former authenticating agent under this Indenture and, upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Notes as the names and addresses of such holders appear on the Note register. The Company agrees to pay to the authenticating agent from time to time such reasonable compensation for its services as shall be agreed upon in writing between the Company and the authenticating agent. The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11 shall be applicable to any authenticating agent. Section 16.12 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Chase Manhattan Trust Company, National Association hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth. -54- In Witness Whereof, the parties hereto have caused this Indenture to be duly executed. SAFEGUARD SCIENTIFICS, INC. By: /s/ James A. Ounsworth ---------------------- Name: James A. Ounsworth Title: Senior Vice President, General Counsel & Secretary CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION as Trustee By: /s/ Judy Gordon --------------- Name: Judy Gordon Title: Trust Officer -55- EXHIBIT A UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INSOFAR AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR PROVISION) UNDER THE SECURITIES ACT THAT IS APPLICABLE TO THIS SECURITY (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER," AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (D) PURSUANT TO AND IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, OR (E) PURSUANT TO AND IN COMPLIANCE WITH ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE CONDITION THAT, IF THIS SECURITY IS SOLD OR TRANSFERRED PURSUANT TO THIS CLAUSE (E), THIS SECURITY MUST UPON SUCH SALE OR TRANSFER CEASE TO BE A "RESTRICTED SECURITY" WITHIN THE MEANING OF RULE 144 (OR ANY SUCCESSOR PROVISION) UNDER THE SECURITIES ACT), SUBJECT TO THE RIGHT OF THE COMPANY, ANY REGISTRAR FOR THIS SECURITY AND THE TRUSTEE, PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E), TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE OR A REGISTRAR. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT. A-1 SAFEGUARD SCIENTIFICS, INC. 5.0% CONVERTIBLE SUBORDINATED NOTES DUE 2006 CUSIP: 786449ADO No.: 1 PORTAL SYMBOL: SFEPGB06 $200,000,000 Safeguard Scientifics, Inc., a corporation duly organized and validly existing under the laws of the Commonwealth of Pennsylvania (herein called the "Company", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to Cede & Co. or registered assigns, the principal sum of Two Hundred Million Dollars ($200,000,000) on June 15, 2006, at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or, at the option of the holder of this Note, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on June 15 and December 15 of each year, commencing December 15, 1999, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 5.0 %, from June 15 or December 15 , as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from June 9, 1999, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any June 1 or December 1, as the case may be, and before the following June 15 or December 15, this Note shall bear interest from such June 15 or December 15; provided, however, that if the Company shall default in the payment of interest due on such June 15 or December 15, then this Note shall bear interest from the next preceding June 15 or December 15, to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from June 9, 1999. The interest payable on the Note pursuant to the Indenture on any June 15 or December 15 will be paid to the Person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the June 1 or December 1 (whether or not a Business Day) next preceding such June 15 or December 15, as provided in the Indenture; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid either (i) by check mailed to the registered address of such Person (provided that the holder of Notes with an aggregate principal amount in excess of $10,000,000 shall, at the written election of such holder, be paid by wire transfer of immediately available funds) or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Notes to the prior payment in full of all Senior Indebtedness, as defined in the Indenture, and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. A-2 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed and delivered. SAFEGUARD SCIENTIFICS, INC. By: __________________________________________ Name: __________________________________________ Title __________________________________________ Attest: __________________________________________ Name: __________________________________________ Title: __________________________________________ Dated:_________________ - -------------------------------------------------------------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 5.0% Convertible Subordinated Notes due 2006 described in the within-named Indenture. CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: ______________________________________________ Authorized Signatory By: --------------------------------------------- As Authenticating Agent (if different from Trustee) [Reverse of Note on Next Page] A-3 [FORM OF REVERSE OF NOTE] SAFEGUARD SCIENTIFICS, INC. 5.0% CONVERTIBLE SUBORDINATED NOTES DUE 2006 This Note is one of a duly authorized issue of Notes of the Company, designated as its 5.0% Convertible Subordinated Notes due 2006 (herein called the "Notes"), limited to the aggregate principal amount of $230,000,000, all issued or to be issued under and pursuant to an indenture dated as of June 15, 1999 (herein called the "Indenture"), between the Company and Chase Manhattan Trust Company, National Association, as trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest (including Liquidated Damages Amount (as defined in the Indenture), if any) on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Note, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to make redemption of any Note upon the happening of a Fundamental Change (as defined in the Indenture) in a manner adverse to the holder of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, including Section 15.6 thereof, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Subject to the provisions of the Indenture, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest (including Liquidated Damages Amount, if any) or any premium on or the principal of any of the Notes or a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provisions hereof which under Article XI cannot be modified without the consent of the holders of each or all Notes then outstanding or affected thereby. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest A-4 (including Liquidated Damages Amount, if any) on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are issuable in fully registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in this Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. At any time on or after June 18, 2002, and prior to maturity, the Notes may be redeemed at the option of the Company, in whole or in part, upon notice as set forth in the Indenture, at the following optional redemption prices (expressed as percentages of the principal amount), together in each case with accrued and unpaid interest, if any (including Liquidated Damages Amount, if any) to, but excluding, the date fixed for redemption. If redeemed during the period beginning June 18, 2002 and ending on June 15, 2003, at a redemption price of 102.50% and if redeemed during the 12-month period beginning June 16: Year Redemption Price ---- ---------------- 2003................101.67% 2004................100.83% 2005................100.00% and 100% at June 15, 2006; provided that if the date fixed for redemption is after an interest payment record date and on or before June 15 or December 15, then the interest payable on such date shall be paid to the holder of record on the preceding June 1 or, December 1, respectively. The Company shall not give notice of any redemption if a default in the payment of interest on the Notes has occurred and is continuing. The Notes are not subject to redemption through the operation of any sinking fund. If a Fundamental Change occurs at any time prior to maturity of the Notes, the Notes will be repurchasable on the 30th day after notice thereof at the option of the holder at a repurchase price equal to 100% of the principal amount thereof, together with accrued interest to (but excluding) the repurchase date; provided that, if such repurchase date is June 15 or December 15 the interest payable on such date shall be paid to the holder of record of the Notes on the preceding June 1 or December 1, respectively. The Notes will be repurchased in multiples of $1,000 principal amount. The Company shall mail to all holders of record of the Notes a notice of the occurrence of a Fundamental Change and of the right arising as a result thereof on or before the 20th day after the occurrence of such Fundamental Change. For a Note to be so repurchased at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, such Note with the form entitled "Option to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the 30th day after the date of such notice (or if such 30th day is not a Business Day, the immediately preceding Business Day). The submission of such a duly completed notice by a holder is irrevocable. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time following the original issuance of any Notes through the close of business on the final maturity date of the Notes, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof) to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof into that number of shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by A-5 dividing the principal amount of this Note or portion thereof to be converted by the Conversion Price of $77.625 or such Conversion Price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date, this Note (unless it or the portion being converted shall have been called for redemption during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date) must be accompanied by an amount, in same day funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Note at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of the holder of this Note, at the Corporate Trust Office, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof; subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof; and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York, without regard to principles of conflicts of laws. Terms used in this Note and defined in the Indenture are used herein as therein defined. A-6 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian _____________ TEN ENT - as tenant by the entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gifts to Minors Act of survivorship and not as tenants in common ______________________________________________________ (State)
Additional abbreviations may also be used though not in the above list. A-7 CONVERSION NOTICE TO: SAFEGUARD SCIENTIFICS, INC. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Safeguard Scientifics, Inc. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will provide the appropriate information below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated: ______________________ _____________________________________________ _____________________________________________ Signature(s) Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _____________________________________________ Signature Guarantee A-8 Fill in the registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: _________________________________________ (Name) _________________________________________ (Street Address) _________________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $___________________ Social Security or Other Taxpayer Identification Number:___________________ A-9 OPTION TO ELECT REPURCHASE UPON A FUNDAMENTAL CHANGE TO: SAFEGUARD SCIENTIFICS, INC. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Safeguard Scientifics, Inc. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repurchase the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note at the repurchase price, together with accrued interest to, but excluding, such date, to the registered holder hereof. Date: ___________________ ________________________________ __________________________________________________ Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. Principal amount to be repurchased (if less than all): $_______________ __________________________________________________ Social Security or Other Taxpayer Identification Number A-10 ASSIGNMENT For value received _________________________ hereby sell(s), assign(s) and transfer(s) unto _________________________ (Please insert social security or other Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints _________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the Note within the United States or to, or for the account of, U.S. persons (in each case as defined in Regulation S under the Securities Act) and within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Note is being transferred: [_] To Safeguard Scientifics, Inc. or a subsidiary thereof; or [_] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"). [_] The transferee is an Affiliate of the Company. Dated:_______________________ _____________________________________________ Signature(s) Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _____________________________________________ Signature Guarantee NOTICE: The signature of the conversion notice, the option to elect to repurchase upon a Fundamental Change or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. -11- EX-4.3 4 PURCHASE AGREEMENT OF SAFEGUARD SCIENTIFICS, INC. EXHIBIT 4.3 EXECUTION COPY U.S.$200,000,000 SAFEGUARD SCIENTIFICS, INC. 5.0% Convertible Subordinated Notes due June 15, 2006 PURCHASE AGREEMENT ------------------ June 3, 1999 Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. Safeguard Scientifics, Inc., a Pennsylvania corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to Credit Suisse First Boston Corporation (the "Initial Purchaser") U.S.$200,000,000 principal amount of its 5.0% convertible subordinated notes due June 15, 2006 (the "Firm Securities") and, at the election of the Initial Purchaser an aggregate of up to an additional U.S.$30,000,000 principal amount ("Optional Securities") of its convertible subordinated notes due June 15, 2006 (the Firm Securities and the Optional Securities which the Initial Purchaser may elect to purchase pursuant to Section 3 hereof are herein collectively called the "Offered Securities") each to be issued under an indenture dated as of June 9, 1999 (the "Indenture"), between the Company and Chase Manhattan Trust Company, National Association, as Trustee on a private placement basis pursuant to an exemption under Section 4(2) of the United States Securities Act of 1933 (the "Securities Act"), and hereby agrees with the Initial Purchaser as follows: The Initial Purchaser and other holders (including subsequent transferees) of the Offered Securities will be entitled to the benefits of a registration rights agreement of even date herewith among the Company and the Initial Purchaser (the "Registration Rights Agreement"), pursuant to which the Company agrees to file a registration statement with the Securities and Exchange Commission (the "Commission") registering the resale of the Offered Securities and the Underlying Common Stock (as defined herein) under the Securities Act. 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Initial Purchaser that: (a) A preliminary offering memorandum and an offering memorandum relating to the Offered Securities has been prepared by the Company. Such preliminary offering memorandum (the "Preliminary Offering Memorandum") and offering memorandum (including any Exchange Act Reports (as defined herein), or any part thereof, incorporated by reference in such preliminary offering memorandum and offering memorandum) (the "Offering Memorandum"), as supplemented as of the date of this Agreement are hereinafter collectively referred to as the "Offering Document". On the date of this Agreement, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by Credit Suisse First Boston Corporation ("CSFBC") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. Except as disclosed in the Offering Document, on the date of this Agreement, all reports (collectively, the "Exchange Act Reports") which have been filed by the Company with the Commission or sent to shareholders pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") on or subsequent to the date of the Offering Document and prior to the termination of the offering do not include any untrue statement of a material fact or omit (save in the case of statements of ownership of certain public Partnership Companies (as defined below) under Schedule 13D or 13G pursuant to the Exchange Act) to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. (b) The Offered Securities have been duly authorized by the Company and, when delivered and paid for pursuant to this Agreement and the Indenture, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company, entitled to the benefits provided in the Indenture and enforceable in accordance with their terms. (c) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the Commonwealth of Pennsylvania, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document. (d) (i) Each wholly-owned subsidiary of the Company (each, a "Subsidiary") has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; each Subsidiary is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable; and save for certain negative covenants given to PNC Bank, Inc., as lender under the credit agreement described in the Offering Document (the "Credit Agreement"), the capital stock of each Subsidiary owned by the Company, directly or, is owned free from liens, encumbrances and defects; and (ii) each entity in which the Company directly or indirectly through its Subsidiaries (and not held through a private equity fund) and each private equity fund in which it holds a partnership interest (each, a "Partnership Company") is validly incorporated and is in good standing under the laws of the jurisdiction of its incorporation, or, in the case of Partnership Companies which are organized as a limited partnership, has been duly organized and is an existing partnership in good standing under the laws of the jurisdiction under which it is organized; each Partnership Company has the power and authority (corporate and/or other as required) to own its properties and conduct its business as described in the Offering Document; and each Partnership Company is duly qualified to do business as a foreign corporation or, as the case may be, partnership in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock held directly or indirectly by the Company of each incorporated Partnership Company has been duly authorized and validly issued and is fully paid and nonassessable; and save for a pledge of certain Partnership Company's securities directly or indirectly owned by the Company under the Credit Agreement, the capital stock or partnership interest of each Partnership Company owned by the Company, directly or indirectly, is owned free from liens, encumbrances and defects in each instance where the absence of the forgoing would not individually in the case of the Company and any Subsidiary, or in any other case in the aggregate, have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company, the Subsidiaries and the Partnership Companies taken as a whole (a "Material Adverse Effect"). (e) When the Offered Securities are delivered and paid for pursuant to this Agreement on each Closing Date, such Offered Securities will be convertible into shares of common stock ("Common Stock") of the Company in accordance with the terms of the Indenture (hereinafter referred to as the "Underlying Common Stock"); the Underlying Common Stock initially issuable upon conversion of such Offered Securities has been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion, will be validly issued, fully paid and nonassessable; the Common Stock has been duly authorized and validly issued, is fully paid and nonassessable and conform to the description thereof contained in the Offering Document; and the shareholders of the Company have no preemptive rights with respect to the Offered Securities or the Underlying Common Stock. (f) Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company and any person in connection with the sale of the Offered Securities that would give rise to a valid claim against the Company or the Initial Purchaser for a brokerage commission, finder's fee or other like payment. (g) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement and the Registration Rights Agreement dated the date hereof, between the Company and the Initial Purchaser in connection with the issuance and sale of the Offered Securities by the Company except for the order of the Commission declaring the Shelf Registration Statement (as defined in the Registration Rights Agreement) effective. (h) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof, will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their properties, or any agreement or instrument to which the Company or any such Subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any Subsidiary is subject, or the charter or by-laws of the Company or any such Subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (i) This Agreement and the Registration Rights Agreement have been duly authorized, executed and delivered by the Company. (j) Except as referred to in the provision to Section 2(d) relating to pledged securities under the Credit Agreement, the Company and the Subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and the Company and the Subsidiaries and, to the best of the Company's knowledge and belief, the Partnership Companies, each hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (k) The Company and the Subsidiaries and, to the best of the Company's knowledge and belief, the Partnership Companies each possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, any Subsidiary or any Partnership Company, would have a Material Adverse Effect. (l) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (m) The Company and the Subsidiaries have, and to the best of the Company's knowledge and belief the Partnership Companies own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of, or conflict with, asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company, any Subsidiary or any Partnership Company would have a Material Adverse Effect. (n) There are no pending actions, suits or proceedings against or affecting the Company, any Subsidiary or to the best of the Company's knowledge and belief any Partnership Company, or any of their respective properties that, if determined adversely to the Company, any Subsidiary, or any Partnership Company, would have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture, this Agreement, or the Registration Rights Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and to the best of the Company's knowledge and belief, no such actions, suits or proceedings are threatened. (o) The Company has reviewed its operations and that of each Subsidiary to evaluate the extent to which the business or operations of the Company or any Subsidiary will be affected by the Year 2000 Problem (that is, any significant risk that computer hardware or software applications used by the Company or any Subsidiary will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively as in the case of dates or time periods occurring prior to January 1, 2000); as a result of such review, (i) the Company has no reason to believe, and does not believe, that (A) there are any issues related to the Company's preparedness to address the Year 2000 Problem that are of a character required to be described or referred to in the Offering Document which have not been so described in the Offering Document and (B) the Year 2000 Problem will have a Material Adverse Effect; and (ii) the Company reasonably believes, after due inquiry, that the suppliers, vendors, customers or other material third parties used or served by the Company or its Subsidiaries are addressing or will address the Year 2000 Problem in a timely manner, except to the extent that a failure to address the Year 2000 Problem by any supplier, vendor, customer or other material third party would not have Material Adverse Effect. (p) Each of the Company and its Subsidiaries and, to the best of the Company's knowledge and belief, its Partnership Companies, has timely filed all necessary federal and state income and franchise tax returns and has paid all taxes shown thereon as due, and there is no tax deficiency that has been or, to the Company's knowledge, might be asserted against the Company or any Subsidiary or Partnership Company other than in each instance such as would not have a Material Adverse Effect. All tax liabilities are adequately provided for on the books of the Company and its Subsidiaries and, to the best of the Company's knowledge and belief, the Partnership Companies. (q) The financial statements included in the Offering Document present fairly in all material respects the financial position of the Company and its consolidated Subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis. In addition, the information contained in the Offering Document represents a true and fair view of the statements of Partnership Companies' revenues and the fully diluted percentage of common stock of such Partnership Company owned directly or indirectly by the Company (where such Partnership Company is an incorporated entity). (r) The Company, each Subsidiary and each Partnership Company maintains a system of internal accounting controls sufficient to provide the Company's management with timely and accurate information as to its financial position. (s) Since the date of the latest audited financial statements included in the Offering Document there has been no development or event that would constitute a Material Adverse Effect, nor any development or event known to the Company that prospectively involves a Material Adverse Effect, and there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (t) The Company is not and is not required to be registered under Section 8 of the United States Investment Company Act of 1940, as amended (the "Investment Company Act") and at all times maintains satisfactory controls and procedures to provide accurate data upon which to base such statement; the Company shall use the proceeds of the offering of the Offered Securities to repay the outstanding balance under the Credit Agreement, to acquire interests in current and future Partnership Companies, and for working capital and other general corporate purposes and pending the Company's use of the net proceeds, it will invest them in interest-bearing investment grade securities; and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as such term is defined in the Investment Company Act. (u) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange, registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (v) Assuming the accuracy of the representations of the Initial Purchaser herein, the offer and sale of the Offered Securities by the Company to the Initial Purchaser in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation D thereunder and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (w) The Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. (x) The Company is subject to Section 13 or 15(d) of the Exchange Act. Where the Company represents and warrants "to the best of its knowledge and belief" in respect of a Partnership Company in this Section 2 such term is to be construed as being its knowledge and belief obtained in its ordinary course of business. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Company, at a purchase price of 97.00% of the principal amount thereof plus accrued interest from the First Closing Date (as hereinafter defined), U.S.$200,000,000 principal amount of the Firm Securities. The Company will deliver against payment of the purchase price the Firm Securities in the form of one or more permanent global securities in definitive form without interest coupons (the "Firm Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent global securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Firm Securities shall be made by the Initial Purchaser in Federal (same day) funds by wire transfer to an account at a bank acceptable to the Company at 9:00 A.M. (New York time), on June 9 , 1999, or at such other time not later than five full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "First Closing Date", against delivery to the Trustee as custodian for DTC of the Firm Global Securities representing all of the Firm Securities. The Firm Global Securities will be made available for checking at the above office of Shearman & Sterling at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the First Closing Date the Initial Purchaser may purchase all or less than all of the Optional Securities at the same purchase price per principal amount as the Firm Securities (plus any accrued interest thereon from June 9, 1999 to the related Optional Closing Date). The Company agrees to sell to the Initial Purchaser the number of Optional Securities specified in such notice and the Initial Purchaser agrees to purchase such Optional Securities. Such Optional Securities may be purchased by the Initial Purchaser only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as the "Optional Closing Date", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CSFBC but shall not be later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver against payment of the purchase price the Optional Securities being purchased on each Optional Closing Date in the form of one or more permanent global securities in definitive form without interest coupons (each, an "Optional Global Security", and together with the Firm Global Securities, the "Global Securities") deposited with the Trustee as custodian for DTC and registered in the name of Cede & Co., as nominee for DTC. Payment for such Optional Securities shall be made by the Initial Purchaser in Federal (same day) funds by or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of and as directed by the Company, against delivery to the Trustee as custodian for DTC of the Optional Global Securities representing all of the Optional Securities being purchased on such Optional Closing Date. 4. Representations by the Initial Purchaser; Resale by the Initial Purchaser. (a) The Initial Purchaser represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) The Initial Purchaser acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from the registration requirements of the Securities Act. The Initial Purchaser represents and agrees that it has offered and sold the Offered Securities and will offer and sell the Offered Securities (i) as part of their distribution at any time and (ii) otherwise until the later of the commencement of the offering and the latest Closing Date, only in accordance with Rule 144A ("Rule 144A"). (c) The Initial Purchaser agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except with the prior written consent of the Company. (d) The Initial Purchaser agrees that it and each of its affiliates will not offer or sell the Offered Securities by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. The Initial Purchaser agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. 5. Certain Agreements of the Company. The Company agrees with the Initial Purchaser that: (a) The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFBC's consent which shall be considered promptly and not unreasonably withheld. If, at any time prior to the completion of the resale of the Offered Securities by the Initial Purchaser any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any such time to amend or supplement the Offering Document to comply with any applicable law, the Company promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission or effect such compliance. Neither CSFBC's consent to, nor its delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (b) The Company will furnish to CSFBC copies of any preliminary offering memorandum, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC requests, and the Company will furnish to CSFBC on the date hereof three copies of the Offering Document signed by a duly authorized officer of the Company, one of which will include the independent accountants' reports therein manually signed by such independent accountants. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to CSFBC all such documents. (c) The Company will arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such states in the United States as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Initial Purchaser provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. (d) During the period of seven years hereafter, or such earlier period ending on the date that none of the Offered Securities remain outstanding, the Company will furnish to CSFBC, as soon as practicable after the end of each fiscal year, a copy of its annual report to shareholders for such year; and the Company will furnish to CSFBC (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to shareholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (e) During the period of two years after the later of the First Closing Date and the last Optional Closing Date, the Company will, upon request, furnish to CSFBC and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (f) During the period of two years after the later of the First Closing Date and the last Optional Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. (g) The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Indenture and the Registration Rights Agreement including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Underlying Common Stock (as defined in the Registration Rights Agreement), the preparation and printing of this Agreement, the Registration Rights Agreement, the Global Securities, the Indenture, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and as applicable the Underlying Common Stock; (iii) the cost of qualifying the Offered Securities for trading in The PortalSM Market ("PORTAL") of The Nasdaq Stock Market, Inc. and any expenses incidental thereto; (v) for any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Underlying Common Stock for sale under the laws of such jurisdictions as CSFBC designates and the printing of memoranda relating thereto, (v) for any fees charged by investment rating agencies for the rating (if any) of the Offered Securities or the Underlying Common Stock, and (vi) for expenses incurred in distributing any preliminary offering memoranda and the Offering Document (including any amendments and supplements thereto) to the Initial Purchaser, but shall not pay any fees or expenses of Shearman & Sterling, counsel to the Initial Purchaser. The Company will reimburse the Initial Purchaser for all travel expenses of the Initial Purchaser and the Company's officers and employees and any other expenses of the Initial Purchaser and the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities. (h) In connection with the offering, until CSFBC shall have notified the Company of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. (i) For a period of 90 days after the date of the initial offering of the Offered Securities by the Initial Purchaser, the Company will not offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any Common Stock or any United States dollar-denominated debt securities issued or guaranteed by the Company and having a maturity of more than one year from the date of issue without the prior written consent of CSFBC, or publicly disclose the intention to make any such offer, sale, pledge or disposition, except grants of employee stock options pursuant to the terms of a plan in effect on the date hereof, issuances of Common Stock pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date hereof or Common Stock issued on conversion of any Offered Securities. The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offer and sale of the Offered Securities. (j) The Company will use its best efforts to have the Offered Securities admitted to trading on PORTAL and to have the Underlying Common Stock listed on The New York Stock Exchange. 6. Conditions of the Obligations of the Initial Purchaser. The obligations of the Initial Purchaser to purchase and pay for the Firm Securities on the First Closing Date and for the Optional Securities on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Initial Purchaser shall have received a letter, dated the date of this Agreement, of KPMG Peat Marwick LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder ("Rules and Regulations") and to the effect that: (i) in their opinion the financial statements examined by them and included in the Offering Document and in the Exchange Act Reports comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Exchange Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information, as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Offering Document and in the Exchange Act Reports; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Offering Document or in the Exchange Act Reports do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Exchange Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at March 31, 1999 there was any change in the common stock or any increase in long-term debt of the Company and its consolidated Subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets (current assets less current liabilities), or shareholders' equity as compared with amounts shown on the latest balance sheet included in the Offering Document; or (C) for the period from the closing date of the latest income statement included in the Offering Document to March 31, 1999 there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Offering Document, in consolidated total net sales, or in the total or per share amounts of net earnings; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Offering Document disclose have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document and the Exchange Act Reports (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its Subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. (b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as one enterprise which, in the judgment of the Initial Purchaser is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; or (E) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of the Initial Purchaser, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities. (c) The Initial Purchaser shall have received an opinion, dated such Closing Date, of Morgan Lewis & Bockius LLP, counsel for the Company, substantially in the form attached as Exhibit A hereto. (d) The Initial Purchaser shall have received from Shearman & Sterling, counsel for the Initial Purchaser, such opinion or opinions, dated such Closing Date, the validity of the Offered Securities, the Offering Memorandum, the exemption from registration for the offer and sale of the Offered Securities by the Company to the Initial Purchaser and the resales by the Initial Purchaser as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) The Initial Purchaser shall have received from Davis, Polk & Wardwell, special counsel for the Company, such opinion, dated such Closing Date, with respect to the fact that the Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "Investment Company Act"); and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act. (f) The Initial Purchaser shall have received a certificate, dated such Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge customary to officers of such capacity in such circumstance, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date, and that there has been no development or event that would constitute a Material Adverse Effect, nor any development or event known to the Company that prospectively involves a Material Adverse Effect except as set forth in or contemplated by the Offering Document or as described in such certificate. (g) The Initial Purchaser shall have received a letter, dated such Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. The Company will furnish the Initial Purchaser with such conformed copies of such opinions, certificates, letters and documents as the Initial Purchaser reasonably requests. CSFBC may in its sole discretion waive compliance with any conditions to the obligations of the Initial Purchaser hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless the Initial Purchaser, its partners, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Initial Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto or the Exchange Act Reports, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement, and will reimburse the Initial Purchaser for any legal or other expenses reasonably incurred by the Initial Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by the Initial Purchaser specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below and provided further that the foregoing indemnity with respect to the Preliminary Offering Memorandum shall not inure to the benefit of the Initial Purchaser (or to the benefit of any person controlling the Initial Purchaser) from whom the person asserting such losses, claims, damages or liabilities purchased Offered Securities if such untrue statement or omission made in the Preliminary Offering Memorandum is eliminated or remedied in the Final Offering Memorandum and a copy of the Final Offering Memorandum shall not have been furnished to such person at or prior to the written confirmation of the sale of such Offered Securities to such person. (b) The Initial Purchaser will indemnify and hold harmless the Company, its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering memorandum, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchaser specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by the Initial Purchaser consists of (i) the following information in the Offering Document: the ninth paragraph under the caption "Plan of Distribution"; provided however, that the Initial Purchaser shall not be liable for any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes (i) an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to or an admission of fault or failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchaser on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Offered Securities (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchaser from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), the Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which the Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchaser under this Section shall be in addition to any liability which the Initial Purchaser may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the Initial Purchaser set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Securities. If for any reason the purchase of the Offered Securities by the Initial Purchaser is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall remain in effect. If the purchase of the Offered Securities by the Initial Purchaser is not consummated for any reason other than solely because of the occurrence of any event specified in clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the Initial Purchaser for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by it in connection with the offering of the Offered Securities. 9. Notices. All communications hereunder will be in writing and, if sent to the Initial Purchaser will be mailed, delivered or telegraphed and confirmed to the Initial Purchaser at Eleven Madison Avenue, New York, N.Y. 10010-3629, Fax: 212 325 8278 Attention: Investment Banking Department Transactions Advisory Group, or, if sent to the Company, will be sent by overnight courier or by facsimile during normal business hours to it at Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087-1945, Fax: 610-293-0601 Attention: General Counsel. 10. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties hereto. 11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 12. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If the foregoing is in accordance with the Initial Purchaser's understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the Initial Purchaser in accordance with its terms. Very truly yours, SAFEGUARD SCIENTIFICS, INC. By /s/ James A. Ounsworth ------------------------------------ Title: Senior Vice President, General Counsel & Secretary The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation By /s/ Jake Peters ------------------------- Title: Managing Director EX-10.2 5 FORM OF PROMISSORY NOTE DATED JUNE 11, 1999 EXHIBIT 10.2 TERM NOTE $((TaxLoan)) June 11, 1999 In consideration of the loan (hereinafter referred to as a "Loan") Safeguard Scientifics, Inc., a Pennsylvania corporation (the "Lender"), has made to ((Name)), (the "Borrower"), and for value received, the Borrower hereby promises to pay to the order of the Lender, at the Lender's office located at 800 The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087-1945, or at such other place in the continental United States as the Lender may designate in writing, in lawful money of the United States, and in immediately available funds, the principal sum of $((TaxLoan)). The unpaid principal balance of the Note shall be paid, in full, on the earlier of June 11, 2000 or Borrower's termination of employment. The Borrower hereby further promises to pay to the order of the Lender interest on the outstanding principal amount from the date hereof, at a per annum rate equal to 4.9% (the "Loan Rate"). The Borrower shall pay, on demand, interest on any overdue payment of principal and interest (to the extent legally enforceable) at the Loan Rate plus three percent (3%). Interest shall be payable upon maturity or early repayment of the entire outstanding principal balance of the Note. All payments made on this Note (including, without limitation, prepayments) shall be applied, at the option of the Lender, first to late charges and collection costs, if any, then to accrued interest and then to principal. Interest payable hereunder shall be calculated for actual days elapsed on the basis of a 360-day year. All accrued and unpaid interest shall be due and payable upon maturity of this Note. After maturity or in the event of default, interest shall continue to accrue on the Note at the rate set forth above and shall be payable on demand of the Lender. The outstanding principal amount of this Note may be prepaid in whole or in part without any prepayment penalty or premium at any time or from time to time by Borrower upon notice to the Lender; provided, that any prepayment shall be applied first to any interest due to the date of such prepayment on this Note and thereafter shall be applied to the installments of principal hereunder in the inverse order of maturity. Notwithstanding anything in this Note, the interest rate charged hereon shall not exceed the maximum rate allowable by applicable law. If any stated interest rate herein exceeds the maximum allowable rate, then the interest rate shall be reduced to the maximum allowable rate, and any excess payment of interest made by Borrower at any time shall be applied to the unpaid balance of any outstanding principal of this Note. An event of default hereunder shall consist of: (i) a default in the payment by the Borrower to the Lender of principal or interest under this Note as and when the same shall become due and payable; or (ii) an event of default under the Pledge Agreement; or (iii) institution of any proceeding by or against the Borrower under any present or future bankruptcy or insolvency statute or similar law and, if involuntary, if the same are not stayed or dismissed within sixty (60) days, or the Borrower's assignment for the benefit of creditors or the appointment of a receiver, trustee, conservator or other judicial representative for the Borrower or the Borrower's property or the Borrower's being adjudicated a bankrupt or insolvent. Upon the occurrence of an event of default hereunder, this Note shall automatically without any action or notice by Lender, be accelerated and become immediately due and payable, and Lender shall have all of the rights and remedies provided for herein or otherwise available at law or in equity, all of which remedies shall be cumulative. Neither the reference to nor the provisions of any agreement or document referred to herein shall affect or impair the absolute and unconditional obligation of the Borrower to pay the principal of and interest on this Note as herein provided. The Borrower hereby waives presentment, demand, protest and notice of dishonor and protest, and also waives all other exemptions, and agrees that extension or extensions of the time of payment of this Note or any installment or part thereof may be made before, at or after maturity by agreement by the Lender. Upon default hereunder the Lender shall have the right to offset the amount owed by the Borrower against any amounts owed by the Lender in any capacity to the Borrower, whether or not due, and the Lender shall be deemed to have exercised such right of offset and to have made a charge against any such account or amounts immediately upon the occurrence of an event of default hereunder even though such charge is made or entered on the books of the Lender subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs and expenses, including, without limitation, attorneys' fees and legal expenses, that may be incurred by the Lender in connection with the enforcement of this Note. Notices required to be given hereunder shall be deemed validly given (i) three business days after sent, postage prepaid, by certified mail, return receipt requested, (ii) one business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (iii) when sent by facsimile transmission, or (iv) when delivered by hand: If to the Lender: Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087-1945 If to the Borrower: ((Name)) ((Address1)) ((Address2)) or to such other address, or in care of such other person, as the holder or the Borrower shall hereafter specify to the other from time to time by due notice. Any failure by the Lender to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time. No amendment to or modification of this Note shall be binding upon the Lender unless in writing and signed by it. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall apply to and bind the successors of the Borrower and shall inure to the benefit of the Lender, its successors and assigns. This Note shall be governed by and interpreted in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Borrower has duly executed this Term Note as of the date first written above. __________________________ ((Name)) SCHEDULE OF PROMISSORY NOTES The promissory note dated June 11, 1999 executed by certain of the Company's executive officers and employee directors is identical in all material respects except as to the borrower and the amount of the note. The following schedule identifies the material details in which such promissory notes differ from the promissory note which is filed herewith: BORROWER AMOUNT OF NOTE Stephen J. Andriole $75,646.41 Michael G. Bolton $25,244.32 John K. Halvey $27,586.25 Harry Wallaesa $94,520.24 EX-10.4 6 COMPUCOM RECEIVABLES MASTERTRUST I POOLING AND SERVICING AGREEMENT EXHIBIT 10.4 CSI FUNDING, INC., Transferor, COMPUCOM SYSTEMS, INC., Servicer and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, Trustee on behalf of the Certificateholders COMPUCOM RECEIVABLES MASTER TRUST I POOLING AND SERVICING AGREEMENT Dated as of May 7, 1999 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS 1 Section 1.01 Definitions 1 Section 1.02 Other Definitional Provisions 1 Section 1.03 Calculations and Payments 2 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES 2 Section 2.01 Conveyance of Receivables 2 Section 2.02 Declaration of Trust; Acceptance by Trustee 3 Section 2.03 Representations and Warranties of the Transferor Relating to the Transferor 3 Section 2.04 Representations and Warranties of the Transferor Relating to the Agreement and any Supplement and the Receivables; Reassignment of Receivables 7 Section 2.05 Covenants of the Transferor 10 Section 2.06 Authentication of Certificates 14 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES 14 Section 3.01 Acceptance of Appointment and Other Matters Relating to the Servicer 15 Section 3.02 Servicing Compensation 18 Section 3.03 Representations, Warranties and Covenants of the Servicer 19 Section 3.04 Records and Reports for the Trustee 24 Section 3.05 Annual Servicer's Certificate 25 Section 3.06 Annual Independent Public Accountants' Servicing Report 25 Section 3.07 Tax Treatment 26 Section 3.08 Notices to Transferor 27 Section 3.09 Dilution Factors 27 Section 3.10 Covenant to Maintain Privileges 27 ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS 27 Section 4.01 Rights of Certificateholders 27 Section 4.02 Establishment of Collection Account 28 Section 4.03 Collections and Allocations 29 Section 4.04 Daily Allocations of Collections Allocated to a Series 31 Section 4.05 Determination of Interest Distributable on Investor Certificate 31 Section 4.06 Determination of Principal Distributable on Investor Certificates 31 Section 4.07 Distributions from Series Collection Sub-subaccounts 31 Section 4.08 Funds Unrelated to Receivables 31 ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS 32 Section 5.01 Distributions 32 Section 5.02 Monthly Investor Certificateholders' Statement; Annual Tax Statement 32 ARTICLE VI THE CERTIFICATES 33 Section 6.01 The Certificates 33 Section 6.02 Authentication of Certificates 33 Section 6.03 Registration of Transfer and Exchange of Certificates 34 Section 6.04 Mutilated, Destroyed, Lost or Stolen Certificates 36 Section 6.05 Persons Deemed Owners 36 Section 6.06 Appointment of Paying Agent 37 Section 6.07 Access to List of Certificateholders' Names and Addresses 37 Section 6.08 Authenticating Agent 38 Section 6.09 New Issuances 39 Section 6.10 Book-Entry Certificates 40 Section 6.11 Notices to Clearing Agency 41 Section 6.12 Definitive Certificates 41 Section 6.13 Letter of Representations 42 ARTICLE VII OTHER MATTERS RELATING TO THE TRANSFEROR 42 Section 7.01 Liability of the Transferor 42 Section 7.02 Merger or Consolidation of, or Assumption of the Obligations of, the Transferor 42 Section 7.03 Limitation on Liability of the Transferor 43 ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER 43 Section 8.01 Liability of the Servicer 43 Section 8.02 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer 43 Section 8.03 Limitation on Liability of the Servicer and Others 44 Section 8.04 Servicer Indemnification of the Trust and the Trustee 44 Section 8.05 The Servicer Not to Resign 44 Section 8.06 Access to Certain Documentation and Information Regarding the Receivables 45 Section 8.07 Delegation of Duties 45 Section 8.08 Examination of Records 45 Section 8.09 Successor Servicer Indemnification of Transferor 45 ARTICLE IX EARLY AMORTIZATION EVENTS 46 Section 9.01 Early Amortization Events with Respect to Any Series 46 Section 9.02 Additional Rights Upon the Occurrence of Certain Events 47 ARTICLE X SERVICER DEFAULTS 49 Section 10.01 Servicer Defaults 49 Section 10.02 Trustee to Act; Appointment of Successor Servicer 51 Section 10.03 Notification to Certificateholders 52 Section 10.04 Waiver of Past Defaults 52 ARTICLE XI THE TRUSTEE 53 Section 11.01 Duties of Trustee 53 Section 11.02 Certain Matters Affecting the Trustee 55 Section 11.03 Trustee Not Liable for Recitals in Certificates 56 Section 11.04 Trustee May Own Certificates, Etc. 57 Section 11.05 The Servicer to Pay Trustee's (and Paying Agent's) Fees and Expenses 57 Section 11.06 Eligibility Requirements for Trustee 58 Section 11.07 Resignation or Removal of Trustee 58 Section 11.08 Successor Trustee 59 Section 11.09 Merger or Consolidation of Trustee 59 Section 11.10 Appointment of Co-Trustee or Separate Trustee 59 Section 11.11 Tax Returns 61 Section 11.12 Trustee May Enforce Claims Without Possession of Certificates 61 Section 11.13 Suits for Enforcement 61 Section 11.14 Rights of Certificateholders to Direct Trustee 62 Section 11.15 Representations and Warranties of Trustee 62 Section 11.16 Maintenance of Office or Agency 63 Section 11.17 Statements, Certificates and Reports 63 ARTICLE XII TERMINATION 63 Section 12.01 Termination of Trust 63 Section 12.02 Optional Purchase and Series Termination Date of Investor Certificates of any Series 64 Section 12.03 Final Payment 64 Section 12.04 Transferor's Termination Rights 65 ARTICLE XIII MISCELLANEOUS PROVISIONS 66 Section 13.01 Amendment 66 Section 13.02 Protection of Right, Title and Interest of Trust 67 Section 13.03 Limitation on Rights of Certificateholders 68 Section 13.04 Governing Law 69 Section 13.05 Notices 69 Section 13.06 Severability of Provisions 69 Section 13.07 Assignment 70 Section 13.08 Certificates Nonassessable and Fully Paid 70 Section 13.09 Further Assurances 70 Section 13.10 No Waiver; Cumulative Remedies 70 Section 13.11 Counterparts 70 Section 13.12 Third-Party Beneficiaries 70 Section 13.13 Actions by Certificateholders 71 Section 13.14 Merger and Integration 71 Section 13.15 Headings 71 Section 13.16 Enhancement Providers 71 Section 13.17 Schedules and Exhibits 72 Section 13.18 Assignment of Related Property 72 Section 13.19 No Proceedings 72 Section 13.20 Texas Limited Liability Company Act 72 Section 13.21 Rating Agencies 73 EXHIBITS - -------- Exhibit 3.01(i) List of Post Office Boxes, Banks and Accounts Exhibit 3.01(i)(D) Form of Lock-Box/Transfer Receipt Account Agreement Exhibit 3.04(b) Form of Daily Report Exhibit 3.04(c) Form of Settlement Statement Exhibit 3.04(d) List of Data Fields =============== =================== Exhibit 3.05 Form of Annual Servicer's Certificate Exhibit 4.02(c) Collection Account, Collection Master Subaccount and Transferor Collection Subaccount Exhibit 6.01 Form of Transferor Certificate Exhibit 6.03(d) Form of Transferee Representation Letter ANNEX - ----- Annex X Definitions THIS POOLING AND SERVICING AGREEMENT, dated as of May 7, 1999, is by and among CSI FUNDING, INC., a Delaware corporation, as Transferor, COMPUCOM SYSTEMS, INC., a Delaware corporation, as Servicer, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as Trustee. This Pooling and Servicing Agreement shall be applicable to the maintenance of the Trust and the governance of the Transferor Certificate and, upon the execution of any Supplement, shall apply also to the issuance of any Series of Certificates issued thereby. In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties, for the benefit of the Certificateholders and for the benefit of any Enhancement Provider with respect to any Series to the extent provided herein: ARTICLE I DEFINITIONS Section 1.01 Definitions. For all purposes of this Agreement, except as ----------- otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions attached hereto as Annex X which is ------- incorporated by reference herein. All other capitalized terms used herein shall have the meanings specified herein. "Agreement" means this Pooling and Servicing Agreement as it may from time --------- to time be amended, supplemented or otherwise modified in accordance with the terms hereof, including by any Supplement. Section 1.02 Other Definitional Provisions. ----------------------------- (a) All terms defined in any Supplement or this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Annex X or ------- otherwise defined herein, and accounting terms partly defined in Annex X or ------- otherwise defined herein, to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein or in 1 Annex X are inconsistent with the meanings of such terms under GAAP, the - ------- definitions contained herein or in Annex X shall control. ------- (c) The agreements, representations and warranties of CompuCom in this Agreement in its capacity as Servicer shall be deemed to be the agreements, representations and warranties of CompuCom solely in such capacity. (d) The words "hereof," "herein" and "hereunder" and words of similar ------ ------ --------- import when used in this Agreement or any Supplement shall refer to such Supplement or this Agreement, as the case may be, as a whole and not to any particular provision of such Supplement or this Agreement, as the case may be; and Section, Schedule and Exhibit references contained in this Agreement or any Supplement are references to Sections, Schedules and Exhibits in or to this Agreement or such Supplement unless otherwise specified. (e) The word "including" (and with correlative meaning "include") means --------- ------- including without limiting the generality of any description preceding such term. Section 1.03 Calculations and Payments. Unless otherwise specified ------------------------- herein, expressions of a time of day refer to such time in New York, New York. Except as otherwise specified in this Agreement or in a Supplement, amounts payable hereunder shall be paid in immediately available funds. Whenever any reference is made to an amount or time the determination or calculation of which is governed by this Section 1.03, the provisions of this Section 1.03 shall be ------------ ------------ applicable to such determination or calculation, whether or not reference is specifically made to this Section 1.03, unless some other method of ------------ determination or calculation is expressly specified in the particular provision. 2 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.01 Conveyance of Receivables. By execution of this Agreement ------------------------- the Transferor does hereby assign, transfer and otherwise convey to the Trust from time to time, without recourse (except as specifically provided herein), and without any other formal or other written instrument of assignment, all of the Transferor's right, title and interest in, to and under (i) all Receivables existing on the date of execution hereof and all Receivables thereafter generated (but excluding Reconveyed Receivables), (ii) all Related Property, (iii) all monies due or to become due with respect thereto and (iv) all Collections and other proceeds (as defined in the UCC) of any of the foregoing. Such property, together with (x) all monies relating to the Receivables on deposit in the Collection Account and any other Series Accounts and (y) the benefits of any Enhancements shall constitute the assets of the Trust (the "Trust Assets"). Notwithstanding anything to the contrary in this Agreement, - ------------- the Trust Assets shall not include proceeds (as defined in the UCC) of returned inventory. The foregoing transfer, assignment and conveyance does not constitute and is not intended to result in the creation, or an assumption by the Trust, the Trustee, any Enhancement Provider or any Investor Certificateholder, of any obligation of CompuCom, the Transferor or any other Person in connection with the Receivables or under any agreement or instrument relating thereto, including any obligation to any Obligors or any Affiliate of or other Person to whom the Servicer may delegate servicing duties hereunder or insurers. In connection with such transfer, the Transferor agrees to record and file, at its own expense, any financing statements (and continuation statements with respect to such financing statements when applicable) required to be filed with respect to the Receivables now existing and hereafter created and the other Trust Assets meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary under the applicable UCC to perfect the transfer and assignment of the Receivables and the other Trust Assets to the Trust. The Trustee shall be under no obligation whatsoever to file such financing or continuation statements or make any other filings under the UCC in connection with such transfer. Section 2.02 Declaration of Trust; Acceptance by Trustee. ------------------------------------------- (a) In consideration of the premises and mutual covenants set forth herein, the Trustee hereby declares that it holds and will hold as trustee in trust under this Agreement all of its right, title and interest in, to and under, and hereby acknowledges its acceptance on behalf of the Trust of all right, title and interest in, to and under the property, now existing and hereafter created, conveyed to the Trust pursuant to Section 2.01; to have and to hold such ------------ property unto the Trustee and its successors in trust under this Agreement; in trust nevertheless, under and subject to the terms and conditions set forth in this Agreement, for the benefit of all Certificateholders and Enhancement Providers. 3 (b) It is intended by the Transferor that this Agreement constitute a security agreement under the UCC (as defined in the UCC as in effect in the State of New York). The Transferor hereby grants to the Trustee on the terms and conditions of this Agreement a perfected first priority security interest in and against all of the Transferor's right, title and interest in the Receivables and the other Trust Assets, whether now owned or hereafter acquired, now existing or hereafter created and wherever located for the purpose of securing the rights of the Trustee for the benefit of the Certificateholders and Enhancement Providers under this Agreement. (c) The Trustee hereby agrees not to use any information it obtains pursuant to this Agreement for any purpose unrelated to this Agreement or to compete or assist any Person in competing with the Transferor or CompuCom in its business; provided, however, that the Trustee shall not be prohibited from -------- ------- acting as trustee or backup servicer in transactions similar in nature to transactions contemplated hereunder. Section 2.03 Representations and Warranties of the Transferor Relating to ------------------------------------------------------------ the Transferor. The Transferor (x) hereby represents and warrants, as of the - -------------- date of this Agreement and the Initial Closing Date and, with respect to any Series, as of the date of any Supplement and the related Closing Date, unless otherwise stated in such Supplement, and (y) shall be deemed to represent and warrant on each day that any Receivable is transferred to the Trust, that: (a) Organization and Good Standing. The Transferor is a corporation duly ------------------------------ organized and validly existing in good standing under the laws of the State of Delaware, and has full corporate power, authority and legal right to execute, deliver and perform its obligations under the Receivables Contribution and Sale Agreement, this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party, to execute and deliver to the Trustee pursuant hereto the Certificates, to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. The Transferor is duly qualified to do business and ----------------- is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would render any Contract or any Receivable unenforceable by the Transferor or the Trust or has had, or could reasonably be expected to have, a Material Adverse Effect. (c) Due Authorization. The execution, delivery and performance of the ----------------- Receivables Contribution and Sale Agreement, this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party and the execution and delivery to the Trustee of the Certificates by the Transferor and the consummation of the transactions provided for in this Agreement, the Receivables Contribution and Sale Agreement, each Supplement and each other Transaction Document to which it is, 4 or is to be, a party, have been duly authorized by the Transferor by all necessary corporate action on the part of the Transferor. (d) Binding Obligation. Each of the Receivables Contribution and Sale ------------------ Agreement, this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party constitutes (or will, when executed and delivered by the Transferor, constitute) the legal, valid and binding obligation of the Transferor, enforceable against it in accordance with its terms, except (x) the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors' rights, and (y) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (e) No Conflicts. The execution, delivery and performance of this ------------ Agreement, each Supplement, the Certificates, the Receivables Contribution and Sale Agreement and each other Transaction Document to which it is, or is to be, a party, the performance of the transactions contemplated by this Agreement, each Supplement, the Receivables Contribution and Sale Agreement and each other Transaction Document to which it is, or is to be, a party and the fulfillment of the terms hereof and thereof by the Transferor, do not (i) contravene its Certificate of Incorporation or By-Laws, (ii) violate any provision of, or require any filing (except for the filings under the UCC required by this Agreement, each of which has been duly made and is in full force and effect), registration, consent or approval under, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Transferor, except for such filings, registrations, consents or approvals as have already been obtained and are in full force and effect or which the failure to obtain or accomplish has not had, and could not reasonably be expected to have, a Material Adverse Effect, (iii) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Transferor is a party or by which it or its properties may be bound or affected except those as to which a consent or waiver has been obtained and is in full force and effect and an executed copy of which has been delivered to the Trustee or which breach or default has not had, and could not reasonably be expected to have, a Material Adverse Effect, or (iv) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Transferor other than as specifically contemplated by this Agreement or the Receivables Contribution and Sale Agreement. (f) Taxes. The Transferor has filed all tax returns (federal, state and ----- local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from the Transferor or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings, provided, that the -------- Transferor is maintaining adequate reserves with respect thereto in accordance with GAAP. 5 (g) No Proceedings. There are no proceedings or investigations pending or, -------------- to the best knowledge of the Transferor, threatened against the Transferor, before any Governmental Authority (i) asserting the invalidity of the Receivables Contribution and Sale Agreement, this Agreement, any Supplement, the Certificates or any other Transaction Document to which it is, or is to be, a party, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement, any Supplement, the Certificates, the Receivable Contribution and Sale Agreement or any other Transaction Document to which it is, or is to be, a party, (iii) seeking any determination or ruling that has had, or could reasonably be expected to have, a Material Adverse Effect, or (iv) seeking to assert any tax liability against the Trust under the United States Federal or any state income tax systems. (h) All Consents Required. All approvals, authorizations, consents, orders --------------------- or other actions of any Person or of any Governmental Authority required to be obtained by the Transferor in connection with the execution and delivery by the Transferor of this Agreement, each Supplement, the Receivables Contribution and Sale Agreement, the Certificates and each other Transaction Document to which it is, or is to be, a party, the performance by the Transferor of the transactions contemplated by this Agreement, each Supplement, the Receivables Contribution and Sale Agreement and each other Transaction Document to which is, or it to be, a party, and the fulfillment by the Transferor of the terms hereof and thereof, have been obtained and are in full force and effect. (i) Bona Fide Receivables. Each Receivable classified as an "Eligible --------------------- Receivable" by the Transferor or the Servicer in any document or report delivered hereunder satisfies the requirements of eligibility contained in the definition of Eligible Receivable. (j) Place of Business. The principal place of business of the Transferor ----------------- and its chief executive office (as that term is used in the UCC) is in Dallas, Texas and the offices where the Transferor keeps its records concerning the Receivables and related Contracts are in Dallas, Texas, or such other location as chosen by the Transferor, provided that the Transferor has complied with Section 2.05(d). - --------------- (k) Use of Proceeds. No proceeds of the issuance of any Certificate will --------------- be used by the Transferor to acquire any security in a transaction that is subject to sections 13 and 14 of the Securities Exchange Act of 1934, as amended, or to purchase or carry any margin security. (l) Lock-Box Banks and Accounts. The Lock-Box Banks are the only --------------------------- institutions holding any accounts for the receipt of payments from Obligors in respect of Receivables (subject to such changes as may be made from time to time in accordance with Section 3.01(i)). All Obligors of the Receivables have been --------------- instructed 6 by invoice to make payments only to the Post Office Boxes or the Wire Transfer Receipt Account and such instructions are in full force and effect. (m) Early Amortization Event. As of the Initial Closing Date and each ------------------------ Closing Date, no Early Amortization Event, and no condition that with the giving of notice and/or the passage of time would constitute an Early Amortization Event (a "Prospective Early Amortization Event"), existed. ------------------------------------ (n) Not an Investment Company. Neither the Transferor nor the Trust is an ------------------------- "investment company" within the meaning of the Investment Company Act of 1940, as amended, or the Transferor and the Trust are exempt from all provisions of such Act. (o) ERISA. No Plan maintained by the Transferor or any of its ERISA ----- Affiliates has any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived. The Transferor and each ERISA Affiliate of the Transferor has timely made all contributions required to be made by it to any Plan and Multiemployer Plan to which contributions are or have been required to be made during the preceding five years by the Transferor or such ERISA Affiliate, and no event requiring notice to the PBGC under Section 302(f) of ERISA has occurred and is continuing or could reasonably be expected to occur with respect to any such Plan, in any case, that could reasonably be expected to result, directly or indirectly, in any Lien being imposed on the property of the Transferor or the payment of any material amount to avoid such Lien. No Plan Event with respect to the Transferor or any of its ERISA Affiliates has occurred or could reasonably be expected to occur that could reasonably be expected to result, directly or indirectly, in any Lien being imposed on the property of the Transferor or the payment of any material amount to avoid such Lien. The representations and warranties set forth in this Section 2.03 shall ------------ survive the transfer and assignment of the Receivables to the Trust, and termination of the rights and obligations of the Servicer pursuant to Section ------- 10.01. Upon discovery by the Transferor, the Servicer or a Responsible Officer - ----- of the Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give written notice thereof to the others within three Business Days of such discovery. Section 2.04 Representations and Warranties of the Transferor Relating to ------------------------------------------------------------ the Agreement and any Supplement and the Receivables; Reassignment of - --------------------------------------------------------------------- Receivables. - ----------- (a) Representations and Warranties. The Transferor (x) hereby represents ------------------------------ and warrants, as of the date of this Agreement and the Initial Closing Date with respect to the Receivables created on or prior to, and outstanding on, such dates, and (y) shall be deemed to represent and warrant on each day thereafter that any Receivable is transferred to the Trust with respect to the Receivable or Receivables transferred on such date, that: 7 (i) the Transferor is not insolvent; (ii) the Transferor is the legal and beneficial owner of all right, title and interest in and to each such Receivable, the Transferor has the full right to transfer the Receivables to the Trust and each such Receivable has been or will be transferred to the Trust free and clear of any Lien; (iii) all notices to or approvals, authorizations, consents, orders or other actions of any Person or of any Governmental Authority required to be obtained, effected or given in connection with the transfer of Trust Assets to the Trust have been duly obtained, effected or given and are in full force and effect, except where the failure to so obtain, effect or give has not had, and could not reasonably be expected to have, a Material Adverse Effect; and (iv) (A) the Transferor has indicated and will continue to indicate on its books and records (including any computer files) regarding such Receivables that the Receivables are the property of the Trust and shall maintain such records in a manner such that the Trust shall have a first priority perfected interest in the Receivables and the other Trust Assets. This Agreement either constitutes a valid transfer and assignment to the Trust of all right, title and interest of the Transferor in and to the Receivables now existing and hereafter created and in the Related Property and all other Trust Assets, or constitutes a grant of a "security interest" (as defined in the UCC) in such property to the Trust as provided in Section 2.02(b), which, in the case of existing Receivables and the Related --------------- Property and all monies due or to become due with respect thereto and the proceeds thereof (other than proceeds (as such term is defined in the UCC) of returned inventory) , is enforceable upon execution and delivery of this Agreement, and which will be enforceable with respect to such Receivables and such other property hereafter created and the proceeds thereof (other than proceeds (as such term is defined in the UCC) of returned inventory) upon such creation. The Receivables Contribution and Sale Agreement constitutes a valid sale or contribution to the Transferor of all of the right, title and interest of CompuCom in and to the Receivables now existing or hereafter created and in the Related Property and all monies due or to become due with respect thereto (other than proceeds (as such term is defined in the UCC) of returned inventory) and all proceeds (as defined in the UCC) of each Receivable and the Related Property. (B) Upon the filing of the financing statements described in Section ------- 2.01 and, in the case of the Receivables hereafter created and the proceeds ---- thereof (other than proceeds (as such term is defined in the UCC) of returned inventory), upon the creation thereof, the Trust shall have a first priority perfected security interest (as such term is defined in the UCC) in such property free and clear of any Lien or interest of any Person, except as otherwise contemplated by this Agreement. Except as otherwise provided in 8 this Agreement, neither the Transferor nor any Person claiming through or under the Transferor has any claim to or interest in the Collection Account or any Series Account. Notwithstanding anything to the contrary in this Agreement, the Trust shall have no interest in, to and under proceeds (as defined in the UCC) of returned inventory relating to the Receivables. (b) Notice of Breach. The representations and warranties set forth in this ---------------- Section 2.04 shall survive the transfer and assignment of the Trust Assets to - ------------ the Trust. Upon discovery by the Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of any of the representations and warranties set forth in this Section 2.04, the Person discovering such breach shall give ------------ written notice to the other parties hereto within three Business Days of such discovery. (c) Transfer Upon Breach of Warranty. In the event of a breach with respect -------------------------------- to a Receivable of any of the representations and warranties set forth in Section 2.03(i) or 2.04(a) (other than Section 2.04(a)(iv)(A)), and (I) as a - --------------- ------- ---------------------- result thereof such Receivable is an Ineligible Receivable, and the exclusion of such Receivable from the Aggregate Eligible Unpaid Balance would cause the Aggregate Eligible Unpaid Balance to be less than the Aggregate Target Receivables Amount, or (II) such breach has a material adverse effect on the Investors' Interest of any Series in any Receivable, in each case as determined without regard to any Enhancement with respect to any Series, and such material adverse effect continues for 30 days after the earlier to occur of the discovery of such breach by the Transferor or the Servicer or receipt of written notice of such breach by the Transferor or the Servicer, then the Transferor shall cause such Receivable to be removed from the Trust (a "Reconveyed Receivable"), --------------------- without the need of any formal or other instrument of assignment, prior to the second Business Day next following (x) the day on which such Aggregate Target Deficiency Amount exists or (y) such 30th day, as the case may be, by making or causing to be made (on a pro rata basis based on their respective Target Deficiency Amounts (if any)) a deposit in the Series Principal Collection Sub- subaccount of each outstanding Series in immediately available funds in an aggregate amount equal to the Transfer Deposit Amount for such Reconveyed Receivable. Such deposit(s) shall be considered a payment in full of the Reconveyed Receivable during the Settlement Period to which such payment relates and shall be allocated in accordance with Section 4.03. Upon the making of such ------------ a deposit in respect of a Reconveyed Receivable, the Trust shall automatically and without further action be deemed to transfer, assign and otherwise convey to or upon the order of the Transferor, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Reconveyed Receivable, all Related Property and Collections with respect thereto and all proceeds thereof, and to release and terminate the security interest granted pursuant to Section 2.02 to the extent it covers such property, without ------------ the need of any formal or other instrument of assignment. On and after the date of such removal, any defined term herein or in any applicable Supplement, the definition of which assumes that such Receivable is not a Reconveyed Receivable, shall thereafter be computed on the basis of the assumption that such Receivable is no longer a Trust Asset. Notwithstanding anything to the contrary 9 contained herein, the Trustee shall execute such documents and instruments of transfer or assignment and UCC termination statements as shall be prepared by the Transferor, and shall take such other actions as shall reasonably be requested by the Transferor, at the Transferor's expense, in connection with the conveyance of any Reconveyed Receivable pursuant to this Section. The obligation of the Transferor to make a deposit in respect of any Reconveyed Receivable as set forth in this Section shall constitute the sole remedy respecting any breach of the representations and warranties set forth in Section 2.03(i) or 2.04(a) --------------- ------- (other than Section 2.04(a)(iv)(A)) with respect to such Receivable available to ----------------------- the Investor Certificateholders or the Trustee on behalf of the Investor Certificateholders. (d) Reassignment of Trust Portfolio. In the event of a breach of any of the ------------------------------- representations and warranties set forth in Section 2.03(a), (b), (c), (d) or --------------- --- --- --- (e), or Section 2.04(a)(iv)(A), and the effect of such breach is materially - --- ---------------------- adverse to the interests of the Certificateholders of all Series (without regard to any Enhancement with respect to any Series), any Control Party, by notice then given in writing to the Transferor (with a copy thereof to the Rating Agencies) (and to the Trustee and the Servicer if given by the Certificateholders), may direct the Transferor to make the payment described in the next sentence on or prior to the first Payment Date next succeeding 30 days after receipt by the Transferor of such notice, or within such longer period as may be specified in such notice, and the Transferor shall be obligated to make such payment or cause such payment to be made on such Payment Date on the terms and conditions set forth below; provided, however, that no such payment shall be -------- ------- required to be made if, at such Payment Date, the representations and warranties set forth in Section 2.03(a), (b), (c), (d), (e), and Section 2.04(a)(iv)(A), --------------- --- --- --- --- ---------------------- shall be true and correct in all material respects as if made on such date. The Transferor shall deposit in the Collection Master Subaccount on the date permitted by the notice described in the preceding sentence an amount equal to the sum of (w) the Aggregate Adjusted Invested Amount at the end of the day on the Record Date preceding the date such deposit is to be made, less (x) (without ---- duplication) the aggregate principal amount on deposit in any subaccounts or sub-subaccounts of the Collection Account, plus (y) (without duplication) an ---- amount equal to interest at the applicable Certificate Rate accrued but unpaid on the Investor Certificates of each Series through such Record Date and (z) all amounts then due and payable to any Enhancement Provider for each outstanding Series under the applicable Enhancement Agreement. Notwithstanding anything to the contrary in this Agreement, the entire amount deposited in the Collection Master Subaccount pursuant to the preceding sentence shall be distributed to the Certificateholders on such Payment Date pursuant to Section 12.03 and to any ------------- Enhancement Provider for each outstanding Series, as applicable. Payment of such deposit amount into the Collection Master Subaccount in immediately available funds shall otherwise be considered a payment in full of all of the Receivables. The obligation of the Transferor to make the payment specified in this Section 2.04(d) shall constitute the sole remedy available to any of the --------------- Enhancement Providers, the Certificateholders or the Trustee on behalf of the Certificateholders for a breach of the 10 representations and warranties contained in Section 2.03(a), (b), (c), (d), (e) --------------- --- --- --- --- or Section 2.04(a)(iv)(A). ---------------------- Section 2.05 Covenants of the Transferor. --------------------------- During the term of this Agreement, and until (i) the Aggregate Invested Amount is reduced to zero, (ii) the Investor Certificateholders shall have received all accrued interest and all accrued discount on the applicable Certificates, (iii) all amounts owed by the Transferor pursuant to this Agreement have been paid and (iv) all commitments of the Investor Certificateholders (if any) to provide funding have terminated, the Transferor covenants and agrees as follows: (a) Compliance with Laws, etc. The Transferor shall duly satisfy all ------------------------- obligations on its part to be fulfilled under or in connection with the Receivables, will maintain in effect all qualifications required under Requirements of Law in order to properly purchase and convey the Receivables and other Trust Assets and will comply in all material respects with all Requirements of Law applicable to it. (b) Preservation of Corporate Existence. The Transferor (i) shall ----------------------------------- preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and (ii) shall qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would, if not remedied, have a Material Adverse Effect. (c) Audits. At any time and from time to time during the Transferor's ------ regular business hours, on reasonable prior notice (unless an Early Amortization Event has occurred, in which case no notice shall be required) and for a purpose reasonably related to this Agreement, the Transferor shall, in response to any request of the Trustee or any Enhancement Provider, permit such Person, or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in the possession or under the control of the Transferor relating to the Receivables, the Related Property and the related Contracts and (ii) to visit the offices and properties of the Transferor for the purpose of examining such materials and to discuss matters relating to the Receivables or the Transferor's performance hereunder with any of the officers or employees of the Transferor having knowledge thereof. Any such examination or visit made pursuant to this Section 2.05(c) shall be at the cost and expense of the --------------- party or parties making such examination or visit except as otherwise provided in any Enhancement Agreement and except as set forth in any Supplement. (d) Continuous Perfection; Computer Records. The Transferor shall not --------------------------------------- change its name, identity or structure in any manner which might make any financing or continuation statement filed hereunder misleading within the 11 meaning of Section 9-402(7) of the UCC (or any other then applicable provision of the UCC) unless the Transferor shall have given the Trustee at least 90 days' prior written notice thereof and shall have taken all action 60 days prior to making such change (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or advisable to amend such financing statement or continuation statement so that it is not misleading. The Transferor shall not change its chief executive office or change the location of its principal records concerning the Receivables, the Related Property or the Collections from the locations specified in Section 2.03(j) --------------- unless it has given the Trustee at least 30 days' prior written notice of its intention to do so and has taken such action as is necessary or advisable to cause the interest of the Trustee in the Receivables and the other Trust Assets to continue to be perfected with the priority required by this Agreement. The Transferor will at all times maintain its principal executive office and any other office at which it maintains records relating to the Receivables and the Related Property within the United States of America. The Transferor will at all times, at its expense, indicate on its books and records (including any computer files) that all Receivables and Related Property have been transferred to the Trust pursuant to this Agreement. (e) Extension or Amendment of Receivables. Provided no Early ------------------------------------- Amortization Event shall have occurred and be continuing, and subject to Section 3.09, the Transferor shall only extend, amend or otherwise modify ------------ the terms of any Receivable, or amend, modify or waive any term or condition of any Contracts related thereto, or permit the Servicer to do any of the foregoing, in accordance with the Credit and Collection Policy. (f) Reports. The Transferor shall furnish to the Trustee and to each ------- Rating Agency as soon as possible and in any event within two Business Days after the occurrence of each Early Amortization Event or the Transferor's knowledge of a Prospective Early Amortization Event, the statement of one of the officers of the Transferor primarily responsible for administering the transactions contemplated by this Agreement setting forth the details of such Early Amortization Event or Prospective Early Amortization Event and the action taken, or which the Transferor proposes to take, with respect thereto. (g) Certain Documentation. The Transferor shall cause the Servicer to --------------------- maintain custody for the account of the Trust (to the extent of its interest therein) of any document evidencing or securing a Receivable and the related Contract. (h) Assessments. The Transferor will promptly pay and discharge all ----------- taxes, assessments, levies and other governmental charges imposed on it which may adversely affect any of the Receivables or the Trust's rights with respect 12 thereto, or that otherwise could reasonably be expected to have a Material Adverse Effect. (i) Further Action. The Transferor shall, from time to time, execute -------------- and deliver to the Trustee any instruments, financing or continuation statements or other writings reasonably necessary or desirable to maintain the perfection or priority of the Trustee's ownership or security interest in the Receivables, the Related Property, the Collections and the other Trust Assets under the UCC or other applicable law. The Transferor shall, at the direction of the Servicer or the Trustee, from time to time, execute and deliver to the Obligors on the Receivables any bills, statements and letters or other writings necessary to carry out the terms and provisions of this Agreement and to facilitate the collection of the Receivables. (j) Additional Indebtedness. The Transferor shall not create, incur, ----------------------- assume or suffer to exist any indebtedness (including any guaranty) or expense (whether or not accounted for as a liability) except (i) indebtedness hereunder, under the Receivables Contribution and Sale Agreement or under the Investor Certificates, (ii) other expenses incurred in the ordinary course of business, provided that in the case of any such -------- indebtedness or expense, the Person to whom such indebtedness or expense will be owing has delivered to the Transferor an undertaking that it will not institute against, or join any other Person in instituting against, the Transferor or the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and a day after all Investor Certificates are paid in full; provided, further, that -------- ------- notwithstanding anything to the contrary in this Agreement, the obligations of the Transferor to the Certificateholders or any Enhancement Provider shall be payable solely from the Trust Assets in accordance herewith and that the Certificateholders and each Enhancement Provider shall not look to any other property or assets of the Transferor in respect of such obligations, and such obligations shall not constitute a claim against the Transferor in the event that the Trust Assets are insufficient to pay in full such obligations. (k) No Transfer. The Transferor agrees that, except as contemplated ----------- by this Agreement and the Receivables Contribution and Sale Agreement, it (i) shall not sell, assign, pledge, convey or otherwise transfer any Receivable (other than Reconveyed Receivables) or any interest therein or any other Trust Asset, (ii) shall not grant, create, incur, or suffer to exist any Lien on any Receivable or any interest therein or any other Trust Asset, (iii) shall notify the Trustee and each Enhancement Provider immediately upon becoming aware of any such Lien, and (iv) shall defend the interest of the Trust in the Receivables and other Trust Assets against all claims of other Persons claiming through the Transferor. 13 (l) No Other Business. The Transferor agrees to engage in no business ----------------- other than the business contemplated hereunder and under the Receivables Contribution and Sale Agreement, and activities necessary or incidental thereto. (m) Enforcement. The Transferor agrees to take all action necessary ----------- and appropriate to enforce its rights and claims under the Receivables Contribution and Sale Agreement. If, upon notice from the Trustee, the Transferor does not take such necessary and appropriate action, then, at the direction of any Control Party, the Trustee shall take such action. (n) Separate Business. The Transferor will not permit its assets to ----------------- be commingled with those of CompuCom or any Affiliate of CompuCom, the Transferor shall maintain separate corporate records and books of account from those of CompuCom and its Affiliates, and the Transferor shall conduct its business from an office separate from that of CompuCom. The Transferor will conduct its business solely in its own name and will cause CompuCom and its Affiliates to not conduct their business in the name of the Transferor so as not to mislead others as to the identity of the entity with which those others are concerned. The Transferor will provide for its own operating expenses and liabilities from its own funds, except that the organizational expenses of the Transferor may be paid by CompuCom. Except as contemplated by the purchase agreement, placement agency agreement or underwriting agreement (or similar agreement) in respect of any Series among the Transferor, CompuCom, and any initial purchaser, placement agent, underwriters or any similar party referred to therein, the Transferor will not hold itself out, or permit itself to be held out, as having agreed to pay, or as being liable for, the debts of CompuCom or any of its Affiliates, and the Transferor shall cause CompuCom and its Affiliates not to hold themselves out, or permit themselves to be held out, as having agreed to pay, or as being liable for, the debts of the Transferor. The Transferor will maintain an arm's length relationship with CompuCom and its Affiliates with respect to any transactions between the Transferor, on the one hand, and CompuCom or its Affiliates, on the other. (o) Corporate Documents. The Transferor shall not amend Articles III, ------------------- IV, X, XI or XII of its Certificate of Incorporation without the prior ==== === consent of the Requisite Holders. (p) ERISA. The Transferor shall promptly give the Trustee and each ----- Enhancement Provider notice of the following events, as soon as possible and in any event within 30 days after the Transferor or any of its ERISA Affiliates knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan to which the Transferor or any of its ERISA Affiliates contributed, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan to which the 14 Transferor or any of its ERISA Affiliates contributes or to which contributions have been required to be made by the Transferor or such ERISA Affiliate during the preceding five years or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Transferor or any of its ERISA Affiliates or any such Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any such Plan or Multiemployer Plan. (q) Receivables Contribution and Sale Agreement Notices, Waivers, Etc. ----------------------------------------------------------------- The Transferor shall promptly give the Trustee copies of any notices, reports or certificates given or delivered to the Transferor under the Receivables Contribution and Sale Agreement. (r) Issuance of Capital Stock, etc. The Transferor shall not (i) ------------------------------ issue any capital stock (except to CompuCom) or (ii) create any Subsidiary. The Transferor shall not pay any dividends to CompuCom if such payment would be prohibited under the General Corporation Law of the State of Delaware, would result in an Early Amortization Event or would cause the Transferor's tangible net worth to be less than the Required Net Worth. Section 2.06 Authentication of Certificates. Pursuant to the request of ------------------------------ the Transferor, the Trustee has caused Certificates in authorized denominations evidencing the entire beneficial ownership of the Trust to be duly authenticated and delivered to or upon the order of the Transferor pursuant to Section 6.02. ------------ 15 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.01 Acceptance of Appointment and Other Matters Relating to the ----------------------------------------------------------- Servicer. - -------- (a) CompuCom agrees to act, and is hereby appointed by the Trustee and the Transferor to act, as the Servicer under this Agreement, and all Certificateholders, including the Transferor, by their acceptance of the Certificates consent to CompuCom acting as Servicer. The Servicer shall service and administer the Receivables and shall collect payments due under the Receivables in accordance with all Requirements of Law and in accordance with its customary and usual servicing procedures for servicing receivables owned by it and comparable to the Receivables (and in no event in accordance with lesser standards than would be employed by a prudent institution in servicing comparable receivables for its own account) and in accordance with the Credit and Collection Policy, and shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing and subject to Section 10.01, the Servicer is hereby authorized and empowered (i) to instruct - ------------- the Trustee to make withdrawals and payments from the Collection Account and any Series Account as set forth in this Agreement or any Supplement, (ii) to execute and deliver, on behalf of the Trust for the benefit of the Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with all Requirements of Law, to commence enforcement proceedings with respect to such Receivable, and (iii) to make any filings, reports, notices, applications, registrations with, and to seek any consent or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements or laws. (b) The Servicer shall not, and no Successor Servicer shall, be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the procedures, offices, employees and accounts used by the Servicer or such Successor Servicer, as the case may be, in connection with servicing other receivables of the same type. (c) The Servicer shall maintain fidelity bond coverage or coverage under one or more umbrella policies insuring against losses through wrongdoing of its officers and employees who are involved in the servicing of Receivables covering such actions and in an amount equal to $10,000,000. 16 (d) Subject to the rights retained by the Trustee pursuant to Section ------- 10.01, each of the Transferor and the Trustee hereby appoints the Servicer to enforce its respective rights and interest in and under the Receivables, the related Contracts and the Related Property. CompuCom shall hold in trust and, if CompuCom is not the Servicer, CompuCom shall promptly deliver to the Successor Servicer, and the Successor Servicer shall hold in trust, for the Transferor and the Trustee in accordance with their respective interests, any and all documents, instruments and records (including computer tapes or disks) that evidence or relate to Receivables. (e) Provided no Early Amortization Event shall have occurred and be continuing, subject to Section 3.09, the Servicer may, in accordance with the ------------ Credit and Collection Policy and at the direction of the Transferor, extend, amend or otherwise modify the terms of any Receivable or amend, modify or waive any term or condition of any Contract relating thereto. The Servicer may not make any change to the Credit and Collection Policy (including changes in respect of credit approval criteria, extensions of payment terms, and aging and write-off policies), unless the Rating Agency Condition is satisfied. (f) Except as otherwise required by law, Dilution Factors and Collections shall be applied to the Receivables to which they relate. (g) The Servicer shall provide all reports and documentation required by Section 3.04. - ------------ (h) In the event that the Transferor is unable for any reason to transfer Receivables to the Trust in accordance with the provisions of this Agreement (including by reason of any court of competent jurisdiction ordering that the Transferor not transfer any additional Receivables to the Trust) then, in any such event, (A) the Servicer agrees to allocate and pay to the Trust, after the date of such inability, all Collections with respect to Receivables transferred to the Trust prior to the occurrence of such event; and (B) the Servicer agrees to have such amounts applied as Collections in accordance with Section 4.03. ------------ For the purpose of the immediately preceding sentence of this Section 3.01(h), --------------- the Servicer shall treat the first received Collections with respect to the Receivables as allocable to the Trust for the benefit of all Certificateholders until the Trust shall have been allocated and paid Collections in an amount sufficient to pay the aggregate amount of Receivables in the Trust as of the date of occurrence of such event. (i) (A) Invoices sent to Obligors in respect of the Receivables will instruct the Obligors to send payments thereon by mail to the Post Office Boxes or by wire transfer to the wire transfer receipt account identified on Exhibit ------- 3.01(i) (such wire transfer receipt account, together with any other wire - ------- transfer receipt account permitted hereunder, being referred to collectively as the "Wire Transfer Receipt Account"). Exhibit 3.01(i) hereto lists (x) post ----------------------------- --------------- office boxes which the Servicer maintains and to which Obligors are directed to send payments in respect of Receivables (such post 17 office boxes, together with any other post office boxes permitted hereunder, being referred to collectively as the "Post Office Boxes"), (y) banks (such ----------------- banks, together with any other bank holding a Lock-Box Account in accordance with the terms hereof, being referred to collectively as the "Lock-Box Banks") -------------- which remove checks representing Collections from the Post Office Boxes and deposit the same in deposit accounts maintained at such banks in the name of the Servicer (the "Lock-Box Accounts"), and (z) the banks at which the Wire Transfer ----------------- Receipt Account is maintained (such banks, together with any other bank holding the Wire Transfer Receipt Account, being referred to collectively as the "Wire ---- Transfer Receipt Account Bank"). All Collections on Receivables transmitted by - ----------------------------- Obligors to the Post Office Boxes rather than directly to the Servicer or to the Wire Transfer Receipt Account will, pending remittance to the Concentration Account, be held for the benefit of the Trust and are and shall be transferred to the Concentration Account (or the Collection Master Subaccount, if applicable) not later than the Business Day on which funds are available following receipt thereof. (B) CompuCom maintains at the bank identified in Exhibit 3.01(i) (such --------------- bank, together with any other bank holding the Concentration Account in accordance with the terms hereof, being referred to collectively as the "Concentration Account Bank") a deposit account (the "Concentration Account") - --------------------------- --------------------- identified in Exhibit 3.01(i) into which funds available for withdrawal from the --------------- Lock-Box Accounts are deposited on a daily basis. Any payments on the Receivables made by Obligors directly to the Servicer or to the Wire Transfer Receipt Account shall be deposited in the Concentration Account not later than the Business Day following the date on which funds are available. All Collections in the Concentration Account shall be held for the benefit of the Trust and applied in accordance with Article IV. ---------- (C) The Servicer agrees that it will not change the foregoing method of collection or its related instructions to Obligors except in accordance with this Agreement. (D) The Servicer has entered into letter agreements with each Lock-Box Bank. Pursuant to such agreements and this Agreement, upon the occurrence and during the continuance of an Early Amortization Event or a Servicer Default, the Trustee at the direction of any Control Party shall have the right to change the name in which such Lock-Box Accounts and Post Office Boxes are maintained and assume control over amounts deposited in such Lock-Box Accounts and Post Office Boxes by sending a specified form of notice (a "Lock-Box Notice") to the Lock- --------------- Box Bank (and, if necessary, to the applicable Post Office branch), and to direct that such amounts be remitted directly to the Collection Master Subaccount. Each such letter agreement (as well as letter agreements entered into with new Lock-Box Banks pursuant to Section 3.01(i)(E)) shall be in ------------------ substantially the form of Exhibit 3.01(i)(D), and the Servicer may amend, ------------------ supplement, restate or otherwise modify such letter agreements from time to time with the prior written consent of each Control Party (each such letter 18 agreement, as amended, supplemented, restated or otherwise modified from time to time, shall be referred to herein as a "Lock-Box Agreement"). ------------------ The Servicer has entered into a letter agreement with the Wire Transfer Receipt Account Bank. Pursuant to such agreement and this Agreement, upon the occurrence and during the continuance of an Early Amortization Event or a Servicer Default, the Trustee at the direction of any Control Party shall have the right to change the name in which the Wire Transfer Receipt Account is maintained and assume control over amounts deposited in the Wire Transfer Receipt Account by sending a specified form of notice to the Wire Transfer Receipt Account Bank, and to direct that such amounts be remitted directly to the Collection Master Subaccount. Each such letter agreement (as well as letter agreements entered into with new Wire Transfer Receipt Account Banks pursuant to Section 3.01(i)(E)) shall be in substantially the form of Exhibit 3.01(i)(D), - ------------------ ------------------ and the Servicer may amend, supplement, restate or otherwise modify such letter agreements from time to time with the prior written consent of each Control Party (each such letter agreement, as amended, supplemented, restated or otherwise modified from time to time, shall be referred to herein as a "Wire ---- Transfer Receipt Account Agreement"). - ---------------------------------- (E) The Servicer may add or terminate any bank as a Lock-Box Bank, Wire Transfer Receipt Account Bank or Concentration Account Bank from those listed in Exhibit 3.01(i) hereto, or make any change in its instructions to Obligors - --------------- regarding payments of Collections, including in respect of Post Office Boxes (so long as an Obligor remains instructed to make such payments to the Wire Transfer Receipt Account or a post office box to which a Lock-Box Bank party to a Lock- Box Agreement has access), but in each case only (i) upon 30 days' prior written notice from the Servicer to the Trustee, the Transferor and any Enhancement Provider for each outstanding Series and (ii) so long as no Early Amortization Event or Servicer Default shall have occurred and be continuing. The Servicer shall give notice to the Trustee of the name and address of each new Lock-Box Bank, Wire Transfer Receipt Account Bank and Concentration Account Bank, which notice shall identify the related Lock-Box Account, Wire Transfer Receipt Account, Concentration Account and Post Office Box, as the case may be. The Servicer shall enter into a Lock-Box Agreement with each new Lock-Box Bank and a Wire Transfer Receipt Account Agreement with each new Wire Transfer Receipt Account Bank, and shall deliver to the Trustee and any Enhancement Provider for each outstanding Series a copy of the executed Lock-Box Agreement or Wire Transfer Receipt Account Agreement, as the case may be, prior to instructing any Obligors to make payment to such new Lock-Box Bank or Wire Transfer Receipt Account Bank. 19 Section 3.02 Servicing Compensation. ---------------------- (a) As compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in the immediately following paragraph, the Servicer shall be entitled to receive a servicing fee prior to the termination of the Trust pursuant to Section 12.01 (the "Servicing Fee"), ------------- ------------- payable on the dates specified in the applicable Supplement, equal to the product of (i) one-twelfth, (ii) the weighted average Servicing Fee Percentage (based upon the Servicing Fee Percentage for each Series and the Invested Amount thereof), and (iii) the daily average Aggregate Unpaid Balance of Receivables in the Trust with respect to the related Accrual Period. The share of the Servicing Fee allocable to each Series with respect to any date of payment generally shall be equal to the product of (i) one-twelfth, (ii) the applicable Servicing Fee Percentage for such Series and (iii) the Invested Amount of such Series as of the date of determination for such payment as specified in the applicable Supplement. The remainder of the Servicing Fee, which shall be allocable to the Transferor as Holder of the Transferor Certificate, shall be paid by the Transferor from Collections allocated to the Transferor's Interest, and in no event shall the Trust, the Trustee, any Enhancement Provider or the Investor Certificateholders be liable for the share of the Servicing Fee to be paid by the Transferor. Any Servicing Fees shall be payable to the Servicer solely pursuant to the terms of, and to the extent amounts are available for payment as provided in, Article IV and each Supplement. ---------- (b) In the event a Successor Servicer is appointed pursuant to Section ------- 10.02, the Servicing Fee Percentage with respect to each Series with respect to - ----- such Successor Servicer shall be equal to the Servicing Fee Percentage with respect to such Series in effect immediately prior to the appointment of such Successor Servicer or, if higher, the current market rate for servicing receivables similar in nature to the Receivables; provided, however, that the -------- ------- servicing fees attributable to CompuCom as Servicer and to another Person as Successor Servicer may be bifurcated and distributed in the manner provided in the related Supplement. (c) The Servicer's expenses include expenses related to enforcement of the Receivables, the amounts due to the Trustee pursuant to Section 11.05, the ------------- reasonable fees and disbursements of independent accountants, the amounts due to the Lock-Box Banks and the Wire Transfer Receipt Account Banks, all other expenses incurred by the Servicer in connection with its activities hereunder, and all other fees and expenses of the Trust not expressly stated herein to be for the account of the Certificateholders; provided that in no event shall the -------- Servicer be liable for any federal, state or local income or franchise tax, or any interest or penalties with respect thereto, assessed on the Trust, the Trustee or the Certificateholders except as expressly provided herein. In the event that the Servicer fails to pay the amounts due to the Trustee pursuant to Section 11.05, the Trustee shall be entitled to deduct and receive such amounts - ------------- from the Servicing Fee, prior to the payment thereof to the Servicer. The Servicer shall be 20 required to pay expenses for its own account and shall not be entitled to any payment or reimbursement therefor other than the Servicing Fee. Section 3.03 Representations, Warranties and Covenants of the Servicer . --------------------------------------------------------- CompuCom as initial Servicer, and any Successor Servicer by its appointment hereunder, hereby represents, warrants and covenants (except that no representation, warranty or covenant is made by any Successor Servicer with respect to paragraphs (l) and (t) below), in the case of the initial Servicer, -------------- --- as of the date of this Agreement and the Initial Closing Date and, with respect to any Series as of the date of any Supplement and the related Closing Date, and in the case of any Successor Servicer, as of the date of its appointment: (a) Organization and Good Standing. The Servicer is a corporation ------------------------------ duly organized, validly existing and in good standing under the laws of its state of incorporation, and has full corporate power as a corporation organized under the laws of its state of incorporation and authority granted by its board of directors, any committees thereof and otherwise granted or permitted by applicable law to execute, deliver and perform its obligations under this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party, and has the legal right to execute, deliver and perform its obligations under this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party and to own its property and conduct its business as such properties are presently owned and as such business is presently conducted. (b) Due Qualification. The Servicer is duly qualified to do business ----------------- and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals in Texas and in each jurisdiction in which the failure to be so qualified, to be in good standing or to obtain such license or approval has had, or could reasonably be expected to have, a Material Adverse Effect. (c) Due Authorization. The execution, delivery and performance of ----------------- this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party, and the consummation of the transactions provided in this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party, have been duly authorized by the Servicer by all necessary corporate action on the part of the Servicer. (d) Binding Obligation. Each of this Agreement, each Supplement and ------------------ each other Transaction Document to which it is, or is to be, a party constitutes (or will, when executed and delivered by the Servicer, constitute) legal, valid and binding obligations of the Servicer, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now 21 or hereinafter in effect, relating to the enforcement of creditors' rights in general and, with respect to any Successor Servicer which is a national banking association, the rights of creditors of national banks under United States law and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (e) No Violation. The execution and delivery of this Agreement, each ------------ Supplement and each other Transaction Document to which it is, or is to be, a party by the Servicer, and the performance of the transactions contemplated by this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party and the fulfillment of the terms hereof and thereof applicable to the Servicer, will not conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, or require any consent, approval or registration under, any Requirement of Law applicable to the Servicer or any material indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound. (f) No Proceeding. There are no proceedings or investigations, ------------- pending or, to the best knowledge of the Servicer, threatened against the Servicer before any Governmental Authority (i) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement or any Supplement or any other Transaction Document, or (ii) seeking any determination or ruling that has had, or could reasonably be expected to have, a Material Adverse Effect. (g) Compliance with Requirements of Law. The Servicer shall (i) duly ----------------------------------- satisfy all material obligations on its part to be fulfilled under or in connection with the Receivables and the Related Property; (ii) maintain in effect all qualifications to do business required under Requirements of Law in order to service properly the Receivables and the Related Property; and (iii) comply in all material respects with all Requirements of Law applicable to the Receivables and in connection with servicing the Receivables and the Related Property the failure to comply with which has had, or could reasonably be expected to have, a Material Adverse Effect. (h) No Rescission or Cancellation. The Servicer shall not permit any ----------------------------- rescission or cancellation of a Receivable or a Contract except (i) as ordered by a court of competent jurisdiction or other Governmental Authority or otherwise required by a Requirement of Law or (ii) in the ordinary course of its business in accordance with the Credit and Collection Policy. (i) Year 2000 Problem. The Servicer (a) has reviewed the areas within ----------------- its business and operations which could be adversely affected by, and has developed or is developing a program to address on a timely basis, the Year 22 2000 Problem and (b) has made appropriate inquiries as to the effect the Year 2000 Problem will have on its material suppliers and customers. Based on such review, program and inquiries, the Servicer reasonably believes that the "Year 2000 Problem" will not have a Material Adverse Effect. (j) All Consents Required. All approvals, authorizations, consents, --------------------- orders or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery by the Servicer of this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party, the performance by the Servicer of the transactions contemplated by this Agreement, each Supplement and each other Transaction Document to which it is, or is to be, a party and the fulfillment by the Servicer of the terms hereof and thereof, have been obtained or have been completed and are in full force and effect, except for those approvals, authorizations, consents, orders or other actions the failure to obtain or accomplish has not had, and could not reasonably be expected to have, a Material Adverse Effect. (k) Credit and Collection Policy. The Servicer, (i) except as ---------------------------- otherwise permitted in Section 3.01(e) and subject to Section 3.09, shall --------------- ------------ not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Contract related thereto, in any manner which would have a material adverse effect on the interests of the Certificateholders (without regard to any Enhancement) or any Enhancement Provider or the Trust, including extending the due dates, or impairing the collectibility of the Receivables and (ii) shall comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contract. (l) No Change in Ability to Service. With respect to the initial ------------------------------- Servicer only, since the Initial Closing Date there has been no material adverse change in the ability of the Servicer to service and collect the Receivables and the Related Property. (m) Modification of Systems. The Servicer agrees, promptly after the ----------------------- replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to provide the Servicer's services as Servicer or to make any calculations or reports hereunder, to give notice of any such replacement or modification to the Trustee. (n) Business Days. No later than January 1 of each year, the Servicer ------------- shall furnish the Trustee with a list of days other than Saturday and Sunday on which the office of the Servicer listed in Section 13.05 shall be ------------- closed during the immediately succeeding year, except that with respect to the calendar year 1999, the Servicer shall furnish such list to the Trustee on or before the Initial Closing Date. 23 (o) Keeping of Records and Books of Account. The Servicer shall --------------------------------------- maintain and implement administrative and operating procedures (including the ability to recreate records evidencing the Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, computer records and other information, reasonably necessary or advisable for the collection of all the Receivables and the Related Property. Such documents, books and computer records shall reflect all facts giving rise to the Receivables and the Related Property, all payments and credits with respect thereto, and the computer records shall indicate the contribution and sale of Receivables by the Seller to the Transferor, by the Transferor to the Trust, and, in all cases, the interests of the Trust in the Receivables. (p) Performance and Compliance with Contracts. The Servicer shall or, ----------------------------------------- if CompuCom is no longer the Servicer, CompuCom shall timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables. (q) No Servicer Default. No Servicer Default has occurred and is ------------------- continuing. (r) No Early Amortization Event. No Early Amortization Event has --------------------------- occurred and is continuing. (s) No Lien. None of the Lock-Box Accounts, the Wire Transfer Receipt ------- Account or the Concentration Account is subject to any Lien except for (i) rights of the banks holding such accounts under the applicable agreements (including the Lock-Box Agreements), and (ii) the rights of the Trustee under any Lock-Box Agreement or Wire Transfer Receipt Account Agreement. (t) Financial Condition. The consolidated balance sheets of CompuCom ------------------- and its consolidated Subsidiaries as at December 31, 1998, and the related statements of earnings, shareholders' equity and cash flows of CompuCom and its consolidated Subsidiaries for the fiscal year then ended, certified by KPMG, LLP, fairly present the consolidated financial condition, business and operations of CompuCom and its consolidated Subsidiaries as at such dates and the consolidated results of the operations of CompuCom and its consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP consistently applied. (u) Accurate Reports. No Settlement Statement or Daily Report or ---------------- other information, exhibit, financial statement, document, book, record or report furnished or to be furnished by or on behalf of the Servicer to the Trustee, in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or as of the date so 24 furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. In the event there is any breach of any of the representations, warranties or covenants of the Servicer contained in Section 3.03(g), (h), (k) or (p) with --------------- --- --- --- respect to any Receivable and as a result thereof, such Receivable has been charged off as uncollectible or the proceeds of any such Receivable are not available to the Trust, then upon the expiration of 30 days from the earlier to occur of the discovery of any such event by the Servicer or receipt by the Servicer of written notice of such event given by the Trustee (such notice to be given within three Business Days of the discovery thereof by a Responsible Officer of the Trustee), the Servicer shall accept the transfer of all the Receivables as to which such event relates on the terms and conditions set forth below; provided, however, that no such removal shall be required to be made with -------- ------- respect to a Receivable if, within such 30-day period, such representations, warranties or covenants with respect to such Receivable shall be true and correct, or shall have been complied with, in all material respects. The Servicer shall accept the transfer of a Receivable and the Related Property and all monies due or to become due with respect thereto by making or causing to be made a deposit into the Concentration Account (or Collection Master Subaccount, if applicable) in immediately available funds on or prior to the Determination Date following the Settlement Period during which such obligation arises in an amount equal to the Transfer Deposit Amount for such Receivables, which deposit shall be allocated in accordance with Section 4.03. Upon each such transfer of ------------ a Receivable to the Servicer, the Trustee shall automatically and without further action be deemed to transfer, assign and otherwise convey to or upon the order of the Servicer, without recourse, representation or warranty, all right, title and interest of the Trust in and to such Receivable, the Related Property and all monies due or to become due with respect thereto and all proceeds thereof, and to release and terminate the security interest granted pursuant to Section 2.02(b) to the extent it covers such property; and such Receivable shall - --------------- be treated by the Trustee as collected in full as of the Settlement Period to which such Transfer Deposit Amount relates. The Trustee shall execute such documents and instruments of transfer or assignment as shall be prepared by the Servicer, and shall take such other actions as shall be reasonably requested by the Servicer, at the Servicer's expense, to effect the conveyance of any Receivable pursuant to this Section. The obligation of the Servicer to accept the transfer of any such Receivables, the Related Property and all monies due or to become due shall constitute the sole remedy respecting any breach of the representations, warranties and covenants set forth in Section 3.03(g), (h), (k) --------------- --- --- or (p) available to Certificateholders or the Trustee on behalf of --- Certificateholders. 25 Section 3.04 Records and Reports for the Trustee. ----------------------------------- (a) Daily Records. Upon reasonable prior notice by the Trustee, the ------------- Servicer shall make available at an office of the Servicer selected by the Servicer for inspection by the Trustee on a Business Day during the Servicer's normal business hours a record setting forth (i) the Collections on each Receivable and (ii) the amount of Receivables for the Business Day preceding the date of the inspection. The Servicer shall, at all times, maintain its computer files with respect to the Receivables in such a manner so that the Receivables may be specifically identified and, upon reasonable prior request of the Trustee, shall make available to the Trustee at an office of the Servicer selected by the Servicer on any Business Day during the Servicer's normal business hours any computer programs necessary to make such identification. (b) Daily Report. ------------ (i) On each Business Day, the Servicer shall prepare, or, if CompuCom is not the Servicer, CompuCom shall cooperate with the Successor Servicer in preparing, a completed Daily Report (which shall include directions regarding allocation of Collections as described in Article IV ---------- of this Agreement). (ii) The Servicer shall deliver to the Trustee the Daily Report by 12:00 noon (New York City time) on each Business Day with respect to activity in the Receivables for the prior Business Day. (iii) Upon discovery of any error or receipt of notice of any error in any Daily Report, the Servicer, the Transferor and the Trustee shall arrange to confer and shall agree upon any adjustments necessary to correct any such errors. Until correction of such error, the Servicer or the Trustee, as the case may be, shall retain all Collections (or such lesser amount as the Trustee and the Servicer shall agree to be necessary to cover any error) in the Collection Account. Unless the Trustee has received actual notice of any error in a Daily Report, the Trustee may rely on such Daily Report for all purposes hereunder. (c) Settlement Statement. On each Determination Date, the Servicer shall, -------------------- or if CompuCom is not the Servicer, the Successor Servicer shall with information provided by CompuCom prior to 10:00 a.m. (New York City time) on such day, deliver to the Trustee, the Paying Agent, each Enhancement Provider and the Rating Agencies the Settlement Statement for the related Settlement Period. (d) On each Determination Date, the Servicer shall deliver to the Trustee a computer tape or disk, in form and substance satisfactory to the Trustee, = containing the information and data fields set forth on the attached Exhibit ============================================================================ 3.04(d) (the "Monthly Tape"). In addition, the Trustee may request the delivery ======= ------------ of such Monthly Tape on an interim basis. The Trustee shall have no obligation to verify the contents of any Monthly Tape it receives. 26 Section 3.05 Annual Servicer's Certificate'. The Servicer will deliver to ----------------------------- the Trustee and each Enhancement Provider on or before April 30 of each calendar year, beginning with April 30, 2000, an Officer's Certificate substantially in the form of Exhibit 3.05 (or such other form as reasonably requested by any ------------ Agent under any Series Supplement) stating that (a) a review of the activities of the Servicer during the preceding fiscal year of the Servicer and of its performance under this Agreement and each Supplement was made under the supervision of the officer signing such certificate and (b) to the best of such officer's knowledge, based on such review, the Servicer has in all material respects fully performed or has caused to be fully performed all of its obligations under this Agreement and each Supplement throughout such year, or, if there has been a default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof. Section 3.06 Annual Independent Public Accountants' Servicing Report'. ------------------------------------------------------- (a) On or before April 30 of each calendar year, beginning with April 30, 2000, the Servicer shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer or the Transferor) to furnish a report (which report shall cover the period from December 31 of the prior calendar year to and including December 31 of the current calendar year) to the Trustee, each Enhancement Provider and each Rating Agency to the effect that they have applied certain procedures agreed upon with the Servicer and reviewed certain documents and records relating to the servicing of Receivables with respect to the Servicer's compliance with the terms and conditions set forth in Sections 3.04, 3.05, 4.02, 4.03, 4.04, 4.06, ------------- ---- ---- ---- ---- ---- 4.07 and 12.01 of this Agreement (including any Supplement amending or - ---- ----- superseding those Sections with respect to a Series), which report shall include all findings of such accountants. (b) On or before April 30 of each calendar year, beginning with April 30, 2000, the Servicer shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer or the Transferor), or other Person acceptable to each Control Party, to furnish a report to the Trustee and each Enhancement Provider to the effect that they have compared the mathematical calculations of each amount set forth in the Settlement Statements forwarded by the Servicer pursuant to Section 3.04(c) --------------- during the period covered by such report (which shall be the period from December 31 of the prior calendar year to and including December 31 of the current calendar year) with the Servicer's computer reports which were the source of such amounts and that on the basis of such comparison, such accountants have found that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement. The Servicer shall promptly forward a copy of such report to each Rating Agency. 27 (c) In the event such independent public accountants require the Trustee to agree to the procedures to be performed by such firm in any of the reports required to be prepared pursuant to this Section 3.06, the Servicer shall direct ------------ the Trustee, in writing to so agree; it being understood and agreed that the Trustee will deliver such letter of agreement in conclusive reliance upon the direction of the Servicer, and the Trustee has not made any independent inquiry or investigation as to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. Section 3.07 Tax Treatment. The Transferor has entered into this ------------- Agreement, and the Investor Certificates have been (or will be) issued, with the intention that such Investor Certificates will qualify under applicable tax law as indebtedness of the Transferor, secured by the Receivables. The Transferor, the Servicer, each Investor Certificateholder by acceptance of its Investor Certificate and each Certificate Owner by acquiring an interest in an Investor Certificate agrees to treat, and to take no action inconsistent with the treatment of, the Investor Certificates (or beneficial interest therein) as indebtedness of the Transferor, for purposes of federal, state and local income or franchise taxes and for any other tax imposed on or measured by income. In accordance with the foregoing, the Transferor agrees that it will report its income for such federal, state, and local income or franchise taxes, or for purposes of any other taxes on or measured by income, on the basis that it is the owner of the Receivables. Each Investor Certificateholder and each Holder of the Transferor Certificate, by acceptance of its Certificate, and each Certificate Owner, by acquisition of a beneficial interest in an Investor Certificate, agree to be bound by the provisions of this Section 3.07. Nothing ------------ contained in the foregoing or elsewhere in this Agreement shall, however, be deemed to prohibit the Transferor from making any election that may in the future be available to it under the Internal Revenue Code to have the Trust or any Series treated as a "financial asset securitization investment trust" (or similar entity), so long as prior to the effectiveness of that election the Transferor delivers to the Trustee an Opinion of Counsel to the effect that the election (a) will not cause the Trust to be classified, for Federal income tax purposes, as an association (or publicly traded partnership) taxable as a corporation and (b) will not cause or constitute an event in which gain or loss would be recognized by any Investor Certificateholder. Section 3.08 Notices to Transferor. The Servicer shall deliver or make --------------------- available to the Transferor each certificate and report required to be prepared, forwarded or delivered pursuant to Sections 3.04, 3.05 and 3.06. ------------- ---- ---- Section 3.09 Dilution Factors. If the Unpaid Balance of any Eligible ---------------- Receivable is adjusted by the Servicer for any Dilution Factors (which Dilution Factors shall only be determined in accordance with the Credit and Collection Policy), the Aggregate Eligible Unpaid Balance with respect to the Business Day following the Business Day on which such adjustment takes place will be reduced by the amount of the adjustment. In the event that such adjustment would cause the Aggregate Eligible Unpaid Balance to be less than the Aggregate Target Receivables Amount, the 28 Transferor shall make or cause to be made by the close of business on the Business Day following the day on which such adjustment occurs a deposit in immediately available funds, (on a pro rata basis based on the respective Target Deficiency Amounts of each Series, if any), in an aggregate amount equal to such deficiency into the Series Principal Collection Sub-subaccount for each outstanding Series (such deposit being referred to as a "Dilution Factor --------------- Payment"). - ------- Section 3.10 Covenant to Maintain Privileges. The Servicer shall maintain ------------------------------- all of its rights, powers and privileges material to the collectibility of the Receivables. ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.01 Rights of Certificateholders. Each Series shall evidence an ---------------------------- interest in the Trust Assets representing the right to receive Collections and other amounts at the times and in the amounts specified in this Article IV to be ---------- deposited in the Collection Account or Series Accounts or paid to or on behalf of the Investor Certificateholders (such interest for each Series, collectively, the "Investors' Interest"). The Transferor Certificate shall represent the ------------------- remaining interest in the Trust Assets, including the right to receive Collections and other amounts at the times and in the amounts specified in this Article IV to be paid to or on behalf of the Holder of the Transferor - ---------- Certificate (the "Transferor's Interest"); provided, however, that such --------------------- -------- ------- certificate shall not represent any interest in the Collection Account (except to the extent provided in this Agreement) and neither the Transferor nor the Servicer shall have the right to withdraw funds from the Collection Account or to receive funds on deposit therein except as and when provided by this Agreement. 29 Section 4.02 Establishment of Collection Account. ----------------------------------- (a) The Collection Account. The Trustee, for the benefit of ---------------------- Certificateholders and the Enhancement Providers (if any), shall establish and maintain or shall cause to be established and maintained with an Eligible Institution in the name of the Trustee, on behalf of the Trust, a segregated trust account (the "Collection Account"), bearing a designation clearly ------------------ indicating that the funds deposited therein are held for the benefit of the Certificateholders and the Enhancement Providers (if any). The Collection Account (and any subaccounts and sub-subaccounts thereof) shall be under the sole dominion and control of the Trustee for the benefit of the Certificateholders and the Enhancement Providers (if any). If, at any time, the institution holding the Collection Account (and any subaccounts and sub- subaccounts thereof) ceases to be an Eligible Institution, the Trustee shall within 10 Business Days of a Responsible Officer learning of such event establish a new Collection Account meeting the conditions specified above with an Eligible Institution, transfer any cash and/or any investments to such new Collection Account and from the date such new Collection Account is established, it shall be the "Collection Account." Neither the Transferor nor the Servicer, nor any Person claiming by, through or under the Transferor or Servicer, shall have any right, title or interest in, or any right to withdraw any amount from, the Collection Account (and any subaccounts and sub-subaccounts thereof) except to the extent provided in this Agreement. Pursuant to the authority granted to the Servicer pursuant to Section 3.01(a), the Servicer shall have the revocable --------------- power to instruct the Trustee to make withdrawals and payments from the Collection Account (and any subaccounts and sub-subaccounts thereof) for the purposes of carrying out the Servicer's, and, where applicable, the Trustee's duties hereunder. The Trustee shall divide the Collection Account into subaccounts and sub-subaccounts. The first of such subaccounts shall be a subaccount established for the benefit of Certificateholders of all Series (the "Collection Master Subaccount"). The Trustee shall also establish individual ---------------------------- subaccounts of the Collection Account for each outstanding Series (each, respectively, a "Series Collection Subaccount" and, collectively, the "Series ---------------------------- ------ Collection Subaccounts") and for the Transferor (the "Transferor Collection - ---------------------- --------------------- Subaccount"). For administrative purposes only, the Trustee shall establish or - ---------- cause to be established for each Series, so long as such Series is an outstanding Series, sub-subaccounts of the Series Collection Subaccount with respect to such Series (respectively, the "Series Principal Collection Sub- ------------------------------- subaccount" and "Series Non-Principal Collection Sub-subaccount"). The Trustee - ---------- ---------------------------------------------- may also establish for each Series any additional Series Collection Sub- subaccounts which are set forth in the related Supplement. (b) Administration of the Collection Account. Funds on deposit in the ---------------------------------------- Collection Account (and any subaccounts or sub-subaccounts thereof) shall, at the direction of the Servicer, be invested by the Trustee in Eligible Investments that will mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available on or before the Payment Date next following the date of the Trust's investment therein (other than investment earnings and amounts deposited 30 pursuant to Article XII, which shall at the direction of the Servicer be ----------- invested by the Trustee in Eligible Investments that will mature on or before the Business Day next following the date of the Trust's investment therein). All interest and investment earnings (net of losses and investment expenses) ("Investment Earnings") on funds in the Collection Account (and any subaccounts ------------------- or sub-subaccounts thereof) shall be paid by the Trustee to the Transferor on each Payment Date, unless an Early Amortization Event shall have occurred and be continuing, in which event such Investment Earnings shall be retained in the Collection Account and be treated as Collections. Any request by the Servicer to invest funds on deposit in the Collection Account (and any subaccounts or sub- subaccounts thereof) shall be in writing and shall certify that the requested investment is an Eligible Investment which matures at or prior to the time required hereby. If the Trustee does not receive written direction from the Servicer, any such amounts on deposit shall be invested in investments of the type described in clause (iv) of the definition of Eligible Investments. The Trustee shall maintain possession of the negotiable instruments or securities, if any, evidencing the Eligible Investments described in clause (a) of the ---------- definition thereof from the time of purchase thereof until maturity. The Servicer will have the revocable power to instruct the Trustee to make withdrawals and payments from the Collection Account (and any subaccounts or sub-subaccounts thereof) for the purpose of carrying out the Servicer's or the Trustee's duties under this Agreement. Neither the Transferor nor the Servicer shall deposit any of their funds in the Collection Account (and any subaccounts or sub-subaccounts thereof) at any time except for funds unconditionally required to be paid on account of the purchase price of Certificates or Receivables pursuant to this Agreement or as specified in any Supplement. (c) Identification of Collection Account, the Collection Master Subaccount ---------------------------------------------------------------------- and the Transferor Collection Subaccount. Exhibit 4.02(c) identifies the - ---------------------------------------- --------------- Collection Account, the Collection Master Subaccount and the Transferor Collection Subaccount by setting forth the account number of each such account, the account designation of each such account and the name and location of the institution with which each such account has been established. Each Supplement shall identify the Series Collection Subaccounts and Series Collection Sub- subaccounts for the related Series. Section 4.03 Collections and Allocations. --------------------------- (a) Collections and Transfers. (i) The Servicer will allocate, pay or ------------------------- deposit all Collections with respect to the Receivables for each Business Day as described in this Article IV. Except as provided in any Supplement with respect ---------- to any Series, no later than the Business Day following the receipt of any Collections, the Servicer shall deposit such Collections into the Concentration Account (or Collection Master Subaccount, if applicable) and shall allocate and transfer such Collections as indicated below. (ii) On each Business Day (each such Business Day, a "Deposit Date") the ------------ Servicer (or the Trustee, in accordance with written directions from the Servicer) shall 31 allocate and transfer from Collections on deposit in the form of available funds in the Concentration Account (or Collection Master Subaccount, if applicable): (a) to the respective Series Collection Subaccount of each outstanding Series, (A) during the Revolving Period of such Series, an amount equal to the lesser of (1) the product of (x) the Invested Percentage for such Series and (y) such Collections and (2) the sum of the Accrued Expense Amount, any Miscellaneous Deficiency and Expense Amount and any Target Deficiency Amount with respect to such Series for such Business Day and (B) during the Amortization Period or the Early Amortization Period of such Series, the lesser of (1) the product of (x) the Invested Percentage for such Series and (y) such Collections and (2) the sum of the Accrued Expense Amount, any Miscellaneous Deficiency and Expense Amount and the Controlled Amortization Amount or the Target Receivables Amount, as applicable, with respect to such Series for such Business Day, and (b) to the Transferor Collection Subaccount (or, at the election of the Transferor by notice to the Servicer and the Trustee, to the Series Principal Collection Sub- subaccount of another Series) the remaining funds, if any, on deposit in the Concentration Account (or Collection Master Subaccount, if applicable) on such date after giving effect to transfers to be made pursuant to clause (a) of this ---------- subsection (a)(ii). If the amount transferred under this subsection (a)(ii) to - ------------------ ------------------ the Series Collection Subaccounts is less than the amount required to be so transferred under this subsection (a)(ii), any funds on deposit in the ------------------ Concentration Account (or Collection Master Subaccount, if applicable) shall be allocated by the Trustee (in accordance with the written directions received pursuant to Section 3.04 above) pro rata to each outstanding Series based on ------------ their respective Invested Percentages in an aggregate amount not to exceed the amount of such deficiency and the funds so allocated shall be transferred to the respective Series Collection Subaccounts. (b) Certain Allocations Following an Early Amortization Event. (i) If, on --------------------------------------------------------- any Determination Date, an Early Amortization Event has occurred and is continuing with respect to any outstanding Series and at such Determination Date a Revolving Period is still in effect with respect to any other outstanding Series (a "Special Allocation Determination Date"), then the Servicer shall make ------------------------------------- the following calculations: (A) determine the amount (the "Allocable Charged-Off Amount") equal to ---------------------------- the excess, if any, of (I) the aggregate Unpaid Balance of all Receivables that became Writeoffs during the related Settlement Period over (II) the aggregate amount of Recoveries received during the related Settlement Period; or (B) determine the amount (the "Allocable Recoveries Amount") equal to --------------------------- the excess, if any, of (I) the aggregate amount of Recoveries received during the related Settlement Period over (II) the aggregate Unpaid Balance of Receivables that became Writeoffs during the related Settlement Period. 32 (ii) If, on any Special Allocation Determination Date, any of the Allocable Charged-Off Amount or the Allocable Recoveries Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions received pursuant to Section 3.04 above) make (A) a pro rata ------------ allocation to each outstanding Series (based on the Invested Percentage for such Series) of a portion (as determined in clause (iii) below) of each such positive ------------ amount and (B) an allocation to the Transferor Certificate of the remaining portion of each such positive amount. (iii) With respect to each portion of the Allocable Charged-Off Amount and the Allocable Recoveries Amount which is allocated to an outstanding Series pursuant to this Section 4.03(b), the Trustee shall apply each such amount to --------------- such Series in accordance with the related Supplement for such Series. (c) Allocations for the Transferor Certificate. On each Business Day, ------------------------------------------ after making all allocations required pursuant to Section 4.03(a), the Trustee --------------- shall (in accordance with the written direction of the Servicer) transfer to the Transferor the amounts on deposit in the Transferor Collection Subaccount. (d) Allocation and Application of Funds. Pursuant to Section 3.04, the ----------------------------------- ------------ Servicer shall direct the Trustee in writing to apply all Collections with respect to the Receivables as described in this Article IV and in the Supplement ---------- with respect to each outstanding Series. The Servicer shall direct the Trustee in writing to pay Collections to the Transferor to the extent such Collections are transferred to the Transferor Collection Subaccount and as otherwise provided in Article IV. Notwithstanding anything in this Agreement or any ---------- Supplement to the contrary, to the extent that the Trustee receives any Daily Report prior to 12:00 noon, New York City time, on any Business Day, the Trustee shall make any applications of funds required thereby on the same Business Day and otherwise on the next succeeding Business Day. Section 4.04 Daily Allocations of Collections Allocated to a Series. ------------------------------------------------------ Daily allocations of the portion of Collections allocated to the Series Collection Subaccount of each Series shall be made in the manner set forth in the related Supplement. Section 4.05 Determination of Interest Distributable on Investor --------------------------------------------------- Certificates. The determination of the amount of interest distributable with - ------------ respect to the Investor Certificates of any Series shall be made in the manner set forth in the related Supplement. Section 4.06 Determination of Principal Distributable on Investor ---------------------------------------------------- Certificates. The determination of the amount of principal distributable with - ------------ respect to the Investor Certificates of any Series shall be made in the manner set forth in the related Supplement. 33 Section 4.07 Distributions from Series Collection Sub-subaccounts-. The ---------------------------------------------------- distribution of amounts on deposit in the Series Collection Sub-subaccounts of any Series shall be made in the manner set forth in the related Supplement. Section 4.08 Funds Unrelated to Receivables. In the event that the ------------------------------ Trustee shall have received amounts in respect of payments made by any Person on an obligation of a customer of CompuCom or other obligation which has not been transferred to the Trust, the Trustee shall, as soon as practicable and as instructed in the most recently delivered Daily Report or Settlement Statement, forward such amounts, in the manner specified in writing by CompuCom, to CompuCom or such other Person as CompuCom designates and, pending the forwarding of such amounts, hold such amounts in trust for CompuCom or such other Person designated by CompuCom. The Trustee will, if requested in writing by CompuCom, acknowledge and confirm the foregoing to any Person designated by CompuCom. ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS Section 5.01 Distributions. On each Payment Date, the Paying Agent shall ------------- distribute (in accordance with the Settlement Statement delivered by the Servicer to the Trustee on the preceding Determination Date pursuant to Section ------- 3.04(c)) to each Investor Certificateholder of any Series on the preceding - ------- Record Date (other than as provided in Section 2.04(d) or in Section 12.03(b) --------------- ---------------- hereof respecting a final distribution) such Investor Certificateholder's pro --- rata share (based on the aggregate Undivided Interests represented by Investor - ---- Certificates of such Series held by such Investor Certificateholder) of amounts on deposit in the Collection Account (or other applicable Series Accounts specified in the applicable Supplement) as are payable to the Investor Certificateholders of such Series pursuant to Article IV. Such distribution ---------- shall be made by check mailed to each Certificateholder or, if so stated in any Supplement, by wire transfer to each Certificateholder so qualified as stated therein, except that to the extent that Investor Certificates of a Series are registered in the name of Cede & Co., the nominee registrar for The Depository Trust Company, such distribution to Investor Certificateholders shall be made in immediately available funds to The Depository Trust Company. All payments on account of principal and interest to Certificateholders of any Series shall be made from amounts on deposit in the Collection Account or other applicable Series Accounts specified in the applicable Supplement. 34 Section 5.02 Monthly Investor Certificateholders' Statement; Annual Tax ---------------------------------------------------------- Statement. - --------- (a) On each Payment Date, the Paying Agent shall forward to each Investor Certificateholder of each Series the Settlement Statement received by the Paying Agent pursuant to Section 3.04(c). --------------- (b) On or before January 31 of each calendar year, beginning with calendar year 2000, the Servicer shall deliver to the Paying Agent, which shall thereupon furnish to each Person who at any time during the preceding calendar year was a Certificateholder, a statement prepared by the Servicer containing the information which is required to be contained in the regular monthly report to Investor Certificateholders as set forth in Section 5.02(a), aggregated for such --------------- calendar year or the applicable portion thereof during which such person was a Certificateholder, together with such other information as is required to be provided by an issuer of indebtedness under the Code and such other customary information as the Servicer deems necessary or desirable to enable the Certificateholders to prepare their tax returns. Such obligation of the Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Paying Agent pursuant to this Agreement or pursuant to any requirements of the Code as from time to time in effect. Upon the written request of any Investor Certificateholder, the Trustee shall provide such Investor Certificateholder with information necessary for such Investor Certificateholder to complete its federal tax returns with respect to its investment in the Certificates issued hereunder. 35 ARTICLE VI THE CERTIFICATES Section 6.01 The Certificates. The Investor Certificates of each Series ---------------- shall be substantially in the form attached as an exhibit to the applicable Supplement, and the Transferor Certificate shall be substantially in the form of Exhibit 6.01 hereto, and shall, upon issuance pursuant hereto or to Section - ------------ ------- 6.09, be executed and delivered by the Transferor to the Trustee for authentication and redelivery as provided in Section 6.02. Investor ------------ Certificates shall be issued in the minimum denominations or commitment amounts or commitment percentages indicated in the related Supplement. The Transferor Certificate shall be issued in one certificate to the Transferor. Each Certificate shall be executed by manual or facsimile signature on behalf of the Transferor by its Chairman of the Board, its President, its Vice Chairman of the Board or any Vice President. Certificates bearing the signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Transferor or the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement or any applicable Supplement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Section 6.02 Authentication of Certificates. Contemporaneously with the ------------------------------ initial assignment and transfer of the Receivables, whether now existing or hereafter created and the other components of the Trust to the Trust, the Trustee shall authenticate and deliver the Transferor Certificate to the Transferor and, upon the execution of any Supplement and the satisfaction of the conditions provided in Section 6.09, shall authenticate and deliver the Series ------------ of Investor Certificates to be issued thereunder as provided in Section 6.09. ------------ The Certificates of each Series shall be duly authenticated by or on behalf of the Trustee as provided for herein and in the applicable Supplement, (x) in authorized denominations equal to (in the aggregate) the Initial Invested Amount of such Series or (y) in authorized maximum commitment amounts or commitment percentages, in each case as specified in such Supplement. As provided in any Supplement, Investor Certificates of any Series may be issued and sold pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption therefrom, and may be delivered in book-entry form as provided in Sections 6.11 through 6.12. Further, if any such Series is sold pursuant to an - ------------- ---- exemption from registration under the Securities Act pursuant to Section 4(2) of the Securities Act or its substantial equivalent (the "Private Placement ----------------- Exemption") as stated in the applicable - --------- 36 Supplement, the Certificates of such Series may only be transferred as provided in Section 6.03(d). --------------- Section 6.03 Registration of Transfer and Exchange of Certificates. ----------------------------------------------------- (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent and Registrar") a register (the "Certificate Register") in - ----------------------------- -------------------- which, subject to such reasonable regulations as it may prescribe, the Transfer Agent and Registrar shall provide for the registration of each Series of the Investor Certificates and the Transferor Certificate and of transfers and exchanges of such Certificates as herein provided. The Trustee is hereby initially appointed Transfer Agent and Registrar for the purpose of registering each Series of Investor Certificates and of registering transfers and exchanges of the Investor Certificates as herein provided. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Transferor and the Servicer; provided, however, that such resignation shall not -------- ------- be effective and the Trustee shall continue to perform its duties as Transfer Agent and Registrar until the Servicer has appointed a successor Transfer Agent and Registrar acceptable to the Transferor. The Trustee shall register the Transferor Certificate in the name of the Transferor. Upon surrender for registration of transfer of any Investor Certificate of a Series at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Transferor shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more Investor Certificates of such Series in authorized denominations (or commitment percentages or commitment amounts) evidencing the same aggregate Undivided Interests; provided, however, that any Investor -------- ------- Certificate of any Series sold pursuant to the Private Placement Exemption shall satisfy the conditions provided in Section 6.03(d) prior to such registration of --------------- transfer. At the option of an Investor Certificateholder, Investor Certificates of a Series may be exchanged for one or more Investor Certificates of such Series of authorized denominations evidencing the same aggregate Undivided Interests, upon surrender of the Investor Certificates to be exchanged at any office or agency of the Transfer Agent and Registrar maintained for such purpose. Whenever any Investor Certificates are so surrendered for exchange, the Transferor shall execute, and the Trustee shall authenticate and deliver, the Investor Certificates which the Investor Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form reasonably satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder thereof or its attorney duly authorized in writing. 37 No service charge shall be imposed for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Investor Certificates surrendered for registration of transfer or exchange shall be canceled by the Transfer Agent and Registrar and disposed of in a manner satisfactory to the Trustee or retained by the Trustee in accordance with its standard retention policy. (b) Neither the Transferor Certificate nor any interest represented thereby shall be sold, transferred, assigned, exchanged, pledged or otherwise conveyed. (c) The Transfer Agent and Registrar will maintain at its expense in Minneapolis, Minnesota, an office or offices or agency or agencies where Certificates may be surrendered for registration of transfer or exchange. (d) Unless otherwise specified in the related Supplement, until such time as the Trustee shall receive an Officer's Certificate of the Transferor certifying that a Series of Investor Certificates has been registered under the Securities Act and qualified under all applicable state securities laws, neither the Trustee nor the Transfer Agent and Registrar shall register a transfer of any Investor Certificates of such Series or any interest therein unless such transfer is to be made in a transaction that does not require such registration or qualification. Unless otherwise specified in the related Supplement, until such time as such Series of Investor Certificates shall be registered pursuant to a registration statement filed under the Securities Act, such Series of Investor Certificates shall bear a legend to the effect set forth in the preceding sentence. Unless otherwise specified in the related Supplement, in the event that registration of a transfer is to be made in reliance upon an exemption of the transfer from the Securities Act, the Trustee shall require, in order to assure compliance with the Securities Act and the Investment Company Act of 1940, as amended, the transferee to deliver to the Trustee and the Transferor an Opinion of Counsel reasonably satisfactory to the Transferor and the Trustee that such transfer may be made pursuant to an exemption from the Securities Act and applicable state securities laws and would not subject the Trust to the registration requirements of the Investment Company Act of 1940, as amended. Any such Opinion of Counsel shall be obtained at the expense of the prospective transferor or transferee, and not at the expense of the Trustee or the Transferor, and shall be delivered to the Trustee and the Transferor prior to or contemporaneously with any such transfer. Neither the Transferor nor the Trustee shall be obligated to register any Series of Investor Certificates under any state securities laws or under the Securities Act or to take any other action not otherwise required under this Agreement to permit the transfer of such Series without registration. Notwithstanding anything to the contrary contained herein, in no event shall an Investor Certificate of any Series be transferred to a Benefit Plan, unless permitted 38 pursuant to the related Supplement. Each Holder of an Investor Certificate of any such Series, by its acceptance thereof, represents and warrants that it is not a Benefit Plan and is not acquiring or holding its Investor Certificates by, with or on behalf of plan assets of any Benefit Plan, unless permitted pursuant to the related Supplement. By acquiring any interest in an Investor Certificate, the applicable Certificate Owner or Owners shall be deemed to have represented and warranted that it or they are not Benefit Plans and are not acquiring such interest by, with or on behalf of plan assets of any Benefit Plan, unless permitted pursuant to the related Supplement. In connection with any transfer of an Investor Certificate, unless otherwise specified in the related Supplement, each transferee shall execute and deliver to the Trustee a representation letter substantially in the form of Exhibit 6.03(d). - --------------- Section 6.04 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) ------------------------------------------------- any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any such Certificate and (b) there is delivered to the Transfer Agent and Registrar, the Trustee and the Transferor such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Transferor shall execute and the Trustee shall ---- ---- authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Undivided Interest, if applicable. In connection with the issuance of any new Certificate under this Section 6.04, the Trustee or the Transfer Agent ------------ and Registrar may require the payment by the Certificateholder of a sum sufficient to cover any tax or other expenses (including the fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 6.04 shall constitute ------------ complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.05 Persons Deemed Owners. Prior to due presentation of a --------------------- Certificate for registration of transfer, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 5.01 and for all ------------ other purposes whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary; provided, however, that in determining whether the -------- ------- holders of the requisite Undivided Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates owned by the Transferor, the Servicer or any Affiliate thereof, shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Certificates so owned which 39 have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not the Transferor, the Servicer or an affiliate (as defined above) thereof. Section 6.06 Appointment of Paying Agent. The Paying Agent shall be the --------------------------- Trustee or shall (i) have a rating by Moody's of at least P-1 or satisfy the Rating Agency Condition and (ii) have a rating by Standard & Poor's of at least A-1 or satisfy the Rating Agency Condition and (iii) be approved by the Servicer, and shall be a depositary institution organized under the laws of the United States or any one of the states thereof, including the District of Columbia. The Paying Agent shall make distributions to Certificateholders from the Collection Account and Series Accounts as contemplated by Section 5.01. Any ------------ Paying Agent shall have the revocable power to withdraw funds from the Collection Account for the purpose of making distributions referred to above. The Trustee may revoke such power and remove any Paying Agent if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. The Paying Agent shall initially be the Trustee. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Trustee, the Servicer and the Transferor; provided, however, that such resignation shall -------- ------- not be effective and the Paying Agent shall continue to perform its duties until the Trustee has appointed, and such appointment has been accepted by, a successor Paying Agent. The Trustee shall cause the resigning Paying Agent and each successor Paying Agent to execute and deliver to the Trustee an instrument in which such resigning or successor Paying Agent or additional Paying Agent shall agree with the Trustee that, as Paying Agent, such resigning or successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal shall also return all funds in its possession to the Trustee. The provisions of Sections 11.01, 11.02 and 11.03 shall apply to the -------------- ----- ----- Paying Agent in its role as Paying Agent. Section 6.07 Access to List of Certificateholders' Names and Addresses'. --------------------------------------------------------- The Trustee shall furnish or instruct the Transfer Agent and Registrar to furnish to the Servicer or the Paying Agent, within five Business Days after receipt by the Trustee of a request therefor from the Servicer or the Paying Agent, respectively, in writing, a list in such form as the Servicer or the Paying Agent may reasonably require, of the names and addresses of the Certificateholders. If Holders of Investor Certificates of any Series or Holders representing Undivided Interests in the Trust aggregating not less than 5% of the Invested Amount of the Investor Certificates of any Series (the "Applicants") apply in writing to the Trustee, and such application states that - ----------- the Applicants desire to communicate with other Investor Certificateholders of any Series with respect to their rights under this Agreement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to 40 transmit, then the Trustee, after having been indemnified to its reasonable satisfaction by such Applicants for its costs and expenses, shall afford or shall instruct the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Certificateholders held by the Trustee, within five Business Days after the receipt of such application. Such list shall be as of a date no more than 30 days prior to the date of receipt of such Applicants' request. Every Certificateholder agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Certificateholders hereunder, regardless of the sources from which such information was derived. Section 6.08 Authenticating Agent. -------------------- (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Transferor. (b) Any institution succeeding to all or substantially all of the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Transferor. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Transferor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or the Transferor, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and the Transferor. (d) The Servicer agrees to pay, on behalf of the Trust, to each authenticating agent from time to time reasonable compensation for its services under this Section 6.08. ------------ 41 (e) The provisions of Sections 11.01, 11.02 and 11.03 shall be applicable -------------- ----- ----- to any authenticating agent. (f) Pursuant to an appointment made under this Section 6.08, the ------------ Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Certificates referred to in the Pooling and Servicing Agreement. __________________________ as Authenticating Agent for the Trustee, by __________________________ Authorized Signatory Section 6.09 New Issuances. (a) The Transferor may from time to time ------------- direct the Trustee, on behalf of the Trust, to issue one or more new Series of Investor Certificates pursuant to one or more Supplements. The Investor Certificates of all outstanding Series shall be equally and ratably entitled as provided herein to the benefits of this Agreement without preference, priority or distinction, all in accordance with the terms and provisions of this Agreement and the applicable Supplement except, with respect to any Series or Class, as provided in the related Supplement. (b) On or before the Series Issuance Date relating to any new Series, the parties hereto will execute and deliver a Supplement which will specify the Principal Terms of such new Series. The terms of such Supplement may modify or amend the terms of this Agreement solely as applied to such new Series. The obligation of the Trustee to issue the Investor Certificates of such new Series and to execute and deliver the related Supplement is subject to the satisfaction of the following conditions: (i) on or before the fifth Business Day immediately preceding the Series Issuance Date, the Transferor shall have given the Trustee, the Servicer, each Rating Agency and each Enhancement Provider written notice of such issuance and the Series Issuance Date (the "Issuance Notice"); --------------- (ii) the Transferor shall have delivered to the Trustee the related Supplement, in form reasonably satisfactory to the Trustee, executed by each party hereto other than the Trustee; 42 (iii) the Transferor shall have delivered to the Trustee the form of any Enhancement relating to such Series, if any, and any related Enhancement Agreement executed by each of the parties thereto, other than the Trustee; (iv) if any of the Certificates are then rated, the Rating Agency Condition shall have been satisfied with respect to such issuance; (v) such issuance will not result in the occurrence of an Early Amortization Event and the Transferor shall have delivered to the Trustee and any Enhancement Provider a certificate of a Vice President or more senior officer, dated the Series Issuance Date, to the effect that the Transferor reasonably believes that such issuance will not result in the occurrence of an Early Amortization Event and is not reasonably expected to result in the occurrence of an Early Amortization Event at any time in the future; (vi) the Transferor shall have delivered to the Trustee a Tax Opinion, an enforceability opinion, a security interest opinion and a true sale/substantive consolidation opinion, each dated the Series Issuance Date, with respect to such issuance; and (vii) the Aggregate Eligible Unpaid Balance shall not be less than the Aggregate Target Receivables Amount, in each case as of the Series Issuance Date and after giving effect to such issuance. Upon satisfaction of the above conditions, the Trustee shall execute the Supplement and issue to the Transferor the Investor Certificates of such Series for execution and redelivery to the Trustee for authentication. Without limiting the generality of the foregoing, the Trustee will hold any Enhancement provided pursuant to any Supplement only on behalf of each Series (or related Class) to which such Enhancement relates. Section 6.10 Book-Entry Certificates. If and to the extent provided in ----------------------- any Supplement, the Investor Certificates of any Series, upon original issuance, will be issued in the form of one or more typewritten Certificates representing the Book-Entry Certificates, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Transferor. The Investor Certificates of such Series represented by Book-Entry Certificates shall initially be registered on the Certificate Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Certificate Owner with respect to such Book-Entry Certificates will receive a Definitive Certificate representing such Certificate Owner's interest in the Investor Certificates, except as provided in Section 6.12. Unless and until certificated, fully ------------ registered Investor Certificates (the "Definitive Certificates") have been ----------------------- issued to Certificate Owners pursuant to Section 6.12: ------------ (i) the provision of this Section 6.10 shall be in full force and ------------ effect; 43 (ii) the Transferor, the Servicer, the Paying Agent, the Transfer Agent and Registrar and the Trustee may deal with the Clearing Agency and the Clearing Agency Participants for all purposes (including the making of distributions on the Investor Certificates) as the authorized representatives of the Certificate Owners; (iii) to the extent that the provisions of this Section 6.10 conflict ------------ with any other provisions of this Agreement, the provisions of this Section ------- 6.10 shall control; and ---- (iv) the rights of Certificate Owners shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between such Certificate Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Certificates are issued pursuant to Section 6.12, the initial Clearing Agency will make book-entry trnsfers ------------ among the Clearing Agency Participants and recieve and transmit distributions of principal and interest on the Investor Certificates to such Clearing Agency Participants. Section 6.11 Notices to Clearing Agency. Whenever notice or other -------------------------- communication to the Investor Certificateholders of any Series delivered as provided in Section 6.10 is required under this Agreement, unless and until ------------ Definitive Certificates shall have been issued to Certificate Owners pursuant to Section 6.12, the Trustee, the Servicer and the Paying Agent shall give all such - ------------ notices and communications specified herein to be given to applicable Holders of the Investor Certificates of such Series to the Clearing Agency. Section 6.12 Definitive Certificates. If (i)(A) the Transferor advises ----------------------- the Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Book-Entry Certificates, and (B) the Trustee or the Transferor is unable to locate a qualified successor, (ii) the Transferor, at its option, advises the Trustee in writing that, with respect to any Series, it elects to terminate the book-entry system through the Clearing Agency or (iii) after the occurrence of a Servicer Default, Certificate Owners representing beneficial interests aggregating more than 50% of the Invested Amount of each affected Series then issued and outstanding represented by Book-Entry Certificates advise (x) the Trustee and (y) the Clearing Agency through the Clearing Agency Participants in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Certificate Owners of such Series, then the Trustee shall notify the Clearing Agency, and shall request the Clearing Agency to notify all Certificate Owners, of the availability through the Trustee of Definitive Certificates of such Series to Certificate Owners of such Series requesting the same. Upon surrender to the Trustee of Investor Certificates of such Series represented by Book-Entry Certificates by the Clearing Agency accompanied by registration instructions from such Clearing Agency for registration, the Trustee shall authenticate and deliver Definitive 44 Certificates of such Series in respect of such Book-Entry Certificates. Neither the Transferor, the Transfer Agent and Registrar nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates of any Series, all references herein to obligations with respect to such Series imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive Certificates, and the Trustee shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. Section 6.13 Letter of Representations. Notwithstanding anything to the ------------------------- contrary in this Agreement or any Supplement, the parties hereto shall comply with the terms of each Letter of Representations. ARTICLE VII OTHER MATTERS RELATING TO THE TRANSFEROR Section 7.01 Liability of the Transferor. The Transferor shall be liable --------------------------- for each obligation, covenant, representation and warranty of the Transferor arising under or related to this Agreement or any Supplement and shall be liable only to such extent. Section 7.02 Merger or Consolidation of, or Assumption of the Obligations ------------------------------------------------------------ of, the Transferor. - ------------------ (a) The Transferor shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person unless: (i) the corporation formed by such consolidation or into which the Transferor is merged or the Person which acquires by conveyance or transfer the properties and assets of the Transferor substantially as an entirety shall be, if the Transferor is not the surviving entity, organized and existing under the laws of the United States of America or any state or the District of Columbia, and, if the Transferor is not the surviving entity, shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the performance of every covenant and obligation of the Transferor hereunder; (ii) the Transferor shall have delivered to the Trustee and each Enhancement Provider an Officer's Certificate of the Transferor and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer 45 complies with this Section 7.02 and that all conditions precedent herein ------------ provided for relating to such transaction have been complied with; (iii) if any of the Certificates are then rated, the Rating Agency Condition shall have been satisfied with respect to such action; and (iv) each Control Party shall have consented to such action. (b) The obligations of the Transferor hereunder shall not be assignable nor shall any Person succeed to the obligations of the Transferor hereunder except in each case in accordance with the provisions of Section 7.02(a). --------------- Section 7.03 Limitation on Liability of the Transferor. The Transferor ----------------------------------------- and any director or officer or employee or agent of the Transferor may rely in good faith on any document of any kind prima facie properly executed and ----- ----- submitted by any Person respecting any matters arising hereunder. Each of the Trustee and the Servicer agrees that the obligations of the Transferor to the Trustee, the Servicer, the Certificateholders and the Trust hereunder, including the obligation of the Transferor in respect of indemnities pursuant hereto, shall be payable solely from the Trust Assets in accordance with the provisions of this Agreement and any Supplement and that the Trustee, the Servicer, the Certificateholders and the Trust shall not look to any other property or assets of the Transferor in respect of such obligations and that such obligations shall not constitute a claim against the Transferor in the event that the Transferor's assets are insufficient to pay in full such obligations. ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.01 Liability of the Servicer. The Servicer shall be liable ------------------------- under this Agreement only to the extent of the obligations specifically undertaken by the Servicer in its capacity as Servicer. Section 8.02 Merger or Consolidation of, or Assumption of the Obligations ------------------------------------------------------------ of, the Servicer. - ---------------- (a) The Servicer shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the corporation formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be a 46 corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and, if the Servicer is not the surviving entity, such corporation shall qualify as an Eligible Servicer and shall expressly assume, by an agreement supplemental hereto executed and delivered to the Trustee in a form satisfactory to the Trustee, the performance of every covenant and obligation of the Servicer hereunder; and (ii) the Servicer has delivered to the Trustee an Officer's Certificate of the Servicer stating that such consolidation, merger, conveyance or transfer complies with this Section 8.02 and that all ------------ conditions precedent herein provided for relating to such transaction have been complied with and an Opinion of Counsel with respect to the enforceability of the assumption agreement referred to above. The Servicer shall promptly notify each Rating Agency following the occurrence of any transaction covered by this Section 8.02. ------------ (b) Change in Control Notice. The Servicer shall provide the Trustee and ---------------------------- the Agent pursuant to any Series Supplement with 30 days written notice prior to Safeguard Scientifics, Inc. ceasing to own voting securities of Servicer entitled to cast at least 25% of the total votes entitled to be cast by the Servicer's equity holders. Section 8.03 Limitation on Liability of the Servicer and Others. The -------------------------------------------------- Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and ----- ----- submitted by any Person respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to service the Receivables in accordance with this Agreement or any Supplement. The Servicer may undertake any legal action which it may deem necessary or desirable for the benefit of Certificateholders with respect to this Agreement and any Supplement and the rights and duties of the parties hereto and thereto and the interest of the Certificateholders hereunder and thereunder. Section 8.04 Servicer Indemnification of the Trust and the Trustee. The ----------------------------------------------------- Servicer shall indemnify and hold harmless the Trustee (and its respective directors, officers, employees and agents) and the Trust, for the benefit of the Certificateholders and the Enhancement Providers, from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts or omissions of the Servicer pursuant to this Agreement or any Supplement, including any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual action, proceeding or claim; provided, however, that the Servicer shall not indemnify -------- ------- the Trustee or the Trust if such acts or omissions were attributable to fraud, gross negligence, breach of fiduciary duty or willful misconduct by the Trustee; and provided, further, that the Servicer shall not indemnify the Trust or the -------- ------- Investor Certificateholders (x) for any liabilities, costs or expenses of the Trust with respect to any action taken by the Trustee at the request of 47 any Investor Certificateholder or (y) with respect to any federal, state or local income or franchise taxes or any other taxes imposed on or measured by income (or any interest or penalties or additions with respect thereto) required to be paid by the Trust or the Investor Certificateholders in connection herewith to any taxing authority, or (z) with respect to any liabilities, losses, costs or expenses incurred by any Certificateholder in the Investor Certificates of any Series as a result of defaults or other losses with respect to the Receivables as a result of the creditworthiness of the Obligors. Subject to Sections 8.01 and 10.02(b), any indemnification pursuant to this Section ------------- -------- shall be had only from the assets of the Servicer. The provisions of such indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. The provisions of this Section shall survive the resignation or removal of the Trustee and the termination of the Trust. Section 8.05 The Servicer Not to Resign. The Servicer shall not resign -------------------------- from the obligations and duties hereby imposed on it except upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law, regulation or order and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law, regulation or order. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) ---------- above by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.02 hereof; provided, that if within one hundred ------------- -------- twenty (120) days of the date that the Servicer notifies the Trustee of its resignation in accordance with this Section 8.05 the Trustee does not receive ------------ any bids from Eligible Servicers in accordance with Section 10.02(c) to act as ---------------- Successor Servicer, then the Trustee shall automatically be appointed Successor Servicer in accordance with Section 10.02. ------------- Section 8.06 Access to Certain Documentation and Information Regarding the ------------------------------------------------------------- Receivables. The Servicer shall provide to the Trustee and its representatives - ----------- access to the documents, books, computer records and other information regarding the Receivables and the other Trust Assets, such access being afforded without charge but only (i) upon reasonable request (it being understood that if a Servicer Default has occurred and is continuing, no advance notice shall be required), (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures and (iv) at the offices of the Servicer in Dallas, Texas. Nothing in this Section 8.06 shall derogate from the ------------ obligation of the Transferor, the Trustee or the Servicer to observe any applicable law prohibiting disclosure of information regarding the Obligors and the failure of the Servicer to provide access as provided in this Section 8.06 ------------ as a result of such obligation shall not constitute a breach of this Section ------- 8.06. - ---- Section 8.07 Delegation of Duties. In the ordinary course of business, -------------------- the Servicer may at any time delegate any duties hereunder to any Person who agrees to 48 conduct such duties in accordance with the Credit and Collection Policy and this Agreement or any Supplement. Any delegation shall not relieve the Servicer of its liability and responsibility with respect to such duties and shall not constitute a resignation within the meaning of Section 8.05 hereof. ------------ Section 8.08 Examination of Records. The Transferor and the Servicer ---------------------- shall, prior to the sale or transfer to a third party of any receivable, contract or invoice held in its custody, examine its computer and other records to determine that such receivable, contract or invoice is not part of the Trust Assets. Section 8.09 Successor Servicer Indemnification of Transferor. In the ------------------------------------------------ event of a Service Transfer, the Successor Servicer will indemnify and hold harmless the Transferor for any losses, claims, damages and liabilities of the Transferor arising from the fraud, negligence, breach of fiduciary duty or willful misconduct of such Successor Servicer. ARTICLE IX EARLY AMORTIZATION EVENTS Section 9.01 Early Amortization Events with Respect to Any Series. If any ---------------------------------------------------- one of the following events shall occur at such time as there shall be at least one outstanding Investor Certificate: (i) failure on the part of the Seller, the Transferor, the Trust or the Servicer to make any payment or deposit required by the terms of this Agreement, any Supplement or the Receivables Contribution and Sale Agreement on or before two Business Days after the date such payment or deposit is required to be made herein or therein (after giving effect to any other grace periods specified herein or therein); (ii) failure on the part of the Transferor or the Seller, respectively, duly to observe or perform in any material respect any other covenants or agreements of the Transferor or the Seller, as the case may be, set forth in this Agreement, any Supplement, the Receivables Contribution and Sale Agreement or any other Transaction Document, which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor, the Seller (if applicable) and the Trustee by any Control Party; provided, however, that an Early Amortization -------- ------- Event pursuant to this Section 9.01(ii) shall not be deemed to have ---------------- occurred hereunder with respect to any Series if the Transferor has accepted the transfer of the related Receivable, or all of such Receivables, if applicable, in accordance with Section 2.04(c) during such --------------- 30-day period (or 49 such longer period as each Control Party may specify, not to exceed an additional 30 days) in accordance with the provisions hereof; (iii) any representation or warranty made by the Transferor in this Agreement or any Supplement (or the Seller in the Receivables Contribution and Sale Agreement) or any information required to be delivered by the Transferor (or the Seller, if applicable) to the Trustee shall prove to have been incorrect in any material respect when made, and which continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor (or the Seller, if applicable) and the Trustee by any Control Party; provided, however, that -------- ------- an Early Amortization Event pursuant to this Section 9.01(iii) shall be ----------------- deemed not to have occurred hereunder if the Transferor has accepted the transfer of the related Receivable, or all of such Receivables, if applicable, in accordance with Section 2.04(c) during such 30-day period --------------- (or such longer period as each Control Party may specify, not to exceed an additional 30 days) in accordance with the provisions hereof; (iv) (a) the Seller or the Transferor voluntarily seeks, consents to or acquiesces in the benefit or benefits of any Debtor Relief Law or becomes a party to (or is made the subject of) any proceeding provided for by any Debtor Relief Law, other than as creditor or claimant, and in the event such proceeding is involuntary, the petition instituting the same is not dismissed within 60 days of its filing; or (b) the Transferor shall become unable for any reason to transfer Receivables to the Trust in accordance with the provisions of this Agreement, or (c) the Seller shall become unable for any reason to sell Receivables to the Transferor in accordance with the provisions of the Receivables Contribution and Sale Agreement, or (d) the Seller shall elect to no longer sell Receivables to ================================================================ the Transferor by delivery to the Trustee of a notice to that effect; ==================================================================== (v) the Trust or the Transferor shall be required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (vi) this Agreement, any Supplement or the Receivables Contribution and Sale Agreement shall cease to be in full force and effect except in accordance with the terms thereof; (vii) the security interest of the Trustee in the Trust Assets shall cease to be effective or shall cease to be a first priority perfected security interest; or (viii) the occurrence of a Servicer Default; then, 50 (a) in the case of any event described in any of subparagraphs (i), (ii), ----------------- ---- (iii) or (viii), after the expiration of any applicable grace period set forth - ----- ------ in such subparagraphs, any Control Party by notice then given in writing to the Transferor, the Trustee and the Servicer may declare that an Early Amortization Event has occurred with respect to the particular Series for which such Person is the Control Party as of the date of such notice, and (b) in the case of any event described in any of subparagraphs (iv), (v), ------------------ --- (vi) or (vii) an Early Amortization Event with respect to all Series shall occur - ---- ----- without any notice or other action on the part of any Control Party immediately upon the occurrence of such event. Section 9.02 Additional Rights Upon the Occurrence of Certain Events. ------------------------------------------------------- (a) If the Seller or the Transferor voluntarily or involuntarily (i) seeks, consents to or acquiesces in the benefit or benefits of any Debtor Relief Law or becomes a party to (or is made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, or (ii) goes into liquidation or any other Person shall be appointed as a bankruptcy trustee or receiver or conservator of the Seller or the Transferor, on the day of any event described in clause (i) or clause (ii) of this Section 9.02(a) (the "Appointment ---------- ----------- --------------- ----------- Date") (x) if such event relates to the Seller, the Seller will immediately - ---- cease to sell or contribute Receivables to the Transferor or the Trust under the Receivables Contribution and Sale Agreement, and promptly give notice to the Trustee of such appointment; (y) if such event relates to the Seller or the Transferor, the Transferor shall immediately cease to transfer Receivables to the Trust and shall promptly give notice to the Trustee of such event; and (z) notwithstanding any other provision of this Agreement, if such event relates to the Transferor, this Agreement and the Trust shall terminate and the Receivables shall be liquidated as provided herein unless the requisite Investor Certificateholders (and, if applicable, each Enhancement Provider) shall give the Trustee the instructions described below. Notwithstanding any cessation of the transfer to the Trust of additional Receivables, Receivables transferred to the Trust prior to the occurrence of such event and Collections in respect of such Receivables whenever created, accrued in respect of such Receivables, shall continue to be a part of the Trust. Within 15 days of the day on which a Responsible Officer of the Trustee first receives written notice of the occurrence of the Appointment Date with respect to the Transferor, the Trustee shall send written notice to the Investor Certificateholders of all Series and to each Enhancement Provider describing the provisions of this Section 9.02. Unless within 75 days from the day written ------------ notice pursuant to the preceding sentence is sent by the Trustee the Trustee shall have received (i) written instructions of Investor Certificateholders representing Undivided Interests aggregating more than 50% of the Invested Amount of each Series (or if any Series has more than one Class, of each Class of such Series) and, if any Control Party is an Enhancement Provider, written 51 instructions from such Enhancement Provider, in each case to the effect that the Person(s) giving such notice disapprove of the sale, disposition or liquidation of the Receivables, or (ii) an Opinion of Counsel addressed to the Trustee to the effect that any such sale, disposition or liquidation is prohibited by law, the Trustee shall proceed after such 75 days to sell, dispose of, or otherwise liquidate the Receivables in a commercially reasonable manner and, to the best of its ability, on commercially reasonable terms, which shall include the solicitation of competitive bids. In the event that the Trustee shall have been instructed pursuant to the preceding sentence not to sell, dispose or liquidate any portion of the Receivables allocable to such Series, then the Trust shall continue to receive Receivables in respect of such Series pursuant to the terms of this Agreement and the related Supplements. The Trustee may obtain, and shall be fully protected in relying on, a prior determination from such bankruptcy trustee or receiver or conservator that the terms and manner of any proposed sale, disposition or liquidation hereunder are commercially reasonable. The provisions of Sections 9.01 and 9.02 shall not be deemed to be mutually ------------- ---- exclusive. (b) The proceeds from the sale, disposition or liquidation of the Receivables pursuant to subsection (a) above, net of all reasonable expenses -------------- incurred by the Trustee in connection with such sale, disposition or liquidation, which shall be paid to the Trustee from such proceeds, shall be treated as Collections of the Receivables and shall be allocated in accordance with the provisions of Section 4.03 and the applicable Supplements. ------------ Notwithstanding anything in this Agreement to the contrary, this Section ------- 9.02 shall not limit the obligations of any Enhancement Provider to make - ---- payments in respect of the applicable Series in a timely manner and, to the extent required, in accordance with the applicable Enhancement Agreement. ARTICLE X SERVICER DEFAULTS Section 10.01 Servicer Defaults. If any one of the following events (a ----------------- "Servicer Default") shall occur and be continuing: - ----------------- (a) failure by the Servicer to make any payment, transfer or deposit or to give instructions or to give notice to the Trustee to make such payment, transfer or deposit on or before the date occurring five days after the date such payment, transfer or deposit or such instruction or notice is required to be made or given, as the case may be, under the terms of this Agreement or any Supplement; (b) failure on the part of the Servicer duly to observe or perform any covenants or agreements of the Servicer set forth in this Agreement or any Supplement which failure continues unremedied for a period of 30 days after (x) the date on which 52 written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by any Control Party or (y) the date on which the Servicer has actual knowledge of such failure; (c) any representation, warranty or certification made by the Servicer in this Agreement, any Supplement or in any certificate delivered pursuant to this Agreement or any Supplement shall prove to have been incorrect when made in any material respect which inaccuracy continues unremedied for a period of 30 days after (x) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by any Control Party or (y) the date on which the Servicer has actual knowledge of such failure; or (d) the Servicer shall voluntarily seek, consent to or acquiesce in the benefit or benefits of any Debtor Relief Law or becomes a party to (or be made the subject of) any proceeding provided for under any Debtor Relief Law, other than as creditor or claimant, and in the event such proceeding is involuntary, the petition instituting same is not dismissed within 60 days of its filing; or the Servicer shall assign its duties under this Agreement, except as permitted by this Agreement; then, in the event of any Servicer Default, so long as the Servicer Default shall not have been remedied, the Requisite Holders by notice then given in writing to the Servicer and the Transferor (with a copy thereof to each Rating Agency) and to the Trustee (a "Termination Notice"), may terminate all of the ------------------ rights and obligations of the Servicer as Servicer under this Agreement and in and to the Receivables and the proceeds thereof. After receipt by the Servicer of a Termination Notice, and on the date that a Successor Servicer shall have been appointed pursuant to Section 10.02: ------------- (x) all authority and power of the Servicer under this Agreement and each Supplement shall pass to and be vested in a Successor Servicer (a "Service ------- Transfer"); and, without limiting the generality of the foregoing, the Trustee - -------- is hereby authorized and empowered (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in- fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer; and (y) the Servicer agrees to cooperate with the Trustee, the Transferor and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including the transfer to such Successor Servicer of all authority of the Servicer to service the Receivables and the Related Property provided for under this Agreement, including all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer in the Collection Account, or which shall thereafter be 53 received with respect to the Receivables and the Related Property, and in assisting the Successor Servicer; and without limiting the generality of the foregoing, the Servicer shall assist and cooperate with the Successor Servicer in transferring all material and data (other than software) used by the Servicer and necessary to service the Receivables effectively in accordance with the terms of this Agreement. The Servicer, at its expense, will license to the Trustee all computer software used by the Servicer and necessary to service the Receivables effectively in accordance with the terms of this Agreement, to the extent permitted by the underlying agreements if such software is licensed from an unrelated third party, provided that such license shall not take effect unless a -------- Servicer Default has occurred and is continuing. The Servicer shall use its best efforts, so long as a Servicer Default shall have occurred and be continuing, to obtain sublicenses of all third-party computer software used by the Servicer and necessary to service the Receivables effectively in accordance with the terms of this Agreement. To the extent that compliance with this Section 10.01 shall require the ------------- Servicer to disclose to the Successor Servicer or the Trustee information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer and the Trustee shall enter into such customary licensing and confidentiality agreements as the Servicer shall reasonably deem necessary to protect its interest. The Servicer shall immediately notify the Trustee in writing of any Servicer Default. In connection with any Service Transfer, all Transition Costs and reasonable costs and expenses (including attorneys' fees) incurred in connection with amending this Agreement to reflect such succession as Successor Servicer pursuant to this Section 10.01 and Section 10.02 shall be paid by the ------------- ------------- Servicer upon presentation of reasonable documentation of such costs and expenses. To the extent not promptly paid by the Servicer, such Transition Costs shall be paid in accordance with Section 4.03(a)(ii). ------------------- 54 Section 10.02 Trustee to Act; Appointment of Successor Servicer. ------------------------------------------------- (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 10.01, the Servicer shall continue to perform all servicing ------------- functions under this Agreement and any Supplement until the date specified in the Termination Notice or as otherwise specified by the Trustee in writing or, if no such date is specified in such Termination Notice, or as otherwise specified by the Trustee, until a date mutually agreed upon by the Servicer and Trustee. After the giving of a Termination Notice, the Trustee shall as promptly as possible appoint an Eligible Servicer satisfactory to each Control Party as a successor servicer (the "Successor Servicer"), provided that (i) if ------------------ -------- any of the Certificates are then rated, the Rating Agency Condition shall have occurred with respect to such appointment and (ii) such Successor Servicer shall have accepted its appointment by a written assumption and agreement to perform all of the duties, obligations and liabilities of the Servicer hereunder in a form acceptable to the Trustee. In the event that a Successor Servicer has not been appointed or has not accepted its appointment at the time when the Servicer ceases to act as Servicer, or upon the occurrence of the events specified in Section 8.05, the Trustee without further action shall automatically be - ------------ appointed the Successor Servicer. The Trustee may delegate any of its servicing obligations to an Affiliate. The Trustee may employ subservicers with respect ================================================== to its servicing obligations provided that the Trustee shall remain responsible =============================================================================== for its obligations as Successor Servicer. Notwithstanding the foregoing, the ========================================== Trustee shall, if it is legally unable to act as Successor Servicer or desires that a Person other than itself be appointed as Successor Servicer pursuant to this Section 10.02(a), petition a court of competent jurisdiction to appoint as ---------------- Successor Servicer an Eligible Servicer. The Trustee shall promptly give notice to each Rating Agency and each Enhancement Provider of the appointment of a Successor Servicer upon such appointment. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement and any Supplement to the Servicer shall be deemed to refer to the Successor Servicer except for the references in Sections 3.03 (to the extent provided therein), 8.04 and 11.05 which shall - ------------- ---- ----- continue to refer to CompuCom. (c) Prior to any Service Transfer, the Trustee will seek to obtain bids from Eligible Servicers and shall be permitted to appoint any Eligible Servicer satisfactory to each Control Party submitting such a bid as a Successor Servicer for servicing compensation not in excess of the Servicing Fee permitted for a Successor Servicer pursuant to Section 3.02. In the event that the Trustee ------------ fails to obtain a satisfactory bid from an Eligible Servicer, then the Transferor shall have the option, in accordance with and upon satisfaction of the terms of Section 12.02(a), to purchase each Series of Investor Certificates. ---------------- 55 (d) All authority and power granted to the Successor Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.01, and shall pass to and be vested in the Transferor ------------- and, without limiting the generality of the foregoing, the Transferor is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer agrees to cooperate with the Transferor in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing of the Receivables and the Related Property, including all authority over Collections then held by the Successor Servicer or which shall thereafter be received by the Successor Servicer. The Successor Servicer shall promptly transfer its electronic records relating to the Receivables to the Transferor in such electronic form as the Transferor may reasonably request and shall promptly transfer all other records, correspondence and documents to the Transferor in the manner and at such times as the Transferor shall reasonably request. To the extent that compliance with this Section 10.02 shall require the Successor ------------- Servicer to disclose to the Transferor information of any kind which the Successor Servicer deems to be confidential, the Transferor shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall deem necessary to protect its interests. Section 10.03 Notification to Certificateholders. Upon the occurrence of ---------------------------------- any Servicer Default, the Servicer shall give prompt written notice thereof to the Trustee and each Enhancement Provider and, upon receipt of such written notice, the Trustee shall give notice to each Rating Agency and the Investor Certificateholders at their respective addresses appearing in the Certificate Register. Upon any termination or appointment of a Successor Servicer pursuant to this Article X, the Trustee shall give prompt written notice thereof to the --------- Investor Certificateholders at their respective addresses appearing in the Certificate Register. Section 10.04 Waiver of Past Defaults. A Control Party may waive any ----------------------- default by the Servicer or the Transferor in the performance of their obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments of interest or principal with respect to any Series of Certificates, with respect to the Series for which such Person is the Control Party. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. The Servicer shall promptly notify each Rating Agency of any such waiver promptly after the granting of such waiver. 56 ARTICLE XI THE TRUSTEE Section 11.01 Duties of Trustee. (a) The Trustee, prior to the ----------------- occurrence of a Servicer Default of which a Responsible Officer of the Trustee has knowledge and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If to the knowledge of a Responsible Officer of the Trustee a Servicer Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement or any Supplement, as the case may be, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such prudent person's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement or any Supplement, shall examine them to determine whether they substantially conform to the requirements of this Agreement or any Supplement. The Trustee shall give prompt written notice to each Control Party of any material lack of conformity of any such instrument to the applicable requirements of this Agreement or any Supplement discovered by the Trustee which would entitle any Control Party to take any action pursuant to this Agreement or any Supplement. (c) Subject to Section 11.01(a), no provision of this Agreement or any ---------------- Supplement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: -------- ------- (i) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with, unless otherwise specified herein, the direction of the Transferor, the Servicer, any Enhancement Provider or any Control Party relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement or any Supplement; (iii) The Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in clause (a), (b) or (c) of Section 10.01, or of the occurrence of any ---------- --- --- ------------- Early 57 Amortization Event, unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer, any Enhancement Provider or any Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 10% of the Invested Amount of any Series adversely affected thereby; and (iv) Prior to the occurrence of a Servicer Default of which a Responsible Officer has knowledge, and after the curing or waiver of such Servicer Defaults that may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement and any Supplements, the Trustee shall not be liable except for the performance of such duties and obligations as shall be specifically set forth in this Agreement and any Supplement, no implied covenants or obligations shall be read into this Agreement or any Supplement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and, if specifically required to be furnished pursuant to any provision of this Agreement or any Supplement, conforming to the requirements of this Agreement or such Supplement. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement or any Supplement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Servicer under this Agreement or any Supplement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement or any Supplement. (e) Except for actions expressly authorized by this Agreement or any Supplement, the Trustee shall take no action reasonably likely to impair the interests of the Trust in any Receivable now existing or hereafter created or to impair the value of any Receivable now existing or hereafter created. (f) Except as specifically provided in this Agreement or any Supplement, the Trustee shall have no power to vary the corpus of the Trust. (g) If, to the knowledge of a Responsible Officer of the Trustee, the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, the Trustee shall be obligated as soon as possible after such Responsible Officer obtains 58 knowledge thereof and receives appropriate records, if any, to perform such obligation, duty or agreement in the manner so required. (h) Except as specifically otherwise provided in this Agreement, any action, suit or proceeding brought in respect of one or more particular Series shall have no effect on the Trustee's rights, duties and obligations hereunder with respect to any one or more Series not the subject of such action, suit or proceeding. Section 11.02 Certain Matters Affecting the Trustee. Except as otherwise ------------------------------------- provided in Section 11.01: ------------- (a) The Trustee may rely on and shall be protected in acting on, or in refraining from acting in accordance with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement or any Supplement by the proper party or parties. (b) The Trustee may consult with counsel and other experts deemed appropriate by the Trustee and any advice from such counsel or Opinion of Counsel or written advice from such other experts shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel. (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement or any Supplement, or to institute, conduct or defend any litigation hereunder or in relation hereto or any Supplement, at the request, order or direction of any Person or Persons, pursuant to the provisions of this Agreement or any Supplement, unless such Person or Persons shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of a Servicer Default (which has not been cured) of which a Responsible Officer has knowledge, to exercise such of the rights and powers vested in it by this Agreement or any Supplement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such prudent person's own affairs. (d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement or any Supplement. 59 (e) The Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by a Control Party or the Holders of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Invested Amount of any Series which could be adversely affected if the Trustee does not perform such acts; provided, however, that if the payment within a reasonable time to -------- ------- the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation shall be, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such cost, expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Servicer or, if paid by the Trustee, shall be reimbursed by the Servicer upon demand. (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or custodians, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney or custodian appointed with due care by it hereunder. (g) Except as may be required by Section 11.01(a) hereof, the Trustee ---------------- shall not be required to make any initial or periodic examination of any documents or records related to the Receivables for the purpose of establishing the presence or absence of defects, the compliance by the Transferor or the Servicer with their representations and warranties or for any other purpose. (h) The right of the Trustee to perform any discretionary act enumerated in this Agreement or any Supplement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act. (i) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement or any Supplement. Section 11.03 Trustee Not Liable for Recitals in Certificates. The ----------------------------------------------- Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 11.15, the Trustee makes no ------------- representations as to the validity or sufficiency of this Agreement or any Supplement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by the 60 Transferor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Transferor in respect of the Receivables or deposited in the Collection Account or other accounts now or hereafter established to effectuate the transactions contemplated herein and in accordance with the terms hereof. The Trustee shall have no duty to conduct any affirmative investigation as to the occurrence of any condition requiring the repurchase of any Receivable by the Transferor or the Servicer pursuant to this Agreement or any Supplement or the eligibility of any Receivable for purposes of this Agreement or any Supplement. The Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder (unless the Trustee shall have become the Successor Servicer) or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement or any Supplement. Section 11.04 Trustee May Own Certificates, Etc. Each of the Trustee, the ---------------------------------- Transferor, the Servicer, and each of such Person's respective Affiliates in its individual or any other capacity may become the owner or pledgee of Investor Certificates; provided, that any Investor Certificates so held shall not be -------- entitled to participate in any decisions made or instructions given to the Trustee by the Certificateholders as a group. The Trustee (and its Affiliates) may enter into banking and trustee relationships with the Transferor and the Servicer, and may deal with the Transferor and the Servicer (and their respective Affiliates) in banking and trustee transactions, with the same rights as it would have if it were not the Trustee. Section 11.05 The Servicer to Pay Trustee's (and Paying Agent's) Fees and ----------------------------------------------------------- Expenses. The Servicer covenants and agrees to pay to the Trustee (and the - -------- Paying Agent if applicable) from time to time, and the Trustee (and the Paying Agent if applicable) shall be entitled to receive, reasonable compensation as set forth in a fee letter between the Servicer and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder or under any Supplement of the Trustee (or the Paying Agent if applicable), and, subject to Section 8.04, the Servicer will pay or reimburse ------------ the Trustee (and the Paying Agent if applicable) upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee (or the Paying Agent if applicable) in accordance with any of the provisions of this Agreement or any Supplement (including the reasonable fees and expenses of its agents and counsel) except as set forth in a fee letter between the Servicer and the Trustee any such expense, disbursement or advance as may arise from its fraud, gross negligence, breach of fiduciary duty or willful misconduct and except as provided in the following sentence. If the Trustee is appointed Successor Servicer pursuant to Section 10.02, the provisions of this Section ------------- ------- 11.05 shall not apply to expenses, disbursements and advances made or incurred - ----- by the Trustee in its capacity as Successor Servicer, which shall be covered out of the Servicing Fee. The provisions of 61 this paragraph and Sections 8.04 and 8.09 shall survive the termination of the ------------- ---- Trust and the resignation or removal of the Trustee. Section 11.06 Eligibility Requirements for Trustee. The Trustee hereunder ------------------------------------ shall at all times be a corporation organized and doing business under the laws of the United States or any state thereof, including the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $250,000,000 and be rated at least P1 by Moody's or at least A-1 by Standard & Poor's or be approved by the Rating Agency and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.06, the combined capital and surplus of such ------------- corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.06, the Trustee shall resign immediately in the manner and with the - ------------- effect specified in Section 11.07. ------------- Section 11.07 Resignation or Removal of Trustee. --------------------------------- (a) The Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Transferor and the Servicer. Upon receiving such notice of resignation, the Servicer (with the consent of each Control Party, which consent shall not be unreasonably withheld) shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 11.06 hereof and shall fail to resign after ------------- written request therefor by the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Servicer may remove the Trustee with the consent of each Control Party, which consent shall not be unreasonably withheld, appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) Any resignation or removal of the Trustee and appointment of successor trustee pursuant to any of the provisions of this Section 11.07 shall not become ------------- 62 effective until acceptance of appointment by the successor trustee as provided in Section 11.08 hereof. ------------- Section 11.08 Successor Trustee . ----------------- (a) Any successor trustee appointed as provided in Section 11.07 hereof ------------- shall execute, acknowledge and deliver to the Transferor and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder and under any Supplement with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents or copies thereof, at the expense of the Servicer, and statements held by it hereunder; and the Transferor and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. The Servicer shall immediately give notice to the Rating Agency upon the appointment of a successor trustee. (b) No successor trustee shall accept appointment as provided in this Section 11.08 unless at the time of such acceptance such successor trustee shall - ------------- be eligible under the provisions of Section 11.06 hereof. ------------- (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.08 hereof, such successor trustee shall mail notice of such ------------- succession hereunder to all Certificateholders at their addresses as shown in the Certificate Register. Section 11.09 Merger or Consolidation of Trustee. Any Person into which ---------------------------------- the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.06 hereof, without the execution or filing of any paper ------------- or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. 63 Section 11.10 Appointment of Co-Trustee or Separate Trustee-. --------------------------------------------- (a) Notwithstanding any other provisions of this Agreement or any Supplement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.10, such powers, duties, obligations, ------------- rights and trusts as the Trustee may consider necessary or desirable. No co- trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 11.06 and no notice to ------------- Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.08 hereof. Any such appointment of a co- ------------- trustee shall not relieve the Trustee of its duties under this Agreement. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) All rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Assets or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) No trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) The Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance ---------- of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this 64 Agreement or any Supplement, specifically including every provision of this Agreement or any Supplement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Agreement or any Supplement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 11.11 Tax Returns. No federal income tax return shall be filed on ----------- behalf of the Trust unless either (i) the Trustee or the Servicer shall receive an Opinion of Counsel based on a change in applicable law occurring after the date hereof that the Code requires such a filing or (ii) the Internal Revenue Service shall determine that the Trust is required to file such a return. In the event the Trust shall be required to file tax returns, the Servicer shall prepare or shall cause to be prepared any tax returns required to be filed by the Trust and shall remit such returns to the Trustee for signature at least five days before such returns are due to be filed; the Trustee shall promptly sign such returns and deliver such returns after signature to the Servicer and such returns shall be filed by the Servicer. Subject to the responsibilities of the Trustee set forth in Section 5.02(b), the Servicer in accordance with --------------- Section 5.02(b) shall also prepare or shall cause to be prepared all tax - --------------- information required by law to be distributed to Investor Certificateholders. The Trustee, upon request, will furnish the Servicer with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust, and shall, upon request, execute such returns. In no event shall the Trustee, the Servicer or the Transferor be liable for any liabilities, costs or expenses of the Trust, the Investor Certificateholders or the Certificate Owners arising out of the application of any tax law, including federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest, penalty or addition with respect thereto or arising from a failure to comply therewith). Section 11.12 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Certificates. All rights of action and claims under this Agreement or any - ------------ Supplement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders in respect of which such judgment has been obtained. 65 Section 11.13 Suits for Enforcement. If a Servicer Default of which a --------------------- Responsible Officer has knowledge shall occur and be continuing, the Trustee, in its discretion may, subject to the provisions of Article X, proceed to protect --------- and enforce its rights and the rights of the Certificateholders under this Agreement or any Supplement by suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any supplement or in aid of the execution of any power granted in this Agreement or any Supplement or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Certificateholders. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Certificateholder any plan of reorganization, arrangement, adjustment or composition affecting the Certificates or the rights of any holder thereof, or authorize the Trustee to vote in respect of the claim of any Certificateholder in any such proceeding. Section 11.14 Rights of Certificateholders to Direct Trustee. The Holders ---------------------------------------------- of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Invested Amount of any Series with respect to matters affecting the related Series, or the Holders of Certificates aggregating together more than 50% of the Undivided Interests of each Series affected by such matter with respect to matters affecting more than one Series (unless with respect to any Series another Person is designated as the Control Party with respect to that Series in the applicable Supplement, in which case such Control Party shall have the right to direct with respect to such Series) shall have the right to direct the time, method and place at or by which the Trustee conducts any proceeding for any remedy available to the Trustee, or exercises any such trust or power conferred upon the Trustee; provided that to the extent that the Trustee fails -------- to make a demand for payment pursuant to or under any Enhancement Agreement then any Holder of an Investor Certificate shall have the right to direct the Trustee to make such demand for payment; provided, however, that, subject to Section -------- ------- ------- 11.01, the Trustee shall have the right to decline to follow any such direction - ----- if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability; and provided, further, that nothing in this Agreement or any Supplement shall -------- ------- impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of the Certificateholders. Section 11.15 Representations and Warranties of Trustee. The Trustee ----------------------------------------- represents and warrants, as of the Initial Closing Date and, with respect to any Series, as of the related Closing Date, that: (i) The Trustee is a national banking association organized, existing and in good standing under the laws of the United States of America; 66 (ii) The Trustee has full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; (iii) This Agreement has been duly executed and delivered by the Trustee; (iv) The Trustee is not required to obtain, other than those that have already been obtained, any authorization, consent, approval, exemption or license from, or to file any registration with, any Governmental Authority, as a condition to the validity of, or for the execution and delivery of, this Agreement, or to the performance by the Trustee of its obligations under this Agreement; and (v) This Agreement constitutes the legal, valid and binding obligation of the Trustee, enforceable in accordance with its terms (subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally). Section 11.16 Maintenance of Office or Agency. The Trustee will maintain ------------------------------- at its expense in Minneapolis, Minnesota, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Certificates and this Agreement may be served. The Trustee initially appoints the Corporate Trust Office as its office for such purposes. The Trustee will give prompt written notice to the Servicer and to Certificateholders of any change in the location of the Certificate Register or any such office or agency. Section 11.17 Statements, Certificates and Reports. A copy of this ------------------------------------ Agreement, any Supplement, and each statement, certificate and report furnished to the Trustee pursuant to this Agreement shall be provided without charge to any Certificateholder requesting the same in a writing to the Trustee addressed to the Corporate Trust Office. 67 ARTICLE XII TERMINATION Section 12.01 Termination of Trust. (a) The respective obligations and -------------------- responsibilities of the Transferor, the Servicer and the Trustee created hereby (other than the obligation of the Trustee to make payments to Certificateholders as hereafter set forth) shall terminate, except with respect to the duties described in Sections 8.04, 11.05 and 12.03(b), upon the earlier of (i) the ------------- ----- -------- Business Day after the day on which the Aggregate Invested Amount is zero and all amounts owing to each Enhancement Provider for all outstanding Series under the related Supplements and Enhancement Agreements have been paid, all other amounts owing under this Agreement, any Supplement, any Enhancement Agreement or any other Transaction Document have been paid and all commitments of any Investor Certificateholder shall have been terminated (unless the parties hereto shall have agreed that the Final Trust Termination Date pursuant to this clause ------ (i) shall be deemed not to have occurred until a later date); (ii) the - --- expiration of 21 years from the death of the last survivor of the descendants of Bruce Springsteen living on the date of this Agreement; and (iii) the time provided in Section 9.02 (the "Final Trust Termination Date"). ------------ ---------------------------- (b) If on the Determination Date in the month immediately preceding the month in which the Final Trust Termination Date occurs (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal on any Series of Investor Certificates to be made on the related Payment Date pursuant to Section 4.06) the Invested Amount of any Series ------------ would be greater than zero, the Servicer on behalf of the Trust shall sell in a commercially reasonable manner within 30 days of such Determination Date all of the Receivables and the Related Property. The proceeds of such sale, net of all reasonable expenses of the Trustee incurred in connection with such sale, which shall be paid to the Trustee from such proceeds, shall be treated as Collections of the Receivables and shall be allocated in accordance with Section 4.03. ------------ During such 30-day period, the Servicer shall continue to collect Collections on the Receivables and allocate such payments in accordance with the provisions of Section 4.03. - ------------ Section 12.02 Optional Purchase and Series Termination Date of Investor --------------------------------------------------------- Certificates of any Series. - -------------------------- (a) If and as provided in any Supplement, the Transferor may, but shall not be obligated to, retire any Series of Investor Certificates in accordance with the terms of such Supplement, unless such purchase would result in an Early Amortization Event with respect to any other Series. (b) All principal or interest with respect to any Series of Investor Certificates shall be due and payable no later than the Series Termination Date with respect to such Series. Unless otherwise provided in a Supplement (e.g., providing for 68 Enhancement to cover payment of such principal and interest), in the event that the Invested Amount of any Series of Certificates is greater than zero on its Series Termination Date, the Servicer will use its best efforts to sell or cause to be sold in a commercially reasonable manner, and pay the proceeds (net of all reasonable expenses of the Trustee incurred in connection with such sale, which shall be paid to the Trustee from such proceeds), to the extent necessary, to all Certificateholders of such Series pro rata, in final payment of all principal of and accrued interest on such Series of Certificates, an amount of Receivables and Related Property up to the Target Receivables Amount of such Series calculated as of the related Series Termination Date, at the close of business on such date; but in no event shall the amount of Receivables and Related Property sold cause the Aggregate Eligible Unpaid Balance to be less than the Aggregate Target Receivables Amount. Any proceeds of such sale in excess of such principal and interest paid and such expenses of the Trustee shall be paid first in respect of any amounts owing to any Enhancement Provider ----- for such Series and second to the Transferor. Upon payment of the proceeds of ------ such sale as provided in this Section 12.02(b), all principal of and accrued ---------------- interest on such Series shall be deemed for all purposes to have been paid in full. Upon such Series Termination Date, or (if applicable) on the first Payment Date following the sale of Receivables and Related Property called for above in this Section 12.02(b), with respect to the applicable Series of Certificates, ---------------- final payment of all amounts allocable to any Investor Certificates of such Series shall be made in the manner provided in Section 12.03. ------------- Section 12.03 Final Payment. ------------- (a) Written notice of any termination, specifying the Payment Date upon which the Investor Certificateholders of any Series may surrender their Certificates for payment of the final distribution with respect to such Series and cancellation, shall be given (subject to at least ten days' prior notice from the Servicer to the Trustee) by the Trustee to the Investor Certificateholders of such Series mailed not later than the fifth day of the month of such final distribution specifying (i) the Payment Date (which shall be the Payment Date in the month in which the deposit is made pursuant to Section ------- 2.04(d) or 12.02(a)) upon which final payment of or such Investor Certificates - ------- -------- will be made upon presentation and surrender of such Certificates at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Payment Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 5.02(a), as applicable, covering the period during the then --------------- current calendar year through the date of such notice and setting forth the date of such final distribution. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to such Certificateholders. 69 (b) Notwithstanding the termination of the Trust pursuant to Section ------- 12.01(a) or the occurrence of the Series Termination Date with respect to any - -------- Series in connection with Section 12.02, all funds then on deposit in the ------------- Collection Account and related Series Accounts shall continue to be held in trust for the benefit of the Certificateholders and the Paying Agent or the Trustee shall pay such funds to the Certificateholders upon surrender of their Certificates. In the event that all of the Investor Certificateholders of all, or the applicable, Series, shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders, upon receipt of the appropriate records from the Transfer Agent and Registrar to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all, or the applicable Investor Certificates of such Series shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds in the Collection Account held for the benefit of such Investor Certificateholders. (c) The payments specified in this Section 12.02 shall be made in respect ------------- of a Certificate only upon presentation and surrender of such Certificate for payment and cancellation in accordance with the terms of this Agreement. All Certificates surrendered for payment of the final distribution with respect to such Certificates and cancellation, shall be canceled by the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee. Upon the termination of the Trust, the Transferor shall return the Transferor Certificate to the Trustee, and the Trustee shall dispose of such Certificates in a manner satisfactory to the Trustee. Section 12.04 Transferor's Termination Rights'. Upon the termination of ------------------------------- the Trust pursuant to this Article XII and the surrender of the Transferor ----------- Certificate, the Trustee shall assign, transfer and otherwise convey to the Transferor or its designee (without recourse, representation or warranty) all right, title and interest of the Trust in and to the Receivables and the other Trust Assets, whether then existing or thereafter created, all moneys due or to become due with respect thereto, and all proceeds thereof except for amounts held by the Trustee pursuant to Section 12.03(b), and release and terminate the ---------------- security interest granted pursuant to Section 2.02. The Trustee shall execute ------------ and deliver such instruments of transfer and assignment, and UCC termination statements, in each case prepared by the Transferor and without recourse, representation or warranty, as shall be reasonably requested by the Transferor to vest in the Transferor or its designee all right, title and interest which the Trust had in the Receivables and other Trust Assets and to evidence the release and termination of such security interest. 70 ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.01 Amendment. --------- (a) This Agreement (including any Supplement) may be amended from time to time by the Servicer, the Transferor and the Trustee, but without the consent of any of the Certificateholders, to cure any ambiguity, to correct or supplement any provisions herein or therein which may be inconsistent with any other provisions herein or therein or to add any other provisions with respect to matters or questions raised under this Agreement (including any Supplement) which shall not be inconsistent with the provisions of this Agreement (including any Supplement). In connection with such amendment, an officer of the Servicer =============================================================== shall deliver a certificate that the requirements for such amendment pursuant to ================================================================================ this Section are satisfied. =========================== (b) This Agreement (including any Supplement) may also be amended or the provisions thereof waived from time to time by the Servicer, the Transferor and the Trustee, without the consent of any of the Certificateholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement (including any Supplement) or of modifying in any manner the rights of the Certificateholders of any Series then issued and outstanding including the addition, modification or elimination of such provisions as may be necessary or advisable in order to enable all or a portion of the Trust to qualify as, and to permit an election to be made to cause the Trust to be treated as, a "financial asset securitization investment trust" as described in the provisions of (S)(S) 860H through 860L of the Internal Revenue Code; provided, however, that (i) the Servicer shall have provided an Officer's -------- ------- Certificate to the Trustee to the effect that such amendment will not materially and adversely affect the interests of the Certificateholders of any outstanding Series (or 100% of the Class of Certificateholders so affected shall have consented); (ii) such amendment shall not, as evidenced by an Opinion of Counsel, cause the Trust to be characterized for Federal income tax purposes as an association taxable as a corporation or otherwise have any material adverse impact on the Federal income taxation characterization of any outstanding Series of Certificates or any Certificate Owner; (iii) the Rating Agency Condition shall have been satisfied with respect to such amendment; and (iv) the Transferor shall have delivered an Opinion of Counsel to the Trustee to the effect that such amendment shall not materially and adversely affect the interests of the Certificateholders of any Series. (c) This Agreement (including any Supplement) may also be amended or the provisions thereof waived from time to time by the Transferor, the Servicer and the Trustee with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of the principal amount of all Series adversely affected for the purpose of adding any provisions to, changing in any manner or eliminating any of the provisions of this Agreement (including any Supplement) or of 71 modifying in any manner the rights of Certificateholders of any Series then issued and outstanding. No such amendment or waiver, however, may (i) reduce in any manner the amount of or delay the timing of, distributions required to be made on such Series, (ii) change the definition or the manner of calculating interest in respect of any Certificate of such Series, or (iii) reduce the aforesaid percentage of Undivided Interests the Holders of which are required to consent to any such amendment or waiver, in each case without the consent of all Certificateholders of all Series adversely affected. In connection with such ======================= amendment, an officer of the Servicer shall deliver a certificate that the ========================================================================== requirements for such amendment pursuant to this Section are satisfied. ====================================================================== (d) Promptly after the execution of any amendment or waiver in respect of this Agreement, the Trustee shall furnish written notification of the substance of such amendment to the Enhancement Provider for each outstanding Series and each Investor Certificateholder (or, with respect to an amendment or waiver of a Supplement, to each Enhancement Provider and to the Holders of the Certificates of the related Series), and the Servicer shall furnish written notification of the substance of such amendment or waiver to each Rating Agency. (e) It shall not be necessary for the consent of the Investor Certificateholders under this Section 13.01 to approve the particular form of ------------- any proposed amendment or waiver, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by the Persons required to consent under Section 13.01 shall be subject to such reasonable requirements ------------- as the Trustee may prescribe. (f) The Trustee may, but shall not be obligated to, enter into any such amendment or waiver which affects the Trustee's own rights, duties or immunities under this Agreement, any Supplement or otherwise. 72 Section 13.02 Protection of Right, Title and Interest of Trust. ------------------------------------------------ (a) The Servicer shall cause this Agreement, any Supplement, all amendments hereto or thereto and/or all financing statements and continuation statements and any other necessary documents covering the Certificateholders and the Trustee's right, title and interest to the Trust Assets to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Trustee hereunder to all property comprising the Trust Assets. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Transferor shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this Section ------- 13.02(a). In the event that the Servicer fails to file such financing or - -------- continuation statements, then the Trustee shall have the right, but not the obligation, to file the same on behalf of the Transferor. (b) The Servicer will give the Trustee and each Enhancement Provider for each outstanding Series prompt written notice of any relocation of any office from which it services Receivables or keeps records concerning the Receivables or of its principal place of business or chief executive office and whether, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to perfect or to continue the perfection of the Trust's ownership or security interest in the Receivables and the other Trust Assets. The Servicer will at all times maintain each office from which it services Receivables and the Related Property and its principal executive office within the United States of America. (c) If at any time the Servicer is no longer CompuCom, the Transferor shall deliver to the Successor Servicer powers-of-attorney such that such Successor Servicer may perform the obligations set forth in Sections 13.02(a) and ----------------- 13.02(b). - -------- Section 13.03 Limitation on Rights of Certificateholders. ------------------------------------------ (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholders' legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Certificateholder shall have any right to vote (except as specifically provided in this Agreement or any Supplement) or in any manner otherwise control the 73 operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provisions of this Agreement or any Supplement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless, subject to the rights of each Control Party provided in this Agreement, the Holders of Investor Certificates evidencing Undivided Interests in the Trust aggregating more than 50% of the Invested Amount of any Series which may be materially adversely affected but for the institution of such suit, action or proceeding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Certificateholders shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement or any Supplement to affect, disturb or prejudice the rights of the Certificateholders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Certificateholder, or to enforce any right under this Agreement or any Supplement, except in the manner herein provided and for the equal, ratable and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section 13.03, each and every Certificateholder and the Trustee shall be ------------- entitled to such relief as can be given either at law or in equity. Section 13.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 13.05 Notices. All demands, notices, instructions and ------- communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered , if sent by facsimile transmission or five days after mailing by certified or registered mail, return receipt requested, (a) in the case of the Servicer, to CompuCom Systems, Inc., 7171 Forest Lane, Dallas, Texas 75230, Attention: Treasurer; (b) in the case of the Trustee, to the Corporate Trust Office; (c) in the case of the Transferor, to CSI Funding, Inc., 7171 Forest Lane, Dallas, Texas 75230, Attention: Treasurer; (d) 74 in the case of any Enhancement Provider, at the address set forth in the related Enhancement Agreement; or, as to each such Person, at such other address as shall be designated by such Person in a written notice to each other party. Any notice required or permitted to be mailed to a Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 13.06 Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or rights of the Certificateholders thereof. Section 13.07 Assignment. Notwithstanding anything to the contrary ---------- contained herein, except as provided in Section 8.02 or 8.05, this Agreement, ------------ ---- including any Supplement, may not be assigned by the Servicer without the prior consent of each Control Party. Section 13.08 Certificates Nonassessable and Fully Paid . It is the ----------------------------------------- intention of the parties to this Agreement that the Investor Certificateholders shall not be personally liable for obligations of the Trust, that the interests in the Trust represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that Certificates upon authentication thereof by the Trustee pursuant to Sections -------- 2.07 and 6.02 are and shall be deemed fully paid. - ---- ---- Section 13.09 Further Assurances. The Transferor and the Servicer agree ------------------ to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements relating to the Receivables and the other Trust Assets for filing under the provisions of the UCC of any applicable jurisdiction. Section 13.10 No Waiver; Cumulative Remedies. No failure to exercise and ------------------------------ no delay in exercising, on the part of the Certificateholders or any party hereto, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. 75 Section 13.11 Counterparts. This Agreement and any Supplement may be ------------ executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 13.12 Third-Party Beneficiaries-. This Agreement and any ------------------------- Supplement will inure to the benefit of and be binding upon the parties hereto, and, in addition, shall inure to the benefit of the Certificateholders and their respective successors and permitted assigns and to the extent provided herein and in any Supplement, to the Control Party and any Enhancement Provider for any outstanding Series. Except as otherwise provided in this Article XIII, no other ------------ Person will have any right or obligation hereunder. Section 13.13 Actions by Certificateholders. ----------------------------- (a) Wherever in this Agreement or any Supplement, a provision is made that an action may be taken or a notice, demand or instruction given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholder of any Series, unless such provision requires a specific percentage of Investor Certificateholders of a certain Series or all Series. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. (c) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement or any Supplement to be given or taken by Certificateholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Certificateholders in person or by an agent duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, when required, to the Transferor or the Servicer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement or any Supplement and conclusive in favor of the Trustee, the Transferor and the Servicer, if made in the manner provided in this Section. (d) The fact and date of the execution by any Certificateholder of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient. (e) The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. 76 Section 13.14 Merger and Integration. Except as specifically stated ---------------------- otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 13.15 Headings. The headings herein are for purposes of reference -------- only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 13.16 Enhancement Providers. Notwithstanding anything to the --------------------- contrary in this Agreement or any Supplement, an Enhancement Provider shall have rights under this Agreement and any Supplement (including the right to grant or withhold consents) only if such Enhancement Provider is then providing Enhancement for a Series (and no Enhancement Provider Default shall have occurred and be continuing relating to such Enhancement) or any amounts are owing to such Enhancement Provider under the applicable Enhancement Agreement. Section 13.17 Schedules and Exhibits. The schedules and exhibits attached ---------------------- hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. Section 13.18 Assignment of Related Property. (a) Notwithstanding the ------------------------------ Transferor's assignment of the Related Property hereunder, the Transferor shall nevertheless be permitted to give all consents, requests, notices, directions, approvals, extensions or waivers, if any, which are required by the specific terms of the Receivables Contribution and Sale Agreement to be given by it to CompuCom. The assignment of the Related Property hereunder shall not relieve the Transferor or CompuCom from the performance of any term, covenant, condition or agreement on the part of the Transferor or CompuCom to be performed or observed under or in connection with the Receivables Contribution and Sale Agreement. (b) The Transferor agrees to exercise any and all rights, remedies, powers and privileges lawfully available to the Transferor under or in connection with the Receivables Contribution and Sale Agreement, including the transmission of notices of default on the part of the Transferor thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by CompuCom of its obligations under the Receivables Contribution and Sale Agreement. The Transferor will not amend, waive or terminate any of the terms of the Receivables Contribution and Sale Agreement without the prior written consent of each Control Party. (c) The Transferor agrees to give the Trustee and each Control Party prompt written notice of any default on the part of CompuCom under the Receivables Contribution and Sale Agreement that comes to the Transferor's attention. 77 Section 13.19 No Proceedings. The Trustee, CompuCom, the Servicer and any -------------- Successor Servicer each hereby agrees that it will not institute against the Transferor, or join any other Person in instituting against the Transferor, any proceeding under any Debtor Relief Law so long as any Investor Certificates shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Investor Certificates shall have been outstanding. Section 13.20 Texas Limited Liability Company Act. The Trustee agrees ----------------------------------- that it shall not cause or permit the Trust to elect to procure a certificate of authority pursuant to the Texas Limited Liability Company Act. Section 13.21 Rating Agencies. At any time that none of the Certificates --------------- are rated, each provision hereof requiring notice to the Rating Agencies or that the Rating Agency Condition be satisfied shall be of no force or effect. 78 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. CSI FUNDING, INC., as Transferor By: Name: Title: 79 COMPUCOM SYSTEMS, INC., as Servicer By: Name: Title: 80 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: Name: Bruce C. Wandersee Title: Assistant Vice President 81 EX-10.5 7 COMPUCOM RECEIVABLES MASTERTRUST I POOLING AND SERVICING AGREEMENT EXHIBIT 10.5 CSI FUNDING, INC., as Transferor, COMPUCOM SYSTEMS, INC. as Servicer, PNC BANK, NATIONAL ASSOCIATION as Agent, MARKET STREET CAPITAL CORPORATION as Initial Series 1999-1 Certificateholder, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee on behalf of the Certificateholders --------------------------------- SERIES 1999-1 SUPPLEMENT Dated as of May 7, 1999 ===== to COMPUCOM RECEIVABLES MASTER TRUST I POOLING AND SERVICING AGREEMENT Dated as of May 7, 1999 ===== --------------------------------- VARIABLE FUNDING ACCOUNTS RECEIVABLE TRUST CERTIFICATES SERIES 1999-1 TABLE OF CONTENTS
Page ARTICLE I DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE SERIES 1999-1 INVESTOR CERTIFICATES SECTION 1.1 Designation 1 SECTION 1.2 The Series 1999-1 Certificates 1 SECTION 1.3 Purchases of Interests in the Series 1999-1 Certificates. 2 SECTION 1.4 Delivery 2 SECTION 1.5 Procedure for Initial Issuance and for Increasing Each Series 1999-1 Certificateholder's Invested Amount 2 SECTION 1.6 Procedure for Decreasing Each Series 1999-1 Certificateholder's Invested Amount 3 SECTION 1.7 Reductions of the Commitments 4 SECTION 1.8 Interest; Commitment Fee, Etc. 4 SECTION 1.9 Certificate Rate Limitation 6 ARTICLE II AGREEMENT MODIFICATIONS SECTION 2.1 Agreement Modifications 6 ARTICLE III DISTRIBUTIONS AND REPORTS SECTION 3.1 Distributions 15 SECTION 3.2 Reports, Statements and Notices 15 ARTICLE IV CHANGE IN CIRCUMSTANCES SECTION 4.1 Requirements of Law 17 SECTION 4.2 Taxes 18 SECTION 4.3 Indemnity 20 SECTION 4.4 Limitation 21 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of the Transferor and the Servicer 21 SECTION 5.2 Obligations Unaffected 21 ARTICLE VI CONDITIONS PRECEDENT
TABLE OF CONTENTS (continued)
Page SECTION 6.1 Conditions Precedent to Effectiveness of Supplement 21 ARTICLE VII THE AGENT SECTION 7.1 Appointment 23 SECTION 7.2 Delegation of Duties 23 SECTION 7.3 Exculpatory Provisions 24 SECTION 7.4 Reliance by Agent 24 SECTION 7.5 Notice of Servicer Default or Early Amortization Event or Prospective Early Amortization Event 24 SECTION 7.6 Non-Reliance on Agent and Other Series 1999-1 Certificateholders 25 SECTION 7.7 Indemnification 25 SECTION 7.8 Agent in Its Individual Capacity 26 SECTION 7.9 Successor Agent 26 ARTICLE VIII MISCELLANEOUS SECTION 8.1 Ratification of Agreement 26 SECTION 8.2 Governing Law 26 SECTION 8.3 Further Assurances 27 SECTION 8.4 Payments 27 SECTION 8.5 Costs and Expenses 27 SECTION 8.6 No Waiver; Cumulative Remedies 27 SECTION 8.7 Severability 28 SECTION 8.8 Notices 28 SECTION 8.9 Successors and Assigns 28 SECTION 8.10 Counterparts 31 SECTION 8.11 Adjustments 31 SECTION 8.12 Limitation of Payments by Transferor 31 SECTION 8.13 No Bankruptcy Petition 31 SECTION 8.14 The Trustee 32 SECTION 8.15 Consent to Jurisdiction 32 ARTICLE IX DEFINITIONS SECTION 9.1 Definitions 33 SCHEDULES
TABLE OF CONTENTS (continued)
Page Schedule 1 Commitments Schedule 2 List of Trust Accounts Schedule 3 Initial Invested Amount EXHIBITS Exhibit A Form of Notice of Increase Exhibit B Form of Notification of Obligors Exhibit C Form of Commitment Transfer Supplement Exhibit D Form of Series 1999-1 Investor Certificate
SERIES 1999-1 SUPPLEMENT, dated as of May 7, 1999 (as amended from time to ===== time, this "Supplement") among CSI FUNDING, INC., a Delaware corporation, as ---------- Transferor (the "Transferor"), COMPUCOM SYSTEMS, INC., a Delaware corporation, ---------- as Servicer (the "Servicer"), MARKET STREET CAPITAL CORPORATION, a Delaware -------- corporation, as the initial Series 1999-1 Certificateholder (the "Initial Series -------------- 1999-1 Certificateholder"), PNC BANK, NATIONAL ASSOCIATION, a national banking - ------------------------ association, as agent (the "Agent") for the Series 1999-1 Certificateholders (as ----- hereinafter defined) and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as trustee (together with its successors in trust thereunder as provided in the Pooling and Servicing Agreement referred to below, the "Trustee"), under the Pooling and Servicing Agreement, dated as of May 7, ------- ===== 1999 (as amended and supplemented from time to time, the "Agreement") among the --------- Transferor, the Servicer and the Trustee. PRELIMINARY STATEMENT Section 6.09 of the Agreement provides, among other things, that the ------------ Transferor and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the issuance of Investor Certificates. The Transferor has delivered the Issuance Notice required by Section 6.09 of the Agreement and hereby enters into this Supplement ------------ with the Servicer, the Agent, the Initial Series 1999-1 Certificateholder and the Trustee to provide for the issuance, authentication and delivery of the Variable Funding Accounts Receivable Trust Certificates, Series 1999-1. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE SERIES 1999-1 INVESTOR CERTIFICATES- SECTION 1.1 Designation. The Certificates issued pursuant to this ----------- Supplement shall be designated generally as the Variable Funding Accounts Receivable Trust Certificates, Series 1999-1. SECTION 1.2 The Series 1999-1 Certificates-. (a) The Series 1999-1 ------------------------------- Certificates shall represent fractional undivided interests in the Trust Assets, consisting of the right to receive Collections and other amounts at the times and in the amounts specified in the Agreement as amended by this Supplement (collectively, the "Series 1999-1 Certificateholders' Interest"). ------------------------------------------ 1 (b) The Series 1999-1 Certificates shall, upon issue, be executed and delivered by the Transferor to the Trustee for authentication and redelivery as provided in Section 1.4 hereof and Section 6.01 of the Agreement. ----------- ------------ SECTION 1.3 Purchases of Interests in the Series 1999-1 Certificates.- -------------------------------------------------------- (a) Initial Purchase. Subject to the terms and conditions of this Supplement, ---------------- the Initial Series 1999-1 Certificateholder hereby agrees (A) to purchase on the Issuance Date a Series 1999-1 Certificate in an amount equal to the Initial Invested Amount and (B) to maintain the Invested Amount of its Series 1999-1 Certificate during the Revolving Period, subject to decrease during the Revolving Period, in accordance with the provisions of this Supplement. Payments by the Initial Series 1999-1 Certificateholder in respect of its Series 1999-1 Certificate shall be made in immediately available funds on the Issuance Date to the Agent for payment to the Transferor. (b) Maximum Invested Amount. Notwithstanding anything to the contrary ----------------------- contained in this Supplement, at no time shall the Invested Amount of any Series 1999-1 Certificateholder exceed such Series 1999-1 Certificateholder's Commitment at such time. SECTION 1.4 Delivery. On the Issuance Date, the Transferor shall sign on -------- behalf of the Trust and shall deliver to the Trustee pursuant to Section 6.01 of ------------ the Agreement, and the Trustee, upon receipt, shall so authenticate the initial Series 1999-1 Certificate in the name of the Initial Series 1999-1 Certificateholder and with a Commitment Percentage of 100% and deliver such Series 1999-1 Certificate to the Initial Series 1999-1 Certificateholder. The Trustee shall mark on its books the actual Invested Amount of each Series 1999-1 Certificateholder outstanding on any date of determination, which, absent manifest error, shall constitute prima facie evidence of such outstanding ----- ----- Invested Amount from time to time. 2 SECTION 1.5 Procedure for Initial Issuance and for Increasing Each Series ------------------------------------------------------------- 1999-1 Certificateholder's Invested Amount-'. (a) Subject to Section 1.5(b) of - ------------------------------------------ -------------- this Supplement, on the Issuance Date, the Initial Series 1999-1 Certificateholder agrees to purchase a Series 1999-1 Certificate in accordance with Section 1.3(a) of this Supplement and on any Payment Date during the -------------- Revolving Period, each Series 1999-1 Certificateholder agrees that the Series 1999-1 Aggregate Invested Amount may be increased by increasing pro rata based upon Commitment Percentage each Series 1999-1 Certificateholder's Invested Amount (an "Increase"), up to an amount, with respect to each such Series 1999-1 -------- Certificateholder, not exceeding such Series 1999-1 Certificateholder's Commitment, upon the request of the Servicer or the Transferor on behalf of the Trust (each date on which an increase in the Series 1999-1 Aggregate Invested Amount occurs hereunder being herein referred to as the "Increase Date" ------------- applicable to such Increase); provided, however, that the Servicer or the -------- ------- Transferor, as the case may be, shall have given the Agent irrevocable written notice (effective upon receipt) (with a copy thereof to the Trustee and, as applicable, the Transferor or the Servicer), substantially in the form of Exhibit A hereto, of such request no later than two Business Days prior to such - --------- Increase Date. Such notice shall state (x) the Issuance Date or the Increase Date, as the case may be which, in the case of an Increase Date, shall be a Payment Date; and (y) the Initial Invested Amount or the proposed amount of such Increase (the "Increase Amount"), as the case may be. --------------- (b) No Series 1999-1 Certificateholder shall be required to make the initial purchase of Series 1999-1 Certificates on the Issuance Date or to increase its respective Invested Amount on any Increase Date hereunder unless, after giving effect thereto: (i) (A) the amount of such initial purchase or, in the case of an Increase Date, the amount of the related Increase Amount, is equal to at least $10,000,000; (ii) the Series 1999-1 Aggregate Invested Amount would not exceed the Maximum Commitment Amount on the Issuance Date or such Increase Date, as the case may be; (iii) the Series 1999-1 Target Receivables Amount would not exceed the Series 1999-1 Allocated Receivables Amount on the Issuance Date or such Increase Date, as the case may be; (iv) the Aggregate Target Receivables Amount would not exceed the Aggregate Allocated Receivables Amount on the Issuance Date or such Increase Date, as the case may be; and (v) no Early Amortization Event or Prospective Early Amortization Event shall have occurred and be continuing. 3 (c) After receipt by the Agent of the notice required by Section 1.5(a) of -------------- this Supplement from the Servicer or the Transferor on behalf of the Trust, the Agent shall, so long as the conditions set forth in Sections 1.5(a) and (b) of --------------- --- this Supplement are satisfied, promptly provide telephonic notice to each Series 1999-1 Certificateholder of the Increase Date and of the portion of the Increase Amount allocable to such Series 1999-1 Certificateholder (which shall equal such Series 1999-1 Certificateholder's Commitment Percentage of the Increase Amount). Each Series 1999-1 Certificateholder agrees to pay in immediately available funds such Series 1999-1 Certificateholder's Commitment Percentage of each Increase on the related Increase Date to the Agent for payment to the Transferor and, to the extent the Agent receives such funds, the Agent shall pay such Increase Amount to the Transferor in immediately available funds on such Increase Date. SECTION 1.6 Procedure for Decreasing Each Series 1999-1 ------------------------------------------- Certificateholder's Invested Amount-'. (a) On any Business Day during the - ------------------------------------- Revolving Period or the Early Amortization Period, the Servicer or the Transferor on behalf of the Trust shall have the right but not the obligation to cause all or a portion of the Series 1999-1 Aggregate Invested Amount to be reduced (a "Decrease") by instructing the Trustee to distribute to the Agent for -------- the pro rata benefit of the Series 1999-1 Certificateholders in accordance with --- ---- their Commitment Percentages the amount of such Decrease from (x) the funds available for distribution to the Transferor on such day under Section 4.03(c) --------------- of the Agreement and Sections 4.04(c)(i), 4.04(c)(ii) and 4.04(d) of the ------------------- ----------- ------- Agreement as set forth in this Supplement, and (y) the funds retained as of such day in the Series 1999-1 Principal Collection Sub-subaccount pursuant to clause ------ (A) of Section 4.04(c)(i) of the Agreement as set forth in this Supplement; - --- ------------------ provided, however, that the Servicer shall have given the Agent irrevocable - -------- ------- written notice (effective upon receipt) (with a copy thereof to the Trustee), on the second Business Day prior to such Decrease and which notice shall state the amount of such Decrease; provided, further, that: (i) such Decrease shall be in -------- ------- an amount equal to $1,000,000 and integral multiples of $1,000,000 in excess thereof; and (ii) no prepayment may occur on any date other than a Payment Date. (b) Any reduction in the Invested Amounts on any Business Day shall be allocated pursuant to Section 1.8(c) of this Supplement. -------------- SECTION 1.7 Reductions of the Commitments. (a) On any Business Day ----------------------------- during the Revolving Period, the Transferor, on behalf of the Trust, may, upon thirty (30) days' prior written notice (effective upon receipt) to the Agent (with a copy thereof to the Trustee) irrevocably reduce or terminate the Commitments (a "Commitment Reduction") in an aggregate amount equal to -------------------- $5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided that no -------- such reduction shall be permitted if, after giving effect thereto and to any reduction in the Series 1999-1 Aggregate Invested Amount on such date, the Series 1999-1 Aggregate Invested Amount would exceed the Aggregate Commitment Amount then in effect or if the Commitments would be reduced to an amount less than $50,000,000. Each Series 1999-1 Certificateholder's 4 Commitment shall be reduced by such Series 1999-1 Certificateholder's Commitment Percentage of the amount of such Commitment Reduction. (b) Once reduced, the Commitments may not be subsequently reinstated without the written consent of each Series 1999-1 Certificateholder. Upon effectiveness of any such reduction, the Agent shall prepare a revised Schedule -------- 1 to this Supplement in order to reflect the reduced Commitment of each Series - - 1999-1 Certificateholder and Schedule 1 to this Supplement shall be deemed to be ---------- automatically superseded by such revised Schedule 1. The Agent shall promptly ---------- distribute such revised Schedule 1 to the Transferor, the Servicer, the Trustee ---------- and each Series 1999-1 Certificateholder. SECTION 1.8 Interest; Commitment Fee, Etc. (a) (i) Interest shall be ------------------------------ payable on the Series 1999-1 Certificates on each Payment Date pursuant to Section 4.07(a) of the Agreement as set forth in this Supplement. Interest - --------------- shall accrue on the Series 1999-1 Certificates from the Issuance Date. (ii) The Agent shall provide written notification to the Trustee and the Servicer before 1:00 p.m. Minneapolis Time on the Business Day ============================================== preceding each Payment Date, of the Monthly Interest Amount for the Series ========= 1999-1 Certificates payable on such Payment Date with respect to the related Accrual Period. (b) The Trustee (acting at the written direction of the Servicer, pursuant to a Settlement Statement or otherwise) shall pay to the Agent, for the account of the Initial Series 1999-1 Certificateholder a commitment fee (the "Commitment ---------- Fee") with respect to each Accrual Period, on each Payment Date in an amount - --- equal to the product of (A) the Commitment Fee Percentage, times (B) the daily average Liquidity Commitment Amount during the Accrual Period, times (C) a fraction the numerator of which is the number of days in the related Accrual Period and the denominator of which is three hundred sixty. The "Commitment ---------- Fee" with respect to any other Series 1999-1 Certificateholder shall mean the amount described in a fee letter among such Series 1999-1 Certificateholder, the Transferor and the Agent. To the extent that on any Payment Date funds distributed to the Agent pursuant to Section 4.07(b)(iii) of the Agreement as -------------------- set forth in this Supplement are insufficient to pay the Commitment Fee due on such date, the Trustee shall pay the Agent the amount of any such deficiency out of funds otherwise distributable to the Transferor pursuant to Section ------- 4.03(a)(ii) of the Agreement until such Commitment Fee is paid in full. - ----------- (c) The Trustee (acting at the written direction of the Servicer, pursuant to a Settlement Statement or otherwise) shall pay to the Agent for the pro rata --- ---- account of the Series 1999-1 Certificateholders in accordance with their Commitment Percentages a program fee (the "Program Fee") with respect to each ----------- Accrual Period, on each Payment Date in an amount equal to the product of (A) the Program Fee Percentage, times (B) the daily average Series 1999-1 Aggregate ===== Invested Amount during such Accrual Period, times (C) a fraction the numerator ====== of which is the number of days in 5 the related Accrual Period and the denominator of which is three hundred sixty. To the extent that on any Payment Date funds distributed to the Agent pursuant to Section 4.07(b)(ii) of the Agreement as set forth in this Supplement are ------------------- insufficient to pay the Program Fee due on such date, the Trustee shall pay the Agent the amount of any such deficiency out of funds otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the Agreement until such ------------------- Program Fee is paid in full. (d) Calculations of the Alternate Base Rate under this Supplement shall be made on the basis of a 365-day (or, where applicable, a 366-day) year. CP Rates, Eurodollar Rates, Commitment Fees and Program Fees shall be calculated =========== on the basis of a 360-day year for actual days elapsed. Each determination of the Certificate Rate, the Commitment Fee and the Program Fee (and the components thereof) by the Agent shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. (e) In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Accrual Period when not funding at the CP Rate the Agent shall have determined that dollar deposits in the principal amounts of the related LIBOR Rate Tranche are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Series 1999-1 Certificateholder or Program Support Provider of making or maintaining such LIBOR Rate Tranche during such Accrual Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Agent shall, as soon as ========== practicable thereafter, give written or telecopy notice of such determination to the Transferor, the Servicer and the Series 1999-1 Certificateholders. In the event of any such determination, until the Agent shall have advised the Transferor, the Servicer and the Series 1999-1 Certificateholders that the circumstances giving rise to such notice no longer exist, any LIBOR Rate Tranche shall be deemed to be a Prime Rate Tranche. Each such determination by the Agent hereunder shall be conclusive absent manifest error. SECTION 1.9 Certificate Rate Limitation. Notwithstanding anything herein --------------------------- to the contrary, if at any time any Certificate Rate, together with all fees, charges and other amounts which are treated as interest on the Series 1999-1 Certificates, under applicable law (collectively the "Charges"), shall exceed ------- the maximum lawful rate (the "Maximum Rate") which may be contracted for, ------------ charged, taken, received or reserved by the Series 1999-1 Certificateholders in accordance with the terms hereof, then such Certificate Rate, together with all Charges payable in respect of the Series 1999-1 Certificates, shall be limited to the Maximum Rate and, to the extent lawful, such Certificate Rate and Charges that would have been payable in respect of the Series 1999-1 Certificates, but were not payable as a result of the operation of this Section, shall be cumulated and the Certificate Rate and Charges payable to such Series 1999-1 Certificateholders in respect of other periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at 6 the Federal Funds Effective Rate to the date of repayment, shall have been received by such Series 1999-1 Certificateholders. ARTICLE II AGREEMENT MODIFICATIONS SECTION 2.1 Agreement Modifications. The following terms of the Agreement are hereby modified only with respect to this Supplement and the Series 1999-1 Investor Certificates as follows: Section 2.05(c) is modified to add the phrase ", the Agent" after the phrase "any request of the Trustee" where it appears therein. The cost and expense of the Agent or its agents or representatives incurred in connection with any visit or examination described in Section 2.05(c) shall be the responsibility of the Transferor. Section 3.01(e) is modified to add the phrase "and the Series 1999-1 Certificateholders consent thereto" immediately before the period at the end of the second sentence thereof. Section 3.03 is modified by adding the following new paragraph (v) immediately after paragraph (u) thereof: (v) No Material Adverse Change. Since December 31, 1998 there has -------------------------- been no material adverse change in CompuCom's financial condition, business, properties or operations. Section 3.04(a) is modified to add the phrase "or the Agent" after the phrase "the Trustee" each place it appears in the first and second sentences thereof. Article III is modified by adding the following new Section 3.11 to the end ----------- thereof: Section 3.11 Program Costs. So long as CompuCom is the Servicer, the ------------- Servicer shall pay from its servicing compensation all Program Costs as they arise. 7 Section 4.02 is modified to add the following: ------------ (d) Establishment of Trust Accounts. (i) The Trustee shall cause to ------------------------------- be established and maintained in the name of the Trustee, on behalf of the Trust, (x) for the benefit of the Series 1999-1 Certificateholders and (y) for the benefit, subject to the prior and senior interest of the Series 1999-1 Certificateholders, of the holder of the Transferor Certificate, (A) a subaccount of the Collection Account (the "Series 1999-1 Collection ------------------------ Subaccount"), which subaccount is the Series Collection Subaccount with respect to Series 1999-1; (B) two subaccounts of the Series 1999-1 Collection Subaccount: (1) the Series 1999-1 Principal Collection Sub-subaccount, and (2) the Series 1999-1 Non-Principal Collection Sub-subaccount (respectively, the "Series 1999-1 Principal Collection Sub-subaccount" and the "Series 1999-1 Non- - -------------------------------------------------- ----------------- Principal Collection Sub-subaccount"); (C) a subaccount of the Series 1999-1 - ----------------------------------- Principal Collection Sub-subaccount (the "Series 1999-1 Principal Collection ---------------------------------- Subordinated Sub-subaccount"); and (D) a subaccount of the Series 1999-1 Non- - --------------------------- Principal Collection Sub-subaccount (the "Series 1999-1 Accrued Interest Sub- ---------------------------------- subaccount"). The subaccounts and sub-subaccounts established pursuant to this - ---------- Section 4.02(d)(i) and listed on Schedule 2 attached to the Supplement with - ------------------ ---------- respect to Series 1999-1 shall be referred to collectively as the "Trust ----- Accounts". Each Trust Account shall bear a designation indicating that the - -------- funds deposited therein are held for the benefit of the Persons (and for each such Person, to the extent) set forth in clauses (x) and (y) above. The ----------- --- Trustee, on behalf of the Series 1999-1 Certificateholders, shall possess all right, title and interest in all funds from time to time on deposit in, and all Eligible Investments credited to, the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the exclusive benefit of the Persons (and, for each such Person to the extent) set forth in clauses (x) and (y) above. ----------- --- (ii) All Eligible Investments in the Trust Accounts shall be held by the Trustee, on behalf of the Series 1999-1 Certificateholders, for the exclusive benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (x) and (y) of Section 4.02(d)(i) above. Funds on deposit in a Trust - ----------- --- ------------------ Account shall, at the direction of the Servicer, be invested together with funds held in other Trust Accounts. After giving effect to any distribution to the Transferor pursuant to Section 4.04(c), amounts on deposit and available for --------------- investment in the Trust Accounts shall be invested by the Trustee at the written direction of the Servicer in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, so that funds will be available on or prior to the Business Day immediately preceding the related Payment Date. If the Trustee does not receive written direction from the Servicer, any such amounts on deposit shall be invested in the investments described in subclause (iv) of the definition of Eligible Investments. 8 Section 4.03(a)(i) is modified in its entirety to read as follows: ------------------ (i) The Servicer will allocate, pay or deposit all Collections with respect to the Receivables for each Business Day as described in this Article ------- IV. Except as provided below, no later than the Business Day following the receipt of any Collections (or, in the case of checks received directly by the Servicer, two Business Days after receipt), the Servicer shall deposit (or cause to be deposited) such Collections into the Concentration Account and shall allocate and transfer such Collections as required by Section 4.03(a)(ii) below. ------------------- In the event a Servicer Default or an Early Amortization Event shall have occurred, the Servicer shall cause (unless the Control Party and the Servicer shall have agreed in writing that the Servicer need not comply with this sentence for the period or periods set forth in such agreement) all Collections to be remitted directly (without deposit into the Concentration Account) to the Collection Master Subaccount within two Business Days after receipt of such Collections. Section 4.04 is modified in its entirety to read as follows: ------------ Section 4.04. Daily Allocations. (a) The portion of Collections ----------------- allocated to the Series 1999-1 Investor Certificates pursuant to this Article IV ---------- shall be allocated and distributed as set forth in this Article IV by the ---------- Trustee based solely on the information provided it by the Servicer in the Daily Report (upon which the Trustee may conclusively rely unless otherwise notified by the Control Party). (b)(i) On each Business Day, (x) an amount equal to the Accrued Expense Amount for such day shall be transferred by the Trustee from the Series 1999-1 Collection Subaccount to the Series 1999-1 Non-Principal Collection Sub- subaccount and (y) an amount equal to the Monthly Interest Amount for such day shall be transferred by the Trustee from the Series 1999-1 Non-Principal Collection Sub-subaccount to the Series 1999-1 Accrued Interest Sub-subaccount. (ii) Following the transfers pursuant to clause (i) above, on each ---------- Business Day any remaining funds on deposit in the Series 1999-1 Collection Subaccount shall be transferred by the Trustee to the Series 1999-1 Principal Collection Sub-subaccount. (c)(i) On each Business Day during the Revolving Period (including Payment Dates), after giving effect to all allocations of Collections on such Business Day, amounts on deposit in the Series 1999-1 Principal Collection Sub-subaccount shall (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the Collections on deposit therein) be distributed as indicated on the Daily Report by the Trustee in the following order of priority: (A) to any Successor Servicer, any Additional Servicing Fee due and arising, (B) to be retained in the Series 1999-1 Principal Collection Sub-subaccount to the extent the Series 1999-1 Target Receivables Amount exceeds the Series 1999-1 Allocated Receivables Amount;(C) to the Series 1999-1 Certificateholders to the extent of any Commitment Fees and Program Fees that 9 were accrued and unpaid as of the previous Payment Date; (D) if CompuCom is not the Servicer, to the payment of all accrued and unpaid Program Costs; (E) to the Agent to the extent of any accrued and unpaid Article IV Costs; and (F) subject to the last sentence of Section 4.04(d), (x) to the Transferor in accordance with the directions contained in the Daily Report or (y) at the election of the Transferor by written notice to the Servicer, the Agent and the Trustee, (A) to be retained in the Series 1999-1 Principal Collection Sub-subaccount, an amount specified in such notice (which amount may be distributed at the direction of the Transferor) or (B) to the Series Principal Collection Sub-subaccount of another Series. (ii) On each Business Day during the Early Amortization Period (including Payment Dates) (after giving effect to all allocations of Collections on such Business Day and transfers pursuant to Sections 4.04(d) and (e)), ---------------- ---- amounts on deposit in the Series 1999-1 Principal Collection Sub-subaccount shall (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the Collections on deposit therein) be distributed as indicated on the Daily Report by the Trustee in the following order of priority: (A) to any Successor Servicer, any Additional Servicing Fee due and arising, (B) to be retained in the Series 1999-1 Principal Collection Sub-subaccount, an amount up to the Series 1999-1 Aggregate Invested Amount; and (C) the remainder of such funds shall be distributed by the Trustee in accordance with clauses (B) ----------- through (E) of Section 4.04(c)(i) above. --- ------------------ (d) On each Business Day during the Early Amortization Period (including Payment Dates), the Trustee shall transfer from the Series 1999-1 Principal Collection Sub-subaccount to the Series 1999-1 Principal Collection Subordinated Sub-subaccount out of amounts deposited into the Series 1999-1 Principal Collection Sub-subaccount (prior to any withdrawal pursuant to Section 4.04(c) --------------- above) the product of (i) the Series 1999-1 Subordinated Percentage and (ii) the amount of funds deposited into the Series 1999-1 Principal Collection Sub- subaccount on such day (other than funds transferred to the Series 1999-1 Principal Collection Sub-subaccount pursuant to Section 4.04(e) below). Upon --------------- termination of the Early Amortization Period, amounts remaining on deposit in the Series 1999-1 Principal Collection Subordinated Sub-subaccount shall be transferred to the Series 1999-1 Principal Collection Sub-subaccount to the extent of the Adjusted Invested Amount and the remainder shall be distributed in accordance with clauses (B) through (E) of Section 4.04(c)(i) above. The ----------- --- ------------------ Trustee shall not distribute any funds from the Series 1999-1 Principal Collection Sub-subaccount and the Series 1999-1 Principal Collection Subordinated Sub-subaccount to the Transferor (x) if any Prospective Early Amortization Event has occurred and is continuing or (y) during the Early Amortization Period until the Adjusted Invested Amount has been reduced to zero and all other amounts owing under this Supplement have been paid in full. (e) On each Business Day (including Payment Dates) during the Early Amortization Period, the Trustee shall transfer from funds on deposit in the Series 1999-1 Principal Collection Subordinated Sub-subaccount to the Series 1999-1 Principal Collection Sub-subaccount an amount equal to the sum of (i) the product of (A) the 10 Invested Percentage and (B) the excess of (1) the Dilution Factors made and the Unpaid Balance of Ineligible Receivables designated since the prior Business Day minus (2) the amount deposited by the Transferor in the Series 1999-1 Principal Collection Sub-subaccount in respect of such Dilution Factors and Ineligible Receivables since the preceding Business Day and (ii) the product of (A) the Invested Percentage and (B) the Unpaid Balance of Receivables in the Trust which became Defaulted Receivables since the preceding Business Day (but in no event greater than the amount on deposit in the Series 1999-1 Principal Collection Subordinated Sub-subaccount). (f) The allocations to be made pursuant to this Section 4.04 are subject to ------------ the provisions of Sections 2.04(c), 2.04(d), 12.01 and 12.02 of this Agreement. ---------------- ------- ----- ----- Section 4.05 is modified in its entirety to read as follows: ------------ Section 4.05 Determination of Interest. (a) The Monthly Interest Amount ------------------------- shall be distributable with respect to the Series 1999-1 Investor Certificates on each Payment Date pursuant to Section 4.07. ------------ (b) On each Payment Date, the Servicer shall determine the excess, if any (the "Payment Date Interest Shortfall"), of (A) the applicable Monthly Interest ------------------------------- Amount, over (B) the amount distributed to the Series 1999-1 Certificateholders ---- on such Payment Date in respect thereof. If the Payment Date Interest Shortfall with respect to any Payment Date is greater than zero, an additional amount ("Additional Interest") equal to the product, for the period beginning on such - --------------------- Payment Date until such Payment Date Interest Shortfall is repaid, of (A) a rate per annum equal to the Alternate Base Rate from time to time in effect during such period, (B) such Payment Date Interest Shortfall (or the portion thereof which has not been paid to the Series 1999-1 Certificateholders) and (C) the actual number of days in such period divided by 365, shall be payable as ------- -- provided herein with respect to the Series 1999-1 Investor Certificates on each Payment Date following such Payment Date to and including the Payment Date on which such Payment Date Interest Shortfall is paid in full to the Series 1999-1 Certificateholders. Section 4.06 is modified in its entirety to read as follows: ------------ Section 4.06 Determination of Series 1999-1 Principal. The amount ---------------------------------------- distributable from the Series 1999-1 Principal Collection Sub-subaccount on each Payment Date during the Early Amortization Period shall be equal to the amount retained on deposit in such subaccount in accordance with Section 4.04(c)(ii) as ------------------- of the last day of the related Settlement Period (such amount being the "Series ------ 1999-1 Monthly Principal Payment" for such Payment Date); provided, that the - -------------------------------- -------- Series 1999-1 Monthly Principal Payment on any Payment Date shall not exceed the Series 1999-1 Aggregate Invested Amount on such Payment Date. 11 Section 4.07 is modified in its entirety to read as follows: ------------ Section 4.07 Distributions. (a) On each Payment Date, the Servicer shall ------------- direct the Trustee to distribute (and the Trustee shall distribute) to the Series 1999-1 Certificateholders, from amounts on deposit in the Series 1999-1 Accrued Interest Sub-subaccount to the extent funds are available, an amount equal to the sum of (i) the Monthly Interest Amount payable on such Payment Date, plus (ii) the amount of any Monthly Interest Amount previously due but not ---- distributed to the Series 1999-1 Certificateholders on a prior Payment Date, plus (iii) the amount of any Additional Interest for such Payment Date and any - ---- Additional Interest previously due but not distributed to the Series 1999-1 Certificateholders on a prior Payment Date; provided, however, that during the -------- ------- Early Amortization Period, no amounts will be distributed pursuant to clause ------ (iii) until repayment in full of the Series 1999-1 Aggregate Invested Amount and - ----- all Monthly Interest Amounts have been paid. (b) On each Payment Date, the Servicer shall direct the Trustee to apply (and the Trustee shall apply) funds on deposit in the Series 1999-1 Non- Principal Collection Sub-subaccount after the distributions referred to in Section 4.07(a) on such Payment Date in the following order of priority to the - --------------- extent funds are available: (i) an amount equal to the Monthly Trustee Fee shall be paid to the Trustee; (ii) an amount equal to the Servicing Fee for the Accrual Period ending on such Payment Date shall be paid to the Servicer (less any amount payable to the Trustee pursuant to this Agreement or to a Lock-Box Bank or Wire Transfer Receipt Account Bank on account of customary fees and returned items which shall be paid to the Trustee or any Lock-Box Bank or Wire Transfer Receipt Account Bank); provided, that if CompuCom is the -------- Servicer, the amounts required to be paid pursuant to clauses (iii) through ------------- (v) below shall be paid prior to the Servicing Fee; --- (iii) an amount equal to the Program Fee for the Accrual Period ending on such Payment Date, plus any portion of the Program Fee previously due but not distributed to the Agent, shall be paid to the Agent; (iv) an amount equal to the Commitment Fee for the Accrual Period ending on such Payment Date, plus any portion of the Commitment Fee previously due but not distributed to the Agent, shall be paid to the Agent; and (v) an amount equal to the Transition Costs shall be paid to any Successor Servicer. Any remaining amount on deposit in the Series 1999-1 Non-Principal Collection Sub-subaccount not applied pursuant to clauses (i) through (v) above ----------- --- shall be deposited 12 in the Transferor Collection Subaccount; provided, however, that during the -------- ------- Early Amortization Period, such remaining amounts shall be deposited in the Series 1999-1 Principal Collection Sub-subaccount for distribution in accordance with Section 4.07(c)(ii) below. ------------------- (c)(i) On each Payment Date during the Revolving Period, the Servicer shall direct the Trustee to apply (and the Trustee shall apply) amounts on deposit in the Series 1999-1 Principal Collection Sub-subaccount in accordance with Section 4.04(c)(i); ------------------ (ii) On each Payment Date during the Early Amortization Period, the Trustee will apply amounts retained on deposit in the Series 1999-1 Principal Collection Sub-subaccount pursuant to Section 4.04(c)(ii) as of the last day of ------------------- the related Settlement Period in the following order of priority: (1) an amount equal to the Additional Servicing Fee, if any, due and arising shall be distributed to the Successor Servicer; (2) an amount equal to the Series 1999-1 Monthly Principal Payment for such Payment Date shall be distributed to the Series 1999-1 Certificateholders; and (3) the remaining amount on deposit in the Series 1999-1 Principal Collection Sub-subaccount as of the last day of the related Settlement Period shall be applied in accordance with clauses (B) through (E) of ----------- --- Section 4.04(c)(i). ------------------ 13 Article III is amended by adding the following section at the end thereof: ----------- Section 7.04 Liabilities. The Transferor agrees to pay, directly to the ----------- injured party, subject to the next sentence, the entire amount of any losses, claims, damages or liabilities (other than those incurred by a 1999-1 Certificateholder as a result of defaults on the Receivables and other than any losses, claims, damages or liabilities arising out of the imposition by any taxing authority of any federal, state or local income or franchise taxes or any other taxes imposed on or measured by income (including any interest, penalties or additions with respect thereto) upon the Series 1999-1 Certificateholders including other Affected Parties (including any liabilities, costs or expenses with respect thereto) with respect to the Receivables not specifically indemnified or represented to hereunder) arising out of or based on the arrangements created by this Agreement or the actions of the Servicer taken pursuant to this Agreement or any Supplement. The Transferor agrees to pay, indemnify and hold harmless each Series 1999-1 Certificateholder, the Agent and the Trustee (and its officers, directors, employees and agents) against and from any and all such losses, claims, damages and liabilities except to the extent that they arise from the gross negligence or willful misconduct of the Trustee, the Agent or such Series 1999-1 Certificateholder. The provisions of this Section 7.04 shall survive the termination of this Supplement. - ------------ Section 8.02 is amended by deleting the period at the end of paragraph (ii) thereof and substituting therefor "; and" and by adding a new paragraph (iii) as follows: (iii) the Series 1999-1 Certificateholders shall have consented thereto. Article IV is further amended by adding the following section: ---------- Section 4.09 Transferor's or Servicer's Failure to Make a Deposit or ------------------------------------------------------- Payment. (a) If the Servicer or the Transferor fails to make, or give - ------- instructions to make, any payment or deposit (other than as required by Section ------- 2.04(d)) required to be made or given by the Servicer or Transferor, - ------- respectively, at the time specified in the Agreement (including applicable grace periods), the Trustee shall make such payment or deposit from the applicable Trust Account without instruction from the Servicer or Transferor. The Trustee shall be required to make any such payment or deposit hereunder only to the extent that the Trustee has sufficient information in a Daily Report, a Settlement Statement or other writing furnished by the Servicer or the Agent to allow the Trustee to determine the amount thereof. The Servicer shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such payment or deposit. Such funds or the proceeds of such withdrawal shall be applied by the Trustee in the manner in which such payment or deposit should have been made by the Transferor or the Servicer, as the case may be. 14 Article IX is hereby modified as follows: ---------- The following new subparagraphs are hereby inserted in Section 9.01: ------------ (ix) the average of the Sales-Based Dilution Ratios as of the three most recent Determination Dates shall exceed 7%; (x) the Series 1999-1 Allocated Receivables Amount is less than the Series 1999-1 Target Receivables Amount; (xi) CompuCom shall cease to own all of the outstanding capital stock of the Transferor, free and clear of all Liens, other than a Lien arising under the Credit Agreement; (xii) the Series 1999-1 Aggregate Invested Amount is not paid in full on the Scheduled Maturity Date; (xiii) the average of the Sales-Based Default Ratios as of the three most recent Determination Dates shall exceed 7%; (xiv) a Purchase Termination Event shall occur and be continuing; (xv) any event that has had, or could reasonably be expected to have, a Material Adverse Effect shall occur and, solely in the case of a material adverse effect described in clause (i) of the definition thereof ---------- with respect to CompuCom, such circumstance has continued for more than 90 days; (xvi) the Series 1999-1 Certificates are not rated at least "AA" by S&P on or before June 30, 1999; or (xvii) the Delinquency Ratio as of any Cut-Off Date shall exceed 10%; provided, however, that if the Series 1999-1 Allocated Receivables Amount -------- ------- is at least 142% of the Series 1999-1 Aggregate Invested Amount on such Cut-Off Date, the circumstance described in this subparagraph (xvii) for such Cut-Off Date shall not constitute an Early Amortization Event; or (xviii) the average of the Delinquency Ratios as of the three most recent Determination Dates shall not exceed 15%. In clause (a) of Section 9.01, the phrase "subparagraphs (i), (ii) or ---------- ------------ ----------------- ---- (iii)" is deleted and the phrase "subparagraphs (i), (ii), (iii), (ix), (x), - ----- ----------------- ---- ----- ---- --- (xi), (xiii), (xiv) and (xvii)" is substituted therefor. - ---- ------ ----- ------ The following new clause (c) is hereby added to Section 9.01: ---------- ------------ 15 (c) in the case of any event described in subparagraph (xii), an Early ------------------ Amortization Event with respect to Series 1999-1 shall occur without any notice or other action on the part of any Control Party or any Certificateholder immediately upon the occurrence of such event. Article X is hereby modified as follows: --------- Section 10.01 is hereby modified by deleting "or" after the semicolon at ------------- the end of clause (c), and adding the following new clauses (e) , (f) and (g): ---------- ------------= ====--- (e) if, while CompuCom is the Servicer, at the end of the most recent fiscal quarter of CompuCom its Tangible Net Worth is less than the sum of (a) $120,000,000, plus (b) 75% of cumulative Consolidated Net Income for the period beginning on the Closing Date for the Series 1999-1 and ending on the date of calculation (provided that if Consolidated Net Income is less than zero for any Fiscal Year, or for the completed portion of the then-current Fiscal Year, Consolidated Net Income for such Fiscal Year or portion shall be deemed to be zero) plus (c) 100% of the net cash proceeds received by CompuCom after the Closing Date for the Series 1999-1 as a result of any offering of equity securities (or securities convertible into or exchangeable for equity securities) plus (d) an amount equal to the Tangible Net Worth of any Person that becomes a Subsidiary of CompuCom after the Closing Date for the Series 1999-1 or any Person (other than CompuCom or a Subsidiary) is merged with or consolidated with or into CompuCom or any Subsidiary after the Closing Date for the Series 1999-1 or any Person substantially all of the assets of which were acquired by CompuCom or any Subsidiary after the Closing Date for the Series 1999-1, in each case to the extent the purchase price paid therefor by CompuCom or the applicable Subsidiary is paid in equity securities of CompuCom or any Subsidiary. (f) A default shall have occurred and be continuing under the Credit Agreement or any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money in excess of $1,000,000 of, or guaranteed by, CompuCom or any Subsidiary thereof, which default is a payment default or if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration; or any default under any agreement or instrument relating to the purchase of receivables of CompuCom or any Subsidiary thereof (other than this Agreement), if the effect of such default is to terminate, or permit the termination of, the commitment of any party to such agreement or instrument to purchase receivables or the right of CompuCom or such Subsidiary to reinvest 16 in receivables the principal amount paid by any party to such agreement or instrument for an interest in receivables. (g) if CompuCom breaches the covenants of Section 8.16 hereof. === ========================================================== Section 10.01 is further modified to add the following after the last ------------- paragraph thereof: Notwithstanding anything to the contrary in this Agreement, during the continuance of an Early Amortization Event, the Control Party shall have the right (i) to deliver a Termination Notice and designate as a Successor Servicer a party of the Control Party's choice, which Successor Servicer shall be approved by the Trustee, which approval shall not be unreasonably withheld, and (ii) to instruct the Trustee to take other actions acceptable to the Control Party in respect to the servicing of the Receivables, including (x) notification of Obligors, in substantially the form attached hereto as Exhibit B, and (y) --------- after consultation with CompuCom, initiation of lawsuits against Obligors solely with respect to Receivables which have not been paid for at least 90 days after the Due Date for such Receivables. ARTICLE III DISTRIBUTIONS AND REPORTS SECTION 3.1 Distributions. The Trustee shall distribute to the Agent by ------------- wire transfer an amount equal to the amount to be distributed to the Series 1999-1 Certificateholders as contemplated by Section 5.01 of the Agreement by ------------ 11:00 a.m. (New York City time) on each Payment Date in accordance with Section ------- 8.4 hereof. - --- SECTION 3.2 Reports, Statements and Notices. In addition to their ------------------------------- obligations under the Agreement, the Transferor and the Servicer agree as follows: (a) Daily Reports. The Servicer shall provide the Agent with a Daily ------------- Report on the same day that it provides the same to the Trustee in accordance with Section 3.04(b)(ii) of the Agreement. The Agent shall make ------------------- copies of the Daily Report available to the Series 1999-1 Certificateholders at their reasonable request at the Agent's office in Pittsburgh, Pennsylvania. (b) Monthly Settlement Statements. The Servicer shall provide the ----------------------------- Agent with a Settlement Statement on the same day that it provides the same to the Trustee in accordance with Section 3.04(c) of the Agreement. The --------------- Agent shall forward a copy of each Settlement Statement to any Series 1999- 1 Certificateholder upon request by such Series 1999-1 Certificateholder. (c) Early Amortization Event/Distribution of Principal Notices. Upon ---------------------------------------------------------- the occurrence of an Early Amortization Event with respect to Series 17 1999-1, the Transferor or the Servicer, as the case may be, shall give prompt written notice thereof to the Trustee and the Agent within one Business Day of obtaining knowledge thereof. As promptly as reasonably practicable after its receipt of notice of the occurrence of any Early Amortization Event with respect to Series 1999-1, the Agent shall give notice thereof to each Series 1999-1 Certificateholder. In addition, two Business Days preceding each day on which a distribution of principal is to be made during the Early Amortization Period, the Servicer shall provide to the Agent and shall direct the Agent to send notice to each Series 1999-1 Certificateholder, which notice shall set forth the amount of principal to be distributed on the related date to the Series 1999-1 Certificateholders with respect to the outstanding Series 1999-1 Certificates. (d) Quarterly Financial Statements. As soon as available and in any ------------------------------ event within 46 days after the end of each of the first three quarters of each fiscal year CompuCom will furnish to the Agent and the Trustee (unless the following information is readily available on-line, in which case no copies need to be delivered unless requested by the Agent or the Trustee) copies of the financial statements of CompuCom and its Subsidiaries prepared on a consolidated basis, consisting of at least a balance sheet as at the close of such quarter and statements of earnings for such quarter and for the period from the beginning of the fiscal year to the close of such quarter, in each case in conformity with GAAP (except for footnote disclosures) and fairly presenting the consolidated financial position and results of operations of CompuCom and its Subsidiaries for such period, duly certified by the principal financial officer of CompuCom. (e) Annual Financial Statements. As soon as available and in any --------------------------- event within 91 days after the end of each fiscal year CompuCom will furnish to the Agent and the Trustee (unless the following information is readily available on-line, in which case no copies need to be delivered unless requested by the Agent or the Trustee) copies of the audited financial statements of CompuCom and its Subsidiaries prepared on a consolidated basis, consisting of at least a balance sheet of CompuCom and its Subsidiaries for such year and statements of earnings for such fiscal year, in each case in conformity with GAAP and fairly presenting the consolidated financial position and results of operations of CompuCom and its Subsidiaries for such period, together with the report of its independent auditors on such financial statements. (f) Annual Holders' Tax Statement. On or before January 31 of each ----------------------------- calendar year, beginning with calendar year 2000, the Trustee shall deliver to the Paying Agent, which shall thereupon furnish to each Person who at any time during the preceding calendar year was a Series 1999-1 Certificateholder, a statement prepared by the Servicer containing the information as specified in Section 5.02(b) of the Agreement. --------------- 18 (g) Litigation. Each of Transferor and CompuCom will furnish to the ---------- Agent, as soon as possible and in any event within three Business Days of Transferor's or CompuCom's actual knowledge thereof, notice of (i) any litigation, investigation or proceeding which may exist at any time which could be reasonably expected to have a Material Adverse Effect and (ii) any material adverse development in previously disclosed litigation. (h) Change in Credit and Collection Policy. Each of the Transferor -------------------------------------- and CompuCom will furnish to the Agent, prior to its effective date, notice of any material change in the Credit and Collection Policy. (i) Other Information. Each of Transferor and CompuCom will furnish ----------------- to the Agent copies of all other notices, requests and information furnished to the Trustee under the Agreement and such other information respecting the Receivables or the condition or operations, financial or otherwise, of CompuCom or the Transferor or any of its Affiliates as the Agent may from time to time reasonably request. ARTICLE IV CHANGE IN CIRCUMSTANCES SECTION 4.1 Requirements of Law. (a) Notwithstanding any other provision ------------------- herein, if after the Issuance Date the adoption of or any change in any law or in the interpretation or application thereof or compliance by any Series 1999-1 Certificateholder or other Affected Party with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Series 1999-1 Certificateholder or other Affected Party to any tax of any kind whatsoever with respect to the Transaction Documents or change the basis of taxation of payments to any Series 1999-1 Certificateholder or other Affected Party in respect thereof (except for Non-Excluded Taxes covered by Section 4.2 of this Supplement ----------- and changes in the rate of taxes on the overall or branch net income of such Series 1999-1 Certificateholder or franchise taxes assessed in lieu of a tax on overall or branch net income of such Series 1999-1 Certificateholder); (ii) shall impose, modify or deem applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Series 1999-1 Certificateholder or other Affected Party; 19 and the result of any of the foregoing is to increase the cost to such Series 1999-1 Certificateholder or other Affected Party by an amount which such Series 1999-1 Certificateholder or other Affected Party deems to be material, of making, converting into, continuing or maintaining any portion of the Invested Amount, or providing funding or any commitment under any Program Support Agreement or to reduce any amount receivable hereunder or under any Program Support Agreement in respect thereof, then, in any such case, the Trustee will pay to such Series 1999-1 Certificateholder or such other Affected Party, as the case may be, upon written demand, from amounts otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the Agreement or pursuant to ------------------- Section 4.04(c)(i) of this Supplement, such additional amount or amounts as will - ------------------ compensate such Series 1999-1 Certificateholder or such other Affected Party, as the case may be, for such additional costs incurred or reduced amount receivable. (b) If any Series 1999-1 Certificateholder or other Affected Party shall have determined after the Issuance Date that the adoption of or any change in any law, rule, regulation or guideline regarding capital adequacy or in the interpretation, administration or application thereof, or compliance by such Series 1999-1 Certificateholder or other Affected Party or any corporation controlling such Series 1999-1 Certificateholder or other Affected Party with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall or would have the effect of reducing the rate of return on such Series 1999-1 Certificateholder's, such other Affected Party's or such corporation's capital as a consequence of its obligations hereunder or under any Program Support Agreement to a level below that which such Series 1999-1 Certificateholder, such other Affected Party or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Series 1999-1 Certificateholder's, such other Affected Party's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Series 1999-1 Certificateholder or such other Affected Party to be material, then from time to time, the Trustee shall promptly pay to such Series 1999-1 Certificateholder or such other Affected Party, as the case may be, upon written demand, from amounts otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the Agreement or pursuant to Section 4.04(c)(i) of ------------------- ------------------ this Supplement, such additional amount or amounts as will compensate such Series 1999-1 Certificateholder or such other Affected Party, as the case may be, for such reduction. (c) If any Series 1999-1 Certificateholder or other Affected Party becomes entitled to claim any additional amounts pursuant to Section 4.1(a) or (b) -------------- --- above, it shall promptly notify the Transferor (with a copy to the Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section 4.1 submitted by such Series ----------- 1999-1 Certificateholder or such other Affected Party to the Transferor (with a copy to the Agent and the Trustee) shall be conclusive in the absence of manifest error. The agreements in this Section 4.1 shall ----------- 20 survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder. (d) Failure or delay on the part of any Series 1999-1 Certificateholder or other Affected Party to demand compensation for any increased costs or reduction in amounts receivable or reduction in return on capital shall not constitute a waiver of such Person's right to demand such compensation. The protection of this Section 4.1 shall be available to each Series 1999-1 Certificateholder and ----------- each other Affected Party regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, agreement, guideline or other change or conditions which shall have occurred or been imposed. SECTION 4.2 Taxes. (a) All payments under this Supplement to the Agent ----- or to any Series 1999-1 Certificateholder shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority ("Taxes"), excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Agent or any Series 1999-1 Certificateholder as a result of a present or former connection between the Agent or such Series 1999-1 Certificateholder and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Agent or such Series 1999-1 Certificateholder having executed, delivered or performed its obligations or received a payment under, or enforced, this Supplement). If any such non-excluded Taxes ("Non- --- Excluded Taxes") are required to be withheld from any amounts payable to the - -------------- Agent or any Series 1999-1 Certificateholder hereunder, the amounts so payable to the Agent or such Series 1999-1 Certificateholder shall be increased by the Transferor to the extent necessary to yield to the Agent or such Series 1999-1 Certificateholder (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Supplement; provided, however, that the Transferor shall not be required to -------- ------- increase any such amounts payable to any Series 1999-1 Certificateholder that is not created in or organized under the laws of the United States of America or a state thereof if such Series 1999-1 Certificateholder fails to comply with the requirements of paragraph (c) of this Section 4.2. Whenever any Non-Excluded ------------- ----------- Taxes are paid by the Transferor as promptly as possible thereafter the Transferor shall send to the Agent for its own account or for the account of such Series 1999-1 Certificateholder, as the case may be, a certified copy of an original official receipt received by the Transferor showing payment thereof. If the Transferor fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Transferor shall indemnify the Agent and the Series 1999-1 Certificateholders for any incremental taxes, interest or penalties that may become payable by the Agent or any Series 1999-1 Certificateholder as a result of any such failure; such indemnification shall be paid promptly by the Transferor upon receipt of a written demand from the 21 Agent or any such Series 1999-1 Certificateholder from amounts otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the Agreement ------------------- or pursuant to Section 4.04(c)(i) of this Supplement. The agreements in this ------------------ Section 4.2 shall survive the termination of this Supplement and the payment of - ----------- the Series 1999-1 Aggregate Invested Amount and all other amounts payable hereunder. (b) The Transferor will indemnify the Agent or any Series 1999-1 Certificateholder for the full amount of Non-Excluded Taxes (including any Non- Excluded Taxes imposed on amounts payable under this Section 4.2, but excluding ----------- any Non-Excluded Taxes imposed with respect to any Series 1999-1 Certificateholder not organized under the laws of the United States of America or a state thereof if such Series 1999-1 Certificateholder fails to comply with the requirement of paragraph (c) of this Section 4.2) paid by the Agent or such ----------- Series 1999-1 Certificateholder and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; such indemnification shall be paid promptly by the Trustee upon receipt of a written demand therefor from the Agent or any such Series 1999-1 Certificateholder from amounts otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the ------------------- Agreement or pursuant to Section 4.04(c)(i) of this Supplement. ------------------ (c) Each Series 1999-1 Certificateholder will, prior to the date on which the first interest payment on the Series 1999-1 Certificate is due to such holder: (i) deliver to the Transferor and the Agent (A) if such Series 1999- 1 Certificateholder is created in or organized under the laws of a jurisdiction outside the United States, two duly completed copies of United States Internal Revenue Service Form 1001 or new Form W-8BEN or Internal Revenue Service Form 4224 or new Form W-8ECI, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, before the first Interest ========================= Payment Date (or in the case of an Acquiring Series 1999-1 ============ Certificateholder or an Initial Assignee, the date on which it acquires its ====================== interest); (ii) deliver to the Transferor and the Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Transferor; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Transferor or the Agent or as may be required to confirm the availability of any applicable exemption from United States Federal, state or local withholding taxes; unless in any such case any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such 22 forms inapplicable or which would prevent such Series 1999-1 Certificateholder from duly completing and delivering any such form with respect to it and such Series 1999-1 Certificateholder so advises the Transferor and the Agent. Each Series 1999-1 Certificateholder so organized or incorporated shall be deemed to have certified at the time it first becomes a Series 1999-1 Certificateholder, and thereafter to the extent provided by law, (i) in the case of a Form 1001 or new Form W-8BEN or Form 4224 or new Form W-8ECI, that it is entitled to receive payments under the Agreement and this Supplement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Series 1999-1 Certificateholder or a Participant pursuant to Section 8.9 of this Supplement shall, upon the ----------- effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this Section 4.2, provided that in the case ----------- of a Participant such Participant shall furnish all such required forms and statements to the Series 1999-1 Certificateholder from which the related participation shall have been purchased. (d) Notwithstanding anything to the contrary herein, each of the Agent, Servicer, Transferor or transferring Series 1999-1 Certificateholder shall be entitled to withhold any amount that it determines in its sole discretion is required to be withheld pursuant to Section 1446 of the Code and such amount shall be deemed to have been paid for all purposes of the Agreement. (e) Each Series 1999-1 Certificateholder and each beneficial owner of Series 1999-1 Certificates agrees that, with respect to all taxes set forth in Section 3.07 of the Agreement, it will report its interest in the Series 1999-1 - ------------ Certificates in a manner consistent with the intended characterization as debt referred to in Section 3.07 of the Agreement. ------------ (f) Each Participant which has complied with the provisions of Section ------- 8.9(c) hereof shall be deemed to be a Series 1999-1 Certificateholder for - ------ purposes of this Section 4.2. ----------- SECTION 4.3 Indemnity. The Transferor and the Servicer severally agree to --------- indemnify each Series 1999-1 Certificateholder and each other Affected Party and to hold each Series 1999-1 Certificateholder and each other Affected Party harmless from any loss or expense which such Series 1999-1 Certificateholder or such other Affected Party may sustain or incur as a consequence of (a) default by the Transferor in drawing down the Increase Amount after the Transferor has given irrevocable notice requesting the same in accordance with the provisions of this Supplement or (b) default by the Transferor in making any prepayment in connection with a Decrease after the Transferor has given irrevocable notice thereof in accordance with the provisions of Section 1.6 of this Supplement or ----------- (c) the making of a prepayment of any portion of the Series 1999-1 Aggregate Invested Amount on any day other than a Payment Date regardless of cause (including commencement of the Early Amortization Period or 23 issuance of a Series subsequent to Series 1999-1). Such indemnification may include an amount equal to the amount of interest which would have accrued on the amount so prepaid or not so borrowed for the period from the date of such prepayment or of such failure to borrow to the last day of the Accrual Period in each case at the applicable rate of interest provided for herein; provided that -------- any payments made by the transferor pursuant to this Section shall be made the Trustee promptly upon receipt of a written demand from such Series 1999-1 Certificateholder) or other Affected Person from amounts otherwise distributable to the Transferor pursuant to Section 4.03(a)(ii) of the Agreement or pursuant ------------------- to Section 4.04(c)(i) of this Supplement; provided, further that to the extent ------------------ -------- that any Series 1999-1 Certificateholder actually earns interest on the amount so prepaid during such Accrual Period and the Transferor pays the foregoing amount, such Series 1999-1 Certificateholder shall turn over such earned interest to the Transferor. This covenant shall survive the termination of this Supplement and the payment of all amounts payable hereunder. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by any Series 1999-1 Certificateholder or other Affected Person to the Transferor, the Servicer, the Agent and the Trustee shall be conclusive absent manifest error. SECTION 4.4 Limitation. The obligations of the Transferor under this ---------- Article IV shall be limited by Section 8.12 of this Supplement. - ---------- ------------ ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of the Transferor and the -------------------------------------------------------- Servicer. The Transferor and the Servicer each hereby represents and warrants - -------- to the Trustee, the Agent and each of the Series 1999-1 Certificateholders that each and every of their respective representations and warranties contained in the Agreement is true and correct in all material respects as of the Issuance Date and as of the date of each Increase, it being understood and agreed that, notwithstanding any other provision hereof, any limitation of remedies set forth in the Agreement with respect to any breach of any such representations and warranties are incorporated by reference herein. SECTION 5.2 Obligations Unaffected. The obligations of the Transferor and ---------------------- the Servicer to the Agent and the Series 1999-1 Certificateholders under this Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the Receivables or any sale of any of the Receivables. 24 ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1 Conditions Precedent to Effectiveness of Supplement. This --------------------------------------------------- Supplement will become effective on the date (the "Effective Date") on which the -------------- following conditions precedent have been satisfied: (a) Documents. The Agent shall have received (i) an original --------- counterpart of this Supplement executed by the other parties hereto and (ii) a photocopy of the other Transaction Documents executed by the parties thereto. (b) Corporate Documents; Corporate Proceedings of the Transferor and ---------------------------------------------------------------- Servicer. The Agent shall have received from the Transferor and the -------- Servicer complete copies of: (i) the certificate of incorporation including all amendments thereto, of such Person, certified as of a recent date by the Secretary of State of Delaware; (ii) a certificate of the Secretary or Assistant Secretary of such Person dated the Issuance Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Person, as in effect on the Issuance Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that ---------- attached thereto is a true and complete copy of the resolutions in form and substance reasonably satisfactory to the Agent, of the Board of Directors of such Person or committees thereof authorizing the execution, delivery and performance of the Transaction Documents to which it is a party and the transactions contemplated thereby, and that such resolutions have not been amended, modified, revoked or rescinded and are in full force and effect, (C) that the certificate of incorporation of such Person has not been amended since the date of the last amendment thereto shown on the certificate of good standing (or its equivalent) furnished pursuant to clause (c) below and (D) as ---------- to the incumbency and specimen signature of each officer executing this Supplement or any other document delivered in connection herewith on behalf of such Person; and (iii) a certificate of another officer as the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. ----------- (c) Good Standing Certificates. The Agent shall have received copies -------------------------- of certificates of good standing, dated as of a recent date from the 25 Secretary of State or other appropriate authority, with respect to each of the Transferor and the Servicer in Delaware and Texas. (d) Filings, Registrations and Recordings. Any documents (including, ------------------------------------- without limitation, financing statements) required to be filed in order (i) to perfect the sale of the Receivables by CompuCom to the Transferor pursuant to the Receivables Contribution and Sale Agreement and (ii) to create, in favor of the Trustee, a perfected ownership/security interest in the Trust Assets under the Agreement with respect to which an ownership/security interest may be perfected by a filing under the UCC or other comparable statute shall, in each case, have been properly prepared and executed for immediate filing or have been filed in each necessary public office and such filings are the only filings required in order to perfect the sale of the Receivables to the Transferor under the Receivables Contribution and Sale Agreement or to the Trust under the Agreement, as the case may be, in such jurisdictions. The Agent shall have received evidence reasonably satisfactory to it of each such filing, registration or recordation and reasonably satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (e) Lien Searches. The Agent shall have received the results of a ------------- recent search by a Person satisfactory to the Agent, of UCC and other filings with respect to the Transferor and CompuCom. (f) Legal Opinions. The Agent shall have received opinions of counsel -------------- to the Transferor and the Servicer, dated the Issuance Date, as to corporate, tax, bankruptcy, perfection and other matters in form and substance reasonably acceptable to the Agent and its counsel. (g) Fee Letter. The Agent shall have received the Fee Letter duly ---------- executed by the Transferor and CompuCom, and any fees required to be paid on or before the Issuance Date shall have been paid in full. (h) Liquidity Agreement. The Liquidity Loan Agreement shall have been ------------------- duly executed and delivered by the parties thereto. (i) Settlement Statement. A Settlement Statement as of April 30, -------------------- 1999, or the most recently available if April 30, 1999 data is not reasonably ======= available. (j) Terminations. Executed terminations/reconveyances evidencing ------------ release/relinquishment of all prior creditors and Enterprise Funding Corp. of all interest in the Receivables and other Trust Assets. 26 ARTICLE VII THE AGENT SECTION 7.1 Appointment. Each Series 1999-1 Certificateholder hereby ----------- irrevocably designates and appoints the Agent as the agent of such Series 1999-1 Certificateholder under this Supplement and each such Series 1999-1 Certificateholder irrevocably authorizes the Agent, in such capacity, to take such action on its behalf under the provisions of this Supplement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Supplement, together with such other powers as are reasonably incidental thereto. Each Series 1999-1 Certificateholder hereby irrevocably designates and appoints the Agent to receive any payments relating to the Series 1999-1 Certificates on its behalf. Notwithstanding any provision to the contrary elsewhere in this Supplement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Series 1999-1 Certificateholder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Supplement or otherwise exist against the Agent. SECTION 7.2 Delegation of Duties. The Agent may execute any of its duties -------------------- under this Supplement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel (who may be counsel for the Transferor or the Servicer), independent public accountants and other experts selected by it concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 7.3 Exculpatory Provisions. Neither the Agent nor any of its ---------------------- officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Agreement or this Supplement (x) with the consent or at the request of the Majority Series 1999-1 Certificateholders or (y) in the absence of its own gross negligence or willful misconduct or (ii) responsible in any manner to any of the Series 1999-1 Certificateholders for any statements, representations or warranties made by the Transferor, CompuCom, the Servicer or any officer thereof contained in this Supplement or any other Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Supplement or any other Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Supplement or any other Transaction Document or for any failure of the Transferor, CompuCom or the Servicer to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Series 1999-1 Certificateholder to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Supplement or any other Transaction Document, or to inspect the properties, books or records of the Transferor, CompuCom or the Servicer. 27 SECTION 7.4 Reliance by Agent. The Agent shall be entitled to rely, and ----------------- shall be fully protected in relying, upon any Certificate, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Transferor or the Servicer), independent accountants and other experts selected by the Agent and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. The Agent may deem and treat the payee of any Certificate as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Supplement or any other Transaction Document unless it shall first receive such advice or concurrence of the Majority Series 1999-1 Certificateholders as it deems appropriate or it shall first be indemnified to its satisfaction by the Series 1999-1 Certificateholders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Supplement and the other Transaction Documents in accordance with a request of the Majority Series 1999-1 Certificateholders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Series 1999-1 Certificateholders. SECTION 7.5 Notice of Servicer Default or Early Amortization Event or --------------------------------------------------------- Prospective Early Amortization Event. The Agent shall not be deemed to have - ------------------------------------ knowledge or notice of the occurrence of any Servicer Default with respect to the Servicer or any Early Amortization Event or Prospective Early Amortization Event hereunder unless the Agent has received written notice from a Series 1999- 1 Certificateholder, the Transferor or the Servicer referring to the Agreement or this Supplement, describing such Servicer Default or Early Amortization Event or Prospective Early Amortization Event and stating that such notice is a "notice of a Servicer Default with respect to the Servicer" or a "notice of an Early Amortization Event or Prospective Early Amortization Event", as the case may be. In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Series 1999-1 Certificateholders, the Trustee, the Transferor and the Servicer. Subject to the provisions of the Agreement, the Agent shall take such action with respect to such Servicer Default or Early Amortization Event or Prospective Early Amortization Event as shall be reasonably directed by the Majority Series 1999-1 Certificateholders, provided -------- that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Servicer Default or Early Amortization Event or Prospective Early Amortization Event as it shall deem advisable in the best interests of the Series 1999-1 Certificateholders. 28 SECTION 7.6 Non-Reliance on Agent and Other Series 1999-1 --------------------------------------------- Certificateholders. Each Series 1999-1 Certificateholder expressly - ------------------ acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Transferor, CompuCom or the Servicer, shall be deemed to constitute any representation or warranty by the Agent to any Series 1999-1 Certificateholder. Each Series 1999-1 Certificateholder represents to the Agent that it has, independently and without reliance upon the Agent or any other Series 1999-1 Certificateholder, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Transferor, CompuCom and the Servicer and made its own decision to enter into this Supplement. Each Series 1999-1 Certificateholder also represents that it will, independently and without reliance upon the Agent or any other Series 1999-1 Certificateholder, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Supplement and the other Transaction Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Transferor, CompuCom and the Servicer. Except for notices, reports and other documents expressly required to be furnished to the Series 1999-1 Certificateholders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Series 1999-1 Certificateholder with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Transferor, CompuCom or the Servicer which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in- fact or Affiliates. SECTION 7.7 Indemnification. The Series 1999-1 Certificateholders agree --------------- to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Transferor and the Servicer and without limiting the obligation of the Transferor and the Servicer to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the Commitment Termination Date, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, the Commitments, this Supplement any of the other Transaction Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Series 1999-1 -------- Certificateholder shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements 29 resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of all amounts payable hereunder. SECTION 7.8 Agent in Its Individual Capacity. The Agent and its -------------------------------- Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Transferor, the Servicer, CompuCom or any of their Affiliates as though the Agent were not the Agent hereunder. With respect to any Series 1999-1 Certificate held by the Agent, the Agent shall have the same rights and powers under this Supplement and the other Transaction Documents as any Series 1999-1 Certificateholder and may exercise the same as though it were not the Agent, and the terms "Series 1999-1 Certificateholder" and "Series 1999- 1 Certificateholders" shall include the Agent in its individual capacity. SECTION 7.9 Successor Agent. The Agent may resign as Agent upon 10 days' --------------- notice to the Series 1999-1 Certificateholders. If the Agent shall resign as Agent under this Supplement, then the Majority Series 1999-1 Certificateholders shall appoint from among the Series 1999-1 Certificateholders a successor agent for the Series 1999-1 Certificateholders, which successor agent shall be approved by the Transferor, the Control Party and the Servicer (which approval shall not be unreasonably withheld). Each such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" means such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any other Person. After any retiring Agent's resignation as Agent, 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 Supplement. ARTICLE VIII MISCELLANEOUS SECTION 8.1 Ratification of Agreement. As supplemented by this ------------------------- Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 8.2 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 30 SECTION 8.3 Further Assurances. Each of the Transferor, the Servicer and ------------------ the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by the Agent (i) === more fully to effect the purposes of this Supplement, including in the case of the Transferor and the Servicer, the execution of any UCC financing statements or similar documents or notices or continuation statements relating to the Receivables and the other Trust Assets for filing under the provisions of the UCC of any applicable jurisdiction; and (ii) to facilitate the transfer of the ============================================ Series 1999-1 Certificate by the Initial Certificateholder to Market Street =========================================================================== Funding Corporation, and the confirmation of outstanding commercial paper ========================================================================= ratings by the Rating Agencies, including, in the case of the Transferor and the ================================================================================ Servicer, the execution and delivery of such opinions, certificates or other ============================================================================ documents as may reasonably by requested by the Initial Certificateholder. ========================================================================= SECTION 8.4 Payments. Each payment to be made hereunder to the Agent -------- shall be made on the required payment date in lawful money of the United States and in immediately available funds to such account or accounts as the Agent shall designate in writing to the Trustee. On each Payment Date or other date specified herein, the Agent shall remit in like funds to each Series 1999-1 Certificateholder its applicable pro rata share (based on each such Series 1999- --- ---- 1 Certificateholder's Invested Amount) of each such payment received by the Agent for the account of the Series 1999-1 Certificateholders (it being understood that pursuant to the Agreement as set forth in this Supplement, certain payments may be made to a particular Series 1999-1 Certificateholder rather than pro rata to all Series 1999-1 Certificateholders). SECTION 8.5 Costs and Expenses. The Transferor and the Servicer agree ------------------ severally to pay all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, reasonable fees and disbursements of counsel to the Agent) in connection with (i) the preparation, execution and delivery of this Supplement and amendments or waivers of any Transaction Documents and (ii) the enforcement by the Agent of the obligations and liabilities of the Transferor and the Servicer under the Agreement or this Supplement (unless such enforcement is finally denied on the merits by a court having jurisdiction over such matter); provided that any payments made by the Transferor pursuant to this -------- Section shall be made solely from funds available to the Transferor which are not otherwise needed to be applied to the payment of any amounts pursuant to the Agreement or any Supplement and shall not constitute a claim against the Transferor to the extent that insufficient funds exist to make such payment. SECTION 8.6 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Trustee, the Agent or any Series 1999-1 Certificateholder, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges 31 herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 8.7 Severability. If any provision hereof is void or ------------ unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction. SECTION 8.8 Notices. (a) All notices, requests and demands to or upon ------- any party hereto to be effective shall be given (i) in the case of the Transferor, the Servicer and the Trustee, in the manner set forth in Section ------- 13.05 of the Agreement and (ii) in the case of the Agent and each Series 1999-1 - ----- Certificateholder, in writing (including a confirmed transmission by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand or three days after being deposited in the mail, postage prepaid, one Business Day after being sent by overnight courier or, in the case of telecopy notice, when received, (A) in the case of the Agent and the Initial Series 1999-1 Certificateholder, at their respective addresses set forth in Schedule 8.8; or (B) to such other address as may be ------------ hereafter notified by the respective parties hereto. (b) All instructions given by the Servicer to the Trustee pursuant to this Supplement shall be in writing, and may be included in a Daily Report or Settlement Statement. SECTION 8.9 Successors and Assigns. (a) This Supplement shall be binding ---------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Transferor nor the Servicer may assign or transfer any of its rights under this Supplement without the prior written consent of the Control Party. (b) Any Series 1999-1 Certificateholder may, upon the satisfaction of all applicable requirements under the Agreement (including Section 6.03), in the ------------ ordinary course of its business and in accordance with applicable law, at any time sell to one or more financial institutions or other entities ("Participants") participations in its Series 1999-1 Certificate and its rights ------------ hereunder pursuant to documentation in form and substance satisfactory to such Series 1999-1 Certificateholder and the Participant. In the event of any such sale by a Series 1999-1 Certificateholder to a Participant, such Series 1999-1 Certificateholder's obligations under this Supplement shall remain unchanged and such Series 1999-1 Certificateholder shall remain solely responsible for the performance thereof. The Transferor agrees that each Series 1999-1 Certificateholder is entitled, in its own name, to enforce for the benefit of, or as agent for, any Participant any and all rights, claims and interest of such Participant in respect of the Trust and the Transferor's obligations under this Supplement. A Participant shall have the right to receive Article IV Costs (other than amounts payable under Section 4.2 of this Supplement) but only to ----------- the extent that the related selling Series 1999-1 32 Certificateholder would have had such right absent the sale of the related participation. The Trustee shall have no liability with respect to any Participant. (c) The Initial Series 1999-1 Certificateholder may freely assign or transfer its Certificate to Market Street Funding Corporation or any other CP Conduit (an "Initial Assignee") of which an affiliate of PNC Bank Corp. serves ======================= ===== as agent or administrator without regard to any restrictions in this Agreement. Any Series 1999-1 Certificateholder may, upon satisfaction of all applicable requirements of the Agreement (including Section 6.03, provided that, in the ------------ -------- case of any assignment to a Program Support Provider, no Opinion of Counsel or representation letter shall be required to be delivered) as amended by this Supplement, in the ordinary course of its business and in accordance with applicable law, at any time sell all or any part of its rights and obligations under this Supplement and the related Series 1999-1 Certificate to (i) its Affiliates or to any other Series 1999-1 Certificateholder, (ii) upon prior written notice to the Agent, one or more of its Program Support Providers and (iii) with the prior written consent of the Agent and, unless an Early Amortization Event has occurred and is continuing, the Transferor, which consent shall not be unreasonably withheld, one or more banks or other entities (an "Acquiring Series 1999-1 Certificateholder"), in each case (other than an - ------------------------------------------ assignment to a Program Support Provider) pursuant to a commitment transfer supplement, substantially in the form of Exhibit C to this Supplement (the --------- "Commitment Transfer Supplement"), executed by such Acquiring Series 1999-1 - ------------------------------- Certificateholder, such assigning Series 1999-1 Certificateholder, the Agent and, in the case of clause (iii) above, the Transferor (if the Transferor's ------------ consent is required), and delivered to the Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Issuance Date determined pursuant to such Commitment Transfer Supplement, (x) the Acquiring Series 1999-1 Certificateholder thereunder shall be deemed to be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Series 1999-1 Certificateholder hereunder with a Commitment as set forth therein and (y) the transferring Series 1999-1 Certificateholder thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Supplement. Such Commitment Transfer Supplement shall be deemed to amend this Supplement (including Schedule -------- 1 attached hereto) to the extent, and only to the extent, necessary to reflect - - the addition of such Acquiring Series 1999-1 Certificateholder as a "Series 1999-1 Certificateholder" party to this Supplement and the resulting adjustment of Commitment Percentages arising from the purchase by such Acquiring Series 1999-1 Certificateholder of all or a portion of the rights and obligations of such transferring Series 1999-1 Certificateholder under this Supplement and the Series 1999-1 Certificates. Any Series 1999-1 Certificateholder may pledge, or grant a security interest in, its rights hereunder to, or for the benefit of, any Program Support Provider. (d) The Agent shall maintain at its address referred to in Section 8.8 of ----------- this Supplement a copy of each Commitment Transfer Supplement delivered to it. 33 (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferring Series 1999-1 Certificateholder and an Acquiring Series 1999-1 Certificateholder, the Agent shall (i) promptly accept such Commitment Transfer Supplement, (ii) on the Transfer Issuance Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Series 1999-1 Certificateholders, the Servicer, the Transferor and the Trustee and (iii) prepare a revised Schedule 1 ---------- to this Supplement in order to reflect the reduced Commitment of the applicable transferring Series 1999-1 Certificateholder and the new or increased Commitment of the applicable Acquiring Series 1999-1 Certificateholder, and Schedule 1 of ---------- this Supplement shall be deemed to be automatically superseded by such revised Schedule 1 and the Agent shall distribute such revised Schedule 1 promptly to - ---------- ---------- the Transferor, the Servicer, the Trustee and each Series 1999-1 Certificateholder. (f) The Transferor and the Servicer each authorizes each Series 1999-1 Certificateholder to disclose to any Participant or Acquiring Series 1999-1 Certificateholder (each, a "Transferee") and any prospective Transferee any and ---------- all financial information in such Series 1999-1 Certificateholder's possession concerning the Transferor, the Servicer or the Receivables which has been delivered to such Series 1999-1 Certificateholder by the Transferor or the Servicer pursuant to this Supplement or which has been delivered to such Series 1999-1 Certificateholder by or on behalf of the Transferor in connection with such Series 1999-1 Certificateholder's credit evaluation of the Transferor, the Servicer, the Trust and the Trust Assets prior to becoming a party to this Supplement; provided, however, if any such information is subject to a -------- ------- confidentiality agreement between such Series 1999-1 Certificateholder and the Transferor or the Servicer, the Transferee or prospective Transferee shall have agreed to be bound by the terms and conditions of such confidentiality agreement and, if the Transferor's consent is required pursuant to paragraph (c) above, ------------- the Transferor has so consented to such Acquiring Series 1999-1 Certificateholders. (g) If, pursuant to this Section, any interest in this Supplement or the Series 1999-1 Certificates is transferred to any Transferee which is created in or organized under the laws of any jurisdiction other than the United States or any State thereof, the transferring Series 1999-1 Certificateholder shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferring Series 1999-1 Certificateholder (for the benefit of the transferring Series 1999-1 Certificateholder, the Agent, the Transferor and the Servicer) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Transferor, the Servicer or the transferring Series 1999-1 Certificateholder with respect to any payments to be made to such Transferee in respect of the Series 1999-1 Certificates, (ii) to furnish to the transferring Series 1999-1 Certificateholder (and, in the case of any Acquiring Series 1999-1 Certificateholder not registered in the Register, the Agent and the Transferor) either U.S. Internal Revenue Service Form 4224 or new Form W-8ECI or U.S. Internal Revenue Service Form 1001 or new Form W-8BEN (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest 34 payments hereunder), (iii) to agree (for the benefit of the transferring Series 1999-1 Certificateholder, the Agent, the Transferor and the Servicer) to provide the transferring Series 1999-1 Certificateholder (and, in the case of any Acquiring Series 1999-1 Certificateholder not registered in the Register, the Agent, the Transferor and the Servicer) a new Form 4224 or Form W-8ECI or Form 1001 or Form W-8BEN upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption unless any change in treaty, law or regulation has occurred prior to the date on which any such delivery would otherwise be required which renders such forms inapplicable or which would prevent such Participant from duly completing and delivering any such form with respect to it and such Participant so advises that transferring Series 1999-1 Certificateholder, the Transferor and the Agent; provided, that such failure to -------- provide such forms does not have a material adverse effect on the Transferor, the Servicer or the Trust. SECTION 8.10 Counterparts. This Supplement may be executed in any number ------------ of counterparts and by the 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. SECTION 8.11 Adjustments. If any Series 1999-1 Certificateholder (a ----------- "Benefitted Series 1999-1 Certificateholder") shall at any time receive in - ------------------------------------------- respect of its Invested Amount any distribution of principal, interest, Commitment Fees, Program Fees or other fees, or any interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set- off, or otherwise) in a greater proportion than any such distribution received by any other Series 1999-1 Certificateholder, if any, in respect of such other Series 1999-1 Certificateholder's Invested Amount, or interest thereon, such Benefitted Series 1999-1 Certificateholder shall purchase for cash from the other Series 1999-1 Certificateholders such portion of each such other Series 1999-1 Certificateholder's interest in the Series 1999-1 Certificates, or shall provide such other Series 1999-1 Certificateholders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Series 1999-1 Certificateholder to share the excess payment or benefits of such collateral or proceeds ratably with each of the Series 1999-1 Certificateholders; provided, however, that if all or any portion of such excess -------- ------- payment or benefits is thereafter recovered from such Benefitted Series 1999-1 Certificateholder, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Transferor agrees that each Series 1999-1 Certificateholder so purchasing a portion of the Series 1999-1 Certificateholders' Interest may exercise all rights of payment (including rights of set-off) with respect to such portion as fully as if such Series 1999-1 Certificateholder were the direct holder of such portion. 35 SECTION 8.12 Limitation of Payments by Transferor. Notwithstanding any ------------------------------------ other provision of the Agreement or this Supplement (but subject to Section 7.04 ------------ of the Agreement), the Transferor's obligations under the Agreement and this Supplement shall be limited to the funds available to the Transferor which have been properly distributed to the Transferor pursuant to the Agreement and any Supplement and neither the Agent nor any Series 1999-1 Certificateholder shall have any actionable claim against the Transferor for failure to satisfy such obligation because it does not have funds available therefor from amounts properly distributed. SECTION 8.13 No Bankruptcy Petition. The Agent and each Series 1999-1 ---------------------- Certificateholder hereby covenants and agrees that, prior to the date which is one year and one day after the later of (i) the last day of the Early Amortization Period and (ii) the last day of the amortization period or early amortization period of any other outstanding Series, it will not institute against, or join any other Person in instituting against, the Transferor or the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law. Each of the Transferor, the Servicer, the Agent and the Trustee hereby covenants and agrees that, prior to the date that is one year and one day after all indebtedness of the Initial Series 1999-1 Certificateholder or any Series 1999-1 Certificateholder that is a CP Conduit is paid in full, it will not institute against, or join any other Person in instituting against, the Initial Series 1999-1 Certificateholder or such CP Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under any federal or state bankruptcy or similar law. The Initial Series 1999-1 Certificateholder and each other Series 1999-1 Certificateholder that is a CP Conduit, shall have no obligation to pay any amounts payable by it hereunder or under any other Transaction Document (collectively, "Expense Claims"), and such Expense Claims shall not constitute a claim, as defined in (S)101 of the United States Bankruptcy Reform Act of 1978 (11 U.S.C. (S)101, et seq.), as amended against such Series 1999-1 Certificateholder unless or until such Series 1999-1 Certificateholder has received amounts sufficient to pay such Expense Claims and such amounts are available to pay such Expense Claims pursuant to such Series 1999-1 Certificateholder's program documentation. SECTION 8.14 The Trustee. The Trustee shall not be responsible in any ----------- manner whatsoever for or in respect of the validity or sufficiency of this Supplement or for or in respect of the Preliminary Statement contained herein, which Preliminary Statement is made solely by the Transferor. SECTION 8.15 Consent to Jurisdiction . EACH OF THE SERVICER AND THE ----------------------- TRANSFEROR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE AGREEMENT OR THIS SUPPLEMENT AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN 36 CONNECTION WITH SUCH LITIGATION. EACH OF THE SERVICER AND THE TRANSFEROR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF THE SERVICER AND THE TRANSFEROR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT EITHER THE SERVICER OR THE TRANSFEROR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH OF THE TRANSFEROR AND THE SERVICER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE AGREEMENT OR THIS SUPPLEMENT. SECTION 8.16 Credit Agreements. CompuCom agrees that it shall not enter ==============----------------- into any credit facility or similar agreement (including the Credit Agreement or any amendment to any of them) with any lender unless (i) the Agent shall have informed CompuCom that such agreement is reasonably acceptable to the Agent and (ii) such credit facility or similar agreement does not provide for or result in any lien on behalf of, or interest in favor of, the lenders thereunder or any other Person in the Trust Assets. ARTICLE IX DEFINITIONS SECTION 9.1 Definitions. The following words and phrases shall have the ----------- following meanings with respect to Series 1999-1 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "Accrual Period" means the period from and including a Payment Date to but -------------- excluding the next Payment Date; provided that the first Accrual Period will be -------- the period from and including the Issuance Date to but excluding the next Payment Date. "Accrued Expense Amount" means, for each Business Day during an Accrual ---------------------- Period, the sum of (i) the portion of the Monthly Interest Amount allocable to such Business Day, (ii) one-fifth of the Servicing Fee due on the succeeding Payment Date 37 (in the aggregate up to such Servicing Fee), (iii) the Program Fee for such Business Day, (iv) the portion of the Monthly Trustee Fee and Transition Costs allocable to such Business Day and (v) the Commitment Fee for such Business Day; provided, however, that if by the fifth Business Day of an Accrual Period, the - -------- ------- entire amount of (A) the Monthly Interest Amount, (B) the Servicing Fee, (C) the Program Fee, (D) the Monthly Trustee Fee and Transitions Cost and (E) the Commitment Fee, in each case for such Accrual Period, shall not have been transferred to the Series 1999-1 Non-Principal Collection Sub-subaccount, the Accrued Expense Amount for such Business Day (and each Business Day thereafter until paid) shall also include the amount of such shortfall. "Acquiring Series 1999-1 Certificateholder" shall have the meaning assigned ----------------------------------------- in Section 8.9(c) of this Supplement. -------------- "Additional Interest" has the meaning specified in Section 4.05(b) of the ------------------- --------------- Agreement as set forth in this Supplement. "Additional Servicing Fee" for each Accrual Period means, if CompuCom is ------------------------ not the Servicer and the Servicing Fee Percentage exceeds 0.50%, the excess of (a) the Servicing Fee (calculated as if clause (ii) of the definition of ----------- Servicing Fee did not include the words "as in effect on the Issuance Date") over (b) the Servicing Fee (calculated without changing clause (ii) of the ----------- definition of Servicing Fee). "Adjusted Invested Amount" means, on any day the Series 1999-1 Aggregate ------------------------ Invested Amount at the close of business on such day minus the amount on deposit ----- in the Series 1999-1 Principal Collection Sub-subaccount (after giving effect to any withdrawal therefrom). "Affected Party" means each Series 1999-1 Certificateholder, each Program -------------- Support Provider, any assignee or Participant of any Series 1999-1 Certificateholder or any Program Support Provider, the Agent and any successor thereto and sub-agent thereof. "Aggregate Allocated Receivables Amount" means the sum of the Series 1999-1 -------------------------------------- Allocated Receivables Amount plus the series allocated receivables amounts specified in the Supplements for any outstanding Series other than Series 1999- 1. "Aggregate Commitment Amount" means, with respect to any Business Day, the --------------------------- aggregate amount of the Commitments of all Series 1999-1 Certificateholders on such date, as reduced from time to time pursuant to Section 1.7 of this ----------- Supplement. "Agreement" has the meaning specified in the preamble to this Supplement. --------- "Alternate Base Rate" means, on any date, a fluctuating rate of interest ------------------- per annum equal to the higher of - --- ----- 38 (a) the rate of interest most recently announced by the Agent in Pittsburgh, Pennsylvania, as its prime rate; and (b) the Federal Funds Rate most recently determined by the Agent plus 0.50% per annum. --- ----- The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. "Amortization Period Commencement Date" for the Series 1999-1 Certificates ------------------------------------- shall mean the Commitment Termination Date. "Article IV Costs" means any amounts due pursuant to Article IV of this ---------------- ---------- Supplement. "Available Commitment" means, with respect to any Business Day, the (i) -------------------- Aggregate Commitment Amount on such Business Day minus (ii) the Series 1999-1 ----- Aggregate Invested Amount on such Business Day. "Benefitted Series 1999-1 Certificateholder" shall have the meaning ------------------------------------------ assigned in Section 8.11 of this Supplement. ------------ "Board" means the Board of Governors of the Federal Reserve System of the ----- United States and any successor thereto. "Business Day" shall mean any day other than (a) a Saturday or a Sunday, ------------ (b) any other day on which the Servicer is closed, as specified on the list furnished by the Servicer pursuant to Section 3.03(n) of the Agreement, (c) any --------------- other day on which banking institutions or trust companies in the State of New York generally or the City of New York, New York, the Commonwealth of =================== Pennsylvania generally or the City of Pittsburgh, Pennsylvania, or the State of ====================== Minnesota generally or the City of Minneapolis, Minnesota are authorized or ========= ========= obligated by law, executive order or governmental decree to be closed, or (d) any other day on which The Depository Trust Company is closed. "Certificate Rate" for any Accrual Period (i) in the case of any Invested ---------------- ======== Amount of the Series 1999-1 Aggregate Invested Amount funded by a Liquidity ====== Funding through a Liquidity Agreement entered into by the Initial Series 1999-1 Certificateholder, the sum of the Eurodollar Rate for such Accrual Period, plus ========== 1.75%, (ii) in the case of any portion of the Series 1999-1 Aggregate Invested Amount funded by any other Liquidity Funding, the sum of the Eurodollar Rate ========== for such Accrual Period, plus 3.00% and (iii) in the case of any portion of the ---- Series 1999-1 Aggregate Invested Amount funded by Commercial Paper Notes, the CP Rate for such Accrual Period; provided, however, that on any day during an -------- ------- Accrual Period when any Early Amortization Event or Prospective Early Amortization Event has occurred 39 and is continuing, the Certificate Rate shall mean the Alternative Base Rate in effect on such day plus 3.50%. ---- "Commercial Paper Notes" means short term promissory notes issued or to be ---------------------- issued by a Series 1999-1 Certificateholder, or the proceeds of which are loaned to a Series 1999-1 Certificateholder, to fund its investments in accounts receivable or other financial assets. "Commitment" means, as to any Series 1999-1 Certificateholder, its ---------- obligation to maintain and, subject to certain conditions, increase, its Invested Amount, in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite such Series 1999-1 Certificateholder's name on Schedule 1 to this Supplement (as such Schedule 1 may be revised from ---------- ---------- time to time in accordance with this Supplement) under the caption "Commitment", as such amount may be reduced from time to time as provided herein; collectively, as to all Series 1999-1 Certificateholders, the "Commitments". "Commitment Fee" shall have the meaning assigned in Section 1.7(b) of this -------------- -------------- Supplement. "Commitment Fee Percentage" shall have the meaning set forth in the Fee ------------------------- Letter. "Commitment Percentage" means, as to any Series 1999-1 Certificateholder --------------------- and as of any date, the percentage equivalent of a fraction, the numerator of which is such Series 1999-1 Certificateholder's Commitment as set forth on Schedule 1 to this Supplement (as such Schedule 1 may be revised from time to - ---------- ---------- time in accordance with this Supplement) and the denominator of which is the Aggregate Commitment Amount as of such date. "Commitment Reduction" shall have the meaning assigned in Section 1.6(a) of -------------------- -------------- this Supplement. "Commitment Termination Date" means the earliest of (a) the Scheduled --------------------------- Maturity Date, (b) the date on which the Commitments are terminated in whole pursuant to Section 1.6 of this Supplement and (c) the date of termination ----------- (whether by scheduled expiration, termination or default or otherwise) of any Program Support Provider's commitment under any Program Support Agreement. "Commitment Transfer Supplement" shall have the meaning assigned in Section ------------------------------ ------- 8.9(c) of this Supplement. - ------ "Consolidated Net Income" means, with respect to CompuCom and its ----------------------- Subsidiaries for any period, the net income (or loss) of CompuCom and its Subsidiaries for such period, plus restructuring charges incurred in CompuCom 1998 Fiscal Year, excluding any gains from asset sales otherwise than in the ordinary course of business, 40 any extraordinary gains and any gains from discontinued operations and any items of extraordinary loss, including net loss on any asset sales otherwise than in the ordinary course of business. "Consolidated Subsidiaries" means at any date any Subsidiary or other ------------------------- entity the accounts of which would be consolidated with those of CompuCom in its consolidated financial statements if such statements were prepared as of such date. "Control Party" with respect to the Series 1999-1 Certificates means the ------------- Majority Series 1999-1 Certificateholders. "CP Conduit" means Market Street Funding Corporation or a special purpose ---------- entity that is in the business of issuing commercial paper. "CP Rate" means, for any period means the sum of (i) the rate equivalent to ------- the rate (or if more than one rate, the weighted average of rates) at which Commercial Paper Notes outstanding during such period and to be issued to fund or maintain the Invested Amount may be sold by any placement agent or commercial paper dealer selected by the Initial Series 1999-1 Certificateholder or a Program Support Provider, as agreed between each such agent or dealer and the Initial Series 1999-1 Certificateholder or such Program Support Provider and notified by the Initial Series 1999-1 Certificateholder to the Agent and the Servicer; provided, however, if the rate (or rates) as agreed between any such -------- ------- agent or dealer and the Initial Series 1999-1 Certificateholder with regard to any period is a discount rate (or rates), the "CP Rate" for such period shall be ------- the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate (or rates) to an interest-bearing equivalent rate (or rates) per annum, plus (ii), without duplication, the commissions and ---- charges charged as a percentage of such face amount and converted to an interest-bearing equivalent rate per anum. "CP Rate Tranche" means a portion of the Series 1999-1 Aggregate Invested --------------- Amount for which the interest is calculated by reference to the CP Rate. "Credit Agreement" means the Inventory and Working Capital Financing ---------------- Agreement, dated as of May 7, 1999, among CompuCom, the various financial institutions party thereto and IBM Credit Corporation, as it may be amended, supplemented or otherwise modified from time to time. "Cut-Off Date" means the last day of each calendar month. ------------ "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property, except accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under 41 capital leases, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (vi) all Debt of others guaranteed by such Person, and (vii) all non-contingent obligations of such Person to reimburse or prepay any Person in respect of amounts paid under a letter of credit, banker's acceptance or similar instrument. "Determination Date" means, with respect to a Payment Date, the third ------------------ Business Day prior to such Payment Date. "Delinquency Ratio" means, as of any Cut-Off Date, the ratio, expressed as ----------------- a percentage, of (i) the aggregate Unpaid Balance of all Delinquent Receivables on such Cut-Off Date divided by (ii) the aggregate Unpaid Balance of all ------- -- Eligible Receivables on such Cut-Off Date. "Dilution Reserve Percentage" as measured on any date means the greater of ---------------------------- (i) 2% and (ii) a percentage determined in accordance with the following formula: [(SF x ED) + ((DS-ED) x DS/ED)] x DHR where: SF = the Stress Factor, which shall be 2.5; ED = the "Expected Dilution", which shall be equal to the twelve- ----------------- month rolling average Sales-Based Dilution Ratio, expressed as a percentage; DS = the "Dilution Spike", which shall be equal to the highest -------------- one month Sales-Based Dilution Ratio over the immediately preceding twelve months, expressed as a percentage; and DHR = the "Dilution Horizon Ratio", which shall be equal to the ---------------------- sales for the month ending on the related Cut-Off Date divided by the aggregate Unpaid Balance of the Eligible Receivables as of the such Cut-Off Date. "Dynamic Loss Reserve Percentage" shall be measured as an amount calculated ------------------------------- pursuant to the following formula: DLRP = LR x LH x SF where: ----- DLRP = the Dynamic Loss Reserve Percentage; 42 LR = the Loss Ratio, which shall be equal to the highest average of the Sales-Based Default Ratios for any three consecutive calendar months during the previous twelve calendar months; LH = the Loss Horizon, which shall be equal to the cumulative sales over the previous three months divided by the Series 1999-1 ---------- Allocated Receivables Amount as of the most recent Cut-Off Date; and SF = the Stress Factor, which shall be 2.5. Notwithstanding the foregoing, for the first 10 Cut-Off Dates following the Closing Date for the Series 1999-1 Certificates, the Dynamic Loss Reserve Percentage shall be measured as an amount calculated pursuant to the following formula: DLRP = DR X ISF where: ------ DLRP = the Dynamic Loss Reserve Percentage; DR = the highest average of the three Delinquency Ratios for any three consecutive calendar months during the ===== previous twelve calendar months; and ====== ISF = the Initial Stress Factor, which shall be 1.5. "Early Amortization Period" means, with respect to Series 1999-1, the ------------------------- period from the declaration or occurrence of an Early Amortization Event or the Commitment Termination Date to the earlier of (i) the date on which the Invested Amount of Series 1999-1 (and all interest thereon) has been paid in full and (ii) the Series Termination Date. "Effective Date" shall have the meaning assigned in Section 6.1 of this -------------- ----------- Supplement. "Eurodollar Rate" means, for any Accrual Period, an interest rate per annum --------------- (rounded upward to the nearest 1/16th of 1%) determined pursuant to the following formula: LIBOR ------------------------------ 100% - Eurodollar Rate Reserve Percentage 43 where "Eurodollar Rate Reserve Percentage" means, for any Accrual Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date LIBOR for such Accrual Period is determined under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to "Eurocurrency" funding (currently referred to as "Eurocurrency liabilities) having a term comparable to such Accrual Period. "Federal Funds Effective Rate" means, for any day, 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 on the next succeeding Business Day by the Federal Reserve Bank of Cleveland, or, if such ========= rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Federal Funds Effective Rate shall mean the rate most recently determined in accordance with the preceding sentence, until the circumstances giving rise to such inability no longer exist. "Fee Letter" means the fee letter, dated as of May 7, 1999, among CompuCom ---------- and the Agent, as it may be amended or supplemented from time to time. "Fiscal Year" means the fiscal year of CompuCom and its Subsidiaries, which ----------- period shall be the 12-month period ending on December 31 of each year. References to a Fiscal Year with a number corresponding to any calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on December 31 of such calendar year. "Increase" shall have the meaning assigned in Section 1.5(a) of this -------- -------------- Supplement. "Increase Amount" shall have the meaning assigned in Section 1.5(a) of this --------------- -------------- Supplement. "Increase Date" shall have the meaning assigned in Section 1.5(a) of this ------------- -------------- Supplement. "Initial Invested Amount" means the amount set forth on Schedule 3 to this ----------------------- ---------- Supplement. "Initial Series 1999-1 Certificateholder" shall have the meaning specified --------------------------------------- in the preamble to this Supplement. 44 "Invested Amount" means on any date of determination, an amount equal to --------------- (a) (i) with respect to the Initial Series 1999-1 Certificateholder, the Initial Invested Amount or (ii) with respect to any Acquiring Series 1999-1 Certificateholder, the portion of the transferring Series 1999-1 Certificateholder's Invested Amount purchased by such Acquiring Series 1999-1 Certificateholder, plus (b) the aggregate amount of any increases in such Series ---- 1999-1 Certificateholder's Invested Amount pursuant to Section 1.5 of this ----------- Supplement, minus (c) the aggregate amount of any distributions to such Series ----- 1999-1 Certificateholder pursuant to Section 4.07(c) of the Agreement as set --------------- forth in this Supplement. "Invested Percentage" means, on any Business Day, the percentage (A) during ------------------- the Revolving Period, obtained by dividing (i) the Series 1999-1 Allocated Receivables Amount as of the end of the immediately preceding Business Day, by (ii) the Aggregate Eligible Unpaid Balance as of the end of the immediately preceding Business Day (provided, that if during the Revolving Period an early -------- amortization period or amortization period shall exist with respect to any Series other than Series 1999-1, then the amount in this clause (ii) shall be ----------- the greater of (1) the Aggregate Eligible Unpaid Balance as of the end of the immediately preceding Business Day and (2) the sum of the numerators used to calculate the Invested Percentages for all outstanding Series on the Business Day for which such percentage is determined) and (B) during the Early Amortization Period, obtained by dividing (x) the Series 1999-1 Allocated Receivables Amount on the last day of the Revolving Period (provided, that if -------- during the Early Amortization Period, the early amortization periods of all other outstanding Series which were outstanding prior to the commencement of the Early Amortization Period commence, then, from and after the date on which the last of such Series commences its early amortization period, the amount of this clause (x) shall be the Series 1999-1 Allocated Receivables Amount on such date) - ---------- by (y) the greater of (1) the Aggregate Eligible Unpaid Balance as of the end of the immediately preceding Business Day and (2) the sum of the numerators used to calculate the Invested Percentages for all outstanding Series on the Business Day for which such percentage is determined; provided that for purposes of this -------- definition, the Adjusted Invested Amount shall be calculated assuming that the amount on deposit in the Series 1999-1 Principal Collection Sub-subaccount is zero. "Issuance Date" means May 7, 1999, which is the Series Issuance Date for ------------- ===== Series 1999-1. "Issuer" means the Initial Series 1999-1 Certificateholder. ------ "Issuer CP" means commercial paper notes issued to fund the Issuer's --------- Invested Amount. "LIBOR" means the rate of interest per annum determined by the Agent to be ----- the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Agent by each Reference Bank as the rate of interest 45 at which dollar deposits in the approximate amount of the Invested Amount to be funded at the Eurodollar Rate during such Accrual Period would be offered by major banks in the London interbank market to such Reference Bank at its request at or abut 11:00 a.m. (London time) on the second Business Day before the commencement of such Accrual Period. "LIBOR Rate Tranche" means a portion of the Series 1999-1 Aggregate ------------------- Invested Amount for which the interest is calculated by reference to LIBOR. ===== "Liquidity Agreement" means either the Liquidity Agreement, dated as of May ------------------- 7, 1999, among Market Street Funding Corporation, the financial institutions from time to time parties thereto as Liquidity Lenders, and PNC Bank, National ======= Association as the Liquidity Agent, as it may be amended or supplemented from time to time or (ii) the Liquidity Loan Agreement among the Issuer, the === Liquidity Lenders from time to time parties thereto and PNC Bank, National ======= Association as Administrator, dated as of May 7, 1999. ===== "Liquidity Banks" means the financial institutions party to the Liquidity --------------- Agreement as liquidity institutions. "Liquidity Commitment Amount" means, at any time, the then aggregate amount --------------------------- of the Liquidity Banks' commitments under the Liquidity Agreement. "Liquidity Funding" means a funding pursuant to one or more Liquidity ------------------ Agreements. "Majority Series 1999-1 Certificateholders" means, on any day, Series 1999- ------------------------------------------ 1 Certificateholders having, in the aggregate, more than 50% of the Aggregate Commitment Amount. "Maximum Commitment Amount" means on any date one hundred seventy-five ------------------------- million dollars ($175,000,000) minus the aggregate amount of reductions in the ----- Commitments pursuant to Section 1.7 of this Supplement. ----------- "Miscellaneous Deficiency and Expense Amount" means on any Business Day, ------------------------------------------- with respect to Series 1999-1, the sum of (i) (if CompuCom is not the Servicer) all Program Costs which have been accrued and unpaid since the preceding Business Day; (ii) any Commitment Fees and Program Fees due and payable pursuant to this Supplement; and (iii) any Article IV Costs due and payable pursuant to this Supplement. "Monthly Interest Amount" for any Accrual Period means (i) the daily ----------------------- average Series 1999-1 Aggregate Invested Amount during such Accrual Period, times (ii) the - ----- 46 Certificate Rate for such Accrual Period, times (iii) a fraction, the numerator ----- of which is the number of days in such Accrual Period and the denominator of which is 360. "Monthly Trustee Fee" for any Accrual Period means an amount equal to ------------------- $2,000 plus the reasonable out-of-pocket costs incurred by the Trustee during such Accrual Period in the performance of its duties under this Agreement. "Net Worth" means, as to any Person at any time, the excess of the total --------- assets of such Person and its Subsidiaries at such time over the total liabilities of such Person and its Subsidiaries at such time. "Non-Excluded Taxes" shall have the meaning assigned in Section 4.2(a) of ------------------ -------------- this Supplement. "Overconcentration Amount" means, at any date with respect to an Obligor, ------------------------ the excess of the aggregate Unpaid Balance of Eligible Receivables due from such Obligor on such date over the Overconcentration Obligor Basis for such Obligor on such date. In addition, with respect to Obligors that are Governmental Authorities, the Overconcentration Amount means the excess of the aggregate Unpaid Balance of Eligible Receivables due from such Obligors on such date over ==== 10% of the Aggregate Eligible Unpaid Balance on such date. ========================================================= "Overconcentration Obligor Basis" for an Obligor means the percentage of ------------------------------- the Aggregate Eligible Unpaid Balance at such date set forth below for the applicable category of that Obligor (expressed as a dollar amount):
Minimum Long-Term or Short-Term Unsecured Debt Rating - ---------------------------- S&P Moody's Percentage* - ---------------------------- ---------------- ----------- A-1 or A+ P-1 or A1 10% A-2 or BBB+ P-2 or Baa1 5% A-3 or BBB- P-3 or Baa3 3% Less than A-3 or Less than P-3 or BBB-/Unrated Baa3/Unrated 2%
provided, however, that all Obligors that are affiliates of each other having - -------- ------- identical long-term and short-term debt ratings (or whose long-term or short- term senior unsecured debt are unrated) shall be deemed to be a single Obligor. 47 The percentage applicable to any Obligor (or Obligor group, if applicable) will be the percentage associated with the lower of such Obligor's (or Obligor group's) short-term or long-term senior unsecured debt ratings (with "unrated" being lowest) issued by S&P or Moody's. The ratings specified in the table are minimums for each percentage category, so that a rating of an Obligor not shown in the table falls in the category associated with the highest rating shown in the table that is lower than such rating. "Participants" shall have the meaning assigned in Section 8.9 of this ------------ ----------- Supplement. "Past Due Receivable" means a Receivable that remains unpaid for more than ------------------- 150 days but not more than 180 days from the original invoice date for such payment, or that has been charged off before it has become 151 days past invoice. "Payment Date" means the fourteenth day of each month (or, if such day is ------------ not a Business Day, the next succeeding Business Day). "Payment Date Interest Shortfall" has the meaning specified in Section ------------------------------- ------- 4.05(b) of the Agreement as set forth in this Supplement. - ------- "Payment Date Shortfall" has the meaning set forth in Section 3.11 of the ---------------------- ------------ Agreement as set forth in this Supplement. "Prime Rate Tranche" means that portion of the Series 1999-1 Aggregate ------------------ Invested Amount not allocated to a CP/LIBOR Rate Tranche and for which interest is calculated by reference to the Alternate Base Rate. "Program Costs" means, for any Business Day, the sum of (a) the product of ------------- (i) all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Transferor (other than fees and expenses payable on or in connection with the closing of the issuance of the Series 1999-1 Investor Certificates) on such Business Day and (ii) a fraction, the numerator of which is the Series 1999-1 Aggregate Invested Amount on such Business Day and the denominator of which is the sum of (1) the Aggregate Invested Amount on such Business Day (except with respect to any Series of variable funding certificates) and (2) the aggregate commitment amount (which, in the case of Series 1999-1, is the Maximum Commitment Amount) with respect to any Series of variable funding certificates on such Business Day, and if CompuCom is not the Servicer, amounts otherwise payable by the Servicer for the Trustee's fees and expenses pursuant to the Agreement. "Program Fee" shall have the meaning set forth in Section 1.7(c) of this ----------- -------------- Supplement. "Program Fee Percentage" shall have the meaning set forth in the Fee ---------------------- Letter. 48 "Program Support Agreement" means each Liquidity Agreement, each agreement ------------------------- pursuant to which the Issuer obtains funding, through the issuance of Commercial Paper Notes or otherwise, and each other agreement entered into by the Issuer in connection with its securitization program. "Program Support Provider" means each of each entity that issues Commercial ------------------------ Paper Notes, each Liquidity Bank and the Agent. "Record Date" means with respect to any Payment Date, the last Business Day ----------- of the immediately preceding Settlement Period. "Reference Bank" means PNC Bank, National Association. --------------- "Register" means a register maintained by the Agent for recording transfers --------- of the Series 1999-1 Certificates. "Sales-Based Default Ratio" means, as of any Cut-Off Date, the ratio, ------------------------- expressed as a percentage, of (i) the aggregate Unpaid Balance of all Past Due Receivables for the three successive months ending on such Cut-Off Date, divided ------- by (ii) the aggregate billings for the fifth, sixth and seventh preceding - -- months. For example, as of April 30, the numerator of the Sales-Based Default Ratio would be the aggregate Unpaid Balance of all Receivables that were Past Due Receivables as of February 28, March 31 and April 30; the denominator of the Sales-Based Default Ratio would be the aggregate billings for the months of September, October and November. "Sales-Based Dilution Ratio" as of any Cut-Off Date means (a) the aggregate -------------------------- reduction attributable to Dilutions occurring in the Unpaid Balance of Pool Receivables which Dilutions were granted during the month ending on such Cut-Off Date; divided by (b) the aggregate amount of billings for the month immediately ------- -- preceding the month ending as of such Cut-Off Date. "Scheduled Maturity Date", with respect to the Series 1999-1 Investor ----------------------- Certificates, means the Payment Date in April 2002, as such date may be extended pursuant to a written agreement executed by all of the Series 1999-1 Certificateholders, a copy of which shall be provided by the Agent to the Trustee. "Series 1999-1" means the Variable Funding Accounts Receivable Trust ------------- Certificates, Series 1999-1, the principal terms of which are set forth in this Supplement. "Series 1999-1 Accrued Interest Sub-subaccount" has the meaning specified --------------------------------------------- in Section 4.02(d)(i) of the Agreement as set forth in this Supplement. ------------------ 49 "Series 1999-1 Aggregate Invested Amount" means, as of any date of --------------------------------------- determination, the sum of the Invested Amounts of all Series 1999-1 Certificateholders at the close of business on such date. "Series 1999-1 Allocated Receivables Amount" means, for any day, the lesser ------------------------------------------ of (a) the Series 1999-1 Target Receivables Amount on such day and (b) the Aggregate Eligible Unpaid Balance on such day times the percentage equivalent of a fraction the numerator of which is the Series 1999-1 Target Receivables Amount on such day and the denominator of which is the Aggregate Target Receivables Amount on such day. "Series 1999-1 Certificateholder" or "Series 1999-1 Investor ------------------------------- ---------------------- Certificateholder" means any Holder of a Series 1999-1 Investor Certificate, it - ----------------- being understood that, subject to Section 9.1 of this Supplement, no Person ----------- shall be a Series 1999-1 Certificateholder unless such Person is the Initial Series 1999-1 Certificateholder or an Acquiring Series 1999-1 Certificateholder. "Series 1999-1 Certificateholders' Interest" has the meaning specified in ------------------------------------------ Section 1.2 of this Supplement. - ----------- "Series 1999-1 Collection Subaccount" has the meaning specified in Section ----------------------------------- ------- 4.02(d)(i) of the Agreement as set forth in this Supplement. - ---------- "Series 1999-1 Investor Certificate" or "Series 1999-1 Certificate" means a ---------------------------------- ------------------------- Variable Funding Accounts Receivable Trust Certificate, Series 1999-1, executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit D to this Supplement. --------- "Series 1999-1 Monthly Principal Payment" has the meaning specified in --------------------------------------- Section 4.06(a) of the Agreement as set forth in this Supplement. - --------------- "Series 1999-1 Non-Principal Collection Sub-subaccount" has the meaning ----------------------------------------------------- specified in Section 4.02(d)(i) of the Agreement as set forth in this ------------------ Supplement. "Series 1999-1 Principal Collection Sub-subaccount" has the meaning ------------------------------------------------- specified in Section 4.02(d)(i) of the Agreement as set forth in this ------------------ Supplement. "Series 1999-1 Principal Collection Subordinated Sub-subaccount" has the -------------------------------------------------------------- meaning specified in Section 4.02(d)(i) of the Agreement as set forth in this ------------------ Supplement. "Series 1999-1 Required Reserved Percentage" as of any day means the sum of ------------------------------------------- (i) the Dilution Reserve Percentage, (ii) the greater of (A) 10% and (B) the Dynamic 50 Loss Reserve Percentage and (iii) the Yield Reserve Percentage, in each case as most recently calculated. "Series 1999-1 Required Subordinated Amount" means, (i) on any day during ------------------------------------------- the Revolving Period, the product of (1) the Adjusted Invested Amount and (2) the percentage equivalent of a fraction the numerator of which is the Series ================================================================= 1999-1 Required Reserved Percentage and the denominator of which is one minus =========== the Series 1999-1 Required Reserved Percentage, and (ii) on any day during the Early Amortization Period, an amount equal to the Series 1999-1 Required Subordinated Amount, in each case, on the last Business Day of the Revolving Period. "Series 1999-1 Subordinated Percentage" means the percentage equivalent of ------------------------------------- a fraction the numerator of which is the Series 1999-1 Required Subordinated Amount on the last Business Day of the Revolving Period and the denominator of which is the sum of the Adjusted Invested Amount and Series 1999-1 Required Subordinated Amount, in each case on the last day of the Revolving Period. "Series 1999-1 Target Deficiency Amount" means for any day, the excess, if -------------------------------------- any, of the Series 1999-1 Target Receivables Amount over the Series 1999-1 Allocated Receivables Amount. The Series 1999-1 Target Deficiency Amount is the "Target Deficiency Amount" for purposes of Series 1999-1. "Series 1999-1 Target Receivables Amount" means, on any day the sum of (i) --------------------------------------- the Adjusted Invested Amount on such day and (ii) the Series 1999-1 Required Subordinated Amount on such day. The Series 1999-1 Target Receivables Amount is the "Target Receivables Amount" for purposes of Series 1999-1. "Series Termination Date", with respect to Series 1999-1, means the Payment ----------------------- Date in April 200__. [This term is used in the definition of "Early ================================================ Amortization Period" herein and in Sections 12.02 and 12.03 of the Pooling and ============================================================================== Servicing Agreement.] ===================== "Servicing Fee" for each Accrual Period means an amount equal to the -------------- product of (i) one-twelfth, (ii) the Servicing Fee Percentage as in effect on the Issuance Date and (iii) the Series 1999-1 Aggregate Invested Amount on the first day of such Accrual Period. "Servicing Fee Percentage", with respect to Series 1999-1, means 0.50%, ------------------------ subject to any increase pursuant to Section 3.02(b) of the Agreement. --------------- "Specified Principal Terms" means, with respect to any Series, the ------------------------- following Principal Terms: (a) the floating allocation percentage contained in the Supplement with respect to such Series; (b) any amendments to the definitions of Eligible Accounts 51 or Eligible Receivables contained in the Supplement with respect to such Series; (c) any Early Amortization Events; (d) any amendment to the definition of the Control Party contained in the Supplement with respect to such Series; (e) any Servicer Defaults contained in the Supplement with respect to such Series; (f) the method for allocating principal and interest to Certificateholders of such Series; (g) the level of subordination provided by the Transferor's Interest with respect to such Series; and (h) the date on which such Series will begin its amortization or accumulation period, if any, and the related terms thereof. "Statutory Reserve" means a fraction (expressed as a decimal), the ----------------- numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Agent or, if the Agent is not a bank, the Liquidity Agent (as such term is defined in the Liquidity Agreement) (including any branch, Affiliate, or other fronting office thereof) is subject, with respect to the Eurodollar Rate, ========== for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Each LIBOR Rate Tranche shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Holder under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Supplement" has the meaning specified in the preamble hereto. ---------- "Tangible Net Worth means, as to any Person at any time, Net Worth of such ------------------ Person minus the value of goodwill, trademarks, trade names, copyrights, patents, licenses, organizational expenses, research and development expenses and similar intangibles and, with respect to Tangible Net Worth of CompuCom, any write-up on the book value of any asset resulting from a revaluation thereof subsequent to December 31, 1998. "Transfer Issuance Date" has the meaning specified in the related ----------------------- Commitment Transfer Supplement. "Transferee" has the meaning specified in Section 8.9(f) of this ---------- -------------- Supplement. "Transaction Documents" means, collectively, the Agreement, the Receivables --------------------- Contribution and Sale Agreement, this Supplement and the Series 1999-1 Investor Certificates. 52 "Transition Costs" means any documented expenses and allocated costs of ---------------- personnel reasonably incurred by any Successor Servicer in connection with a transfer of servicing from the Servicer to such Successor Servicer. "Trust Accounts" has the meaning specified in Section 4.02(d)(i) of the -------------- ------------------ Agreement as set forth in this Supplement. "Turnover Rate" means, as of any Cut-Off Date, the ratio (expressed as a ------------- percentage) of (i) the aggregate Unpaid Balance of the Receivables as of such Cut-Off Date, divided by (ii) the aggregate Collections for the month ending on ------- such Cut-Off Date. "Yield Reserve" means, at any time, an amount equal to the product of (i) ------------- the Series 1999-1 Allocated Receivables Amount on such day, times (ii) the Yield ----- Reserve Percentage, divided by (iii) 12, times (iv) the most recently calculated ------- -- ----- Turnover Rate. "Yield Reserve Percentage" means, at any time, the sum of (i) 1.5 times the ------------------------ ----- Eurodollar Rate for the current Accrual Period, plus (ii) 3.00%, plus (iii) the ========== Servicing Fee Percentage. Unless the context otherwise requires, any reference to the Early Amortization Period or the Revolving Period in this Supplement (including in the amendments to the Agreement contained in Section 2.1 of this Supplement) shall ----------- refer only to such periods as they relate to the Series 1999-1 Investor Certificates. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All capitalized terms not otherwise defined herein are defined in the Agreement. All Article or Section references herein means Articles or Sections of the Agreement as modified by this Supplement, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Agreement, each capitalized term used herein shall relate only to the Series 1999-1 Investor Certificates and no other Series of Investor Certificates. The words "hereof," "herein" and "hereunder" and words ------ ------ --------- of similar import when used in this Supplement shall refer to this Supplement or the Agreement as a whole and not to any particular provision of this Supplement or the Agreement, as the case may be; the word "including" (and with correlative --------- meaning "include") means including without limiting the generality of any ------- description preceding such term; the word "or" is not exclusive; and Section, -- Schedule and Exhibit references contained in this Agreement or this Supplement are references to Sections, Schedules and Exhibits in or to this Supplement unless otherwise specified. Unless otherwise specified in this Supplement, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance 53 with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for immaterial changes or changes concurred in by the independent public accountants of CompuCom) with the most recent audited consolidated financial statements of CompuCom and its Consolidated Subsidiaries delivered to the Agent. [SIGNATURES FOLLOW] 54 IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be ------------------------------------------------------------------------ duly executed by their respective officers thereunto duly authorized as of the - ------------------------------------------------------------------------------ date first above written. - ------------------------- CSI FUNDING, INC., as Transferor By: Name: Title: COMPUCOM SYSTEMS, INC., as Servicer By: Name: Title: 55 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: Name: Bruce C. Wandersee Title: Assistant Vice President 56 PNC BANK, NATIONAL ASSOCIATION, as Agent By: Name: Title: 57 MARKET STREET CAPITAL CORPORATION, as the Initial Series 1999-1 Certificateholder By: Name: Title: 58 SCHEDULE 1 to Series 1999-1 Supplement Commitments ----------- Series 1999-1 Certificateholder Commitment - ------------------------------- ---------- Market Street Capital Corporation $175,000,000 59 SCHEDULE 2 to Series 1999-1 Supplement Trust Accounts -------------- 60 SCHEDULE 3 to Series 1999-1 Supplement Initial Invested Amount ----------------------- 61 EX-10.6 8 INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT EXHIBIT 10.6 COMPUCOM SYSTEMS, INC. INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT Table of Contents
Section 1. DEFINITIONS; ATTACHMENTS 1 1.1. Special Definitions 1 1.2. Other Defined Terms 8 1.3. Attachments 8 Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES 8 2.1. Credit Line 8 2.2. Product Advances 8 2.3. A/R Advances 9 2.4. Finance and Other Charges 10 2.5. Customer Account Statements 11 2.6. Shortfall 11 2.7. Application of Payments 11 2.8. Prepayment and Reborrowing By Customer 11 Section 3. CREDIT LINE ADDITIONAL PROVISIONS 12 3.1. Ineligible Accounts 12 3.2. Reimbursement for Charges 13 3.3. Lockbox and Special Account 13 3.4. Collections 13 3.5. Application of Remittances and Credits 14 3.6. Power of Attorney 14 3.7. Concentration Accounts 15 Section 4. SECURITY -- COLLATERAL 15 4.1. Grant 15 4.2 Release of Liens and Security Interests; Forbearance from Exercise of Remedies 16 4.3. Further Assurances 16 Section 5. CONDITIONS PRECEDENT 16 5.1. Conditions Precedent to the Effectiveness of this Agreement 16 5.2. Conditions Precedent to Each Advance 18 Section 6. REPRESENTATIONS AND WARRANTIES 18 6.1. Organization and Qualifications 18 6.2. Rights in Collateral; Priority of Liens 18 6.3. No Conflicts 18 6.4. Enforceability 19 6.5. Locations of Offices, Records and Inventory 19 6.6. Fictitious Business Names 19 6.7. Organization 19 6.8. No Judgments or Litigation 19 6.9. No Defaults 19 6.10. Labor Matters 19 6.11. Compliance with Law 19 6.12. ERISA 19 6.13. Compliance with Environmental Laws 20 6.14. Intellectual Property 20 6.15. Licenses and Permits 20 6.16. Investment Company 20 6.17. Taxes and Tax Returns 21 6.18. Status of Accounts 21 6.19. Affiliate/Subsidiary Transactions 21 6.20. Accuracy and Completeness of Information 21 6.21. Recording Taxes 21
i EXHIBIT 10.3 COMPUCOM SYSTEMS, INC. INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT Table of Contents
Section 1. DEFINITIONS; ATTACHMENTS 1 1.1. Special Definitions 1 1.2. Other Defined Terms 8 1.3. Attachments 8 Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES 8 2.1. Credit Line 8 2.2. Product Advances 8 2.3. A/R Advances 9 2.4. Finance and Other Charges 10 2.5. Customer Account Statements 11 2.6. Shortfall 11 2.7. Application of Payments 11 2.8. Prepayment and Reborrowing By Customer 11 Section 3. CREDIT LINE ADDITIONAL PROVISIONS 12 3.1. Ineligible Accounts 12 3.2. Reimbursement for Charges 13 3.3. Lockbox and Special Account 13 3.4. Collections 13 3.5. Application of Remittances and Credits 14 3.6. Power of Attorney 14 3.7. Concentration Accounts 15 Section 4. SECURITY -- COLLATERAL 15 4.1. Grant 15 4.2 Release of Liens and Security Interests; Forbearance from Exercise of Remedies 16 4.3. Further Assurances 16 Section 5. CONDITIONS PRECEDENT 16 5.1. Conditions Precedent to the Effectiveness of this Agreement 16 5.2. Conditions Precedent to Each Advance 18 Section 6. REPRESENTATIONS AND WARRANTIES 18 6.1. Organization and Qualifications 18 6.2. Rights in Collateral; Priority of Liens 18 6.3. No Conflicts 18 6.4. Enforceability 19 6.5. Locations of Offices, Records and Inventory 19 6.6. Fictitious Business Names 19 6.7. Organization 19 6.8. No Judgments or Litigation 19 6.9. No Defaults 19 6.10. Labor Matters 19 6.11. Compliance with Law 19 6.12. ERISA 19 6.13. Compliance with Environmental Laws 20 6.14. Intellectual Property 20 6.15. Licenses and Permits 20 6.16. Investment Company 20 6.17. Taxes and Tax Returns 21 6.18. Status of Accounts 21 6.19. Affiliate/Subsidiary Transactions 21 6.20. Accuracy and Completeness of Information 21 6.21. Recording Taxes 21
i 6.22. Indebtedness 21 Section 7. AFFIRMATIVE COVENANTS 21 7.1. Financial and Other Information 21 7.2. Location of Collateral 23 7.3. Changes in Customer 23 7.4. Corporate Existence 23 7.5. ERISA 23 7.6. Environmental Matters 23 7.7. Collateral Books and Records/Collateral Audit 24 7.8. Insurance; Casualty Loss 24 7.9. Taxes 25 7.10. Compliance With Laws 25 7.11. Fiscal Year 25 7.12. Intellectual Property 25 7.13. Maintenance of Property 25 7.14. Collateral 25 7.15. Subsidiaries 26 7.16. Financial Covenants; Additional Covenants 26 Section 8. NEGATIVE COVENANTS 26 8.1. Liens 26 8.2. Disposition of Assets 26 8.3. Corporate Changes 26 8.4. Guaranties 27 8.5. Restricted Payments 27 8.6. Investments 27 8.7. Affiliate/Subsidiary Transactions 27 8.8. ERISA 27 8.9. Additional Negative Pledges 28 8.10. Storage of Collateral with Bailees and Warehousemen 28 8.11. Use of Proceeds 28 8.12. Accounts 28 8.13. Indebtedness 28 8.14. Loans 28 8.15 Transaction Documents 28 Section 9. DEFAULT 28 9.1. Event of Default 28 9.2. Acceleration 30 9.3. Remedies 30 9.4. Waiver 31 Section 10. MISCELLANEOUS 31 10.1. Term; Termination 31 10.2. Indemnification 31 10.3. Additional Obligations 32 10.4. LIMITATION OF LIABILITY 32 10.5. Alteration/Waiver 32 10.6. Severability 32 10.7. One Loan 32 10.8. Additional Collateral 33 10.9. No Merger or Novations 33 10.10. Paragraph Titles 33 10.11. Binding Effect; Assignment 33 10.12. Notices; E-Business Acknowledgment 33 10.13. Counterparts 34 10.14. ATTACHMENT A MODIFICATIONS 34 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW 35 10.16. JURY TRIAL WAIVER 35
ii INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") amends and restates that certain Agreement for Inventory Financing dated September 20, 1996 (as amended from time to time, the "Financing Agreement") and is hereby made this eleventh day of May, 1999 by and between IBM Credit Corporation, a Delaware corporation with a place of business at 1500 RiverEdge Parkway, Atlanta, GA 30328 ("IBM Credit"), and CompuCom Systems, Inc., a Delaware corporation with a place of business at 7171 Forest Lane, Dallas, TX 75230 ("Customer"). WITNESSETH WHEREAS, IBM Credit and Customer are parties to that certain Financing Agreement pursuant to which IBM Credit finances Customer's acquisition of inventory and equipment; WHEREAS, in the course of Customer's operations, Customer intends 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); WHEREAS, Customer has requested that IBM Credit finance its purchase of Products from such Authorized Suppliers and its working capital requirements, and IBM Credit is willing to provide such financing to Customer 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 Financing Agreement is hereby amended and restated in its entirety as follows: Section 1. DEFINITIONS; ATTACHMENTS 1.1. Special Definitions. The following terms shall have the following respective meaning in this Agreement: "A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf of Customer pursuant to Section 2.3 of this Agreement, including, as the context may require, a WCO Advance, a PRO Advance and a Takeout Advance. "A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance under this Agreement. "A/R Advance Term": shall be the collective or individual reference, as the context may require, to a PRO Advance Term and a WCO Advance Term. "A/R Finance Charges": as defined on Attachment A. "Accounts": as defined in the U.C.C. "Advance": any loan or other extension of credit by IBM Credit to or on behalf of Customer pursuant to this Agreement including, without limitation, (i) Product Advances and (ii) A/R Advances. 1 "Affiliate": with respect to the Customer, any Person (the "Affiliate"), excluding Safeguard Scientifics, Inc., E-Certify, Inc. and Global Serve Computer Services, Ltd., meeting one of the following: (i) at least 10% of the Affiliate's equity is owned, directly or indirectly, by such Person; (ii) at least 10% of such Person's equity is owned, directly or indirectly, by the Affiliate; or (iii) at least 10% of such Person's equity and at least 10% of the Affiliate's equity is owned, directly or indirectly, by the same Person or Persons. All of Customer's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of Customer for purposes of this Agreement. "Agreement": as defined in the caption. "Auditors": a nationally recognized firm of independent certified public accountants selected by Customer and satisfactory to IBM Credit. "Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Advances at such time. "Average Daily Balance": for each Advance for a given period of time, the sum of the unpaid principal of such Advance as of each day during such period of time, divided by the number of days in such period of time. "Bloomberg": the on-line service provided by Bloomberg Financial Services. "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 Customer to IBM Credit from time to time, as provided herein, signed by the chief executive officer, chief financial officer, Treasurer or Controller of Customer, substantially in the form and detail of Attachment F hereto, detailing and certifying, among other items: a summary of Customer's inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the amounts and aging of all of Customer's Accounts, Customer's inventory on hand financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice price to Customer and the total of the line item values for all inventory listed on the report all of Customer's IBM Credit borrowing activity during a specified period and the total amount of Customer's Borrowing Base as well as Customer's Outstanding A/R Advances, Outstanding Product Advances, Available Credit and any Shortfall Amount as of a specified date. "Common Due Date": (1) the fifth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the first through tenth of such calendar month; (2) the fifteenth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the eleventh through twentieth of such calendar month; and (3) the twenty-fifth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the twenty-first through the last day of such calendar month. 2 "Compliance Certificate": a certificate substantially in the form of Attachment C. "Concentration Accounts": shall mean an Eligible Account that, individually, or when aggregated with all other outstanding Accounts of the same Account debtor and such Account debtor's Affiliates, constitute more than five percent (5%) of the net outstanding balance of all Eligible Accounts of the Customer then outstanding for all Account debtors. "Concentration Account Debtor": shall mean, at any time, any Account debtor obligated to Customer with respect to, or on account of, a Concentration Account. "Credit Facilities": as defined in Section 2.1. "Customer": as defined in the caption. "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. "Eligible Accounts": as defined in Section 3.1. "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, obligation, cause of action, allegation, order, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation or alleged violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws. "ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any successor statutes. "Event of Default": as defined in Section 9.1. "Final Trust Termination Date": as defined in Section 12.01 of the Pooling and Servicing Agreement. "Financial Statements": the consolidated balance sheet (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 Customer and its Subsidiaries for the period specified, prepared in accordance with GAAP and consistent with prior practices. "Floor Plan Lender": any Person who now or hereinafter provides inventory financing to 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 Customer a financing charge. IBM Credit shall calculate the Customer's Free Financing Period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer, may change or may cease to offer a Free Financing Period for the Customer's purchases of Products. 3 "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. "Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" under any Environmental Laws. "IBM Credit": as defined in the caption. "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 Customer may enter 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. "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. "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. "LIBOR": as of the date of determination, the thirty-day average of the one- month (01M) London Interbank Offering Rate as published in Bloomberg for the previous calendar month. "Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of the Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable costs of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement. "Maximum Advance Amount": at any time, the lesser of (1) the Credit Facilities and (2) the Borrowing Base at such time. "Note": the promissory note made by CSI Funding, Inc. pursuant to the Receivables Contribution and Sale Agreement in favor of CompuCom Systems, Inc. dated May 7, 1999 in the original principal amount of $_______________. 4 "Notice": as defined in Section 5.1(M) of this Agreement. "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, reorganization or like proceeding, relating to Customer, 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 Customer to IBM Credit. "Other Documents": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and similar agreements executed by Customer 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 Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Advances made by IBM Credit under this Agreement, and (2) the unpaid amount of any finance charge, fee, expense or other amount related to Advances charged to Customer's account with IBM Credit pursuant to this Agreement. "Outstanding A/R Advances": at any time of determination, the sum of (1) the unpaid principal amount of all A/R Advances made by IBM Credit under this Agreement; and (2) the unpaid amount of any finance charge, fee, expense or other amount related to A/R Advances charged to Customer's account with IBM Credit pursuant to this Agreement. "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) the unpaid amount of any finance charge, fee, expense or other amount related to Product Advances charged to Customer's account with IBM Credit pursuant to this Agreement. "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) guaranties in favor of IBM Credit; and (6) other Indebtedness consented to by IBM Credit in writing prior to incurring such Indebtedness. "Permitted Investments": as set forth in Attachment A. "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; 5 (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 $3,000,000 (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); (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 Customer; (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 the Customer'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; and (12) other Liens consented to by IBM Credit in writing prior to incurring such Lien. "Person": any individual, association, firm, corporation, partnership, trust, unincorporated organization or other entity whatsoever. "Policies": all policies of insurance required to be maintained by Customer under this Agreement or any of the Other Documents. 6 "Pooling and Servicing Agreement" : that certain Pooling and Servicing Agreement, as amended, modified or supplemented from time to time, by and among CompuCom Systems, Inc., CSI Funding, Inc. and Norwest Bank Minnesota, National Association, dated as of May 7, 1999. "Prepayment Fee": as defined in Attachment A. "Prime Rate": as of the date of determination, the average of the rates of interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America National Trust & Savings Association (or any other bank which IBM Credit uses in its normal course of business of determining Prime Rate) as their prime or base rate, as of the last Business Day of the calendar month immediately preceding the date of determination, whether or not such announced rates are the actual rates charged by such banking institutions to their most creditworthy borrowers. "PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to itself on behalf of Customer to repay all or a portion of a Product Advance that is due and payable. "PRO Advance Term": for each PRO Advance, a period, in increments of ten days as specified by Customer in the Request for A/R Advance with respect to such PRO Advance, but in no event in excess of thirty days, commencing on the A/R Advance Date for such PRO Advance. "Product Advance": any advance of funds made or committed to be made by IBM Credit for the account of 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 Customer, including any such advance made or committed to be made as of the date hereof pursuant to the Financing Agreement. "Product Financing Charge": as defined on Attachment A. "Product Financing Period": for each Product Advance, a period of days equal to that set forth in Attachment A from time to time, commencing on the invoice date of such Product Advance. "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 the Customer'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. "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. "Receivables": as defined in Annex X to the Pooling and Servicing Agreement. "Receivables Facility": the transactions evidenced and/or effectuated by the Transaction Documents. "Receivables Contribution and Sale Agreement": that certain Receivables Contribution and Sale Agreement, as amended, modified or supplemented from time to time, among CompuCom Systems, Inc., as Seller and initial Servicer, and CSI Funding, Inc., as Buyer, dated as of May 7, 1999. "Related Rights": as defined in the Receivables Contribution and Sale Agreement. "Released Liens": as defined in Section 4.2 of this Agreement. "Request for A/R Advance": as defined in Section 2.3. 7 "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. "Securities and Note Pledge Agreement": that certain Securities and Note Pledge Agreement by and between IBM Credit and Customer delivered to IBM Credit in accordance with Section 5.1(O) of this Agreement. "Servicing Fee": as defined in Section 3.02 of the Pooling and Servicing Agreement. "Shortfall Amount": as defined in Section 2.6. "Shortfall Transaction Fee": as defined in Attachment A. "Subsidiary": with respect to any Person, any corporation excluding Safeguard Scientifics, Inc. 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. "Takeout Advance": upon request by Customer, an A/R Advance made, only on the Closing Date, to existing creditors of Customer on behalf of Customer, in an amount sufficient to discharge Customer's indebtedness to such creditor. "Transaction Documents": as defined in Annex X to the Pooling and Servicing Agreement including, without limitation, the Pooling and Servicing Agreement, any supplement thereto, and the Receivables Contribution and Sale Agreement. "Transferor Collection Subaccount": as defined in Section 4.02(a) of the Pooling and Servicing Agreement. "Trust Assets": as defined in Section 2.01 of the Pooling and Servicing Agreement. "Termination Date": shall mean the first anniversary of the date of this Agreement or such other date as IBM Credit and Customer may agree to from time to time. "Unused Facility Fee": as defined in Attachment A. "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). "WCO Advance": an A/R Advance, with a WCO Advance Term. "WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180) days commencing on the A/R Advance Date for such WCO Advance. 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. 8 1.3. Attachments. All attachments, exhibits, schedules and other addenda hereto, including, without limitation, Attachment A and Attachment B, are specifically incorporated herein and made a part of this Agreement. Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES 2.1. Credit Facilities. 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 (x) the date on which this Agreement is terminated pursuant to Section 10. and (y) the date on which IBM Credit terminates the Credit Facilities pursuant to Section 9., IBM Credit agrees to extend to the Customer credit lines ("Credit Facilities") in the amounts set forth in Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Maximum Advance Amount. Notwithstanding any other term or provision of this Agreement, IBM Credit may, at any time and from time to time, in its sole discretion (x) temporarily increase the amount of the Credit Facilities above the amounts set forth in Attachment A and decrease the amount of the Credit Facilities back to the amount of the Credit Facilities set forth in Attachment A, in each case upon written notice to the Customer and (y) make Advances pursuant to this Agreement upon the request of Customer in an aggregate amount at any one time outstanding in excess of the Credit Facilities. 2.2. Product Advances. (A) Subject to the terms and conditions of this Agreement, IBM Credit shall make Product Advances in connection with Customer's purchase of Products from Authorized Suppliers (as defined under WITNESSETH). 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 Customer, and (ii) each such Product Advance constitutes a loan by IBM Credit to Customer pursuant to this Agreement as if the Customer received the proceeds of the Product Advance directly from IBM Credit. IBM Credit may, upon written notice to Customer such notice to be given as soon as possible after IBM Credit decides not to include such supplier as an Authorized Supplier, cease to include a supplier as an Authorized Supplier. (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 on the Common Due Date for such Product Advance. Customer may, at its option, repay each Product Advance by requesting IBM Credit to apply all or any part of the principal amount of an A/R Advance to the Outstanding Product Advances. Customer's request for such application shall be made in accordance with Section 2. When so requested and subject to the terms and conditions of this Agreement, IBM Credit shall apply the amount so requested to the amounts due in respect of the Outstanding Product Advances. Nothing contained herein shall relieve Customer of its obligation to repay Product Advances when due. 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, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement as the "Product Financing Charge" and (b) the highest rate from time to time permitted by applicable law. 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 Common Due Date for such Product Advance. If it is determined that amounts received from Customer were in excess of the highest rate permitted by law, then the amount representing such excess shall be considered reductions to principal of Advances. 9 (C) Customer acknowledges that IBM Credit does not warrant the Collateral. Customer 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 Customer shall not be affected by any dispute Customer may have with any manufacturer, distributor or Authorized Supplier. Customer will not assert any claim or defense which it may have against any manufacturer, distributor or Authorized Supplier against IBM Credit. (D) Customer hereby authorizes IBM Credit to collect directly from any Authorized Supplier any credits, rebates, bonuses or discounts owed by such Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits received by IBM Credit may be applied by IBM Credit to the Outstanding Advances. Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in respect of the Outstanding Advances until such Supplier Credits are applied by IBM Credit which application by IBM Credit shall not be unreasonably withheld. (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 Advances owed by Customer. 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) Customer 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 Customer, or any act or failure to act by Customer 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 the Customer may have against any manufacturer, distributor or Authorized Supplier. 2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's request for such an Advance ("Request for A/R Advance"). For any requested A/R Advance pursuant to which monies will be disbursed to Customer or any Person other than IBM Credit, a Request for A/R Advance shall be delivered to IBM Credit on or prior to 12:00 p.m. (eastern time) on the Business Day of the requested A/R Advance Date. The Request for A/R Advance shall specify (i) the requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii) whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) if applicable, the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month, day and year of the Common Due Date, as set forth in Customer's applicable billing statement from IBM Credit, for the Product Advance to which the PRO Advance is to be applied; and (vi) if applicable, the amount of the requested A/R Advance that should be applied to the Outstanding Product Advances (provided that all PRO Advances shall be applied to Outstanding Product Advances). Customer may deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any other provision of this Agreement, Customer shall not (i) request more than one PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance for any Common Due Date on which Customer will take a discount offered by IBM Credit for invoice amounts paid in full within fifteen days of the invoice date under IBM Credit's High Turnover Option ("HTO") Program. (B) Subject to the terms and conditions of this Agreement, on the A/R Advance Date specified in a Request for A/R Advance, IBM Credit shall make the principal amount of each A/R Advance available to the Customer in immediately available funds to an account maintained by Customer (or in the case of a 10 Takeout Advance, as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a day on which Customer is to repay all or any part of an Outstanding Advance (or any other amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such repayment and only an amount equal to the difference, if any, between the amount of the A/R Advance and the amount being repaid shall be made available to Customer as provided in the immediately preceding sentence. (C) Each A/R Advance shall accrue a finance charge on the Average Daily Balance thereof, from and including the date of each A/R Advance to and including the date such A/R Advance is due and payable in accordance with the terms of this Agreement, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "A/R Finance Charge" for such type of A/R Advance, and (b) the highest rate from time to time permitted by applicable law. If it is determined that amounts received from the Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. (D) Unless otherwise due and payable at an earlier date, the unpaid principal amount of each A/R Advance, other than a Takeout Advance, shall be due and payable on the applicable Common Due Date. Unless otherwise notified by Customer in writing prior to the day the principal amount of any WCO Advance becomes due and payable, the Customer shall be deemed to have provided IBM Credit with a Request for A/R Advance requesting a WCO Advance on the day such principal amount is due and payable in an amount equal to the unpaid principal amount of the WCO Advance so due. Subject to the terms and conditions of this Agreement, the principal amount of such WCO Advance shall automatically renew for an additional WCO Advance Term. Notwithstanding any other provision of this Agreement, a Takeout Advance may only be requested on the Closing Date and such Takeout Advance shall be limited to an amount sufficient to discharge the indebtedness that is the subject of a Takeout Advance. Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to the Schedule of Repayments in Attachment D to this Agreement. 2.4. Finance and Other Charges. (A) Finance charges for an Advance for a calendar month shall be equal to (i) one twelfth (1/12) of the applicable Product Financing Charge or A/R Finance Charge multiplied by (ii) the Average Daily Balance of such 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 2.4 for an 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 Advance for the period when such Advance is past due during such calendar month multiplied by (iii) the actual number of days during such calendar month when such Advance is past due divided by (iv) thirty (30). (B) The Customer hereby agrees to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit additional charges for any returned items of payment received by IBM Credit. The Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding 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 Customer's Outstanding Advances. (D) If any amount owed under this Agreement, including, without limitation, any Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear 11 a late charge from and including the day after such Advance 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 2.6 hereof, Customer shall pay IBM Credit a Shortfall Transaction Fee. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. 2.5. Customer Account Statements. IBM Credit will send statements of each transaction hereunder as well as monthly billing statements to Customer with respect to Advances and other charges due on Customer's account with IBM Credit. Each statement of transaction and monthly billing statement 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 seven (7) Business Days after such statement of transaction or billing statement is received by Customer, Customer provides IBM Credit written notice objecting that such amount or transaction is incorrectly described therein and specifying the error(s), if any, contained therein. IBM Credit may at any time adjust such statements of transaction or billing statements to comply with applicable law and this Agreement. 2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall Amount. 2.7. Application of Payments. The Customer hereby agrees that all checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. Upon the occurrence of an Event of Default which is neither waived nor cured within the times specified herein, 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 Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customer's Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. The Obligations of Customer shall not be affected by any dispute Customer may have with any manufacturer, distributor or Authorized Supplier. Notwithstanding the immediately preceding sentence, any delay in payment resulting from Customer's using a process, approved by IBM Credit and in effect at the time of such delayed payment, for requesting an adjustment related to an invoice for Products, shall be governed by such approved process. 2.8. Prepayment and Reborrowing By Customer. (A) Customer 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 Customer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customer. (B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed by Customer in accordance with the provisions of this Agreement. 12 Section 3. CREDIT LINE ADDITIONAL PROVISIONS 3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account debtor for purposes of determining the Borrowing Base; however, without limiting such right, the following Accounts will be deemed to be ineligible for purposes of determining the Borrowing Base: (A) Accounts created from the sale of goods and/or performance of services on non-standard terms or that allow for payment to be made more than thirty (30) days from the date of such sale or performance of services; (B) Accounts unpaid more than ninety (90) days from date of invoice; (C) Accounts payable by an Account debtor if fifty percent (50%) or more of the aggregate outstanding balance of all such Accounts remain unpaid for more than ninety (90) days from the date of invoice; (D) Accounts payable by an Account debtor that is an Affiliate of Customer, or an officer, employee, agent, guarantor, stockholder of Customer or an Affiliate of Customer, or is related to or has common shareholders, officers or directors with Customer; (E) Accounts arising from consignment sales; (F) Except for state, local and United States government institutions and public educational institutions, Accounts with respect to which the payment by the Account debtor is or may be conditional; (G) Except for state, local and United States government institutions and public educational institutions, Accounts with respect to which: (i) the Account debtor is not a commercial entity, or (ii) the Account debtor is not a resident of the United States; (H) Accounts payable by any Account debtor to the extent Customer is liable for goods sold or services rendered by such Account debtor to Customer; (I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose; (J) Accounts arising from the sale or other disposition of goods that have been used for demonstration purposes or loaned or leased by the Customer to another party; (K) Accounts which are progress payment accounts or contra accounts; (L) Accounts upon which IBM Credit does not have a valid, perfected, first priority security interest; (M) Accounts payable by an Account debtor that is or Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors; (N) Accounts that are not payable in US dollars; 13 (O) Accounts payable by any Account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person, other than IBM Credit, who pays the proceeds of such financing directly to Customer on behalf of such debtor ("Third Party Financer") unless (i) such Third Party Financer does not have a separate financing relationship with Customer or (ii) such Third Party Financer has a separate financing relationship with Customer and has waived its right to set off its obligations to Customer; (P) Accounts arising from the sale or lease of goods which are billed to any Account debtor but have not yet been shipped by Customer unless there is (i) written evidence that such Account debtor has agreed to pay for the goods and requested that Customer retain goods in its possession and (ii) such goods are kept segregated from all other goods in Customer's possession; (Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto; (R) Accounts that do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices, purchase orders and contracts relating thereto; (S) Accounts that are discounted for the full payment term specified in Customer's terms and conditions with its Account debtors, or for any longer period of time; (T) Accounts on cash on delivery (C.O.D.) terms; (U) Accounts arising from maintenance or service contracts that are billed in advance of full performance of service; (V) Accounts arising from bartered transactions; (W) Accounts arising from incentive payments, rebates, discounts, credits, warranty claims, and refunds from a supplier; and (X) Any and all other Accounts that IBM Credit deems, in its reasonable and good faith credit judgment consistent with its normal business practice, to be ineligible. The aggregate of all Accounts that are not ineligible Accounts shall hereinafter be referred to as "Eligible Accounts". 3.2. Reimbursement for Charges. Customer agrees to pay for all costs and expenses of Customer's bank in respect to collection of checks and other items of payment, all fees relating to the use and maintenance of the Lockbox and the Special Account (each as defined in Section 3.3) and with respect to remittances of proceeds of the Advances hereunder. 3.3. Lockbox and Special Account. Customer shall establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A with the financial institution(s) listed in Attachment A (each, a "Bank") pursuant to an agreement between the Customer and each Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts ("Special Account") with each Bank. Customer shall enter into and maintain a contingent blocked account agreement with each Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank 14 shall agree that, upon notice from IBM Credit, which IBM Credit shall be entitled to give only if a continuing Event of Default is in existence, disbursements from the Special Account shall be made only as IBM Credit shall direct. 3.4. Collections. (A) Customer agrees that (i) all payments due from Account debtors with respect to Accounts not conveyed by Customer to CSI Funding, Inc. pursuant to the Receivables Contribution and Sale Agreement, (ii) any and all distributions or transfers of cash due from CSI Funding, Inc., (iii) incentive payments, rebates, discounts, credits, warranty claims and refunds from suppliers, (iv) Servicing Fee, and (v) any and all amounts paid from the Transferor Collection Subaccount shall be remitted directly to a Lockbox, provided however, that to the extent any amount paid from the Transferor Collection Subaccount is allocable to CSI Funding, Inc., upon the occurrence of an Event of Default, such amount shall be applied first to the payment of the Note and the balance, if any, shall be paid to CSI Funding, Inc. Customer shall instruct all Persons responsible for payment of any of the foregoing to remit payments directly to a Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer shall instruct such Bank to deposit all remittances to such Bank's Lockbox into its Special Account. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the foregoing into the Special Account(s) or permit any commingling of funds with such remittances in any Lockbox or Special Account. (B) Without limiting the Customer's foregoing obligations, if, at any time, Customer receives a remittance of the kind described in Section 3.4(A), then Customer shall make entries on its books and records in a manner that shall reasonably identify such remittances and shall keep a separate account on its record books of all remittances so received and deposit the same into a Special Account. Until so deposited into the Special Account, Customer shall keep all remittances received of the kind described in Section 3.4(A), separate and apart from Customer's other property so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest. (C) Customer agrees that on and after the Final Trust Termination Date, IBM Credit shall be a third-party beneficiary of any and all Lock-Box Agreements (as such term is defined in Section 3.01(i)(D) of the Pooling and Servicing Agreement, and shall cause the Transaction Documents to be amended to reflect IBM Credit's status as a third-party beneficiary of such Lock-Box Agreements. 3.5. Application of Remittances and Credits. Customer shall apply all remittances against the aggregate of Customer's outstanding Accounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the date such remittance is deposited into the Special Account. In addition, Customer shall promptly apply any credits owing in respect to any Account when due. 3.6. Power of Attorney. Customer 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 Customer 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 under this Agreement and the Other Documents; (B) endorse the name of Customer 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 upon the occurrence and during the continuance of an Event of Default as defined in Section 9.1 hereof: 15 (C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts; (D) settle, adjust, compromise, extend or renew any Accounts; (E) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable; (G) discharge and release any Accounts; (H) prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy or similar document against any Account debtor; (I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts; (J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; (K) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; (L) sign the name of Customer to requests for verification of Accounts and notices thereof to Account debtors; (M) sign the name of Customer 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; (N) make, settle and adjust claims under the Policies with respect to the Collateral and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral; and (O) take control in any manner of any term of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate. The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement is in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any of Customer's Obligations other than Customer's payment Obligations to the extent IBM Credit has received monies. 3.7. Concentration Accounts. Without limiting IBM Credit's other rights, IBM Credit reserves the right to, from time to time in its reasonable and good faith credit judgment consistent with normal business practice, modify the percentage of the amount of Customer's Concentration Accounts used in calculating Customer's Borrowing Base or eliminate Concentration Accounts in calculating Customer's Borrowing Base. Section 4. SECURITY -- COLLATERAL 16 4.1. Grant. To secure Customer's full and punctual payment and performance of the Obligations (including obligations under any leases Customer may enter into, now or in the future, with IBM Credit) when due (whether at the stated maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a security interest in all of Customer'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, products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owing to Customer, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services 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 foregoing; 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 shall be collectively defined herein as the "Collateral". Customer 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 Customer to IBM Credit. 4.2 Release of Liens and Security Interests; Forbearance from Exercise of Remedies. Notwithstanding anything to the contrary herein, and only until the Final Trust Termination Date, IBM Credit hereby releases and discharges its liens and security interests, now or hereafter arising, insofar as such liens and/or security interests cover Trust Assets (collectively, such released liens and security interests, the "Released Liens"). Except for the Released Liens described above being released herein, the liens and security interests created and described herein shall remain in full force and effect as to all other property encumbered hereby, and after the Final Trust Termination Date, the property covered by the Released Liens shall be subject to the liens and security interests created hereby, and IBM Credit may file any UCC-1 financing statement or similar documents to evidence and/or effectuate such liens and security interests. Until the Final Trust Termination Date, the term "Collateral" as defined in Section 4.1 hereof shall not include the Trust Assets. IBM Credit covenants and agrees that it will not exercise any of its rights under the Securities and Note Pledge Agreement prior to the Final Trust Termination Date. IBM Credit further covenants and agrees that prior to the date which is one year and one day after all Investor Certificates (as such term is defined in the Pooling and Servicing Agreement) are paid in full it will not institute against, or join any other Person in instituting against, CSI Funding, Inc. or the Trust (as such term is defined in the Pooling and Servicing Agreement) any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States. IBM Credit further covenants and agrees that it will not file any UCC-1 financing statements or other similar documents to evidence any interest in the Trust Assets until the Final 17 Trust Termination Date and that it will hereafter execute and deliver any and all other or additional documents, instruments or other papers (including without limitation Uniform Commercial Code filings) as Customer, or its successors and assigns, may reasonably request in order to further evidence and/or effectuate the release of liens and security interest covering the Trust Assets. 4.3. Further Assurances. Customer 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. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral. Section 5. CONDITIONS PRECEDENT 5.1. Conditions Precedent to the Effectiveness of this Agreement. The effectiveness of this Agreement is subject to the receipt by IBM Credit of, or waiver in writing by IBM Credit of compliance with, the following conditions precedent: (A) this Agreement executed and delivered by Customer and IBM Credit; (B) a favorable opinion of counsel for Customer in substantially the form of Attachment H; (C) a certificate of the secretary or an assistant secretary of Customer, substantially in the form and substance of Attachment I hereto, certifying that, among other items, (i) Customer is a corporation organized under the laws of the State of its incorporation and has its principal place of business as stated therein, (ii) Customer is registered to conduct business in specified states and localities, (iii) true and complete copies of the articles of incorporation and by-laws of Customer 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 the Customer'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 Customer authorized to sign this Agreement and the Other Documents; (D) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of Customer 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 except where the failure to qualify would not reasonably be expected to cause a Material Adverse Effect; (E) copies of all approvals and consents from any Person, in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer 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) a lockbox agreement executed by Customer and each Bank, in form and substance satisfactory to IBM Credit; (G) a contingent blocked account agreement executed by Customer and each Bank in form and substance satisfactory to IBM Credit; 18 (H) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of Customer as set forth in Attachment A; (I) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets; (J) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; (K) certified copies of the Transaction Documents and any other principal documents executed in connection with the Receivables Facility provided however that the certified copies of the Transaction Documents may be delivered to IBM Credit on or before May 21, 1999; (L) copies of the opinion(s) delivered by Morgan Lewis & Bockius on May ___ 1999 in connection with the Receivables Facility and a letter from Morgan Lewis & Bockius permitting IBM Credit to rely on such opinions as if IBM Credit was an original addressee thereof; (M) a notice in form and substance satisfactory to IBM Credit signed by Customer and CSI Funding, Inc. to the Norwest Bank Minnesota, National Association, as Trustee, which notice shall provide that, effective one Business Day after delivery of such notice, the Customer shall cease selling and CSI Funding shall cease buying the Receivables and the Related Rights pursuant to Article I of Receivables Contribution and Sale Agreement (the "Notice"); (N) the Securities and Note Pledge Agreement executed and delivered by Customer to IBM Credit: and (O) 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 Advance. No Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Advance, the following statements shall be true to the satisfaction of IBM Credit: (A) The representations and warranties contained in this Agreement or in any document, instrument or agreement executed in connection herewith are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date, except those representations and warranties which are stated to be as of a specific date; (B) No event has occurred and is continuing or after giving effect to such Advance or the application of the proceeds thereof would result in or would constitute a 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 Advance, no Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.2 (A) or 2.3 (D)) for an Advance hereunder and the receipt (or deemed receipt) by the Customer of the proceeds of any Advance hereunder shall be deemed to be a 19 representation and warranty by Customer that, as of and on the date of such Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customer to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Advance that are set forth in this Section 5.2. Section 6. REPRESENTATIONS AND WARRANTIES To induce IBM Credit to enter into this Agreement, Customer represents and warrants to IBM Credit as follows: 6.1. Organization and Qualifications. Customer 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. Rights in Collateral; Priority of Liens. Customer 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 the Customer 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. 6.3. No Conflicts. The execution, delivery and performance by Customer 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. 6.4. Enforceability. This Agreement and all of the other documents executed and delivered by the Customer in connection herewith are the legal, valid and binding obligations of Customer, 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. 6.5. Locations of Offices, Records and Inventory. The address of the principal place of business and chief executive office of Customer is as set forth on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of Customer, and all of its chattel paper (other than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)) and records of Accounts, are maintained exclusively at such location. There is no jurisdiction in which Customer 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 Customer 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 Customer 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 the Customer's inventory is stored. None of the receipts received by Customer from 20 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. 6.6. Fictitious Business Names. Customer has not used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B. 6.7. Organization. All of the outstanding capital stock of Customer has been validly issued, is fully paid and nonassessable. 6.8. No Judgments or Litigation. Except as set forth on Attachment B, no judgments, orders, writs or decrees are outstanding against Customer nor is there now pending or, to the best of Customer's knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against Customer which, in Customer's judgment, would reasonably be expected to cause a Material Adverse Effect. 6.9. No Defaults. The Customer is not in default under any term of 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. Customer has no 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 which, in Customer's judgment, would reasonably be expected to cause a Material Adverse Effect. 6.10. Labor Matters. Except as set forth on any notice provided by Customer to IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against the Customer which could reasonably be expected to have a Material Adverse Effect. 6.11. Compliance with Law. Customer has not violated or failed to comply in any material respect with any Requirement of Law or any requirement of any self regulatory organization. 6.12. ERISA. To the best of Customer's knowledge each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi- employer benefit plan", which Customer has established, maintained, or to which it is required to contribute (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. Customer has no "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. The Customer has not 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). 6.13. Compliance with Environmental Laws. Except as otherwise disclosed in Attachment B and to the best of Customer's knowledge: (A) The Customer has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law. 21 (B) (i) the Customer has not generated, transported or disposed of any Hazardous Substances; (ii) the Customer is not currently generating, transporting or disposing of any Hazardous Substances; (iii) the Customer has no 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, or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substances; (iv) the Customer and its respective assets are not subject to any Environmental Liability and, to the best of the Customer's knowledge, any threatened Environmental Liability; (v) the Customer has not 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 Substances for which the Customer may be liable; (vi) the Customer is not in violation of any Environmental Law; (vii) there are no proceedings or investigations pending against Customer 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 Customer's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that Customer 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. 6.14. Intellectual Property. To the best of Customer's knowledge, Customer 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. 6.15. Licenses and Permits. To the best of Customer's knowledge, Customer 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. Customer is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 6.16. Investment Company. The Customer is not (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. 6.17. Taxes and Tax Returns. To the best of Customer's knowledge, Customer 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 the Customer, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of the Customer in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against Customer or any of its property. 6.18. Status of Accounts. Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by Customer, in the ordinary course of its business; the goods and inventory being sold and the Accounts created are its exclusive property and are not and shall not be subject to any Lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever (other than Permitted Liens). The Customer's customers have accepted goods or services and owe and are obligated to pay the full amounts stated in the invoices according to their terms. 22 There are no proceedings or actions known to Customer which are pending or threatened against any Material Account Debtor (as defined in Section 7.14(B) of this Agreement) of any of the Accounts which could reasonably be expected to result in a Material Adverse Effect on the debtor's ability to pay the full amounts due to Customer. 6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of the Customer is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of Customer's business and (ii) upon fair and reasonable terms no less favorable to Customer 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 the Customer to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any Other Document, 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 Customer or arrangements for the payment of such amounts by Customer have been made to the satisfaction of IBM Credit. 6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted Indebtedness; and (ii) has not guaranteed the obligations of any other Person (except as permitted by Section 8.4). Section 7. AFFIRMATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations: 7.1. Financial and Other Information. Customer shall cause the following information to be made available to IBM Credit within the following time periods: (A) as soon as available and in any event within ninety-one (91) days after the end of each fiscal year of Customer (i) audited Financial Statements as of the close of the fiscal year and for the fiscal year, together with a comparison to the Financial Statements for the prior year, in each case accompanied by (a) either an opinion of the Auditors without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or, if so qualified, an opinion which shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to Customer, if any, and (ii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal year, whether Customer is in compliance with the financial covenants set forth in Attachment A; (B) as soon as available and in any event within forty-six (46) days after the end of each fiscal quarter of Customer (i) Financial Statements as of the end of such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer, chief financial officer, Treasurer or Controller of Customer as having been prepared in accordance with GAAP; and (ii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal quarter, whether Customer is in compliance with the financial covenants set forth in Attachment A; 23 (C) as soon as available and in any event within sixty (60) days after the end of each fiscal year of Customer (i) projected Financial Statements, broken down by quarter, for the current and following fiscal year; and (ii) if composed, a narrative discussion relating to such projected Financial Statements; (D) promptly after Customer 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 the Customer's failure to satisfy the conditions precedent to Advances set forth in Section 5, a certificate of the chief executive officer, chief financial officer, Treasurer or Controller of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (E) promptly after Customer obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against Customer 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, chief financial officer, Treasurer or Controller of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (F) promptly after Customer obtains knowledge that (i) any order, judgment or decree in excess of $3,000,000 shall have been entered against Customer or any of its properties or assets, or (ii) it has received any notification of a material violation of any Requirement of Law from any Governmental Authority, a certificate of the chief executive officer, chief financial officer, Treasurer or Controller of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (G) promptly after Customer learns of any material labor dispute to which Customer 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 Customer is a party or by which it is bound, a certificate of the chief executive officer, chief financial officer, Treasurer or Controller of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (H) 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 the Customer's or any guarantor's business affairs and financial condition; (I) by the fifth (5th) day of each month, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the last day of the immediately preceding month; (J) within five (5) days after the same are sent, copies of all Financial Statements and reports which Customer sends to its stockholders, and within five (5) days after the same are filed, copies of all Financial Statements and reports which Customer may make to, or file with, the Securities and Exchange Commission or any successor or analogous governmental authority; and (K) immediately upon issuance or receipt, as the case may be, copies of all notices, reports, certificates or schedules issued or received by Customer or CSI Funding, Inc. in accordance with the Transaction Documents. Each certificate, schedule and report provided by Customer to IBM Credit shall be signed by an authorized officer of Customer, and 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 24 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 Customer 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. 7.3. Changes in Customer. Customer shall provide thirty (30) days prior written notice to IBM Credit of any change in Customer's name, chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that Customer's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any Other Document limiting actions of the type described in this Section. 7.4. Corporate Existence. Customer shall (A) maintain its corporate existence, 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, (B) continue in, and limit its operations to those in the information technology industry unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law. 7.5. ERISA. Customer 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, the Customer shall have no 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 Customer is required to notify the PBGC of such reportable event. Such notification shall include a certificate of the chief financial officer, Treasurer or Controller of Customer setting forth details as to such "reportable event" and the action which Customer 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, Customer 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) Customer and any other Person under Customer'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 by Customer or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer. (B) Customer 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 Customer, (ii) all claims made or threatened by any Person or Governmental Authority against Customer or any of Customer's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) Customer'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 Customer, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law. 25 7.7. Collateral Books and Records/Collateral Audit. (A) Customer 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 Accounts. (B) Customer agrees that IBM Credit or its agents may enter upon the premises of Customer 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) as reasonable and appropriate given the particular circumstances existing at the time, inspecting and/or copying (at Customer's expense) any and all records pertaining thereto, (iii) as reasonable and appropriate given the particular circumstances existing at the time, discussing the affairs, finances and business of Customer with any officers, employees and directors of Customer or with the Auditors and (iv) verifying Eligible Accounts and other Collateral. Customer also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities, including, without limitation, reasonably requested samplings of purchase orders, invoices and evidences of delivery or other performance. 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) Customer 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. (D) Customer 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 therein. 7.8. Insurance; Casualty Loss. (A) Customer 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. Customer 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, Customer 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 Customer, 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 Customer's Outstanding Product Advances first, then to the Outstanding A/R Advances. 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 26 or cancelled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit. If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any such amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or assessed against Customer 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. Customer agrees to comply in all material respects with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business. 7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending December 31 unless Customer provides IBM Credit at least thirty (30) days prior written notice of any change thereof. 7.12. Intellectual Property. Customer 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. Customer 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. 7.14. Collateral. Customer shall: (A) from time to time upon request of IBM Credit, provide IBM Credit with access to copies of all invoices, delivery evidences and other such documents relating to each Account; (B) promptly upon Customer's obtaining knowledge thereof, furnish to and inform IBM Credit of all material adverse information relating to the financial condition of any Account debtor whose outstanding obligations to Customer constitute two percent (2%) or more of the Accounts at such time (a "Material Account Debtor"); (C) promptly upon Customer's learning thereof, notify IBM Credit in writing of any event which would cause any obligation of a Material Account Debtor to become an Ineligible Account; (D) keep all goods rejected or returned by any Account debtor and all goods repossessed or stopped in transit by Customer from any Account debtor segregated from other property of Customer, holding the same in trust for IBM Credit until Customer applies a credit against such Account debtor's outstanding obligations to Customer or sells such goods in the ordinary course of business, whichever occurs earlier; (E) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it in conspicuous type to show that the same are subject to IBM Credit's security interest and 27 immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit; (F) use commercially reasonable efforts to collect all Accounts owed; (G) promptly notify IBM Credit of any material loss, theft or destruction of or damage to any of the Collateral. Customer 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. Customer 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 any encumbrances of any kind whatsoever; (H) 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; (I) 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 (J) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer 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 any Subsidiaries of Customer become parties to this Agreement or any other agreement executed in connection with this Agreement as guarantors or sureties. Customer will comply, and cause all such Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such Subsidiaries. 7.16. Financial Covenants; Additional Covenants. Customer acknowledges and agrees that Customer shall maintain the financial covenants and other covenants set forth in the attachments, exhibits and other addenda incorporated in this Agreement. Section 8. NEGATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations hereunder: 8.1. Liens. The Customer will not, 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. The Customer will not, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to Customer, and (ii) voluntary 28 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 Customer as of the beginning of such fiscal year. 8.3. Corporate Changes. The Customer will not, 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 Customer. 8.4. Guaranties. The Customer will not, 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, and (iii) for guaranties in favor of IBM Credit. 8.5. Restricted Payments. The Customer will not, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of Customer) 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 Customer 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 Customer; 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) provided, however that Customer may declare and pay regularly scheduled dividends on it preferred stock held by Safeguard Scientifics, Inc. further provided that such declaration or payment shall not create an Event of Default . 8.6. Investments. Other than Permitted Investments. Customer will not, 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 Customer 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 Customer; 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. 8.7. Affiliate/Subsidiary Transactions. The Customer will not, 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 Customer except in the ordinary course of business and pursuant to the reasonable requirements of Customer's business upon fair and reasonable terms no less favorable to Customer than could be obtained in a comparable arm's-length transaction with an unaffiliated Person. 29 8.8. ERISA. The Customer will not (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 the Customer 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 8.8, 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. 8.9. Additional Negative Pledges. Customer will not, 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 the Collateral or any part thereof after the occurrence and during the continuance of an Event of Default. 8.10. 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 Customer 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. 8.11. Use of Proceeds. Without the prior written consent of IBM Credit which consent shall not be unreasonably withheld or delayed, the Customer shall not use any portion of the proceeds of any Advances other than to acquire Products from Authorized Suppliers and for its general working capital requirements and capital expenditures which shall not exceed the aggregate amount of $15,000,000 in any single fiscal year. 8.12. Accounts. The Customer shall not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, which would affect IBM Credit's ability to collect payment on any Account in whole or in part, except for such extensions, compromises or settlements made by Customer in the ordinary course of its business, provided, however, that the aggregate amount of such extensions, compromises or settlements does not exceed five percent (5%) of the Customer's Accounts at any time. 8.13. Indebtedness. The Customer will not create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness. 8.14. Loans. The Customer will not make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or parent corporation or to any officer, director or stockholder of Customer or of any such corporation (except for compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement, provided, however, that Customer may make loans to officers and further provided that the aggregate loan amount outstanding shall at no time exceed $7,000,000. 30 8.15 Transaction Documents. The Customer shall not amend, modify or supplement any of the Transaction Documents or enter into any new agreement with respect to the Receivables Facility without the prior written consent of IBM Credit, which consent shall not be unreasonably withheld. Section 9. DEFAULT 9.1. Event of Default. Any one or more of the following events shall constitute an Event of Default by the Customer 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 shall remain unremedied for five (5) days after written notice thereof shall have been given to Customer by IBM Credit or ten (10) days after such payment is due, whichever is earlier, during which period Customer shall be charged the Delinquency Fee rate set forth in Attachment A beginning on the day after the date payment was due and including the date payment is received; (B) Customer fails to comply with or observe any term, covenant or agreement contained in this Agreement or any Other Documents which could reasonably be expected to have a Material Adverse effect if such failure shall remain unremedied for five (5) days or such other period of time as IBM Credit may agree to in writing; (C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer 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) The occurrence of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (E) Customer, any Subsidiary 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 Customer, 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 Customer, any Subsidiary or any guarantor shall have a period of sixty (60) days within which to discharge any involuntary petition for bankruptcy or similar proceeding; (F) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement; (G) The entry of any judgment against Customer or any guarantor in an amount in excess of $3,000,000 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; (H) The dissolution or liquidation of Customer, any Subsidiary or any guarantor, or Customer or any guarantor or its directors or stockholders shall take any action to dissolve or liquidate Customer or any guarantor; 31 (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 any premises occupied by Customer 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) Customer suspends business; (L) The occurrence of any event or condition that permits the holder of any material Indebtedness arising in one or more related or unrelated transactions to accelerate the maturity thereof or the failure of Customer to pay when due any such Indebtedness; (M) Any guaranty of any or all of the Customer's Obligations executed by any 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) Customer 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 in the reasonable opinion of IBM Credit will have a Material Adverse Effect; (P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than Safeguard Scientifics, Inc. acquires a beneficial interest in 50% or more of the Voting Stock of Customer; (Q) the occurrence of an Early Amortization Event as defined in the Pooling and Servicing Agreement. 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 the Customer: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(E) 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 Facilities 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 Accounts, or IBM Credit may use (at the expense of the Customer) such of the 32 supplies or space of the Customer at Customer's place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit and generally shall have all other rights respecting said Accounts, including without limitation the right to accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Customer or IBM Credit; (iii) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at IBM Credit's sole option and discretion, and IBM Credit may bid or become a purchaser at any such sale; and (iv) 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; and (v) deliver the Notice to Norwest Bank Minnesota, as Trustee. (B) Upon the occurrence and during the continuance of any 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 Customer 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 reasonable 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. The Customer 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. The Customer 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 Customer or elsewhere, and to make available to IBM Credit the premises and facilities of the Customer for the purpose of IBM Credit's 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 the Customer 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 Customer's Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Customer shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer or its 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 Customer hereby irrevocably waives to the extent permitted by applicable law any bonds, surety and 33 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, Customer waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Customer 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. MISCELLANEOUS 10.1. 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 Customer that it intends to terminate this Agreement which date shall be no less than thirty (30) 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 Customer's 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 Customer's Obligations, no termination of this Agreement or any of the Other Documents shall in any way affect or impair (i) Customer's 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 Customer, continue to provide Advances hereunder. 10.2. Indemnification. The Customer 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) Customer, (ii) any Person that shall be acquired by Customer or (iii) any Person that Customer 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 the Customer in connection therewith. Notwithstanding the foregoing, the Customer shall not 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. 10.3. Additional Obligations. IBM Credit, without waiving or releasing any Obligation or Default of the Customer, may perform any Obligations of the Customer that the Customer 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. 10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER 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 PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION 34 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 CUSTOMER REQUESTS IBM CREDIT TO EFFECT A WITHDRAWAL OR DEBIT OF FUNDS FROM AN ACCOUNT OF CUSTOMER, 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. 10.5. Alteration/Waiver. This Agreement and the Other Documents may not be altered or amended except by an agreement in writing signed by the Customer 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 the Customer of any undertakings, agreements, covenants, warranties and representations of this Agreement or any Other Document 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 the Customer under this Agreement or any of the Other Documents shall not waive or affect any other Default by the Customer 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 the Customer contained in this Agreement or the Other Documents and no Default by the Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit. 10.6. 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. 10.7. One Loan. All Advances heretofore, now or at any time or times hereafter made by IBM Credit to the Customer 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 Customer to IBM Credit or any assignor of IBM Credit. 10.8. Additional Collateral. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of the Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and shall be applied promptly by IBM Credit on account of the Customer's Obligations; provided, however, IBM Credit may release to the Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 10.9. No Merger or Novations. (A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by the Customer and IBM Credit that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of Customer under the Financing Agreement and any Other Document. Customer 35 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 Customer's Obligations under the Financing Agreement or any Other Document. (B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of the Customer 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. 10.10. 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. 10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement or any of the Other Documents without the prior written consent of IBM Credit. 10.12. 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 CompuCom Systems, Inc. 1500 RiverEdge Parkway 7171 Forest Lane Atlanta, GA 30328 Dallas, TX 75230 Attention: Region Loan Manager Attention: Treasurer or Controller Facsimile: 770 / 644 - 4826 Facsimile: 972 / 856 - 5395 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 J ("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 Customer will be specific to Customer and will require Customer's registration with IBM Credit before access is provided. After IBM Credit has approved the registration submitted by Customer, IBM Credit shall provide an ID and password(s) to an individual designated by Customer ("Customer Recipient"). Customer accepts responsibility for the designated individual's distribution of the ID and password(s) within its organization and Customer will take reasonable measures to ensure that passwords are not shared or disclosed to unauthorized individuals. Customer will conduct 36 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 10.12 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 10.12 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 the Customer's ID, that IBM Credit can reasonably rely on the fact that such E-Document is properly authorized by Customer. 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 conditions as other business records originated and maintained in documentary form. Neither 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. CUSTOMER RECIPIENT INFORMATION for Internet transmissions: (PLEASE PRINT) Name of Customer's Designated Central Contact Authorized to Receive IDs and Passwords: ________________________________________________________________________________ e-mail Address: ________________________________________________________________ Phone Number: __________________________________________________________________ 10.13. 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. 10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing Period set forth in Attachment A from time to time if on at least two occasions during any three-month period a Shortfall Amount has become due and payable and may modify the Collateral Insurance Amount set forth in Attachment A from time to time, in each case, by providing Customer with a new Attachment A. Any such new Attachment A shall be effective as of the date specified in the new Attachment A. 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, 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. 37 (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 CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.13 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 SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. 10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER 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 CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH. IN WITNESS WHEREOF, the Customer 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 CompuCom Systems, Inc. By: _____________________________________ By: _____________________________________ Print Name: ______________________________ Print Name: ______________________________ Title: ____________________________________ Title: ____________________________________
38 EX-10.7 9 ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT EXHIBIT 10.7 ATTACHMENT A, EFFECTIVE DATE MAY 11, 1999 ("IWCF ATTACHMENT A") TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED MAY 11, 1999 Customer: CompuCom Systems, Inc. I. Fees, Rates and Repayment Terms: (A) Credit Facilities: The aggregate of the following: Inventory Financing Availability of Seventy-Five Million Dollars ($75,000,000) plus Working Capital Financing ("Revolver") Availability of Two Hundred Twenty-Five Million Dollars ($225,000,000) which amount shall reduce to Two Hundred Million Dollars ($200,000,000) one hundred and twenty (120) days after the date hereof and shall further reduce to One Hundred and Seventy-Five Million ($175,000,000) on the first anniversary hereof; (B) Borrowing Base: (ia) effective through and including 150 days form the date hereof; 70% of the amount equal to the amount of Customer's Eligible Accounts other than Concentration Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report minus the outstanding amount of the Series 1999-1 Certificateholders' Interest and any other outstanding interest in the Trust as of the same date; (ib) effective on and after 151 days from the date hereof: 50% of the amount equal to the amount of Customer's Eligible Accounts other than Concentration Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report minus the outstanding amount of the Series 1999-1 Certificateholders' Interest and any other outstanding interest in the Trust as of the same date; (ii) a percentage, determined from time to time by IBM Credit in its sole discretion, of the amount of Customer's Concentration Accounts for a specific Concentration Account Debtor as of the date of determination as reflected in the Customer's most recent Collateral Management Report; unless otherwise notified by IBM Credit, in writing, the percentage for Concentration Accounts for a specific Concentration Account Debtor shall be the same as the percentage set forth in paragraph (IA) or (ibi) as applicable of the Borrowing Base; Notwithstanding the terms of Section 3.1(W) of the Agreement, Accounts arising from incentive payments, rebates, discounts and refunds which are (i) verifiable by Authorized Suppliers, and (ii) payable by Authorized Suppliers by check to the Lockbox will be deemed to be Eligible Accounts. (iii) 100% of verifiable receivables due from IBM and IBM Credit which are less than 90 days from the date of invoice; 1 EXHIBIT 10.4 ATTACHMENT A, EFFECTIVE DATE MAY 11, 1999 ("IWCF ATTACHMENT A") TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED MAY 11, 1999 Customer: CompuCom Systems, Inc. I. Fees, Rates and Repayment Terms: (A) Credit Facilities: The aggregate of the following: Inventory Financing Availability of Seventy-Five Million Dollars ($75,000,000) plus Working Capital Financing ("Revolver") Availability of Two Hundred Twenty-Five Million Dollars ($225,000,000) which amount shall reduce to Two Hundred Million Dollars ($200,000,000) one hundred and twenty (120) days after the date hereof and shall further reduce to One Hundred and Seventy-Five Million ($175,000,000) on the first anniversary hereof; (B) Borrowing Base: (ia) effective through and including 150 days form the date hereof; 70% of the amount equal to the amount of Customer's Eligible Accounts other than Concentration Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report minus the outstanding amount of the Series 1999-1 Certificateholders' Interest and any other outstanding interest in the Trust as of the same date; (ib) effective on and after 151 days from the date hereof: 50% of the amount equal to the amount of Customer's Eligible Accounts other than Concentration Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report minus the outstanding amount of the Series 1999-1 Certificateholders' Interest and any other outstanding interest in the Trust as of the same date; (ii) a percentage, determined from time to time by IBM Credit in its sole discretion, of the amount of Customer's Concentration Accounts for a specific Concentration Account Debtor as of the date of determination as reflected in the Customer's most recent Collateral Management Report; unless otherwise notified by IBM Credit, in writing, the percentage for Concentration Accounts for a specific Concentration Account Debtor shall be the same as the percentage set forth in paragraph (IA) or (ibi) as applicable of the Borrowing Base; Notwithstanding the terms of Section 3.1(W) of the Agreement, Accounts arising from incentive payments, rebates, discounts and refunds which are (i) verifiable by Authorized Suppliers, and (ii) payable by Authorized Suppliers by check to the Lockbox will be deemed to be Eligible Accounts. (iii) 100% of verifiable receivables due from IBM and IBM Credit which are less than 90 days from the date of invoice; 1 (iv) 100% of the Customer's inventory in the Customer's possession as of the date of determination as reflected in the Customer's most recent Collateral Management Report constituting Products (other than service parts) financed through a Product Advance by IBM Credit, provided, however, IBM Credit has a first priority security interest in such Products and such Products are in new and in un-opened boxes. The value to be assigned to such inventory shall be based upon the Authorized Supplier's invoice price to Customer for Products net of all applicable price reduction credits; (v) 40% of eligible inventory not financed by IBM Credit and unencumbered by liens; (vi) 85% of verifiable vendor credits from Hewlett-Packard Company and Compaq Computer Corporation which credits shall be payable in cash through Customer's Loackbox, not subject to offset. and shall be less than 90 days from date of invoice; and (vii) 20% of unencumbered fixed assets net of leasehold improvements thereon. (C) Collateral Insurance Amount: Two Hundred and Fifty Million Dollars ($250,000,000.00) (D) A/R Finance Charge: (i) PRO Advance Charge: LIBOR Rate plus 1.75% (ii) WCO Advance Charge: LIBOR Rate plus 1.75% (iii) Takeout Advance Charge: LIBOR Rate plus 1.75% (E) Delinquency Fee Rate: Prime Rate plus 6.500% (F) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30% (G) Free Financing Period Exclusion Fee: For each Product Advance made by IBM Credit pursuant to Customer's financing plan where there is no Free Financing Period associated with such Product Advance there will be a fee equal to the Free Financing Period Exclusion Fee. For a 30 day payment plan when Prime Rate is 7.75% the Free Financing Period Exclusion Fee is 1.0675% of the invoice amount. This fee will vary by .0125% with each .25% change in Prime Rate (e.g. Prime Rate of 7.25%, the charge is 1.0425% of the invoice amount). The fee accrues as of the Date of the Note and is payable as stated in the billing Statement. (H) Other Charges: (i) Unused Facility Fee: 0.25% on the daily average unused portion of the Revolver payable quarterly in arrears. (ii) Annual Facility Fee: $ 50,000.00 (iii) Closing Fee: $1,075,000.00 (iv) Commitment Fee: $ 50,000.00 (v) Prepayment Fee: In the event that the Customer in its sole discretion terminates the Revolver prior to the third anniversary of the closing date, a fee in an amount equal to the amount of the Revolver in effect as of the date of notice of termination, multiplied by (x) from the closing date to the first anniversary thereof, one 2 percent (1.00%), (y) from the first anniversary thereof to the second anniversary thereof, one half percent (0.50%), and (z) thereafter, one quarter of one percent (0.25%). II. Bank Account A) Customer's Lockbox(es) and Special Account(s) will be maintained at the following Bank(s): Name of Bank: ___________________________________________________________ Address: ________________________________________________________________ _________________________________________________________________________ Phone: _________________________________________________________________ Lockbox Address: ________________________________________________________ Special Account #: ______________________________________________________ Name of Bank: ___________________________________________________________ Address: ________________________________________________________________ _________________________________________________________________________ Phone: ________________________________________________________________ Lockbox Address: ________________________________________________________ Special Account #: ______________________________________________________ III. Financial Covenants: Definitions: The following terms shall have the following respective meanings in this Attachment A. All amounts shall be determined in accordance with generally accepted accounting principles (GAAP). "Current" shall mean within the on-going twelve month period. "Current Assets" shall mean assets that are cash or expected to become cash within the on-going twelve months. "EBITDA" for any period shall mean Net Profit after Tax adjusted by adding thereto the amount of Interest Charges and all amortization of intangibles, taxes, depreciation, extraordinary losses, and other non-cash charges that were deducted in arriving at Net Income for such period and deducting any extraordinary gains that were included in arriving at Net Income after Tax. "Current Liabilities" shall mean payment obligations resulting from past or current transactions that require settlement within the on-going twelve month period. All indebtedness to IBM Credit other 3 than amounts outstanding pursuant to the Revolver shall be considered a Current Liability for purposes of determining compliance with the Financial Covenants. "Long Term" shall mean beyond the on-going twelve month period. "Long Term Assets" shall mean assets that take longer than a year to be converted to cash. They are divided into four categories: tangible assets, investments, intangibles and other. "Long Term Debt" shall mean payment obligations of indebtedness which mature more than twelve months from the date of determination, or mature within twelve months from such date but are renewable or extendible at the option of the debtor to a date more than twelve months from the date of determination and specifically including all amounts outstanding to IBM Credit pursuant to the Revolver. "Net Profit after Tax" shall mean Revenue plus all other income, minus all costs, including applicable taxes. "Revenue" shall mean the monetary expression of the aggregate of products or services transferred by an enterprise to its customers for which said customers have paid or are obligated to pay, plus other income as allowed. "Subordinated Debt" shall mean Customer's indebtedness to third parties which in accordance with its terms shall rank junior in priority to the indebtedness of Customer to IBM Credit. "Tangible Net Worth" shall mean: Total Net Worth minus; (a) goodwill, organizational expenses, pre-paid expenses, deferred charges, research and development expenses, software development costs, leasehold expenses, trademarks, trade names, copyrights, patents, patent applications, privileges, franchises, licenses and rights in any thereof, and other similar intangibles (but not including contract rights) and other current and non-current assets as identified in Customer's financial statements; and (b) all accounts receivable from employees, officers, directors, stockholders and affiliates; and (c) all callable/redeemable preferred stock. "Total Assets" shall mean the total of Current Assets and Long Term Assets. "Total Liabilities" shall mean the Current Liabilities and Long Term Debt less Subordinated Debt, resulting from past or current transactions, that require settlement in the future. "Total Net Worth" (the amount of owner's or stockholder's ownership in an enterprise) is equal to Total Assets minus Total Liabilities plus Subordinated Debt. "Working Capital" shall mean Current Assets minus Current Liabilities. Customer will be required to maintain the following financial ratios, percentages and amounts as of the last day of the fiscal quarter under review by IBM Credit: (a) Current Assets to Current Liabilities ratio equal to or greater than 1.7:1.0; (b) Net Profit after Tax to Revenue percentage equal to or greater than: 4 0.0% for the fiscal quarter from April 1, 1999 to June 30, 1999; 0.2% for the fiscal year to date period ending September 30, 1999; 0.5% for the fiscal year from January 1, 1999 to December 31, 1999; 0.7% for each reportable fiscal quarter thereafter on a trailing four quarter basis provided that the Net Profit after Tax to Revenue percentage for each of those four quarters shall be equal to or greater than 0.0% (c) Funded Indebtedness to EBITDA ratio equal to or less than 4.5:1.0; (d) Tangible Net Worth equal to or greater than $110 Million Dollars plus 75% of Net Profit after Tax plus 100% of the proceeds received from the placement of additional equity; (e) Loans to officers shall at no time exceed the aggregate amount of $7,000,000; (f) Capital expenditures shall not exceed the aggregate amount of $15,000,000 in any one fiscal year; and (g) Permitted Investments shall not exceed from the date hereof the aggregate amount of $5,000,000 plus equity investments held by Customer as of the date hereof in; E-Certify, Inc., Global Serve Computer Services, Ltd., and Gateway______. IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the Agreement: Executed Contingent Blocked Account Amendment; Executed Blocked Account Amendment; Executed Waiver of Landlord Lien for all premises in which a landlord has the right of levy for rent; Fiscal year-end financial statements of Customer as of end of Customer's prior fiscal year audited by an independent certified public accountant; A Certificate of Location of Collateral whereby the Customer certifies where Customer presently keeps or sells inventory, equipment and other tangible Collateral; Subordination or Intercreditor Agreements from all creditors having a lien which is superior to IBM Credit in any assets that IBM Credit relies on to satisfy Customer's obligations to IBM Credit; Listing of all creditors providing accounts receivable financing to Customer; A Collateral Management Report in the form of Attachment F as of the Closing Date; A Compliance Certificate as to Customer's compliance with the financial covenants set forth in Attachment A as of the last fiscal month of Customer for which financial statements have been published; An Opinion of Counsel substantially in the form and substance of Attachment H whereby the Customer's counsel states his or her opinion about the execution, delivery and performance of the Agreement and other documents by the Customer; 5 A Corporate Secretary's Certificate substantially in the form and substance of Attachment I certifying to, among other items, the resolutions of Customer's Board of Directors authorizing borrowing by Customer; Termination or release of Uniform Commercial Code filing by another creditor as required by IBM Credit; A copy of an all-risk insurance certificate pursuant to Section 7.8 (B) of the Agreement; Executed Letter of Direction; Executed Letter of Notification; Executed Acknowledgement of Payment and Termination from NationsBank; IWCF ATTACHMENT B TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") Customer: CompuCom Systems, Inc. I. Liens. II. Locations of Offices, Records and Inventory. (A) Principal Place of Business and Chief Executive Office (B) Locations of Assets, Inventory and Equipment (including warehouses) - ----------------------------------------------------------------------- Location Leased (Y/N) - ----------------------------------------------------------------------- III. Fictitious Names. IV. Organization. 6 (A) Subsidiaries Name Jurisdiction Owner Percent Owned 7 (B) Affiliates Name Capacity V. Judgments or Litigation. VI. Environmental Matters. VII. Indebtedness. 8 IWCF ATTACHMENT C INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") COMPLIANCE CERTIFICATE TO: IBM CREDIT CORPORATION 1500 RiverEdge Parkway Atlanta, Georgia 30328 The undersigned authorized officers of CompuCom Systems, Inc. ("CompuCom") hereby certify on behalf of the Customer, with respect to the Inventory and Working Capital Financing Agreement executed by and between CompuCom and IBM Credit Corporation ("IBM Credit") on ______________, 19__, as amended from time to time (the "Agreement"), that (A) CompuCom has been in compliance for the period from ______________, 19__ to _________ ____, 19__ with the financial covenants set forth in Attachment A to the Agreement, as demonstrated below, and (B) no Default has occurred and is continuing as of the date hereof, except, in either case, as set forth below. All capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. I. Financial Covenants. FINANCIAL COVENANTS REQUIRED ACTUAL - ------------------- -------- ------ Current Assets to Current Liabilities Net Profit After Tax to Revenue Funded Indebtedness to EBITDA Minimum Tangible Net Worth Dollars II. Calculation of Tangible Net Worth. Total Assets MINUS Total Liabilities _______________________ LESS: goodwill _______________________ organizational expenses _______________________ 9 pre-paid expenses _______________________ deferred charges, etc. _______________________ leasehold expenses _______________________ all other _______________________ callable/redeemable preferred stock _______________________ officer, employee, director, stockholder and affiliate receivables _______________________ Total Tangible Net Worth ======================= Attached hereto are Financial Statements as of and for the end of the fiscal _____________ ended on the applicable date, as required by Section 7.1 of the Inventory and Working Capital Financing Agreement. Submitted by: CompuCom Systems, Inc. By:______________________________________ Print Name:______________________________ Title:___________________________________ 10 IWCF ATTACHMENT D TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT') Takeout Advance Option IWCF TAKEOUT ADVANCE Schedule of Repayments for CompuCom Systems, Inc. Not Applicable at this time. 11 IWCF ATTACHMENT E TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") Customer: CompuCom Systems, Inc. AUTHORIZED SUPPLIERS 12 IWCF ATTACHMENT F TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT') CompuCom Systems, Inc. Collateral Management Report (CMR) Accounts as of: (Date) COLLATERAL STATUS
Sub. Coll Gross Advance Net Values Collateral % Collateral --------------------------------- ------------------------------ 1. Previous assigned A/R balance: $ _____________ (previous CMR line 4) Date: __/__/__ 2. Additions to A/R (2A+B): $ ___________________________________________ A. New Billings $ B. Adjustments $ 3. Deductions from A/R (3A+B+C): ($ _____)_____________________ A. Cash Receipts $ B. Credits $ C. Adjustments $ 4. New Assigned A/R balance (1+2-3): $ 5. A/R Aging Report (Date: __/__/__) $ * * New Assigned A/R Balance and A/R Aging Report (Lines 4 and 5) must equal each other* * ================================================================================================================== 6. Less Adjustments: $ A. Unapplied Cash $ B. Other $ 7. Adj. assigned A/R balance (4-6): $ 8. Less Ineligible A/R: $ A. A/R Over 90 Days $ B. 50% Rule $ C. Contra Accts (A/P Offset) $ D. Other $ E. __________________ $ F. __________________ $ G. __________________ $ H. __________________ $ I. Securitization A/R $ 9. Total A/R Eligible Collateral: $_______________%______$ (Line 7 - Line 8 X Advance Rate) 10. Other A/R Collateral A. __________________ $_______________%______$ B. __________________ $_______________%______$ 11. Inventory Collateral $_______________%______$ A. IBM Credit Financed Eligible Inventory $_______________%______$ B. __________________ $_______________%______$ C. __________________ $_______________%______$ 12. Other Collateral A. RMA $_______________%______$ B. Price Protection $_______________%______$ C. __________________ $_______________%______$ D. __________________ $_______________%______$ 13. Total Net Eligible Collateral (9+10+11+12) $
13 LOAN STATUS
Sub Value Gross Value Net Value ------------------------------------------------------------------- 1. Net IBM Credit Outstandings (1A-B-C-D-E-F-G-H-I+J) $ A. Gross IBM Credit Outstandings (RFS) $ Less: B. Suspense ($______________________) C. Disputes ($______________________) D. In Transit (___ Days) ($______________________) E. QSL / QLA ($______________________) F. Other ($______________________) G. _________________ ($______________________) H. _________________ ($______________________) I. _________________ ($______________________) Plus: J. Product Received Not Billed (RNB) $ 2. Funds in Lockbox (2A+B) $ A. Cleared Funds (transferred not posted) $ B. Unavailable Funds (float) $ 3. Loan Balance (Line1 - Line 2) $ 4. Collateral Excess / Shortfall Collateral line 13 - Loan line 3): (Loan balance available) $ 5. Advances from IBM Credit to Customer (5A+B+C) $___________ A. Cash Adv. from Lockbox $ B. Cash Adv. from IBM Credit $ C. WCO Cash Advance $ 6. New Adjusted O/S Balance (3+5) $ 7. Remaining Credit Line Availability (Collateral line 13 - Loan line 6) $ 8. WCO Payment Advance $ Signatures:
______________________________________________ Authorized Customer Signature (Date) ______________________________________________ IBM Credit Corporation (Date) The above officer or delegated individual of CompuCom Systems, Inc. certifies that he/she is authorized to provide this information on behalf of CompuCom Systems, Inc. and agrees that to the best of his/her knowledge the information is accurate. 14 IWCF ATTACHMENT G TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT') CERTIFICATE OF LOCATION OF COLLATERAL The undersigned, the (insert title of office held) of CompuCom Systems, Inc. ("CompuCom"), hereby certifies with reference to the Inventory and Working Capital Financing Agreement, dated (insert date Agreement signed), between CompuCom and IBM Credit Corporation as follows: (a) The following are all the locations where CompuCom presently keeps or sells inventory, equipment or other tangible Collateral: LOCATION LEASE (YES/NO) IN WITNESS WHEREOF, I have hereunto set my hand this day of______________________, 19__ . CompuCom Systems, Inc. By:__________________________ Title:_______________________ 15 ATTACHMENT H {LETTERHEAD OF CUSTOMER'S COUNSEL} (DATE} IBM Credit Corporation 1500 RiverEdge Parkway Atlanta, Georgia 30328 Re: CompuCom Systems, Inc. Ladies and Gentlemen: We have acted as counsel for CompuCom Systems, Inc., a ____________ corporation (the "Borrower") in connection with (A) the execution and delivery of that certain Inventory and Working Capital Financing Agreement, dated as of ________________, 19___ (the "Financing Agreement"), by and among the Borrower and IBM Credit Corporation ("IBM Credit"), and (B) the other agreements, instruments, and documents executed and delivered by the Borrower in connection with the Financing Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Financing Agreement. In this connection, we have examined the following documents: (i) The Certificate of Incorporation and the By-laws of the Borrower, each as amended to date; (ii) The records of the proceedings taken by the Board of Directors of the Borrower in connection with the execution, delivery, and performance of the Financing Documents to which they are a party (as defined below); (iii) The Financing Agreement; (iv) The Contingent Blocked Account Amendment; (v) Acknowledgement copies of the UCC-1 Financing Statements listed on Exhibit A hereto (the "Financing Statements") executed by the Borrower naming it as Debtor and IBM Credit as Secured Party and filed in the offices set forth on Exhibit A; (vi) {Additional Documents if necessary} The documents referred to in clauses (iii) through (vi) above are hereinafter referred to as the Financing Documents. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such latter documents, and, regarding documents executed by parties other than the Borrower, 16 that those parties had the power and the capacity to enter into, execute, deliver and perform all obligations under such documents, the due authorization of all requisite action with respect to such documents, and the validity and binding effect of such documents upon such other parties. As to any facts material to this opinion, we have relied upon the representations and warranties of the Borrower contained in each of the Financing Documents, and in certificates delivered by the Borrower pursuant to each of the Financing Documents, statements, and representations of officers and other representatives of the Borrower, and, as to the matters addressed therein, certificates or correspondence from public officials. For purposes of the opinion set forth in Paragraph 4, the term "Material Contracts" means the agreements and instruments to which the Borrower is subject which have been identified to us by officers of the Borrower and set forth on Exhibit B hereto as the agreements and instruments which are material to the business or financial condition of the Borrower; and the term "Material Orders" means those orders and decrees to which the Borrower is subject which have been identified to us by officers of the Borrower and set forth in Exhibit C hereto as the orders and decrees, agreements, and instruments which are material to the business or financial condition of the Borrower. As used herein, the term "UCC" refers to the Uniform Commercial Code as in effect in the State of New York. We are members of the bar in the State of ______________ and express no opinion as to the laws of any other jurisdiction except the General Corporation Law of the State of ____________ and the federal laws of the United States of America. Based on the foregoing, and subject to the assumptions and qualifications set forth herein, we are of the opinion that: 1. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified and authorized to do business and in good standing as a foreign corporation in each jurisdiction where, to our knowledge, it presently is engaged in business and is required to be qualified. 2. Borrower has all requisite corporate power and authority (a) to own, lease, and operate its properties and assets and to carry on its business as now being conducted; and (b) to execute, delivery, and performance of the Financing Documents to which it is a party. 3. All corporate action on the part of the Borrower requisite for the execution, delivery, and performance of the Financing Documents to which it is a party has been duly taken. 4. The execution, delivery, and performance by the Borrower of the Financing Documents to which it is a party will not (a) violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a default under (i) the Certificate of Incorporation or By-laws of Borrower or any resolution of its Board of Directors or any committee thereof, (ii) any Material Contract, or (iii) any federal or state law (including, without limitation, environmental or occupational health, and safety law), regulation, rule, Material Order, or legal requirement of any federal, state, or public authority or agency applicable to Borrower; or (b) result in the creation or imposition of a lien of any nature whatsoever upon any of the Borrower's property or assets other than as represented by the Financing Documents. 5. Borrower has obtained any and all consents, approvals, or other authorizations required to be obtained pursuant to its Certificate of Incorporation and By-laws in connection with the execution, delivery, and performance of the Financing Documents. No consent, approval, or authorization of or by any court, administrative agency, other governmental authority, or any other Person is required in connection with 17 the execution, delivery, and performance by the Borrower of the Financing Documents that has not already been obtained. 6. To our knowledge, there are no actions, proceedings, or investigations pending or threatened against the Borrower which question the validity of the Financing Documents to which it is a party or relating to the transactions contemplated thereby. 7. Each of the Financing Documents has been duly executed and delivered by duly authorized officer of the Borrower and constitutes the legal, valid, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except that, in each case, (i) enforcement may be subject to and limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws now or hereafter in effect relating to creditors' rights generally, (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (iii) certain of the remedial provisions including waivers with respect to the exercise of remedies against the Collateral contained in the Financing Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Financing Documents, each taken as a whole and, the Financing Documents, each taken as a whole, contain adequate remedial provisions for the practical realization of the security purported to be afforded thereby. 8. The Financing Agreement is effective to create in favor of IBM Credit a valid security interest within the meaning of the UCC in the Collateral as security for the obligations purported to be secured thereby; and (ii) the Financing Statements are in appropriate form and upon filing in the state where Customer's principal place of business and chief executive office is located will result in a perfected security interest (as such term is defined in Section 9-303 of the UCC) of IBM Credit in the Collateral in which security interests to which Article 9 of the UCC applies. 9. Borrower is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. This opinion is rendered solely to and for the benefit of IBM Credit in connection with the execution and delivery of the Financing Documents and may not be relied upon by any other person, firm, or corporation without our prior written consent, except that it may be furnished to any prospective purchaser of a participation in the rights of IBM Credit and may be furnished to and relied upon by any Person which hereafter acquires such a participation. This opinion is limited to laws as currently in effect on the date hereto and to the facts as they currently exist. We assume no obligation to revise, supplement or otherwise update this opinion. Very truly yours, 18 EXHIBIT A UCC-1 FINANCING STATEMENT 19 EXHIBIT B MATERIAL CONTRACTS 20 EXHIBIT C MATERIAL ORDERS 21 ATTACHMENT I CORPORATE SECRETARY'S CERTIFICATE AS TO RESOLUTIONS AUTHORIZING BORROWING BY CORPORATION IBM CREDIT CORPORATION 1500 RiverEdge Parkway Atlanta, Georgia 30328 I, ______________________, certify that I am the Secretary of CompuCom Systems, Inc. ("Customer") and that I am custodian of the Customer's organizational books and records, including the minutes of the meetings of the Customer's Board of Directors. I further certify as follows: 1. Customer is a corporation organized under the laws of the State of _________________, and has its principal place of business at _______________________________________________________ ________________________________________________________________________. 2. Customer is registered to conduct business or as otherwise required in the following states and localities: _______________________________________________________________________ _______________________________________________________________________ 3. True and complete copies of the Customer's Articles of Incorporation and By-laws ("Governing Documents") are delivered herewith, together with all amendments and addenda thereto as in effect on the date hereof. 4. The following is a true, accurate and compared copy of a Resolution (the "Resolution") adopted by the Customer's Board of Directors at a special meeting thereof held on due notice at which there was present a quorum authorized to adopt the Resolution and the entire proceedings of which were proper and in accordance with the Customer's Governing Documents. The Resolution was duly made, seconded and unanimously adopted, remains in full force and effect and has not been revoked, annulled, amended or modified in any manner whatsoever, and each authorization and empowerment contained in the Resolution is permitted and proper under the Customer's Governing Documents: "Resolved, that: (a) Each executive or managing officer and agent of the Company (each an "Authorized Person") is and shall be authorized and empowered, separately or collectively, to obtain financing from IBM Credit Corporation, a Delaware corporation ("IBM Credit") on behalf of the Company, from time to time, in amounts and upon terms and conditions as such Authorized Person deems proper, and for that purpose: (1) to execute notes, financing statements and other evidences of the Company's indebtedness with respect thereto; (2) to enter into financing agreements, loan agreements, security agreements, pledge agreements and any other agreements with IBM Credit and third parties relating to the terms and conditions upon which any such financing may be obtained and to the security to be furnished by the Company thereof; (3) to enter into, as lessor or lessee, or to assign or sell any interest Company may have in, any lease or similar rental agreement; (4) to modify, supplement or amend any such agreements, any such terms or conditions in such agreements and any such security therefor; (5) to grant powers of attorney, (6) to pledge, assign, guarantee, mortgage, consign, grant security interest in and otherwise transfer to IBM Credit as collateral security for any and all debts and obligations of the Company to IBM 22 Credit or its affiliates, whenever and however arising, any assets of this Company; (7) to execute and deliver any and all assignments, schedules, transfers, endorsements, contracts, guarantees, agreements, designations, consignments, deeds of trust, mortgages, instruments of pledge or other instruments in respect thereof and to make remittances and payments in respect thereof by checks, drafts or otherwise; and (8) to do and perform all other acts and things deemed by such Authorized Person to be necessary, convenient or proper to carry out any of the foregoing. (b) The authorization contained herein shall apply whether or not proceeds of any loans or advances made at the request of any Authorized Person shall be paid or credited by IBM Credit to the Company or shall be paid or credited to the individual order of any affiliates of the Company or other third party, and IBM Credit shall be under no obligation to inquire as to the application or disposition of the proceeds of any such loan or advance. (c) Hereby ratified, approved, confirmed and consented to are all that any Authorized Person has done or may do in the premises." 5. Appearing below are the names, titles and specimen signatures of at least two Authorized Persons, as defined in the Resolution cited in the preceding paragraph, (list at least three such Authorized Persons): Authorized Person(s) Title Signature (print) (print) ______________________ ___________________ _______________________ ______________________ ___________________ _______________________ ______________________ ___________________ _______________________ ______________________ ___________________ _______________________ The foregoing is not intended to be a comprehensive or exclusive list of the Customer's Authorized Persons. Upon request, Customer will promptly provide to IBM Credit additional certificates containing the name, title and specimen signature of other Authorized Persons, and IBM Credit may now and in the future rely on the signature of any Authorized Person whether or not listed on this or any other certificate or on the signature page(s) hereof. Nevertheless, it is hereby certified that each name, title and signature appearing above or on the signature page(s) hereof, is consistent with the books and records of the Customer. IN WITNESS WHEREOF, I have signed this certificate this ________ day of ____________, 19___. _______________________________ Name: _______________________________ 23 ATTACHMENT J E-BUSINESS SCHEDULE A (?SCHEDULE A?) CUSTOMER NAME: CompuCom Systems, Inc. EFFECTIVE DATE OF THIS SCHEDULE A: ___________________________________ E-DOCUMENTS AVAILABLE TO SUPPLIERS: Invoices Payment Report / Remittance Advisor E-DOCUMENTS AVAILABLE TO CUSTOMER: Invoices Remittance Advisor Transactional Approval Billing Statement Payment Planner Auto Cash Statements of Transaction Common Dispute Form 24 EX-10.8 10 RECEIVABLES CONTRIBUTION AND SALE AGREEMENT EXHIBIT 10.8 RECEIVABLES CONTRIBUTION AND SALE AGREEMENT among COMPUCOM SYSTEMS, INC., as Seller and initial Servicer, and CSI FUNDING, INC., as the Buyer Dated as of May 7, 1999 TABLE OF CONTENTS PAGE ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES -4- SECTION 1.1. Agreement to Purchase and Sell -4- SECTION 1.2. Timing of Purchases -5- SECTION 1.3. No Recourse -6- SECTION 1.4. True Sales -6- SECTION 1.5. Consideration for Purchases. -6- SECTION 1.6. Buyer Agreement to Make Demand Loans -7- ARTICLE II CALCULATION OF PURCHASE PRICE -7- SECTION 2.1. Calculation of Purchase Price. -7- ARTICLE III PAYMENT OF PURCHASE PRICE -9- SECTION 3.1. The Initial Purchase Price Payment. -9- SECTION 3.2. Purchase Price Payments. -10- SECTION 3.3. Deemed Collections, Etc. -11- SECTION 3.4. Payments and Computations, Etc. -12- ARTICLE IV CONDITIONS TO PURCHASES -13- SECTION 4.1. Conditions Precedent to Initial Purchase. -13- SECTION 4.2. Conditions Precedent to All Purchases. -15- SECTION 4.3. Certification as to Representations and Warranties. -15- SECTION 4.4. Effect of Payment of Purchase Price. -15- ARTICLE V REPRESENTATIONS AND WARRANTIES -16- SECTION 5.1. Representations and Warranties. -16- ARTICLE VI COVENANTS -19- SECTION 6.1. Affirmative Covenants. -19- SECTION 6.2. Negative Covenants. -21- SECTION 6.3. Separate Existence -22- ARTICLE VII INDEMNIFICATION -22- SECTION 7.1. Indemnities by COMPUCOM. -22- SECTION 7.2. Contribution -25- ARTICLE VIII ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES -25- SECTION 8.1. Servicing of Receivables and Related Rights. -25- SECTION 8.2. Rights of the Buyer; Enforcement Rights. -26- SECTION 8.3. Responsibilities of COMPUCOM -27- SECTION 8.4. Further Action Evidencing Purchases -28- SECTION 8.5. Purchase Termination Event -28- ARTICLE IX MISCELLANEOUS -29- SECTION 9.1. Amendments, Etc. -29- SECTION 9.2. Notices, Etc. -29- SECTION 9.3. Acknowledgment and Consent -29- SECTION 9.4. Binding Effect; Assignability -30- SECTION 9.5. Costs, Expenses and Taxes -31- SECTION 9.6. No Proceedings; Limitation on Payments -31- SECTION 9.7. GOVERNING LAW AND JURISDICTION -32- SECTION 9.8. Execution in Counterparts -32- SECTION 9.9. Survival of Termination -32- SECTION 9.10. WAIVER OF JURY TRIAL -32- SECTION 9.11. Entire Agreement -33- SECTION 9.12. Headings -33- SCHEDULE I LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS EXHIBIT A FORM OF PURCHASE REPORT EXHIBIT B FORM OF BUYER NOTE RECEIVABLES CONTRIBUTION AND SALE AGREEMENT This RECEIVABLES CONTRIBUTION AND SALE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is entered into as of --------- May 7, 1999, between COMPUCOM SYSTEMS, INC., a Delaware corporation ("COMPUCOM" -------- or the "Seller"), as seller and as initial Servicer, and CSI FUNDING, INC., a ------ Delaware corporation, as Buyer (the "Buyer"). ----- DEFINITIONS Unless otherwise defined herein or the context otherwise requires, certain terms that are used throughout this Agreement (including the Exhibits hereto) are defined in Annex X to the Pooling and Servicing Agreement, dated as of even date herewith, among the Buyer, as Transferor, COMPUCOM, as the initial Servicer, and Norwest Bank Minnesota, National Association, as Trustee (as the same may be amended, modified or supplemented from time to time, the "Pooling ------- and Servicing Agreement"). Any reference to "this Agreement" or "the - ----------------------- Receivables Contribution and Sale Agreement", including any such reference in any Exhibit hereto, shall mean this Agreement in its entirety, including the Exhibits and other attachments hereto, as amended, modified or supplemented from time to time in accordance with the terms hereof. Available Funds shall have the meaning assigned to such term in Section 3.2 --------------- ----------- hereof. Buyer Note shall have the meaning assigned to such term in Section 3.1 ---------- ----------- hereof. Contributed Receivables shall have the meaning assigned to such term in ----------------------- Section 1.2 hereof. - ----------- Fair Market Value Discount Factor shall have the meaning assigned to such --------------------------------- term in Section 2.1 hereof. ----------- Ineligible Receivable shall have the meaning assigned to such term in --------------------- Section 3.3(a) hereof. - -------------- Initial Cut-Off Date means the Business Day immediately preceding the -------------------- Initial Closing Date. LIBO Rate means the offered rate per annum (rounded upwards, if necessary, --------- to the nearest 1/16th of one percent) appearing in The Wall Street Journal for --- ---- ------ ------- three month LIBOR loans on the date of determination. 1 Original Purchase Agreement shall have the meaning assigned to such term in --------------------------- the Preliminary Statements. Payment Day means (i) the date hereof and (ii) each Business Day thereafter ----------- that COMPUCOM is open for business. Purchase Price shall have the meaning assigned to such term in Section 2.1 -------------- ----------- hereof. Purchase Report shall have the meaning assigned to such term in Section 2.1 --------------- ----------- hereof. Related Rights shall have the meaning assigned to such term in Section -------------- ------- 1.1(a) hereof. - ------ Related Security with respect to any Receivable means all Related Property ---------------- related thereto other than the Related Property described in clause (a) of the definition thereof. Sale Indemnified Amounts shall have the meaning assigned to such term in ------------------------ Section 7.1 hereof. - ----------- Sale Indemnified Party shall have the meaning assigned to such term in ---------------------- Section 7.1 hereof. - ----------- Sale Termination Date shall be the date on which an Early Amortization --------------------- Event with respect to all Series shall have occurred and be continuing. Seller Material Adverse Effect means, with respect to any event or ------------------------------ circumstance: (i) a material adverse effect on the assets, business, financial condition, prospects or operations of COMPUCOM; (ii) a material adverse effect on the ability of COMPUCOM to perform its obligations under this Agreement or any other Transaction Document to which COMPUCOM, as seller, in its capacity as such, is a party; (iii) a material adverse effect on the validity or enforceability as against COMPUCOM of this Agreement or any other Transaction Document to which COMPUCOM, as seller, in its capacity as such, is a party; (iv) a material adverse effect on the status, existence, perfection, priority or enforceability of the Buyer's interest in the Receivables and the Related Rights; or 2 (v) a material adverse effect on the validity, enforceability or collectibility of a material portion of the Receivables Pool. PRELIMINARY STATEMENTS 1. The Buyer is a limited purpose corporation, all of the issued and outstanding shares of capital stock of which are wholly owned by COMPUCOM. 2. COMPUCOM wishes to sell Receivables that it now owns and from time to time hereafter will own to the Buyer, and the Buyer is willing, on the terms and subject to the conditions contained in this Agreement, to purchase such Receivables from COMPUCOM at such time. 3. The Buyer has entered into the Pooling and Servicing Agreement, pursuant to which, among other things, the Buyer may sell to the Certificateholders Certificates representing undivided ownership interests in the Receivables and certain Related Rights. 4. Buyer and Seller previously entered into that certain Receivables Purchase Agreement, dated as of April 1, 1996 and amended and restated as of November 3, 1997 (the "Original Purchase Agreement"), which agreement shall be --------------------------- replaced and superseded in its entirety by this Agreement. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.1. Agreement to Purchase and Sell. ------------------------------ (a) Each Receivable that existed as of the Business Day prior to the date of this Agreement (the "Existing Receivables") was sold to the Buyer pursuant to -------------------- the Original Purchase Agreement. On the terms and conditions hereinafter set forth, and in consideration of the Purchase Price, COMPUCOM agrees to sell to the Buyer, and the Buyer agrees to purchase from COMPUCOM, at the times set forth in Section 1.2, but prior to the Sale Termination Date, all of COMPUCOM's ----------- right, title, and interest in and to: (i) each Receivable (other than Contributed Receivables) created or originated by COMPUCOM from the close of COMPUCOM's business on the 3 Business Day prior to the date of this Agreement to and including the Sale Termination Date; (ii) all rights to, but not the obligations under, all related Contracts and all Related Security with respect thereto; (iii) all monies due or to become due with respect to the foregoing; and (iv) all Collections in respect of, and other proceeds of, Receivables or any other of the foregoing (as defined in the UCC) including, without limitation, all funds which either are received by COMPUCOM, the Buyer or the Servicer from or on behalf of the Obligors in payment of any amounts owed (including, without limitation, finance charges, interest and all other charges) in respect of Receivables, or are applied to such amounts owed by the Obligors (including, without limitation, insurance payments, if any, that COMPUCOM or the Servicer (if other than COMPUCOM) applies in the ordinary course of its business to amounts owed in respect of any Receivable and net proceeds of sale or other disposition of goods or other collateral or property of the Obligors or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon, excluding, however, proceeds of returned inventory). All purchases and capital contributions hereunder shall be made without recourse, but shall be made pursuant to and in reliance upon the representations, warranties and covenants of COMPUCOM, in its capacity as seller, set forth in each Transaction Document. The proceeds and rights described in subsections (ii), (iii) and (iv) of this Section 1.1(a) are herein ---------------- ----- ---- -------------- collectively called the "Related Rights". -------------- (b) Contribution. COMPUCOM does hereby contribute to Buyer, and Buyer ------------ hereby accepts all other Contributed Receivables, if any. SECTION 1.2. Timing of Purchases. On and after the date hereof, and ------------------- continuing until the Sale Termination Date, each Receivable described in Section ------- 1.1(a)(i) hereof, and all the Related Rights with respect thereto, created or - --------- originated by COMPUCOM shall be sold or contributed by COMPUCOM to the Buyer (without any further action) upon the creation or origination of such Receivable. All such Receivables, other than those Receivables indicated on a Purchase Report as having been contributed by COMPUCOM to the Buyer (such other Receivables, the "Contributed Receivables"), shall be sold to the Buyer on such ----------------------- date; all Contributed Receivables shall be contributed by COMPUCOM to the Buyer on such date. SECTION 1.3. No Recourse. Except as specifically provided in this ----------- Agreement, the purchase and sale of Receivables and Related Rights under this Agreement shall be without recourse to COMPUCOM; provided that COMPUCOM shall be -------- liable to the Buyer for all representations, warranties, covenants and indemnities made by COMPUCOM pursuant to the terms of this Agreement, it being understood that such 4 obligation of COMPUCOM will not arise on account of the failure of the Obligor for credit reasons to make any payment in respect of a Receivable. SECTION 1.4. True Sales. ---------- (a) Each of COMPUCOM and the Buyer intend the transactions hereunder to constitute true sales (or in the case of Contributed Receivables, absolute conveyances in the form of capital contributions) of Receivables and the Related Rights by COMPUCOM to the Buyer providing the Buyer with the full benefits of ownership thereof, and no party hereto intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, a loan from the Buyer to COMPUCOM. (b) In the event (but only to the extent) that the conveyance of Receivables and Related Rights hereunder is characterized by a court or other governmental authority as a loan rather than a sale or contribution, COMPUCOM shall be deemed hereunder to have granted to the Buyer, and COMPUCOM hereby grants to the Buyer, a security interest in all of COMPUCOM's right, title and interest in, to and under all of the Receivables and Related Rights, whether now or hereafter owned, existing or arising. Such security interest shall secure all of COMPUCOM's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent. The Buyer shall have, with respect to the property described in this Section 1.4(b), and in addition to all the other rights and remedies -------------- available to the Buyer under this Agreement and applicable law, all the rights and remedies of a secured party under the UCC, and this Agreement shall constitute a security agreement under applicable law. SECTION 1.5. Consideration for Purchases. On the terms and subject to the --------------------------- conditions set forth in this Agreement, the Buyer agrees to make all Purchase Price payments to COMPUCOM in accordance with Article III. ----------- ARTICLE II CALCULATION OF PURCHASE PRICE SECTION 2.1. Calculation of Purchase Price. On each Determination Date ----------------------------- (commencing with the first Determination Date following the date hereof), the Servicer shall deliver to the Buyer, the Trustee and COMPUCOM (if the Servicer is other than COMPUCOM) a report in substantially the form of Exhibit A (each --------- such report being herein called a "Purchase Report") with respect to the Buyer's --------------- purchases of Receivables from COMPUCOM (a) that arose on or prior to the Initial Cut-Off Date (in the case of the first Purchase Report to be delivered hereunder) and 5 (b) that arose during the Settlement Period immediately preceding such Determination Date (in the case of each successive Purchase Report). Each Purchase Report shall designate the amount of such Receivables that were Eligible Receivables on the date of origination (or, in the case of Receivables transferred or contributed on or prior to the Initial Closing Date, on the Initial Closing Date). The "Purchase Price" (to be paid to COMPUCOM in accordance with the terms of -------------- Article III) for the Receivables and the Related Rights shall be determined in - ----------- accordance with the following formula: PP = AUB X FMVD where: ----- PP = Purchase Price (to be paid to COMPUCOM in accordance with the terms of Article III) as calculated on the relevant ----------- Determination Date; AUB = For purposes of calculating the Purchase Price for Receivables on each Determination Date, the aggregate Unpaid Balance of the Receivables described in Section 1.1(a)(i) hereof that were ----------------- generated by COMPUCOM during the immediately preceding Settlement Period, less an amount equal to the sum of the aggregate Unpaid ---- Balance of all Contributed Receivables, if any, indicated on the related Purchase Report; and FMVD = "Fair Market Value Discount Factor" on the --------------------------------- determination date, which shall equal 97.79%. ARTICLE III PAYMENT OF PURCHASE PRICE SECTION 3.1. The Initial Purchase Price Payment. ---------------------------------- (a) Buyer paid a portion of the purchase price for Receivables sold under the Original Purchase Agreement by the issuance of a subordinated note thereunder (the "Original Subordinated Note"), the principal balance of which as -------------------------- of the date hereof is $116,749,117. Such Original Subordinated Note shall be replaced by a promissory note in the form of Exhibit B to this Agreement payable --------- to the order of COMPUCOM in the initial principal amount equal to the outstanding principal balance of the Original Subordinated Note as of the date hereof (such promissory note, as it may be amended, supplemented, endorsed or otherwise modified from time to time, together with any 6 promissory notes issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, being called an "Buyer ----- Note"), which Buyer Note shall, in accordance with its terms, be subordinated to - ---- all interests in Receivables and Related Rights and all obligations of the Buyer, of any nature, whether now or hereafter arising under or in connection with the Pooling and Servicing Agreement. (b) The Servicer shall hold the Buyer Note for the benefit of COMPUCOM, and shall make all appropriate record-keeping entries with respect to the Buyer Note or otherwise to reflect payments on and adjustments of the Buyer Note; provided that the failure to make such notation shall not be construed to reduce - -------- the amount owing under such Buyer Note. The Servicer's books and records shall constitute rebuttable presumptive evidence of the principal amount of and accrued and unpaid interest on the Buyer Note at any time. COMPUCOM hereby irrevocably authorizes the Servicer to mark its Buyer Note "CANCELED" and to return such Buyer Note to the Buyer upon the full and final payment thereof after the Sale Termination Date. (c) The Buyer Note shall bear interest at a rate equal to the LIBO Rate plus 1.5%. Such rate shall be readjusted on each six month anniversary of the date hereof. SECTION 3.2. Purchase Price Payments. On each Business Day falling on or ----------------------- after the date hereof until the termination of this Agreement pursuant to Section 9.4, on the terms and subject to the conditions of this Agreement, the - ----------- Buyer shall pay to COMPUCOM the Purchase Price for the Receivables and Related Rights purchased from COMPUCOM during the immediately preceding Settlement Period as follows: (i) First, by paying to COMPUCOM a portion of the Purchase Price ----- due pursuant to Section 2.1 by depositing into such account as COMPUCOM ----------- shall specify immediately available funds from monies held by or on behalf of the Buyer solely to the extent that such monies are available to be distributed to the Buyer pursuant to the Pooling and Servicing Agreement (such available monies, the "Available Funds"); --------------- (ii) Second, to the extent any portion of the Purchase Price remains ------ unpaid, the principal amount outstanding under the Buyer Note issued to COMPUCOM automatically shall be increased in an amount equal to such remaining Purchase Price. To the extent that (x) the amount paid to CompuCom during such Settlement Period pursuant to the foregoing sentences with respect to all Receivables created or originated by COMPUCOM that arose during the corresponding Settlement Period exceeds (y) the amount due pursuant to Section 2.1 for such Receivables, such ----------- excess shall be treated as a reduction in the principal amount of the Buyer Note, effective as of the last day of the related Settlement Period; provided, -------- however, that if at any time the unpaid principal - ------- 7 amount of the Buyer Note has been reduced to zero, COMPUCOM shall pay the Buyer the remainder owed with respect thereto in immediately available funds. SECTION 3.3. Ineligible Receivables, Etc. ---------------------------- (a) If on any day any of the representations or warranties in Section 5.1 ----------- (i) or (u) hereto is not true with respect to any Receivable (each such - --- --- Receivable, an "Ineligible Receivable"), COMPUCOM shall deliver to the Servicer --------------------- in same day funds an amount equal to the Unpaid Balance of such Receivable for application by the Servicer to the same extent as if Collections of such Unpaid Balance had actually been received on such date; (b) except as provided in paragraph (a) of this Section 3.3, or as ------------- ----------- otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; (c) if and to the extent that the Buyer shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Event of Bankruptcy) any amount received by it under this Section 3.3, such amount shall be deemed not to have been so received but rather - ----------- to have been retained by COMPUCOM and, accordingly, the Buyer shall have a claim against COMPUCOM for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof; and (d) in the event that COMPUCOM has paid (by effecting a Purchase Price reduction or otherwise) to the Buyer the full Unpaid Balance of any Receivable pursuant to this Section 3.3, the Buyer shall reconvey such Receivable and all ----------- Related Rights with respect thereto to COMPUCOM, without recourse, representation or warranty, but free and clear of all Liens created by the Buyer; such reconveyed Receivables and all Related Rights shall no longer be subject to the terms of this Agreement (including any obligation to turn over Collections with respect thereto). SECTION 3.4. Payments and Computations, Etc. ------------------------------ (a) All amounts to be paid or deposited by COMPUCOM or the Servicer hereunder shall be paid or deposited no later than 12:00 p.m. (New York time) on the day when due in same day funds. All amounts received after 12:00 p.m. (New York time) will be deemed to have been received on the immediately succeeding Business Day. (b) COMPUCOM shall, to the extent permitted by law, pay interest on any amount not paid or deposited by COMPUCOM (whether as Servicer, or otherwise) when due hereunder, at an interest rate equal to 2.0% per annum above the --- ----- Alternate Base Rate, payable on demand. 8 (c) All computations of interest under Section 3.4(b) and all computations -------------- of the Purchase Price, fees, and other amounts hereunder shall be made on the basis of a 360-day year and actual days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. ARTICLE IV CONDITIONS TO PURCHASES SECTION 4.1. Conditions Precedent to Initial Purchase. The initial ---------------------------------------- Purchase under this Agreement is subject to the condition precedent that the Buyer shall have received each of the following (with copies to the Trustee), on or before the date of such purchase, each in form and substance (including the date thereof) satisfactory to the Buyer and the Trustee: (a) The Pooling and Servicing Agreement and the Series 1999-1 Supplement thereto, duly executed by the parties thereto, together with evidence reasonably satisfactory to the Buyer that all conditions precedent to the sale of the 1999-1 Series Certificate to the Initial Series 1999-1 Certificateholder thereunder (other than any condition relating to the effectiveness of the purchase commitment under this Agreement) shall have been met; (b) A certificate of the Secretary of COMPUCOM certifying (i) a copy of the resolutions of its Board of Directors approving this Agreement and the other Transaction Documents to be delivered by it hereunder and the transactions contemplated hereby; (ii) the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other Transaction Documents to be delivered by it hereunder (on which certificate the Trustee, the Certificateholders and Buyer may conclusively rely until such time as the Trustee shall receive from COMPUCOM, as the case may be, a revised certificate meeting the requirements of this subsection (b)); (iii) -------------- a copy of its by-laws; and (iv) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the other Transaction Documents; (c) The Articles of Incorporation of COMPUCOM, duly certified by the Secretary of State of Delaware, as of a recent date; (d) Acknowledgment copies or time stamped receipt copies, of the proper financing statements (Form UCC-1) that have been duly executed and name COMPUCOM as the debtor and seller and the Buyer as the secured party and purchaser (and the Trustee, for the benefit of the Certificateholders, as 9 assignee of the Buyer) of the Receivables and the Related Rights or other, similar instruments or documents, as may be necessary or, in Servicer's or the Trustee's opinion, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect the Buyer's ownership interest in all Receivables and Related Rights in which an ownership interest may be assigned to it hereunder; (e) A search report provided in writing to the Trustee, listing all effective financing statements that name COMPUCOM as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection (d) above and in such other jurisdictions that Trustee shall -------------- reasonably request, together with copies of such financing statements (none of which shall cover any Trust Assets), and tax and judgment lien search reports from a Person satisfactory to Servicer and the Trustee showing no evidence of such liens filed against COMPUCOM; (f) An opinion of Morgan, Lewis & Bockius, special counsel to COMPUCOM, in the form reasonably acceptable to the Agent; (g) A pro forma Purchase Report, prepared in respect of the proposed --- ----- initial Purchase, assuming an Initial Cut-Off Date of March 31, 1999; (h) The Buyer Note in favor of COMPUCOM, duly executed by the Buyer; (i) A certificate from an officer of COMPUCOM to the effect that Servicer and COMPUCOM have placed on the most recent, and have taken all steps reasonably necessary to ensure that there shall be placed on subsequent, summary master control data processing reports the following legend (or the substantive equivalent thereof): THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO CSI FUNDING, INC. PURSUANT TO A RECEIVABLES CONTRIBUTION SALE AGREEMENT, DATED AS OF May 7, 1999, AS AMENDED FROM TIME TO TIME, BETWEEN COMPUCOM SYSTEMS, INC. AND CSI FUNDING, INC.; AND AN OWNERSHIP AND SECURITY INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN GRANTED AND ASSIGNED TO NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS TRUSTEE, PURSUANT TO A POOLING AND SERVICING AGREEMENT, DATED AS OF May 7, 1999, AMONG COMPUCOM SYSTEMS, INC., CSI FUNDING, INC., AND NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS TRUSTEE; and 10 (j) Such other agreements, instruments, UCC financing statements, certificates, opinions and other documents as the Buyer, the Trustee or the Agent may reasonably request. SECTION 4.2. Conditions Precedent to All Purchases. Each purchase under ------------------------------------- this Agreement is subject to the condition precedent that the agreement of COMPUCOM to sell Receivables and Related Rights, and the agreement of the Buyer to purchase Receivables and Related Rights, shall not have terminated pursuant to Section 9.4 of this Agreement, and shall be subject further to the conditions ----------- precedent that: (a) in the case of each purchase, the Servicer shall have delivered to the Buyer on or prior to such purchase, a completed Purchase Report with respect to the immediately preceding calendar month, together with such additional information as may be reasonably requested by the Buyer; and (b) the representations and warranties contained in Article V are --------- correct on and as of such day as though made on and as of such day and shall be deemed to have been made on such day (except that any such representation or warranty that is expressly stated as being made only as of a specified earlier date shall be true and correct in all material respects as of such earlier date). SECTION 4.3. Certification as to Representations and Warranties. -------------------------------------------------- COMPUCOM, by accepting the Purchase Price (whether in cash or by an increase in the principal amount outstanding under the Buyer Note) paid for each purchase of Receivables and Related Rights on any day, shall be deemed to have certified that its representations and warranties contained in Article V are true and --------- correct on and as of such day, with the same effect as though made on and as of such day. SECTION 4.4. Effect of Payment of Purchase Price. Upon the payment of the ----------------------------------- Purchase Price (whether in cash or by an increase in the principal amount outstanding under the Buyer Note) for any purchase of Receivables and Related Rights, title to such Receivables and Related Rights shall vest in the Buyer, whether or not the conditions precedent to such purchase were in fact satisfied; provided that the Buyer shall not be deemed to have waived any claim it may have - -------- under this Agreement for the failure by COMPUCOM in fact to satisfy any such condition precedent. ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1. Representations and Warranties. In order to induce the Buyer ------------------------------ to enter into this Agreement and to make purchases thereunder, COMPUCOM hereby represents and warrants as follows: 11 (a) Organization and Good Standing. COMPUCOM has been duly organized ------------------------------ and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. COMPUCOM is duly qualified to do business as ----------------- a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals except where the failure to so qualify or have such licenses or approvals could not reasonably be expected to have a Seller Material Adverse Effect. (c) Power and Authority; Due Authorization. COMPUCOM (i) has all -------------------------------------- necessary power, authority and legal right to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) carry out the terms of the Transaction Documents to which it is a party, and (C) sell and assign the Receivables and Related Rights on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. (d) Binding Obligations. This Agreement constitutes, and each other ------------------- Transaction Document to be signed by COMPUCOM when duly executed and delivered will constitute, a legal, valid and binding obligation of COMPUCOM enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The consummation of the transactions contemplated ------------ by this Agreement and the other Transaction Documents to which COMPUCOM is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under COMPUCOM's articles of incorporation or by-laws or any loan or credit agreement, other agreement, indenture, lease or instrument of COMPUCOM, or by which it or its properties may be bound (ii) result in the creation or imposition of any Lien upon any of COMPUCOM's properties pursuant to the terms of any such loan or credit agreement, other agreement, indenture, lease or instrument, other than the Transaction Documents, or (iii) violate any Requirements of Law. (f) No Proceedings. There is no litigation, proceedings or -------------- investigations pending or, to the best of COMPUCOM's knowledge, threatened, 12 before any Governmental Authority or arbitrator (i) asserting the invalidity of this Agreement or any other Transaction Document to which COMPUCOM is a party, (ii) seeking to prevent the sale and assignment of the Receivables and Related Rights, the collectibility of the Receivables or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document, or (iii) seeking any determination or ruling that could reasonably be expected to have a Seller Material Adverse Effect. (g) Government Approvals. No Governmental Action is required for the -------------------- due execution, delivery and performance by COMPUCOM of this Agreement or any other Transaction Document to which it is a party. (h) Securities Exchange Act. No proceeds of any purchase will be ----------------------- used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (i) Quality of Title; Valid Sale; Etc. Upon its creation and prior --------------------------------- to its sale or contribution to the Buyer under this Agreement, it is the legal and beneficial owner of each of the Receivables and the Related Rights free and clear of any Lien; and upon each purchase or contribution the Buyer shall acquire a valid and enforceable ownership interest in each Receivable then existing or thereafter arising and in the Related Rights with respect thereto, free and clear of any Lien. Each Receivable constitutes an "account" as such term is defined in the UCC. No effective financing statement or other instrument similar in effect covering any Receivable or Related Rights with respect thereto is on file in any recording office, except those filed in favor of the Buyer pursuant to this Agreement and in favor of the Trustee pursuant to the Pooling and Servicing Agreement. (j) Accuracy of Information. Each report, information, exhibit, ----------------------- financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of it to the Buyer or the Trustee in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Trustee at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not materially misleading. (k) Offices. The principal place of business and chief executive ------- office of COMPUCOM are located at the address of COMPUCOM referred to in Section 9.2, and the offices where COMPUCOM keeps all its books, records ----------- and documents evidencing or relating to Receivables are located at the address of COMPUCOM referred to in Section 9.2 (or at such other locations, ----------- notified to the Trustee in accordance with Section 6.1(e), in jurisdictions -------------- where all action required by Section 8.4 has been taken and completed). ----------- 13 (l) Bulk Sales Act. No transaction contemplated hereby requires -------------- compliance with any bulk sales act or similar law. (m) Margin Regulations. The use of all funds obtained by COMPUCOM ------------------ under this Agreement will not conflict with or contravene any of Regulation T, U or X promulgated by the Federal Reserve Board from time to time. (n) No Purchase Termination Events. No event has occurred and is ------------------------------ continuing, or would result from a purchase, in respect of the Receivables or Related Rights or from the application of the proceeds therefrom, which constitutes a Purchase Termination Event. (o) Maintenance of Books and Records. It has accounted for each sale -------------------------------- of Receivables and Related Rights in its books and financial statements as sales, consistent with generally accepted accounting principles. (p) Credit and Collection Policy. It has complied in all material ---------------------------- respects with the Credit and Collection Policy with regard to each Receivable. (q) Solvency. It is solvent; and at the time of (and immediately -------- after) each sale pursuant to this Agreement it shall be solvent. (r) Compliance with Transaction Documents. It, as Servicer or ------------------------------------- Seller, has complied with all of the terms, covenants and agreements contained in this Agreement and the other Transaction Documents applicable to it. (s) Corporate Name. COMPUCOM's complete corporate name is set forth -------------- in the preamble to this Agreement, and COMPUCOM does not use and has not during the last six years used any other corporate name, trade name, doing business name or fictitious name, other than NC Group (used in Ohio only) and PCSave. (t) Investment Company Act. It is not, and is not controlled by, an ---------------------- "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended. (u) Eligible Receivables. Each Receivable sold or contributed by it -------------------- to the Buyer under the Original Purchase Agreement that is designated as an Eligible Receivable on the initial Purchase Report or Settlement Statement is in fact an Eligible Receivable. Each Receivable sold or contributed by it to the Buyer hereunder that is designated as an Eligible Receivable on a Purchase Report or Settlement Statement is in fact an Eligible Receivable. 14 ARTICLE VI COVENANTS SECTION 6.1. Affirmative Covenants. From the date hereof until the Final --------------------- Trust Termination Date: (a) Compliance with Laws, Etc. COMPUCOM will comply in all material ------------------------- respects with all Requirements of Law, including those with respect to the Receivables and the related Contracts, except where noncompliance could not reasonably be expected to have a Seller Material Adverse Effect. (b) Preservation of Corporate Existence. COMPUCOM will preserve and ----------------------------------- maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Seller Material Adverse Effect. (c) Audits. (i) COMPUCOM will at any time and from time to time ------ during regular business hours, permit the Trustee or any of its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in its possession or under its control relating to Receivables, (B) to visit its offices and properties for the purpose of examining such materials described in clause (i)(A) above, and to discuss matters relating ------------- to Receivables or its performance hereunder with any of its officers or employees having knowledge of such matters, and (C) to verify the existence and amount of the Receivables; and (ii) without limiting the provisions of clause (i) above, from time to time on request of the Trustee, permit ---------- certified public accountants or other auditors acceptable to the Trustee to conduct, at COMPUCOM's expense, a review of its books and records with respect to the Receivables. (d) Keeping of Records and Books of Account. COMPUCOM will maintain --------------------------------------- and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (e) Location of Records. COMPUCOM will keep its principal place ------------------- of business and chief executive office, and the 15 offices where it keeps its records concerning the Receivables and all related Contracts and all other agreements related to such Receivables (and all original documents relating thereto), at its address(es) referred to in Section 9.2 or, upon 30 days' prior written notice to the Trustee, at such ----------- other locations in jurisdictions where all action required by Section 8.4 ----------- shall have been taken and completed. (f) Credit and Collection Policies. COMPUCOM, at its own expense, ------------------------------ will timely and fully perform and comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contracts. (g) Collections. COMPUCOM will instruct all Obligors to cause all ----------- Collections to be sent to a Post Office Box or a Wire Transfer Receipt Account. In the event that COMPUCOM receives Collections directly from any Obligor, COMPUCOM shall deposit such Collections into the Concentration Account within one Business Day of receipt thereof. SECTION 6.2. Negative Covenants. From the date hereof until the Final ------------------ Trust Termination Date: (a) Sales, Liens, Etc. COMPUCOM will not, except as otherwise ------------------ provided herein or in any other Transaction Document, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Receivable or any interest therein. (b) Extension or Amendment of Receivables. COMPUCOM will not, except ------------------------------------- as otherwise permitted in any other Transaction Document, extend, amend or otherwise modify, or permit Servicer to extend, amend or otherwise modify, the terms of any Receivable; or amend, modify or waive, or permit Servicer to amend, modify or waive, any term or condition of any Contract related to a Receivable. (c) Change in Business or Credit and Collection Policy. COMPUCOM -------------------------------------------------- will not make any change in the character of its business or in the Credit and Collection Policy, which change could impair the collectibility of any Receivable or otherwise adversely affect the interests or remedies of the Buyer under this Agreement or any other Transaction Document or any Certificateholder. (d) Change in Payment Instructions to Obligors. COMPUCOM will not ------------------------------------------ make any change, or permit Servicer to make any change, in its instructions to Obligors regarding payments to be made to a Post Office Box or a Wire Transfer Receipt Account. 16 (e) Deposits to Special Accounts. COMPUCOM will not deposit or ---------------------------- otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account or the Concentration Account cash or cash proceeds other than Collections of Receivables. SECTION 6.3. Separate Existence. COMPUCOM hereby acknowledges that the ------------------ Investor Certificateholders are entering into the transactions contemplated by the other Transaction Documents in reliance upon the Buyer's identity as a legal entity separate from COMPUCOM. Therefore, from and after the date hereof, COMPUCOM shall take all steps specifically required by the Transaction Documents or by the Buyer or the Trustee to continue the Buyer's identity as a separate legal entity and to make it apparent to third Persons that the Buyer is an entity with assets and liabilities distinct from those of COMPUCOM and any other Person, and is not a division of COMPUCOM or any other Person. ARTICLE VII INDEMNIFICATION SECTION 7.1. Indemnities by COMPUCOM. Without limiting any other rights ----------------------- which the Buyer and each of its permitted assigns, officers, directors, employees and agents (each of the foregoing Persons being individually called a "Sale Indemnified Party") may have hereunder or under applicable law, COMPUCOM ---------------------- hereby agrees to indemnify the Buyer and each Sale Indemnified Party from and against any and all damages, losses, claims, judgments, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing collectively being called "Sale Indemnified Amounts") arising ------------------------ out of or resulting from this Agreement (whether directly or indirectly) or the use of proceeds of purchases or the ownership of any Receivable or Related Rights, excluding, however, (a) Sale Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Buyer or such Sale Indemnified Party, (b) Sale Indemnified Amounts to the extent the same includes losses in respect of Receivables and reimbursement therefor that would constitute credit recourse to COMPUCOM for the amount of any Receivable or Related Rights not paid by the related Obligor for credit reasons, or (c) any net income taxes or franchise taxes imposed on the Buyer or such Sale Indemnified Party . Without limiting or being limited by the foregoing, but subject to the exclusions set forth in the immediately preceding sentence, COMPUCOM shall pay on demand to the Buyer and each Sale Indemnified Party any and all amounts necessary to indemnify the Buyer and such Sale Indemnified Party from and against any and all Sale Indemnified Amounts relating to or resulting from any of the following: (i) the transfer by COMPUCOM of an interest in any Receivable or Related Rights to any Person other than the Buyer; 17 (ii) the failure of any information provided by COMPUCOM, as Servicer or otherwise, to the Buyer, the Trustee or the Servicer with respect to Receivables or this Agreement to be true, correct and complete; (iii) the failure of any representation or warranty or statement made or deemed made by COMPUCOM (or any of its officers), under or in connection with this Agreement to have been true and correct when made; (iv) the failure by COMPUCOM to comply with any Requirements of Law with respect to any Receivable or Related Rights or otherwise; or the failure of any Receivable or Related Rights to conform to any such Requirement of Law; (v) the failure to vest and maintain vested in the Buyer a valid and enforceable ownership interest in each Receivable at any time existing and the Related Rights with respect thereto, free and clear of any Lien, other than a Lien arising solely as a result of an act of the Buyer or the Trustee, whether existing as the time of purchase of such Receivable or at any time thereafter; (vi) the failure of COMPUCOM to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables and the Related Rights in respect thereof, whether at the time of any purchase or at any subsequent time; (vii) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services; (viii) any failure of COMPUCOM to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts; (ix) any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (x) the commingling of Collections of Receivables at any time with other funds; 18 (xi) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or the ownership of any Receivable or Related Rights; (xii) any tax or governmental fee or charge (but not including taxes upon or measured by net income or representing a franchise or doing business tax on such Sale Indemnified Party), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Receivables generated by COMPUCOM or any Related Rights connected with any such Receivables; or (xiii) any requirement that all or a portion of the distributions made to the Buyer pursuant to this Agreement shall be rescinded or otherwise must be returned to COMPUCOM for any reason. ARTICLE VIII ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES SECTION 8.1. Servicing of Receivables and Related Rights. Consistent with ------------------------------------------- the Buyer's ownership of the Receivables and the Related Rights, the Buyer shall have the sole right to service, administer and collect the Receivables, to assign such right and to delegate such right to others. In consideration of the Buyer's purchase of the Receivables and the Related Rights, COMPUCOM agrees to cooperate fully with the Buyer to facilitate the full and proper performance of such duties and obligations for the benefit of the Buyer, the Trust and the Certificateholders. To the extent that the Buyer, individually or through the Servicer, has granted or grants powers of attorney to the Servicer or the Trustee under the Pooling and Servicing Agreement, COMPUCOM hereby grants a corresponding power of attorney on the same terms to the Buyer. COMPUCOM hereby acknowledges and agrees that the Buyer, in all of its capacities, shall assign to the Trustee for the benefit of the Certificateholders such powers of attorney and other rights and interests granted by COMPUCOM to the Buyer hereunder, and agrees to cooperate fully with the Trustee in the exercise of such rights. SECTION 8.2. Rights of the Buyer; Enforcement Rights. --------------------------------------- (a) The Buyer shall have no obligation to account for, to replace, to substitute or to return any Receivables and Related Rights to COMPUCOM. The Buyer shall have no obligation to account for, or to return to COMPUCOM, Collections, or any interest or other finance charge collected pursuant thereto, without regard to whether such Collections and charges are in excess of the Purchase Price for such Receivables and Related Rights. 19 (b) The Buyer shall have the unrestricted right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Receivables and Related Rights, and all of the Buyer's right, title and interest in, to and under this Agreement, on whatever terms the Buyer shall determine, pursuant to the Pooling and Servicing Agreement or otherwise. (c) The Buyer shall have the sole right to retain any gains or profits created by buying, selling or holding the Receivables and Related Rights and, except as expressly set forth in the Transaction Documents, shall have the sole risk of and responsibility for losses or damages created by such buying, selling or holding. (d) COMPUCOM hereby authorizes the Buyer, and irrevocably appoints the Buyer as its attorney-in-fact with full power of substitution and with full authority in the place and stead of COMPUCOM, which appointment is coupled with an interest, to take any and all steps in the name of COMPUCOM and on behalf of COMPUCOM necessary or desirable, in the determination of the Buyer, to collect any and all amounts or portions thereof due under any and all Receivables or Related Rights, including, without limitation, endorsing the name of COMPUCOM on checks and other instruments representing Collections and enforcing such Receivables and Related Rights. SECTION 8.3. Responsibilities of COMPUCOM. Anything herein to the ---------------------------- contrary notwithstanding: (a) COMPUCOM agrees to deliver directly to the Servicer (for the Buyer's account), within one Business Day of receipt thereof, any Collections that it receives, in the form so received, and agrees that all Collections shall be deemed to be received in trust for the Buyer and shall be maintained and segregated separate and apart from all other funds and moneys of COMPUCOM until delivery of the Collections to the Servicer; (b) COMPUCOM agrees to instruct all Obligors to cause all Collections to be sent to a Post Office Box that is the subject of a Lock-Box Agreement or a Wire Transfer Receipt Account that is subject to a Wire Transfer Receipt Account Agreement; and (c) COMPUCOM shall (i) perform all of its obligations hereunder and under the Contracts related to the Receivables and Related Rights to the same extent as if the Receivables and Related Rights had not been sold hereunder, and the exercise by the Buyer or its designee or assignee of the Buyer's rights hereunder or in connection herewith shall not relieve COMPUCOM from such obligations and (ii) pay when due any taxes, including, without limitation, any sales taxes payable in connection with the Receivables and their creation and satisfaction. Notwithstanding anything to the contrary in this Agreement, none of the Buyer, the Trustee or any Certificateholder shall have any obligation or liability with respect to any Receivable or Related Rights nor shall any of 20 them be obligated to perform any of the obligations of COMPUCOM under any of the foregoing. SECTION 8.4. Further Action Evidencing Purchases. COMPUCOM agrees that ----------------------------------- from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, in order to perfect, protect or more fully evidence the purchase of the Receivables and the Related Rights by the Buyer hereunder, or to enable the Buyer to exercise or enforce any of its rights hereunder or under any other Transaction Document. COMPUCOM further agrees from time to time, at its expense, promptly to take all action that the Buyer, the Servicer or the Trustee may reasonably request in order to perfect, protect or more fully evidence such purchase of the Receivables and the Related Rights or to enable the Buyer or the Trustee (as assignee of the Buyer) to exercise or enforce any of its or their respective rights hereunder or under any other Transaction Document in respect of the Receivables and the Related Rights. Without limiting the generality of the foregoing COMPUCOM will: (a) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as the Buyer or the Trustee may reasonably determine to be necessary or appropriate; and (b) mark the master data processing records evidencing the Receivables and, if requested by the Buyer or the Trustee, to the extent reasonably practicable, legend the related Contracts, to reflect the sale of the Receivables and Related Rights pursuant to this Agreement and the Pooling and Servicing Agreement. COMPUCOM hereby authorizes the Buyer or its designee or assignee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Rights of COMPUCOM, in each case whether now existing or hereafter generated. If COMPUCOM fails to perform any of its agreements or obligations under this Agreement, the Buyer or its designee or assignee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Buyer or its designee or assignee incurred in connection therewith shall be payable by COMPUCOM under Section 7.1. ----------- SECTION 8.5. Purchase Termination Event. Either (i) an election by the --------------------------- Seller to no longer sell Receivables and Related Rights to the Buyer hereunder by delivery to the Buyer of a notice to that effect or (ii) an election by the Buyer to no longer purchase Receivables and Related Rights from the Seller hereunder by delivery to the Seller of a notice to that effect; such notice to take effect on the Business Day after the day of receipt by the recipient of such notice. 21 ARTICLE IX MISCELLANEOUS SECTION 9.1. Amendments, Etc. No amendment or waiver of any provision of ---------------- this Agreement or consent to any departure by COMPUCOM therefrom shall be effective unless in a writing signed by the Buyer, and consented to in writing by the Trustee in accordance with the Pooling and Servicing Agreement, and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Buyer or the Trustee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 9.2. Notices, Etc. All notices and other communications provided ------------- for hereunder shall, unless otherwise expressly stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on Schedule -------- 9.2 hereto or at such other address or facsimile number as shall be designated - --- by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered, when received, (b) if sent by certified mail, three (3) Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, one (1) Business Day after having been given to such courier, and (d) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. SECTION 9.3. Acknowledgment and Consent. -------------------------- (a) COMPUCOM, as Seller and as initial Servicer, acknowledges that, contemporaneously herewith or at any time hereafter, the Buyer is assigning or will assign to the Trustee, for the benefit of the Certificateholders, pursuant to the Pooling and Servicing Agreement, all of the Buyer's rights, title and interest in, to and under the Receivables and Related Rights, and all of the Buyer's right, title and interest in, to and under this Agreement, it being -------- understood that such assignment shall not relieve any party hereto from (or - ---------- require the Trustee or any Certificateholder to undertake) the performance of any term, covenant or agreement on the part of any party hereto to be performed or observed under or in connection with this Agreement. COMPUCOM, as Seller and as initial Servicer, hereby consents to such assignments, including, without limitation, the assignment by the Buyer of (i) the right of the Buyer, at any time, to enforce this Agreement against COMPUCOM and the obligations of COMPUCOM hereunder, (ii) the right to appoint a successor to the Servicer as set forth in the Pooling and Servicing Agreement, (iii) the right, at any time, to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement, any other Transaction Document or the obligations in respect of COMPUCOM thereunder to the same extent as the Buyer may do, and (iv) all 22 of the Buyer's rights, remedies, powers and privileges, and all claims of the Buyer against COMPUCOM, under or with respect to this Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Agreement or otherwise available at law or in equity). Each of the parties hereto acknowledges and agrees that the Trustee and the Investor Certificateholders are third party beneficiaries of the rights of the Buyer arising hereunder and under the other Transaction Documents to which COMPUCOM is a party. (b) COMPUCOM hereby agrees to execute all agreements, instruments and documents, and to take all other action, that the Buyer or the Trustee determines is necessary or reasonably desirable to evidence its consent described in Section 9.3(a). -------------- (c) COMPUCOM hereby acknowledges that its obligations to the Trustee and the Investor Certificateholders as assignees of the Buyer are and shall be, to the extent permitted by applicable law or not prohibited by any order of any court or administrative or regulatory authority, absolute and unconditional under any and all circumstances and shall be unaffected by any claims, offsets or other defenses COMPUCOM may have against the Buyer, and COMPUCOM agrees that it shall not assert or interpose any such claims, offsets or defenses as a defense to its performance of its obligations under the Transaction Documents to which it is a party. SECTION 9.4. Binding Effect; Assignability. This Agreement shall be ----------------------------- binding upon and inure to the benefit of the Buyer, COMPUCOM and its respective successors and permitted assigns. COMPUCOM may not assign its rights hereunder or any interest herein without the prior written consent of the Buyer and each Contract Party, subject to Section 9.3, the Buyer may not assign its rights ----------- hereunder or any interest herein without the prior written consent of COMPUCOM and each Control Party. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the date after the Sale Termination Date on which COMPUCOM has received payment in full for all Receivables and Related Rights conveyed pursuant to Section 1.1 hereof and has paid and ----------- performed all of its obligations hereunder in full. The rights and remedies with respect to any breach of any representation and warranty made by COMPUCOM pursuant to Article V shall be continuing and shall survive any termination of --------- this Agreement. SECTION 9.5. Costs, Expenses and Taxes. In addition to the rights of ------------------------- indemnification granted under Article , COMPUCOM agrees to pay on demand all -------- costs and expenses, if any (including, without limitation, attorneys' fees), of the Trustee, the Buyer, the Investor Certificateholders and their respective Affiliates and agents, in connection with the enforcement of this Agreement(unless such enforcement is finally denied on the merits by a court with proper jurisdiction). 23 SECTION 9.6. No Proceedings; Limitation on Payments. -------------------------------------- (a) COMPUCOM hereby agrees that it will not institute against, or join any other Person in instituting against, the Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the Final Trust Termination Date. The foregoing shall not limit COMPUCOM's right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than COMPUCOM. (b) Notwithstanding any provisions contained in this Agreement to the contrary, the Buyer shall not, and shall not be obligated to, pay any amount pursuant to this Agreement unless the Buyer has excess cash flow from operations or has received funds with respect to such obligation which may be used to make such payment and, in each case, such payment is permitted by the Pooling and Servicing Agreement. SECTION 9.7. GOVERNING LAW AND JURISDICTION. ------------------------------ (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE BUYER IN THE RECEIVABLES AND THE RELATED RIGHTS IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY UNITED STATES FEDERAL COURT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. EACH PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. SECTION 9.8. Execution in Counterparts. This Agreement may be executed in ------------------------- any number of counterparts, each of which when so executed shall be deemed to be an 24 original and all of which when taken together shall constitute one and the same agreement. SECTION 9.9. Survival of Termination. The provisions of Section 1.4, ----------------------- ----------- Article , Section 9.3, Section 9.5, Section 9.6, Section 9.7, Section 9.10 and - -------- ----------- ----------- ----------- ----------- ------------ this Section 9.9 shall survive any termination of this Agreement. ----------- SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ITS -------------------- RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH PARTY HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. SECTION 9.11. Entire Agreement. This Agreement and the other Transaction ---------------- Documents embodies the entire agreement and understanding of the parties hereto, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. The Exhibits, Schedules and Annexes to this Agreement shall be deemed incorporated by reference into this Agreement as if set forth herein. SECTION 9.12. Headings. The captions and headings of this Agreement and -------- in any Exhibit hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof. 25 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. COMPUCOM SYSTEMS, INC., as Seller and as initial Servicer By: -------------------------------------------- Name: Title: CSI FUNDING, INC., as Buyer By: -------------------------------------------- Name: Title: 26 EXHIBIT A FORM OF PURCHASE REPORT PURCHASE REPORT COMPUCOM SYSTEMS, INC. CSI FUNDING, INC. As of ___________________________________
- -------------------------------------------------------------------------------------------------------- Cut-Off Date - -------------------------------------------------------------------------------------------------------- Total Receivables UPB $ - Input Contributed Receivables $ 1,000,000 Fixed Aggregate Unpaid Balance of Receivables AUB $ (1,000,000) Calculated LIBOR 0.0000% Input Days Sales Outstanding TD 0 Input 12 Month Losses $ - Input 12 Month Collections $ - Input - -------------------------------------------------------------------------------------------------------- Cost Rate (LIBOR +1.50%) CR 150.0000% Calculated - -------------------------------------------------------------------------------------------------------- Cost Discount (TD/360)*CR CD 0 Calculated - -------------------------------------------------------------------------------------------------------- Loss Discount (12 Month Losses/12 Month Coll) LD #DIV/0! Calculated - -------------------------------------------------------------------------------------------------------- Fair Market Value Discount (LD+CD) FMVD #DIV/0! Calculated - -------------------------------------------------------------------------------------------------------- Purchase Price (AUB-(AUB*FMVD)) PP #DIV/0! Calculated - -------------------------------------------------------------------------------------------------------- Eligible Receivables $ - Input - -------------------------------------------------------------------------------------------------------- Ineligible Receivables $ - Input - --------------------------------------------------------------------------------------------------------
27 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 6 MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 55,933 227,983 438,844 3,041 214,365 937,105 119,875 50,315 1,522,124 492,634 372,360 0 0 3,480 453,139 1,522,124 1,155,604 1,393,655 1,059,908 1,159,030 0 0 16,528 62,011 19,202 35,661 0 0 0 35,661 1.09 1.04
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