-----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, MZBmckVU0MVRioUBOo+XklbeiEok38U0YxqdfTk+MJIvYfeMZbVoiIpTKUVjOBiB rif9fa9uFVqtC1M2TbqyEw== 0001005477-98-001010.txt : 19980401 0001005477-98-001010.hdr.sgml : 19980401 ACCESSION NUMBER: 0001005477-98-001010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICRO WAREHOUSE INC CENTRAL INDEX KEY: 0000892872 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 061192793 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20730 FILM NUMBER: 98581293 BUSINESS ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038994000 MAIL ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 10-K405 1 FORM 10-K405 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-20730 ----------- MICRO WAREHOUSE, INC. (Exact name of registrant as specified in its charter) ----------- Delaware 06-1192793 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 535 Connecticut Avenue, Norwalk, Connecticut 06854 (Address of Principal Executive Offices) ----------- (203) 899-4000 Registrant's Telephone Number, including Area Code ----------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $.01 per share (Title of Class) ----------- ================================================================================ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject of such filing requirements for the past 90 days. Yes |x| No |_| Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. |x| The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing sales price as reported on the Nasdaq Stock Market on March 26, 1998 was approximately $359,667,669. In determining the market value of the voting stock held by non-affiliates, shares of Common Stock beneficially owned by each executive officer, director and holder of more than 10% of the outstanding shares of Common Stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Common Stock outstanding as of March 26, 1998: 34,611,532 DOCUMENTS INCORPORATED BY REFERENCE: Pursuant to General Instruction G(3) to this form, the information required by Part III (Items 10, 11, 12, and 13) hereof is incorporated by reference from the registrant's definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 4, 1998. TABLE OF CONTENTS Page ---- PART I Item 1. Business........................................................ 3 Item 2. Properties...................................................... 7 Item 3. Legal Matters................................................... 8 Item 4. Submission of Matters to a Vote of Security Holders............. 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................... 9 Item 6. Selected Financial Data......................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 10 Item 8. Financial Statements and Supplementary Data..................... 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 14 PART III Item 10.Directors and Executive Officers of the Registrant.............. 14 Item 11.Executive Compensation.......................................... 14 Item 12.Security Ownership of Certain Beneficial Owners and Management.. 14 Item 13.Certain Relationships and Related Transactions.................. 14 PART IV Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................... 15 Signatures...................................................... 16 2 PART I ITEM 1. BUSINESS Micro Warehouse, Inc. (the "Company" or "Micro Warehouse") is a specialty catalog retailer and direct marketer of brand name personal computers, computer software, accessories, peripheral and networking products to commercial and consumer customers. The Company markets its products through frequent mailings of its distinctive, colorful catalogs, Internet catalog and auction web sites and telemarketing account managers who focus on corporate, education and government accounts. The Company offers brand name hardware and software from leading vendors such as Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM, Iomega, Microsoft, Motorola, and Toshiba. Through its four core catalogs, MicroWarehouse, MacWarehouse, Data Comm Warehouse and Inmac, various specialty catalogs and its Internet sites, the Company offers a broad assortment of more than 30,000 computer products at competitive prices. With colorful illustrations, concise product descriptions and relevant technical information, each catalog title focuses on a specific segment of the computer market. The catalogs are recognized as a leading source for computer hardware, software and other products. During the year ended December 31, 1997 the Company distributed approximately 124 million catalogs worldwide and as of December 31, 1997 the Company had approximately 2.2 million customers who had purchased products within the last 12 months. International operations represented 30% of the Company's sales in 1997. In 1991 the Company established full-service, direct marketing operations in the United Kingdom. In late 1992 the Company began operations in France and Germany and in 1993 and 1994 acquired companies or initiated operations in Sweden, Denmark, Norway, the Netherlands, Belgium, Finland and France. In this same timeframe, the Company also expanded into the non-European markets of Japan, Canada and Mexico. In 1995 the Company acquired businesses in the United Kingdom, Germany, Australia and Switzerland. In 1996 the Company acquired Santa Clara, California-based Inmac Corp. ("Inmac"). Inmac was a leading international direct-response marketer of a wide range of personal computer and networking products with operations in the United States, Canada, France, Germany, the Netherlands, Sweden and the United Kingdom. In 1996 the Company discontinued its Macintosh-only operations in Belgium and Switzerland. The Company currently publishes catalogs in seven countries outside the United States and distributed approximately 25 million catalogs internationally in the year ended December 31, 1997. See note 12 to notes to consolidated financial statements for information regarding the Company's operations in different geographic areas. In November 1996 the Company completed the acquisition of the business of USA Flex, a Bloomingdale, Illinois direct marketer of IBM PC-compatible ("Wintel") personal computer products. USA Flex had been successful in acquiring customers and building its business from advertisements placed in domestic computer publications, particularly Computer Shopper. In July 1997 the Company acquired Online Interactive Inc. ("OLI"), a Seattle, Washington-based electronic software reselling business. OLI offered customers the ability to purchase and download software via the Internet. In December 1997 the Company announced a major restructuring of its operations. The restructuring objectives were to simplify the Company's business worldwide, reduce the Company's cost structure, eliminate certain unprofitable businesses and concentrate efforts on the productivity of the salesforce and the continued growth of the Wintel business. In connection with this restructuring the Company discontinued its Macintosh-dependent operations in Australia and Japan and completed the sale of three small Macintosh-dependent operations in Denmark, Norway and Finland. In the United States the Company consolidated its underperforming businesses, USA Flex and OLI, into the Company's existing New Jersey and Connecticut facilities. In addition, the Company reorganized its domestic salesforce. These measures involved eliminating approximately 600 positions or 14% of the workforce. The Company maintains a full-service distribution center in Wilmington, Ohio, totaling approximately 353,000 square feet and telemarketing centers in Lakewood and Gibbsboro, New Jersey, and South Norwalk, Connecticut. The Company operates 24 hours a day, seven days a week in the United States. The Company also operates telemarketing and distribution facilities in the United Kingdom, France, Germany, Sweden, the Netherlands, Canada and Mexico. The Company's international operations generally use the same distribution and processing computer systems and are able to exchange data with United States operations. The Company began operations in 1987 as a Connecticut corporation and was reincorporated in Delaware on October 2, 1992. 3 Catalog Publication The Company currently publishes four main catalogs in the United States: MacWarehouse for the Macintosh market, MicroWarehouse and Inmac for the Wintel market, and Data Comm Warehouse for the data communications and networking market. In 1997 the Company published 14 editions of MacWarehouse, 12 editions each of MicroWarehouse and Data Comm Warehouse and 6 editions of the Inmac catalog. Additional specialty catalogs are produced at various intervals. Domestically, active customers (customers who have placed orders within the past 12 months) receive a catalog at least monthly and all customers receive a catalog with every order shipped. The Company also mails targeted versions of its catalogs to its corporate, education and government customers. Internationally, catalogs are published under a variety of titles including MicroWarehouse, MacWarehouse, Inmac, and Lan Warehouse at various frequencies. The numbers of catalogs distributed during the last three years were 124 million in 1997, 121 million in 1996, and 103 million in 1995. Each catalog is printed with full-color photographs and detailed product descriptions. The catalogs are generally created and produced in-house by the Company's designers and production artists on a computer-based desktop publishing system. The in-house preparation of most portions of the catalog streamlines the production process, provides for greater flexibility and creativity in catalog production and results in significant cost savings. Marketing and Sales Micro Warehouse services commercial and consumer customers but the focus of the business has moved towards the commercial segment. As of December 31, 1997 commercial customers represented approximately 37% of the total domestic customer base and accounted for approximately 73% of total domestic sales. The Company's various marketing programs are designed to attract new customers and to stimulate additional purchases from existing customers. The Company continuously attracts new customers by selectively mailing catalogs to prospective customers as well as through advertising in major computer magazines and on the Internet. The Company obtains the names of prospective customers through the use of selected mailing lists from various sources, including manufacturers, suppliers, software publishers and computer magazine publishers. Worldwide active customers in 1997 were 2.2 million, and were 2.3 million and 2.1 million in 1996 and 1995, respectively. Salesforce Restructuring. In early 1998 the Company reorganized its domestic salesforce by forming four separate business units to attempt to streamline and improve the productivity of sales operations. As a result, approximately 230 positions were eliminated. Revised compensation, commission and training programs were also introduced. The Company believes that as the focus of sales shifts toward the commercial segment, its future success depends, in part, on its ability to improve the skills, effectiveness and productivity of its sales force. Strategic Business Unit. The Strategic Business Unit is responsible for sales to the Company's key and major commercial accounts and the Company's education and government accounts. This unit combines account management and catalog mailing to penetrate these accounts. Through frequent contact the Company's sales staff seeks to build long-term relationships with these customers. General Business Unit. The General Business Unit services orders from all other customers. This unit assists customers in purchasing decisions, processes product orders and responds to customer inquiries on order status, product pricing and availability. Through the Company's integrated computer and telephone systems, a sales representative can quickly access a customer's record which details past purchases as well as billing information. To provide more targeted service, the General Business Unit has separate inbound sales groups for different product platforms and commercial customers. Customer Service/Technical Support Business Unit. The Company believes that its ability to provide prompt and efficient customer service has been critical to its success. The Company's dedicated customer service representatives are trained to respond to frequently asked questions such as the status of an order or the Company's return policy. The Company also has a technical support staff to assist customers with the selection, installation and operation of their products. The Company offers a toll-free number for customer service and technical support from 8:00 a.m. to midnight, eastern time, Monday through Friday and from 10:00 a.m. to 6:00 p.m. on Saturday and Sunday. 4 Sales Operations Business Unit. The Sales Operations Business Unit provides administrative and sales support to the other sales business units. These services include general administration, on-line correspondence, training and providing sales statistics. Customer Return Policy. The Company provides a 30-day guarantee against defects with respect to most of its products. The Company works closely with customers and vendors to assure that all vendor warranties and return privileges are fully honored. For the year ended December 31, 1997 the Company had a return rate of approximately 7% of gross sales. Returns are received and processed as a segregated activity to maintain control over the returned product, to initiate the refund process and to obtain appropriate credit from suppliers. Return experience is closely monitored at the stock-keeping-unit ("SKU") level to identify trends in product offerings, enhance customer satisfaction and reduce overall returns. Micro Warehouse on the Internet. In July 1995 the Company launched its Internet catalog on the worldwide web (http://www.warehouse.com). Product descriptions and prices of more than 23,000 products are provided on-line with full information and on screen images available for 2,500 items. Selected corporate clients can gain access to their own exclusive on-line catalog, complete with unique product selections and customized pricing. Some of the Company's overseas subsidiaries also have their own web sites. In November 1997 the Company opened its live Internet auction site WebAuction.com (http://www.webauction.com). The site offers a selection of personal computers and home electronic products including first-run merchandise, refurbished and end-of-life items. Auctions are conducted 24 hours a day, 7 days a week. Seasonality. Customer response rates are subject to variations. The first and last quarters of the year generally have higher response rates while the two middle quarters typically have lower response rates. The slower quarters are impacted by the summer months, particularly in Europe. Products and Merchandising The Company offers over 30,000 microcomputer hardware, software and peripheral products. For the year ended December 31, 1997 sales of Wintel computers and related products represented approximately 59% of the Company's net sales, while sales for Macintosh computers and related products represented approximately 41% of net sales. The Company's product evaluation teams for the various product categories constantly monitor the market for new products from new and existing vendors. As product areas decline in importance, the amount of catalog exposure is reduced in favor of "hotter" new products and the inventory levels and numbers of SKU's are adjusted. For the year ended December 31, 1997 no single product accounted for more than 2% of the Company's net sales. Hardware. The Company offers a large selection of hardware items. This category includes personal computers, servers, printers, modems, monitors, data storage devices, add-on circuit boards, connectivity products and certain business machines. Brands sold in this category include American Power Conversion, Apple, 3Com, Compaq, Epson, Hewlett Packard, IBM, Iomega, Texas Instruments and Toshiba. Hardware sales constituted approximately 75% of the Company's domestic net sales in 1997. Software. The Company sells a wide variety of computer software packages in the business and personal productivity, connectivity, utility, language, education and entertainment categories. The Company offers products from the larger, well known vendors as well as numerous specialty products from new and emerging vendors. Brands offered by the Company include Adobe, Claris, Connectix, Corel, Intuit, Macromedia, Microsoft, Novell, Quark, and Symantec. Software sales constituted approximately 18% of the Company's domestic net sales in 1997. Supplies and Accessories. The Company currently sells various supplies such as media, toner cartridges, desk and computer accessories and computer furniture through its catalogs. Sales of these products constituted approximately 7% of the Company's domestic net sales in 1997. Private Label Brands. Under its private label brands, Power User, USA Flex and NuData, the Company sells products such as microcomputers, hard drives, server switches, memory chips, CD-Roms, cables, and accessories. Sales of these products constituted approximately 8% of the Company's domestic net sales in 1997. Purchasing Domestically, the Company purchases products from approximately 1,500 vendors and purchases approximately 65% of its products directly from manufacturers with the balance from distributors. The Company's largest domestic vendors include Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM, Iomega, Microsoft and Toshiba. In 1997 the leading 100 products sold by the Company accounted for approximately 23% of its net sales. Purchases of products from Apple, the Company's largest vendor, constituted approximately 11% of the Company's product purchases. 5 The Company believes that its volume purchases enable it to obtain favorable product pricing. Many of the Company's suppliers make funds available to the Company in the form of advertising allowances and incentives to promote and increase sales of their products. Generally, the Company has been able to return unsold or obsolete inventory to its vendors through written agreements with, or unwritten policies of, such vendors. In addition, the Company typically receives price protection should a vendor subsequently lower its price. Recently, however, certain domestic vendors have been limiting the amount of price protection and the quantity of returns. In addition, international vendors' price protection and return privileges are more limited. There can be no assurance that the Company will continue to receive any price protection or return privileges in the future (see "Outlook" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations"). Distribution Centers All of the Company's United States distribution operations are conducted at the Wilmington, Ohio warehouse/distribution center, which consists of approximately 353,000 square feet located in four facilities adjacent to the main distribution facility of Airborne Express. Domestic orders accepted by midnight, eastern time, are generally shipped for delivery the following day via Airborne Express for a charge based on weight. Upon request, orders may also be shipped by alternate means. The Company also operates distribution facilities in the United Kingdom, France, Germany, Sweden, the Netherlands, Canada, and Mexico. Domestic orders are placed at the Company's Lakewood and Gibbsboro, New Jersey and South Norwalk, Connecticut facilities. Some of these facilities also include telemarketing, customer service, training, management information systems, accounting and administration functions. When an order is entered into the Company's computer system, a credit check or credit card verification is performed and, if approved, the order is electronically transmitted to the warehouse in Wilmington, Ohio and a packing slip is printed for order fulfillment. Inventory shrinkage has been minimal. Management Information Systems The Company has committed significant resources to the development of an integrated computer system which is used to manage all aspects of its business. The main computer system is principally comprised of Hewlett Packard hardware and licensed and internally-developed software. This system supports telemarketing, marketing, purchasing, accounting, order entry, financial reporting, customer service, warehousing and distribution. The system allows the Company, among other things, to monitor sales trends, make informed purchasing decisions, provide product availability and order status information. In addition to the main system, the Company has a system of networked personal computers which provide numerous additional management control, planning, and exception reporting which facilitates data sharing and provides an automated office environment. During 1997, the Company made installations and upgrades to its computer systems in both its domestic and international operations, at an approximate cost of $9.1 million. The Company's international operations generally use the same system and are able to exchange data with the Company's United States operations. Routine capacity enhancements are made periodically. For a description of certain management information system issues facing the Company related to the Year 2000, see "Year 2000 Compliant Information Systems" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations". Competition The computer products business is highly competitive. The Company competes with consumer electronic and computer retail stores, including superstores, corporate resellers, value-added resellers, other direct marketers of software and computer related products and various "on-line" vendors and other resellers of computer products. Some of those competitors provide superior product support, configuration, and installation services. Several hardware and software vendors sell their products directly to end users. Certain competitors of the Company have financial and other resources greater than those of the Company. There can be no assurance that the Company can continue to compete effectively against existing competitors or new competitors that may enter the market. Price is an important competitive factor in the personal computer software and hardware market and there can be no assurance that the Company will not be subject to increased price competition. Employees As of December 31, 1997, the Company employed 4,133 persons, of whom 469 were in management, support services and administration; 1,895 in sales, technical support and customer service; 601 in warehouse/distribution and 1,168 employed at international locations. The Company's domestic employees are not represented by a labor union and it has experienced no work stoppages. The Company believes that its employee relations are good. 6 Sales Tax The Company presently collects sales tax on sales of products to residents in the states of New Jersey, Connecticut, Ohio, Illinois and Washington. Various states have tried to impose on direct marketers the burden of collecting sales taxes on the sale of products shipped to state residents. The United States Supreme Court affirmed its position that it is unlawful for a state to impose sales tax collection obligations on an out-of-state mail order company whose only contacts with the state are the distribution of catalogs and other advertising materials through the mail and subsequent delivery of purchased goods by parcel post and interstate common carriers. It is possible that legislation may be passed to overturn the United States Supreme Court's decision or the Court may change its position. Additionally, it is currently uncertain as to whether electronic commerce, which will likely include the Company's Internet and auction web sites' sales activities, will be subject to state sales tax. The imposition of new sales tax collection obligations on the Company in states to which it ships products would result in additional administrative expenses to the Company and could result in price increases to the customer. Trademarks The Company conducts its business under the trademarks and service marks "MacWAREHOUSE," "MacSHOPPER," "MicroWAREHOUSE," "Upgrade Warehouse," "Windows Warehouse," "Power User," "Data CommWAREHOUSE," "CD-Rom WAREHOUSE," "Micro SystemsWAREHOUSE," "Mac Systems WAREHOUSE," "Home ComputerWAREHOUSE," "LanWAREHOUSE," "WAREHOUSE-On-Line," "Academic WAREHOUSE," "Developer's WAREHOUSE," "The Mac Superstore," "NU DATA," "Workstation EXPRESS," "PC Select," "USA Flex," "Inmac," "MacSelect," "The Inmac Advantage," "Good Impressions," "Black Pearl," "Datamaster," "Auction Warehouse," "Desktop Publishers Warehouse," "Download Warehouse," "Toolkit Warehouse," "Webauction," "Wireless Warehouse," "Replacement Warehouse", "AtOnce," and "Online Interactive." The Company also maintains and conducts business under numerous domain names on the Internet. The Company intends to use and protect these or related marks and domain names, as necessary and appropriate, in the United States and in various foreign countries. The Company believes its trademarks, service marks and domain names have significant value and are an important factor in the marketing of its products. The Company's trademarks, servicemarks and domain names have an indefinite term as long as they are used in connection with the Company's business activities. The Company intends to take steps to maintain use of its marks and domain names as appropriate and to renew registrations as necessary. Regulation The direct response business as conducted by the Company is subject to the Mail and Telephone Order Merchandise Rule and 1996 Telemarketing Sales Rule and related regulations promulgated by the Federal Trade Commission and comparable state agencies. The Company believes it is in compliance with such rules and regulations and has implemented programs and systems to assure ongoing compliance. ITEM 2. PROPERTIES The Company's principal facilities, all of which are leased, are as follows:
Approx. Expiration of Facility Location Sq. Ft. Leases -------- -------- ------- ------ Telemarketing, technical support, management information systems and customer service center................... Lakewood, NJ 52,109 1999 Telemarketing, technical support, management information systems and customer service center................... Lakewood, NJ 41,514 2000 Manufacturing, sales and distribution.................... Lakewood, NJ 30,360 2001 Telemarketing, technical support, management information systems and customer service center................... Gibbsboro, NJ 82,000 2002 Warehouse and distribution center........................ Wilmington, OH 102,400 1998 Warehouse and distribution center........................ Wilmington, OH 102,400 1999 Warehouse and distribution center........................ Wilmington, OH 32,000 1998 Warehouse and distribution center........................ Wilmington, OH 70,400 2001 Warehouse and distribution center........................ Wilmington, OH 44,800 1999 Headquarters and Administrative offices.................. Norwalk, CT 83,000 2001 Corporate Sales.......................................... South Norwalk, CT 26,500 1998 European Coordination Center and offices................. Bracknell, England 11,000 2011 Offices and distribution center.......................... Watford, London, England 37,500 2004
7 Warehouse and distribution center........................ Runcorn, England 69,000 2015 Offices.................................................. Kingsbury, Wembly, England 10,550 1998 Offices.................................................. Suresnes, France 10,000 1998 Offices and warehouse.................................... Mitry-Mory, France 63,900 1999 Offices and distribution center.......................... Florsheim, Germany 77,800 1998 Distribution center...................................... Neu-Isenburg, Germany 7,200 2000 Offices and distribution center.......................... Amsterdam, Netherlands 10,000 1999 Offices and distribution center.......................... Stockholm, Sweden 11,475 1998 Offices.................................................. Stockholm, Sweden 12,000 2000 Offices and distribution center.......................... Mexico City, Mexico 4,600 1998 Retail and offices....................................... Toronto, Ontario, Canada 5,000 2001 Warehouse................................................ Toronto, Ontario, Canada 2,500 1998 Offices and warehouse.................................... Mississauga, Ontario, Canada 56,000 2004 Retail, offices and warehouse............................ North York, Ontario, Canada 3,500 1999
The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available as needed. ITEM 3. LEGAL MATTERS A pre-tax charge of $20.7 million was recorded in the third quarter of 1997 for the proposed settlements of the consolidated class action and derivative lawsuit that arose out of the facts underlying the Company's announcements in September and October, 1996 that it intended to restate certain prior financial statements covering years 1992 through 1995. The charge of $20.7 million was comprised of $31.6 million for the settlements of the consolidated class action and derivative lawsuit including estimated legal fees, offset by insurance proceeds of $10.9 million. The settlements are contingent upon final approval by the United States District Court following hearing upon notice to class participants and, as appropriate, other shareholders. The settlement of these matters excludes a separate action relating to the restatement of prior year financial statements brought in the United States District Court in Connecticut against the Company and certain of its present and former officers and directors by the State Board of Administration of Florida covering its purchase of fewer than 60,000 shares. The settlement also excludes the lawsuit brought by holders of approximately 1.3 million shares of the Company's stock against the Company and certain of its officers, former officers and directors in Santa Clara County, California, arising out of the stock merger between the Company and Inmac Corp. on January 25, 1996. The Company has made no provision for the outcome or financial impact of these litigations in the consolidated financial statements. In addition, the staff of the Securities and Exchange Commission ("SEC") is conducting a formal investigation into the events underlying the restatement of prior years financial statements. The Company is cooperating with the SEC in its investigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on The Nasdaq Stock Market under the symbol MWHS. As of December 31, 1997, the Common Stock was held by approximately 268 holders of record. The table below sets forth the reported quarterly high and low sales prices for the Common Stock on the Nasdaq Stock Market for Fiscal Year 1997 and 1996.
- ------------------------------------------------------------------------------------------------------------ Fiscal 1997 High Low - ------------------------------------------------------------------------------------------------------------ First Quarter $16.50 $ 9.75 - ------------------------------------------------------------------------------------------------------------ Second Quarter 18.63 12.88 - ------------------------------------------------------------------------------------------------------------ Third Quarter 30.00 13.00 - ------------------------------------------------------------------------------------------------------------ Fourth Quarter 24.75 9.88 - ------------------------------------------------------------------------------------------------------------ Fiscal 1996 - ------------------------------------------------------------------------------------------------------------ First Quarter $51.75 $31.25 - ------------------------------------------------------------------------------------------------------------ Second Quarter 45.25 18.38 - ------------------------------------------------------------------------------------------------------------ Third Quarter 32.75 14.00 - ------------------------------------------------------------------------------------------------------------ Fourth Quarter 27.25 10.75 - ------------------------------------------------------------------------------------------------------------
The Company has never declared nor paid any cash dividends on its Common Stock. The Company currently intends to retain future earnings, if any, for future growth and does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31, (In thousands, except per share and operating data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- Statement of Operations Data: - ------------------------------------------------------------------------------------------------------------------------------- Net sales $2,125,698 $1,916,244 $1,684,627 $1,130,796 $789,971 Gross profit 351,976 342,446 323,991 246,678 210,818 Restructuring, merger costs and goodwill write-off 67,828 32,161 -- -- 16,546 Litigation settlements 20,700 -- -- -- -- Income (loss) from operations before interest, income taxes and extraordinary charge (42,455) 33,093 57,715 41,063 10,858 Income (loss) before income taxes and extraordinary charge (37,816) 36,601 57,903 40,877 10,255 Extraordinary charge, net of taxes -- 1,584 -- -- -- =============================================================================================================================== Net income (loss) ($36,681) $15,298 $35,244 $24,556 $4,519 =============================================================================================================================== Basic net income (loss) per share (A) ($1.06) $0.45 $1.07 $0.82 $0.17 Diluted net income (loss) per share (A) ($1.06) $0.44 $1.05 $0.80 $0.17 Shares used in per share calculation - Basic (A) 34,475 34,310 32,940 29,847 26,010 Diluted (A) 34,475 34,793 33,605 30,560 26,423 =============================================================================================================================== Operating Data: - ------------------------------------------------------------------------------------------------------------------------------- Gross profit percentage 16.6% 17.9% 19.2% 21.8% 26.7% Operating profit (loss) percentage (2.0%) 1.7% 3.4% 3.6% 1.4% Current ratio 2.0:1 2.2:1 2.8:1 2.5:1 1.8:1 Balance Sheet Data (at December 31): - ------------------------------------------------------------------------------------------------------------------------------- Working capital $262,527 $271,530 $298,843 $210,278 $101,804 Total assets 619,344 607,842 554,546 411,876 261,314 Long - term obligations 78 376 20,458 1,497 940 Short-term debt obligations 12,984 40,803 18,888 25,461 28,804 Stockholders' equity 348,789 384,168 364,669 270,862 128,673 ===============================================================================================================================
(A) Amounts reflect the adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Micro Warehouse, Inc. (the "Company" or "Micro Warehouse") is a specialty catalog retailer and direct marketer of brand name personal computers, computer software, accessories, peripheral and networking products to commercial and consumer customers. The Company markets its products through frequent mailings of its distinctive, colorful catalogs, Internet catalog and auction web sites and telemarketing account managers who focus on corporate, education and government accounts. The Company offers brand name hardware and software from leading vendors such as Adobe, Apple, 3Com, Compaq, Hewlett Packard, IBM, Iomega, Microsoft, Motorola, and Toshiba. Through its four core catalogs, MicroWarehouse, MacWarehouse, Data Comm Warehouse and Inmac, various specialty catalogs and its Internet sites, the Company offers a broad assortment of more than 30,000 computer products at competitive prices. With colorful illustrations, concise product descriptions and relevant technical information, each catalog title focuses on a specific segment of the computer market. The catalogs are recognized as a leading source for computer hardware, software and other products. During the year ended December 31, 1997, the Company distributed approximately 124 million catalogs worldwide and as of December 31, 1997 the Company had approximately 2.2 million customers who had purchased products within the last 12 months. International operations represented 30% of the Company's sales in 1997. In 1991, the Company established full-service, direct marketing operations in the United Kingdom. In late 1992, the Company began operations in France and Germany and in 1993 and 1994 acquired companies or initiated operations in Sweden, Denmark, Norway, the Netherlands, Belgium, Finland and France. In this same timeframe, the Company also expanded into the non-European markets of Japan, Canada and Mexico. In 1995 the Company acquired businesses in the United Kingdom, Germany, Australia and Switzerland. In 1996 the Company acquired Santa Clara, California-based Inmac Corp. ("Inmac"). Inmac was a leading international direct-response marketer of a wide range of personal computer and networking products with operations in the United States, Canada, France, Germany, the Netherlands, Sweden and the United Kingdom. In 1996 the Company discontinued its Macintosh-only operations in Belgium and Switzerland. The Company currently publishes catalogs in seven countries outside the United States and distributed approximately 25 million catalogs internationally in the year ended December 31, 1997. See note 12 to notes to consolidated financial statements for information regarding the Company's operations in different geographic areas. In November 1996 the Company completed the acquisition of the business of USA Flex, a Bloomingdale, Illinois direct marketer of IBM PC-compatible ("Wintel") personal computer products. USA Flex had been successful in acquiring customers and building its business from advertisements placed in domestic computer publications, particularly Computer Shopper. In July 1997 the Company acquired Online Interactive Inc. ("OLI"), a Seattle, Washington-based electronic software reselling business. OLI offered customers the ability to purchase and download software via the Internet. In December 1997 the Company announced a major restructuring of its operations. The restructuring objectives were to simplify the Company's business worldwide, reduce the Company's cost structure, eliminate certain unprofitable businesses and concentrate efforts on the productivity of the salesforce and the continued growth of the Wintel business. In connection with this restructuring the Company discontinued its Macintosh-dependent operations in Australia and Japan and completed the sale of three small Macintosh-dependent operations in Denmark, Norway and Finland. In the United States the Company consolidated its underperforming businesses, USA Flex and OLI, into the Company's existing New Jersey and Connecticut facilities. In addition, the Company reorganized its domestic salesforce. These measures involved eliminating approximately 600 positions or 14% of the workforce. The Company maintains a full-service distribution center in Wilmington, Ohio, totaling approximately 353,000 square feet and telemarketing centers in Lakewood and Gibbsboro, New Jersey, and South Norwalk, Connecticut. The Company operates 24 hours a day, seven days a week in the United States. The Company also operates telemarketing and distribution facilities in the United Kingdom, France, Germany, Sweden, the Netherlands, Canada and Mexico. The Company's international operations generally use the same distribution and processing computer systems and are able to exchange data with domestic operations. Results of Operations The table below sets forth certain items expressed as a percent of net sales for each of the years in the three-year period ended December 31, 1997.
Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0%
10 Cost of sales 83.4 82.1 80.8 - ----------------------------------------------------------------------------------------------------------------- Gross profit 16.6 17.9 19.2 Selling, general and administrative expenses 14.4 14.5 15.8 Restructuring costs, merger costs, and goodwill write-off 3.2 1.7 -- Litigation settlements 1.0 -- -- - ----------------------------------------------------------------------------------------------------------------- Income (loss) from operations before interest, income taxes and extraordinary charge (2.0) 1.7 3.4 Interest income, net .2 .2 -- - ----------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary charge (1.8%) 1.9% 3.4% =================================================================================================================
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales increased $209.5 million or 10.9% to $2.126 billion from $1.916 billion in the prior year. Wintel sales increased approximately $268 million or 27.2% compared to 1996, while Macintosh-related sales decreased approximately $59 million or 6.3%. Wintel sales in 1997 increased in both the domestic and international markets while the Macintosh business decreased in both markets compared to 1996. Overall, domestic sales increased 15.7% over 1996 and international sales increased 1.3%. The increase in sales is in part due to the increase in the number of catalogs distributed worldwide which increased 3.0% to 124.1 million catalogs and a 2.4% increase in the number of orders. Additionally, the continued shift in product mix to hardware resulted in an average order size of $503 in 1997, an increase of 8.4% compared to 1996. Gross profit increased to $352.0 million in 1997 from $342.4 million in 1996 but decreased as a percentage of net sales to 16.6% in 1997 from 17.9% in 1996. The gross profit percentage declined primarily due to lower margins in Europe resulting from a higher proportion of hardware sales and on a worldwide basis due to a continuing shift in product mix to the Wintel business which typically has lower margins than the Macintosh business. The Company expects continued pressure on gross profit margins in 1998 due to continued industry-wide pricing pressures. Also, some manufacturers and distributors provide the Company with substantial incentives in the form of supplier reimbursements, price protection and rebates. No assurance can be given that the Company will continue to receive such incentives in the future. Selling, general and administrative expenses decreased as a percentage of net sales to 14.4% from 14.5% in 1996, primarily reflecting a 0.9% decrease in net advertising costs to 1.3% of net sales from 2.2% of net sales in 1996 partially offset by an increase in headcount in the sales force and most other areas of the Company. The 1997 results include pre-tax charges of $67.8 million relating to the write-off of goodwill ($41.9 million) and restructuring costs ($25.9 million). These charges were incurred in connection with the closing of the Company's businesses in Australia and Japan and the sale of its operations in Norway, Denmark and Finland and the write-off of goodwill in its German business. In addition, the Company closed its European headquarters in the United Kingdom reducing certain functions and transferring others to the United Kingdom, other European business units and the United States. In the United States, the Company consolidated its USA Flex business from its facility in Bloomingdale, Illinois and its OLI business from its facility in Seattle, Washington into its New Jersey and Connecticut facilities and reorganized its sales force. These measures involved eliminating approximately 600 positions. All of these actions were completed by early 1998. The 1997 results also include a pre-tax charge of $20.7 million relating to the proposed settlements of the consolidated class action and derivative lawsuit that arose out of the facts underlying the Company's announcements in September and October, 1996 that it intended to restate certain prior financial statements covering years 1992 through 1995 (the "Litigation Settlements"). The Company's loss from operations for 1997 was $42.5 million or 2.0% of net sales compared to income from operations of $33.1 million or 1.7% of net sales in 1996. Excluding the charges related to the restructuring, goodwill write-off and the Litigation Settlements, 1997 income from operations would have been $46.1 million. The 1996 results include pre-tax charges of $32.2 million relating to the write-off of goodwill and restructuring and merger costs relating to the 1996 Inmac merger. Income from operations for 1996 excluding such charges would have been $65.3 million. Net interest income totaled $4.6 million in 1997 compared to $3.5 million in 1996. The 1997 and 1996 results included interest income of $1.3 million and $1.4 million, respectively, on anticipated federal and state tax refunds as a result of the restatement of prior year financial statements (see note 14 to notes to consolidated financial statements). The effective income tax rate for 1997 was a benefit of 3.0% compared to a provision of 54.9% in 1996 including the extraordinary charge. The 1997 income tax rate was impacted by valuation allowances recorded on the tax benefits of certain 11 restructuring costs and the write-off of goodwill. Excluding these items the effective tax rate was 47.2%, as compared to 40.7% in 1996, excluding certain restructuring and merger costs and goodwill write-offs incurred in 1996. The higher rate is principally due to the absence of a tax benefit on certain foreign losses. The Company's net loss for 1997 was $36.7 million compared to net income of $15.3 million in 1996. Excluding the charges related to the restructuring, goodwill write-offs, the Litigation Settlements, merger costs and extraordinary charge, net income for 1997 would have been $28.5 million or $0.83 per share (basic and diluted) as compared to $40.9 million or $1.19 and $1.18 per share (basic and diluted, respectively) in 1996. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales increased $231.6 million or 13.7% to $1.916 billion from $1.685 billion in the prior year. Wintel sales increased $187.1 million or 23.4% compared to 1995, while Macintosh-related sales increased $44.5 million or 5.0%. Wintel sales in 1996 increased in both the domestic and international markets while the Macintosh business experienced domestic growth, but decreased in the international market compared to 1995. Overall, domestic sales increased 17.4% over 1995 and international sales increased 6.3%. The increase in sales is in part due to the increase in the number of catalogs distributed worldwide which increased 17.4% to 120.5 million catalogs. Additionally, the continued shift in product mix to hardware resulted in an average order size of $464 in 1996, an increase of 12.2% compared to 1995. Gross profit increased to $342.4 million in 1996 from $324.0 million in 1995, but decreased as a percentage of net sales to 17.9% in 1996 from 19.2% in 1995. The gross profit percentage declined primarily due to heightened competitive pressures and change of product mix in the Inmac portion of the Wintel business and increased competitive pressures in the Macintosh business. Additionally, across all businesses there was a continuation of product mix shift towards hardware with typically lower margins. Selling, general and administrative expenses decreased as a percentage of net sales to 14.5% from 15.8% in 1995, primarily reflecting the integration of the Inmac business. Income from operations for 1996 was $33.1 million or 1.7% of net sales compared to $57.7 million or 3.4% of net sales in 1995. The 1996 results include costs associated with the Inmac restructuring and merger charges of $20.1 million and $6.1 million, respectively, and a write-off of $6.0 million for international Macintosh-related goodwill. Operating income for 1996 excluding these costs would have been $65.3 million or 3.4% of net sales. Net interest income totaled $3.5 million in 1996 compared to $0.2 million in 1995. The 1996 results included interest income of $1.4 million on anticipated federal and state tax refunds as a result of the restatement of prior year financial statements. Net income for 1996 was $15.3 million compared to $35.2 million in 1995. Excluding the charges related to the restructuring, merger costs and extraordinary charge, net income for 1996 would have been $40.9 million or $1.19 and $1.18 per share (basic and diluted, respectively) compared to $35.2 million or $1.07 and $1.05 per share (basic and diluted, respectively) for 1995. Liquidity and Capital Resources Cash and marketable securities were $78.9 million at December 31, 1997 compared to $52.3 million at December 31, 1996. The increase of $26.6 million was due primarily to improved inventory and accounts payable management. Inventory decreased $30.6 million to $170.5 million at year end 1997 from $201.1 million at year end 1996. Accounts receivable increased $13.8 million from a year ago, reflecting the shift to more commercial as opposed to consumer customers. Current liabilities include $16.1 million (net of expected insurance recovery) related to the Litigation Settlements, of which up to $9.0 million, at the Company's option, may be paid in the form of common stock. Overall, working capital decreased $9.0 million from 1996 to 1997. Capital expenditures for 1997 and 1996 were $16.5 million and $11.2 million, respectively, primarily for computer equipment and leasehold improvements. The Company anticipates that future growth will require continued investment in its computer systems and distribution facilities. Capital expenditures during 1998 are expected to be approximately $20.0 million. At December 31, 1997, the Company had a multi-currency revolving credit facility of $75.0 million which reduces by an aggregate of $20.0 million at the rate of $6.7 million on each of June 30, September 30, and December 31, 1998. This facility expires on June 30, 1999. The facility is used for general corporate and working capital purposes for the Company's domestic and certain of the Company's foreign subsidiaries. Total borrowings at December 31, 1997 under this multi-currency agreement were $12.6 million. Additionally, at December 31, 1997 the Company had unused lines of credit in the United Kingdom and France which provide for unsecured borrowings up to 2.0 million British pounds ($3.3 million at December 31, 1997 exchange rate) and 45 million 12 French francs ($7.5 million at December 31, 1997 exchange rate), respectively, for working capital purposes. The Company is utilizing forward exchange contracts to manage exposure to foreign currency risk related to intercompany loans and investments in its foreign subsidiaries. Outstanding agreements involve the exchange of one currency for another at a fixed rate. The Company's credit exposure is limited to the replacement cost, if any, of the instruments and the Company only enters into such agreements with highly-rated counterparties. The Company matches the term and notional amount of the contracts to the underlying intercompany loans or investments and does not enter into forward exchange contracts for trading or speculative purposes. At December 31, 1997 the Company had outstanding forward exchange contracts of $27.1 million which mature in six months or less. The single largest currency represented was the British pound. The Company believes that its existing cash reserves, expected cash flow from operations and existing credit facilities will be sufficient to satisfy its operating cash needs for at least the next 12 months. Impact of Inflation and Seasonality Customer response rates are subject to variations. The first and last quarters of the year generally have higher response rates while the two middle quarters typically have lower response rates. The slower quarters are impacted by the summer months, particularly in Europe. The Company does not believe that inflation has had a material effect on the Company's sales during recent years. Accounting Pronouncements In June 1997 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in the financial statements. The Company will be required to implement SFAS No. 130 in 1998. Also, in June 1997 the FASB issued SFAS No. 131, " Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. The Company is currently evaluating the operating segment information that it will be required to report. The Company will be required to implement SFAS No. 131 in 1998. Year 2000 Compliant Information Systems The Company uses software and related technologies throughout its business that will be affected by the Year 2000 problem common to most businesses concerning the inability of information systems, primarily computer software programs, to properly recognize and process date sensitive information as the year 2000 approaches. The Company is evaluating its software operating systems to improve its operations and achieve Year 2000 compliance. As a result, the Company will modify certain of its software operating systems and is in the process of replacing its financial software systems. The Company is presently in the process of finalizing its estimates with respect to such costs and expects that such costs will not be material to the Company's results of operations. System maintenance and software modification costs will be expensed as incurred while the costs of new software will be capitalized and amortized over the software's expected useful life. Outlook Apple Computer, Inc. ("Apple") experienced considerable management and financial turmoil throughout 1997. By the end of 1997 the Apple "clone" market had essentially disappeared. Apple also announced more restrictive price protection and other terms for 1998. These and other changes in the Macintosh environment will contribute to continued pressure on the Company's gross profit margins in 1998. Apple has begun reducing the level of advertising allowances and incentives available to resellers and has significantly restricted the number of authorized resellers of its products. Apple has also commenced direct competition with the Company and other resellers on the Internet. In addition to the continuing impact of these matters, other ongoing uncertainties concerning Apple may adversely affect the Company's worldwide Macintosh-related sales. Some Wintel manufacturers and distributors have historically provided the Company with incentives in the form of supplier reimbursements, price protection payments and rebates. The increasingly competitive Wintel environment between and amongst computer hardware manufacturers has already resulted in reduction and/or elimination of some of these incentive programs. Additionally, the return rights historically offered by manufacturers have become more limited during the second half of 1997 and it 13 is likely that such limitations and reduced incentive payment levels will continue into 1998. Manufacturers are also taking steps to reduce their inventory exposure by supporting "build to order" programs in which distributors and resellers are being authorized and, in some instances, required to directly manufacture computer hardware. This trend is part of an overall effort by manufacturers to reduce their costs and shift the burden of inventory risk to resellers like the Company. In December 1997 the Company commenced a major restructuring of its operations. The objectives were to simplify the business worldwide, reduce the cost structure, eliminate certain unprofitable businesses and concentrate efforts on the productivity of the salesforce and the continued growth of the Wintel business. In connection with this restructuring, the Company discontinued its Macintosh-dependent international operations in Australia and Japan and completed the sale of three small Macintosh-dependent operations in Denmark, Norway and Finland. In the United States the Company consolidated its underperforming businesses, USA Flex and OLI, into the Company's existing New Jersey and Connecticut facilities. In addition, the Company reorganized its domestic salesforce. These measures involved eliminating approximately 600 positions or 14% of the workforce. The Company believes that its future success depends, in part, on its ability to improve the skills and productivity of its salesforce, improve the performance of the European businesses and reduce the Company's SG&A expense as a percent of sales. Information Concerning Forward-Looking Statements With the exception of the historical information contained in this report, the matters described herein contain forward-looking statements that involve risks and uncertainties including but not limited to economic, competitive, governmental, technological and litigation factors outside of the control of the Company. These factors more specifically include: uncertainties attributable to Internet commerce generally; uncertainties surrounding the electronic software reselling business attributable to technological and commercial issues; uncertainties surrounding the demand for and supply of products manufactured by and compatible with those of Apple products; competition from other catalog, retail store, on-line and other resellers of computer products; issues surrounding the Company's European businesses; uncertainties surrounding the implementation of programs and activities described in the Company's December 1997 announced restructuring; and the ultimate outcome of the not yet settled litigation proceedings and SEC formal investigation brought in connection with the Company's reported accounting errors. These and other factors are described generally and most specifically in the paragraphs in this section captioned "Liquidity and Capital Resources," "Impact of Inflation and Seasonality", and "Outlook". Forward-looking statements are typically identified by the words "believe," "expect," "anticipate," "intend," "estimate," and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item appears in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 4, 1998 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 4, 1998 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appears in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 4, 1998 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 14 The information required by this item appears in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 4, 1998 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)(1) Consolidated Financial Statements: The following consolidated financial statements are filed as part of this report: Responsibility for Financial Statements and Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity as of and for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. (a)(2) Consolidated Financial Statement Schedule: The following Consolidated Financial Statement Schedule of the Company as set forth below is filed with this report: Schedule II Valuation and Qualifying Accounts Independent Auditors' Report on Consolidated Financial Statement Schedule Consolidated Financial Statement Schedules other than the one listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. (a)(3) Exhibits See Exhibit Index for exhibits filed with this report on Form 10-K. (b) Reports on Form 8-K 1. The Company filed a Form 8-K pursuant to Item 5 therein on September 4, 1997 to report that it had reached a tentative settlement of the consolidated securities class action lawsuit pending in the U.S. District Court for the District of Connecticut. 2. The Company filed a Form 8-K pursuant to Item 5 therein on October 27, 1997 to report that Linwood A. Lacy, Jr. had resigned as President and Chief Executive Officer and that Peter Godfrey, Chairman of the Board of Directors of the Company, had been appointed to those positions. 3. The Company filed a Form 8-K pursuant to Item 5 therein on December 12, 1997 to report a restructuring of its operations. Such restructuring included the closing of operations in Australia and Japan, the sale of operations in Norway, Denmark and Finland, the closing of the Company's European headquarters and the consolidation of the Company's USA Flex and Online Interactive businesses to existing Company facilities in New Jersey and Connecticut. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICRO WAREHOUSE, INC. By: /s/ Peter Godfrey ---------------------------------- Peter Godfrey Chairman, Chief Executive Officer and President POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Peter Godfrey and Bruce L. Lev, or either of them, his attorneys-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K for the year ended December 31, 1997, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K for the year ended December 31, 1997 has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- Peter Godfrey /s/ Peter Godfrey March 30,1998 ------------------------------- Chairman, Chief Executive Officer and President Felix Dennis /s/ Felix Dennis March 30,1998 ------------------------------- Director Frederick H. Fruitman /s/ Frederick H. Fruitman March 30,1998 ------------------------------- Director Joseph M. Walsh /s/ Joseph M. Walsh March 30,1998 ------------------------------- Director Wayne P. Garten /s/ Wayne P. Garten March 30,1998 ------------------------------- Executive Vice President and Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) 16 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Responsibility for Financial Statements and Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996. F-3 Consolidated Statements of Operations for the years ended December 31, F-4 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity as of and for the years ended December 31, 1997, 1996 and 1995. F-5 Consolidated Statements of Cash flows for the years ended F-6 December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements F-7 F-1 Responsibility for Financial Statements and Independent Auditors' Report Micro Warehouse, Inc. Management Responsibility for Financial Statements The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. In meeting our responsibility for the integrity of the financial statements we maintain a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management's authorization and accounting records provide a reliable basis for the preparation of the financial statements. Management has also established a formal Business Code of Ethics which is distributed throughout the Company. We acknowledge our responsibility to establish and preserve an environment in which all employees properly understand the fundamental importance of high ethical standards in the conduct of our business. Our independent auditors are engaged to audit and to render an opinion on the fairness in all material respects of our consolidated financial statements presented in conformity with generally accepted accounting principles. In performing their audit in accordance with generally accepted auditing standards, they evaluate the effectiveness of our internal accounting control systems, review selected transactions and carry out other auditing procedures to the extent they consider necessary in expressing their opinion on our financial statements. The Audit Committee of the Board of Directors meets with management, internal audit and our independent auditors to review accounting, auditing and financial matters. Our Audit Committee is composed of only outside directors. This committee and the independent auditors have free access to each other with or without management being present. Peter Godfrey Wayne P. Garten President, Chief Executive Officer and Executive Vice President and Chairman of the Board Chief Financial Officer Independent Auditors' Report KPMG Peat Marwick LLP The Board of Directors and Stockholders of Micro Warehouse, Inc.: We have audited the accompanying consolidated balance sheets of Micro Warehouse, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Micro Warehouse, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Stamford, Connecticut February 18, 1998 F-2 Consolidated Balance Sheets Micro Warehouse, Inc.
December 31, (In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 58,051 $ 32,234 Marketable securities at market value 20,817 20,022 Accounts receivable, net of allowance for doubtful accounts ($13,399 and $10,876 at December 31, 1997 and 1996, respectively) 217,475 203,687 Inventories 170,543 201,119 Prepaid expenses and other current assets 11,763 17,886 Tax refunds 23,452 16,433 Deferred taxes 30,903 3,447 - ----------------------------------------------------------------------------------------------------------- Total current assets 533,004 494,828 - ----------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 32,416 29,712 Goodwill, net 45,744 66,291 Non-current deferred taxes 5,850 14,443 Other assets 2,330 2,568 - ----------------------------------------------------------------------------------------------------------- Total assets $ 619,344 $ 607,842 =========================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 168,886 $ 127,723 Accrued expenses 66,563 52,445 Accrued litigation settlements 16,100 -- Deferred revenue 5,944 2,327 Loans payable, bank 12,570 40,505 Equipment obligations 414 298 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 270,477 223,298 Equipment obligations 78 376 - ----------------------------------------------------------------------------------------------------------- Total liabilities 270,555 223,674 - ----------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock, $.01 par value: Authorized - 100 shares; none issued -- -- Series A Junior Participating Preferred Stock, $.01 par value: Authorized - 10 shares; none issued -- -- Common stock, $.01 par value: Authorized - 100,000 shares; issued and outstanding: 34,639 and 34,359 shares at December 31, 1997 and 1996, respectively 346 343 Additional paid-in capital 282,865 271,183 Deferred compensation (4,413) -- Loan to former officer -- (1,400) Retained earnings 80,390 117,071 Cumulative translation adjustment (10,403) (3,047) Valuation adjustment for marketable securities 4 18 - ----------------------------------------------------------------------------------------------------------- Total stockholders' equity 348,789 384,168 - ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 619,344 $ 607,842 ===========================================================================================================
See accompanying notes to consolidated financial statements. F-3 Consolidated Statements of Operations Micro Warehouse, Inc.
Years Ended December 31, (In thousands, except per share data) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Net sales $ 2,125,698 $ 1,916,244 $ 1,684,627 Cost of goods sold 1,773,722 1,573,798 1,360,636 - ------------------------------------------------------------------------------------------------------------ Gross profit 351,976 342,446 323,991 Selling, general and administrative expenses 305,903 277,192 266,276 Write-off of goodwill 41,907 5,977 -- Restructuring costs 25,921 20,071 -- Merger costs -- 6,113 -- Provision for settlement of class action and derivative litigation 20,700 -- -- - ------------------------------------------------------------------------------------------------------------ Income (loss) from operations before interest,income taxes and extraordinary charge (42,455) 33,093 57,715 Interest income 6,408 5,717 4,348 Interest expense (1,769) (2,209) (4,160) - ------------------------------------------------------------------------------------------------------------ Interest income, net 4,639 3,508 188 - ------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes and extraordinary charge (37,816) 36,601 57,903 Income tax provision (benefit) (1,135) 19,719 22,659 - ------------------------------------------------------------------------------------------------------------ Income (loss) before extraordinary charge (36,681) 16,882 35,244 Extraordinary charge, net of taxes of $1,078 -- 1,584 -- - ------------------------------------------------------------------------------------------------------------ Net income (loss) ($ 36,681) $ 15,298 $ 35,244 ============================================================================================================ Basic net income (loss) per share ($ 1.06) $ 0.45 $ 1.07 Basic net income (loss) per share before extraordinary charge ($ 1.06) $ 0.49 $ 1.07 Diluted net income (loss) per share ($ 1.06) $ 0.44 $ 1.05 Diluted net income (loss) per share before extraordinary charge ($ 1.06) $ 0.49 $ 1.05 - ------------------------------------------------------------------------------------------------------------ Shares used in per share calculation - Basic 34,475 34,310 32,940 Diluted 34,475 34,793 33,605 ============================================================================================================
See accompanying notes to consolidated financial statements. F-4 Consolidated Statements of Stockholders' Equity Micro Warehouse, Inc.
Valuation Additional Loan to Cumulative Adjustment Common Stock Paid-in Deferred Former Retained Translation Marketable (In thousands) Shares Amount Capital Compensation Officer Earnings Adjustment Securities Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 32,417 $324 $208,008 $ -- $ -- $66,529 ($3,549) ($450) $270,862 ==================================================================================================================================== Net income -- -- -- -- -- 35,244 -- -- 35,244 Common stock offering 1,200 12 50,799 -- -- -- -- -- 50,811 Common stock issued pursuant to stock options exercised 315 3 4,148 -- -- -- -- -- 4,151 Common stock issued pursuant to acquisitions 26 -- 1,150 -- -- -- -- -- 1,150 Retirement of treasury shares (14) -- (469) -- -- -- -- -- (469) Foreign currency translation adjustment -- -- -- -- -- -- 2,516 -- 2,516 Valuation adjustment for marketable securities -- -- -- -- -- -- -- 404 404 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 33,944 339 263,636 -- -- 101,773 (1,033) (46) 364,669 ==================================================================================================================================== Net income -- -- -- -- -- 15,298 -- -- 15,298 Common stock issued pursuant to stock awards, stock options and warrants exercised 415 4 5,807 -- -- -- -- -- 5,811 Loan to former officer -- -- 1,400 -- (1,400) -- -- -- -- Deferred compensation -- -- 340 -- -- -- -- -- 340 Foreign currency translation adjustment -- -- -- -- -- -- (2,014) -- (2,014) Valuation adjustment for marketable securities -- -- -- -- -- -- -- 64 64 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 34,359 343 271,183 -- (1,400) 117,071 (3,047) 18 384,168 ==================================================================================================================================== Net (loss) -- -- -- -- -- (36,681) -- -- (36,681) Common stock issued pursuant to stock options exercised 280 3 6,256 -- -- -- -- -- 6,259 Loan to former officer -- -- (775) -- 1,400 -- -- -- 625 Deferred compensation -- -- 6,201 (4,413) -- -- -- -- 1,788 Foreign currency translation adjustment -- -- -- -- -- -- (7,356) -- (7,356) Valuation adjustment for marketable securities -- -- -- -- -- -- -- (14) (14) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 34,639 $346 $282,865 ($4,413) $ -- $80,390 ($10,403) $ 4 $348,789 ====================================================================================================================================
See accompanying notes to consolidated financial statements. F-5 Consolidated Statements of Cash Flows Representing Increases (Decreases) in Cash and Cash Equivalents Micro Warehouse, Inc.
Years Ended December 31, (In thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) ($ 36,681) $ 15,298 $ 35,244 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 16,160 12,340 12,191 Write-off of goodwill 41,907 5,977 -- Restructuring costs - non-cash portion 11,853 3,457 -- Litigation settlements 20,700 -- -- Non-cash compensation 1,788 421 -- Deferred taxes (19,062) (4,389) (3,973) Extraordinary charge -- 1,900 -- Changes in assets and liabilities: Accounts receivable, net (23,069) (24,662) (33,508) Inventories 26,576 (55,530) (28,048) Prepaid expenses and other current assets 1,853 10,781 (7,830) Tax refunds (7,196) (3,710) (11,993) Other assets (199) 1,119 (469) Accounts payable 38,936 15,447 29,245 Accrued expenses 6,607 14,677 2,352 Deferred revenue 3,619 (2,249) 148 Other (38) (473) 468 - ---------------------------------------------------------------------------------------------------- Total adjustments 120,435 (24,894) (41,417) - ---------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 83,754 (9,596) (6,173) - ---------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of property, plant and equipment (16,518) (11,172) (13,774) Purchases of businesses, represented by: Goodwill (20,883) (28,986) (20,327) Net liabilities (assets) 654 (5,836) (4,954) Proceeds from sale of equipment 147 576 162 Sales (purchases) of marketable securities, net (809) 622 24,028 - ---------------------------------------------------------------------------------------------------- Net cash used by investing activities (37,409) (44,796) (14,865) - ---------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from issuance of common stock 6,259 5,811 54,962 Purchase of treasury stock -- -- (469) Borrowings under (repayments of) lines of credit, net (24,467) 22,037 (7,708) Borrowing (repayment) of notes payable -- (21,900) 20,000 Principal payments of obligations under capital leases (218) (378) (942) - ---------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (18,426) 5,570 65,843 - ---------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (2,102) (558) 802 - ---------------------------------------------------------------------------------------------------- Net change in cash 25,817 (49,380) 45,607 Cash and cash equivalents: Beginning of year 32,234 81,614 36,007 - ---------------------------------------------------------------------------------------------------- End of year $ 58,051 $ 32,234 $ 81,614 ====================================================================================================
See accompanying notes to consolidated financial statements. F-6 Notes to Consolidated Financial Statements Micro Warehouse, Inc. (Amounts in thousands, except per share data) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include Micro Warehouse, Inc. and its subsidiaries (the "Company"), which are all wholly-owned. All significant inter-company accounts and transactions are eliminated in consolidation. Certain reclassifications have been made to conform prior years to the 1997 presentation. Cash Equivalents All repurchase agreements, money market funds and highly liquid investments with initial maturities of three months or less are considered cash equivalents. Marketable Securities Marketable securities consist primarily of highly liquid tax exempt municipal bonds which all have maturity dates less than one year. All investments are classified as available-for-sale and are reported at fair market value with net unrealized gains and losses included in equity. For all investment securities, unrealized losses that are other than temporary are recognized in earnings. As of December 31, 1997 unrealized gains were $4 and there were no unrealized losses. Inventories Inventories (substantially all finished goods) consist of computer hardware, software and peripheral equipment, and are stated at cost (determined under the first-in, first-out cost method) or market, whichever is lower. Prepaid Catalog Costs and Deferred Revenue The costs of producing and distributing catalogs are deferred and charged to expense over the period that each catalog remains the most current selling vehicle (generally one to two months). Vendors have the ability to place advertisements in the catalogs for which the Company receives advertising allowances and incentives. These revenues are recognized on the same basis as the catalog costs. Property, Plant and Equipment Property, plant and equipment (including equipment acquired under capital leases) are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, as follows: Computer equipment 3-5 years Furniture and fixtures 7 years Leasehold improvements Life of lease or 7 years Machinery and equipment 7 years Intangible Assets Intangible assets are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets, as follows: Trademarks 5 years Goodwill 40 years Income Taxes Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. A valuation allowance is used to reduce the carrying amount of deferred tax assets which may not be realized. Revenue Recognition Revenue on product sales is recognized at the time of shipment. A reserve for product returns is established based upon historical trends. F-7 Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated into United States dollars at the exchange rate in effect at the balance sheet date or at historical rates, as applicable. Revenue and expenses are translated at average rates in effect during the period. The resultant translation adjustment is reflected as a separate component of Stockholders' Equity on the balance sheet. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Net Income Per Share In the fourth quarter of 1997 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and replaces the presentation of primary and fully diluted earnings per share with a presentation of basic and diluted earnings per share. The impact of this change was not significant. Diluted earnings per share reflects the potential dilution that could occur if outstanding common stock options were exercised. The dilutive effect of such options to weighted average shares outstanding was 483 and 665 in 1996 and 1995, respectively. Potentially dilutive shares of 191 in 1997 were not reflected in the calculation of diluted earnings per share since such amounts were antidilutive as a result of the net loss for the year. Long-Lived Assets The Company periodically evaluates the carrying value of intangibles and the related periods of amortization to determine whether events and circumstances warrant revised estimates of asset value or useful lives. The Company annually assesses the recoverability of goodwill by determining whether the amortization of the balance over its remaining life can be recovered through projected undiscounted future operating cash flows. Evaluations of asset value as well as periods of amortization are performed on a disaggregated basis by distinct geographic market. Stock-Based Compensation On January 1, 1996 the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, and elected thereunder to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 (see note 11). As such, compensation expense is recorded only if the current market price of the Company's stock on the date of grant (or measurement date, if later) exceeds the exercise price. Unaudited Condensed Quarterly Data In the opinion of management, the unaudited condensed quarterly financial data in note 13 reflect all adjustments which are necessary for a fair statement of the results of operations for the periods presented. NOTE 2. BUSINESS COMBINATIONS In July 1997 the Company acquired the business of Online Interactive, Inc., a Seattle, Washington-based electronic reseller of software ("OLI") in a business combination accounted for as a purchase. The total cost of the acquisition was $16,400 which exceeded the fair value of the net assets by $17,066. In February 1997 the Company acquired two businesses, one with operations in Canada and one with operations in Australia. These acquisitions were accounted for as purchases. The total cost of the acquisitions was $3,829 which exceeded the fair value of the net assets acquired by $3,817. In October 1996 the Company acquired the business of USA Flex in a business combination accounted for as a purchase. USA Flex directly markets IBM PC-compatible ("Wintel") computers and peripherals. The total cost of the acquisition was $26,762 which exceeded the fair value of the net assets acquired by $22,053. In January 1996, the Company acquired Inmac Corp. ("Inmac") through an exchange of 3,034 of its shares for all of Inmac's 10,817 shares in a transaction accounted for as a pooling of interests. Inmac, a leading international direct-response marketer of multi-vendor products for the computer desktop and networking industries, had operations in the United States, United Kingdom, Canada, France, Germany, the Netherlands and Sweden. Under pooling of interests accounting, all of the Company's consolidated financial statements as of and for periods prior to the acquisition of Inmac have been restated to reflect Inmac and the Company on a combined basis. In connection with the transaction, the Company recorded (i) $20,071 of restructuring charges, F-8 primarily for personnel and facilities matters; (ii) $6,113 for merger costs; and (iii) an extraordinary charge of $1,584 (net of tax benefit of $1,078) related to a mandatory prepayment to extinguish certain Inmac indebtedness. During 1996 the Company also acquired two businesses, one with operations in Finland and one with operations in the United States. These acquisitions were accounted for as purchases. The aggregate purchase price and goodwill were $7,411 and $6,284, respectively. During 1995, the Company acquired eight businesses with operations in the United Kingdom, Australia, Germany, Switzerland and the United States. These acquisitions were accounted for as purchases. The aggregate purchase price was comprised of approximately $24,229 in cash and 26 common shares with an average market value of approximately $44.00 per share. The aggregate goodwill was $20,425. In connection with the December 11, 1997 announced restructuring plan, the goodwill related to the USA Flex, OLI, Norway, Finland, Germany and Australia businesses were written-off (see note 3). NOTE 3. RESTRUCTURING AND GOODWILL WRITE-OFFS On December 11, 1997, the Company announced a restructuring of its operations (the "Restructuring"). The objectives of the Restructuring are to simplify the business worldwide, reduce the cost structure, increase productivity of the salesforce and eliminate certain non-core businesses currently operating at a loss. The Restructuring involved the closing of its businesses in Australia and Japan, the sale of its operations in Norway, Denmark and Finland and the write-off of its goodwill of its German business. In addition, the Company closed its European headquarters in the United Kingdom reducing certain functions and transferring others to the United Kingdom operation, other European business units and the United States. In the United States, the Company consolidated its USA Flex business from its facility in Bloomingdale, Illinois to existing facilities in New Jersey and wrote-off all of the goodwill associated with this business. The Company also closed its OLI facility and wrote-off the related goodwill. In addition, the Company reorganized its domestic salesforce. In connection with the Restructuring, approximately 600 positions were eliminated. These restructuring activities will be substantially completed in early 1998. As a result of the Restructuring, the Company recorded a pre-tax charge of $67,828. The charge was comprised of goodwill write-offs of $41,907 (see note 6), severance costs of $10,314 and $15,607 of other costs including lease terminations, moving and asset write-downs. Substantially all of such severance and other costs were paid in early 1998. In 1997, the operations intended for closing or sale had revenues of approximately $59,000 and operating losses of approximately $5,000. In connection with the merger with Inmac during 1996, the Company initiated a restructuring plan to reduce costs and increase future operating efficiencies by eliminating excess operations and facilities acquired in the Inmac acquisition. The closing of the facilities was completed during the first half of 1997. As a result, the Company recorded restructuring costs of $20,071 in 1996. In connection with the Inmac restructuring, approximately 493 employees associated with the facilities closed were terminated. Estimated employee termination costs of $10,886 were accrued in 1996 and paid in 1996 and 1997. In addition to the cost of terminating employees, the principal costs of the Inmac restructuring included the write-off of fixed assets and lease terminations. Estimated charges of $2,983 for asset write downs, $3,952 for lease terminations and $2,250 of other costs were accrued in 1996 and paid in 1996 and 1997. NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: 1997 1996 - -------------------------------------------------------------------------- Computer equipment $48,427 $40,123 Furniture and fixtures 14,005 11,730 Leasehold improvements 10,024 8,408 Machinery and equipment 8,687 8,933 - -------------------------------------------------------------------------- 81,143 69,194 Less accumulated depreciation and amortization 48,727 39,482 - -------------------------------------------------------------------------- $32,416 $29,712 ========================================================================== F-9 NOTE 5. BORROWING ARRANGEMENTS Lines of Credit The Company has a $75,000 unsecured multi-currency revolving credit facility permitting borrowing by the Company and certain of its foreign subsidiaries. The facility reduces by an aggregate of $20,000 at the rate of $6,667 on each of June 30, September 30, and December 31, 1998 and expires on June 30, 1999. The balance outstanding was $12,570 and $40,505 at December 31, 1997 and 1996, respectively. The facility provides for borrowing with interest at the bank's prime rate or LIBOR (or its foreign currency equivalent) plus 0.50%-1.25%, based on the ratio of debt to earnings before interest and taxes. The weighted average interest rate was approximately 5.8% and 5.5% for loans outstanding as of December 31, 1997 and 1996, respectively. Commitment fees were not significant. At December 31, 1997 the Company had unused lines of credit in the United Kingdom and France, which provide for unsecured borrowings up to 2,000 British pounds ($3,286 at December 31, 1997 currency exchange rate) and 45,000 French francs ($7,476 at December 31, 1997 currency exchange rate), respectively, for working capital purposes. At December 31, 1996 the Company had a $10,000 unused line of credit in the United States that expired in 1997. At December 31, 1996 the Company also had a 1,800 British pounds ($3,082 at December 31, 1996 currency exchange rate) unused line of credit in the United Kingdom. Inmac Borrowings During 1996 as a result of the merger with the Company all Inmac borrowings were repaid. An extraordinary charge of $1,584 after-tax ($2,662 pre-tax) was recorded for fees and penalties arising from the early extinguishment of such borrowings. Hedging The Company utilizes forward exchange contracts to manage exposure to foreign currency risk related to intercompany loans and investments in its foreign subsidiaries. Outstanding agreements involve the exchange of one currency for another at a fixed rate. The Company's credit exposure is limited to the replacement cost, if any, of the instruments and the Company only enters into such agreements with highly rated counterparties. The Company matches the term and notional amount of the contracts to the underlying intercompany loans or investments and does not enter into forward exchange contracts for trading or speculative purposes. Gains and losses on such contracts are charged or credited to cumulative translation adjustment. At December 31, 1997 the Company had outstanding forward exchange contracts in notional amounts of $27,095 (fair value of $27,123) which mature in six months or less. The single largest currency represented was the British pound. NOTE 6. GOODWILL Amounts consist of: 1997 1996 - -------------------------------------------------------------------------------- Goodwill $49,316 $68,961 Less: Amortization 3,572 2,670 - -------------------------------------------------------------------------------- $45,744 $66,291 ================================================================================ During 1997 in connection with the Restructuring (see note 3) the Company recorded a charge for goodwill write-offs of $41,907 related to the sale or closing of its businesses in Norway, Finland and Australia, and the diminution in value of the goodwill associated with the USA Flex, OLI and German businesses. In 1996 due to the uncertainties in the Macintosh marketplace, the Company re-evaluated the carrying value of goodwill in its Macintosh-only subsidiaries in Australia, Denmark, Mexico and Switzerland. As a result of that re-evaluation in 1996, the Company recorded a charge of $5,977, which represented all the goodwill related to these subsidiaries. NOTE 7. ACCRUED EXPENSES Accrued expenses at December 31, 1997 and 1996 include approximately $7,335 and $11,882 respectively, of accrued catalog costs and $21,498 and $2,343 respectively, of accrued restructuring costs. F-10 NOTE 8. COMMITMENTS Leases The Company rents certain office facilities from related parties, occupies office and warehouse space, and rents equipment under various operating leases with independent parties which provide for minimum annual rentals. Future minimum annual rentals at December 31, 1997 were as follows: Related Total Party - -------------------------------------------------------------------------------- 1998 $8,250 $312 1999 4,930 -- 2000 3,932 -- 2001 2,956 -- 2002 and after 2,401 -- - -------------------------------------------------------------------------------- Total 22,469 $312 - -------------------------------------------------------------------------------- Rent expense was as follows: Related Total Party - -------------------------------------------------------------------------------- Year ended December 31, 1997 $10,444 $312 Year ended December 31, 1996 8,774 312 Year ended December 31, 1995 12,593 354 NOTE 9. INCOME TAXES The provision (benefit) for income taxes was: Years ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Current Federal $ 16,254 $ 23,012 $ 18,005 State 1,195 1,920 2,086 Foreign 478 (1,902) 6,541 - -------------------------------------------------------------------------------- 17,927 23,030 26,632 Deferred Federal (16,155) (1,537) (2,473) State (1,195) (202) 181 Foreign (1,712) (2,650) (1,681) - -------------------------------------------------------------------------------- (19,062) (4,389) (3,973) - -------------------------------------------------------------------------------- Total ($ 1,135) $ 18,641 $ 22,659 ================================================================================ The following table accounts for the difference between the actual tax provision (benefit) and the amounts obtained by applying the statutory United States Federal income tax rate of 35% to income (loss) before taxes. Years ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Statutory federal tax rate (35.0%) 35.0% 35.0% State income taxes net of Federal benefit -- 3.3 2.5 Tax-exempt interest income (0.7) (0.7) (0.6) Non-deductible restructuring and merger costs 11.0 6.3 -- Goodwill amortization and write-off 8.9 7.9 0.5 Foreign rate difference and unused foreign losses 10.6 4.4 3.5 Other, net 2.2 (1.3) (1.8) - -------------------------------------------------------------------------------- Effective tax rate (3.0%) 54.9% 39.1% ================================================================================ F-11 The United States and foreign components of income (loss) before income taxes were: United States Foreign - -------------------------------------------------------------------------------- Year ended December 31, 1997 ($11,299) ($26,517) Year ended December 31, 1996 52,255 (18,316) Year ended December 31, 1995 49,494 8,409 Taxes have not been provided for undistributed earnings of foreign subsidiaries since the Company presently intends to continue to reinvest these earnings. Components of the net deferred tax asset relate to: December 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets Accounts receivable reserve $ 3,259 $ 2,091 $ 1,564 Inventory reserve 2,503 2,002 1,394 Restructuring reserve 12,489 -- -- Accrued expenses 3,169 3,346 609 Inventory capitalization 970 1,066 431 Litigation settlement reserve 7,351 -- -- Other 1,965 2,673 1,267 Alternative minimum tax credit carryforward 648 648 648 Tax loss carryforwards 20,769 18,970 16,752 - -------------------------------------------------------------------------------- 53,123 30,796 22,665 Valuation allowance for tax loss carryforwards (16,370) (12,906) (9,164) - -------------------------------------------------------------------------------- Total deferred tax asset 36,753 17,890 13,501 ================================================================================ The Company has approximately $29,467 in unutilized foreign tax loss carryforwards and approximately $24,117 in unutilized United States federal tax loss carryforwards. Of these loss carryforwards, $17,896 have no expiration dates, $29,912 expire beginning 2005 through 2010, and $5,776 expire beginning 1999 through 2004. In addition, the Company has approximately $648 of unutilized alternative minimum tax credits that can be carried forward indefinitely. United States tax law imposes a limitation on the amount of the United States tax loss carryforwards which can be utilized each year when there is a change in the stock ownership of the Company which incurred the losses. The United States federal tax losses which became an asset of the Company through the acquisition of Inmac Corp. are subject to this rule ($24,117 remaining balance as of December 31,1997). Based on the Company's historical and expected taxable earnings, management believes it is more likely than not that the Company will realize the benefit of the existing net deferred tax asset at December 31, 1997. NOTE 10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 1997 1996 1995 - -------------------------------------------------------------------------------- Cash paid during the period for: Interest $ 1,776 $ 1,805 $ 4,088 Income taxes 18,418 27,297 32,956 Non-cash investing and financing activities: Loan to (settlement from) former officer for purchase of stock (1,400) 1,400 -- Net assets acquired and goodwill established through issuance of common stock -- -- 1,150 ================================================================================ NOTE 11. STOCK OPTIONS, EMPLOYEE BENEFIT PLAN AND STOCKHOLDERS RIGHTS PLAN In June 1997 the Stockholders of the Company approved an amendment to the 1994 stock option plan which increased the number of shares reserved for issuance from 1,000 to 4,000. In January 1997, the Company approved a comprehensive option grant program providing a total of 2,017 options to directors and all qualified employees of the Company and authorized the exchange of 360 outstanding stock options. The exercise price for options under these programs is $12.63 per share. As a result of this program, the Company recorded deferred compensation of $8,387 representing the difference between the exercise price and closing market price on the date of stockholder approval for the shares granted. Such amount is being amortized over the 5-year F-12 vesting period of the options. Amortization of deferred compensation relating to these grants for 1997 was $1,788 and $2,186 of such amount of deferred compensation was forfeited. The Company applies APB Opinion No. 25 and related interpretations in accounting for stock-based compensation. Accordingly, compensation expense is recorded only if the current market price of the Company's common stock on the date of grant (or measurement date if later) exceeds the exercise price. Had compensation cost been determined on a fair value basis consistent with SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 - --------------------------------------------------------------------------------------------------- Net income (loss) As reported ($36,681) $15,298 $35,244 Pro forma ($38,693) $12,673 $34,272 Net income (loss) per share - diluted basis As reported ($1.06) $0.44 $1.05 Pro forma ($1.12) $0.36 $1.02
The fair value of each option grant included in the pro forma amounts above was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.3 percent, 6.2 percent and 7.4 percent; dividend yield of zero for all years; expected lives of 5 years for all years; and volatility of 39.3 percent, 42.5 percent and 43.3 percent. A summary of the status of stock options outstanding as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates is presented below:
1997 1996 1995 Weighted Weighted Weighted Average Average Average Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------------------------- Shares under option: Outstanding at beginning of year 1,710 $22.28 1,328 $17.18 1,346 $13.79 Granted 3,048 $13.58 836 27.50 338 27.63 Exercised (594) $12.21 (346) 16.79 (315) 13.18 Forfeited (992) $21.40 (108) 23.23 (41) 17.45 - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 3,172 $14.44 1,710 $22.28 1,328 $17.18 =================================================================================================================================== Options exercisable at year end 512 $16.06 407 $15.56 420 $13.99 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average fair value per share of options granted during 1997, 1996, and 1995 $6.07 $12.64 $13.30
1992 and 1994 Stock Option Plans The 1992 and 1994 Stock Option Plans (the "Plans") provide for the grant of stock options to officers, directors and key employees of, and consultants to, the Company and its subsidiaries. Under the Plans, the Company may grant options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to qualify as Incentive Stock Options ("Non-statutory Stock Options"). A total of 5,000 shares of common stock have been reserved for issuance upon the exercise of options granted under the Plans. The Plans are administered by the Compensation and Stock Option Committee of the Board of Directors. Subject to the provisions of the Plans, the Committee has the authority to select the employees, directors and consultants to whom options are granted and determine the terms of each option, including (i) the number of shares of common stock covered by the option, (ii) when the option becomes exercisable, (iii) the option exercise price, which must be at least 100%, with respect to Incentive Stock Options, and at least 85%, with respect to Non-statutory Stock Options, of the fair market value of the common stock as of the date of grant, and (iv) the duration of the option (which may not exceed ten years). Stock Options Issued Outside the Plans During 1996 and 1997 the Company granted to certain senior executives options to purchase 890 shares of common stock at prices ranging from $10.75 to $25.00 per share. During 1997, 574 of these options were forfeited. F-13 Stock options outstanding at December 31, 1997, are summarized as follows:
Options Outstanding Options Exercisable -------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Range of Number average remaining average Number average exercise prices outstanding contractual life exercise price exercisable exercise price - ----------------------------------------------------------------------------------------------------------------------------------- $9.00 - $13.06 2,331 8.7 years $12.43 330 $11.52 $14.31 - $17.75 630 9.1 years 16.43 85 16.43 $22.50 - $28.25 54 8.5 years 27.45 13 26.59 $30.13 - $32.00 155 7.8 years 31.63 83 31.63 $44.50 - $46.69 2 7.8 years 44.70 1 44.70 $9.00 - $46.69 3,172 8.8 years $14.44 512 $16.06
Stock Awards During 1997 the Company granted to certain senior executives awards for 78 shares of common stock that are outstanding at December 31, 1997. Such awards will be fully vested in 1998. 401(k) Savings Plan The Company sponsors a 401(k) Savings Plan (the "401(k) Plan") which covers substantially all full-time employees who meet the 401(k) Plan's eligibility requirements. Participants may make tax deferred contributions of up to 15% of annual compensation (subject to other limitations specified by the Internal Revenue Code) and the Company will make a 25% matching contribution for amounts which do not exceed 6% of participant's annual compensation. The Company may also make discretionary profit sharing contributions to the 401(k) Plan. During 1997, 1996 and 1995, the Company incurred approximately $534, $556, and $466, respectively, of expense related to the 401(k) matching component of the 401(k) Plan. Stockholders Rights Plan Under a stockholder rights plan effective June 27, 1996, rights to purchase a unit consisting of one one-thousandth of a share of a new Series A Junior Participating Preferred Stock at an exercise price of $110.00 have been distributed as a dividend at the rate of one right for each share of the Company's common stock. The terms of the Preferred Stock have been designed so that each one one-thousandth of a share of Preferred Stock will approximate the same economic value of one share of the Company's common stock. The rights become exercisable only following the acquisition by a person or group, without the prior consent of the Company, of 20% or more of the Company's voting stock or following the announcement of a tender offer or exchange offer to acquire an interest in the Company of 20% or more. After the rights become exercisable, they will be adjusted upon the occurrence of certain events relating to an attempted acquisition of the Company so as to entitle all holders, except the takeover bidder, to purchase stock in the Company or the prospective acquirer's company, as the case may be, at a bargain price. The effect of the plan is to encourage a prospective acquirer to negotiate with the Board of Directors of the Company a transaction that is fair to all stockholders. F-14 NOTE 12. OPERATIONS BY GEOGRAPHIC AREAS The Company operates primarily in one industry segment, the distribution of computer hardware, software, supplies and accessories. Information about the Company's operations in different geographic areas for the years ended December 31, 1997, 1996 and 1995 are presented below.
Asia/ Year Ended December 31, 1997 North America Europe Pacific Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $1,549,024 $567,197 $9,477 $2,125,698 Restructuring costs and goodwill write-off 49,493 14,671 3,664 67,828 (Loss) from operations before interest and income taxes (16,959) (19,231) (6,265) (42,455) Identifiable assets 424,184 192,839 2,321 619,344 Asia/ Year Ended December 31, 1996 North America Europe Pacific Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $1,330,601 $570,388 $15,255 $1,916,244 Restructuring, merger costs, and goodwill write-offs 17,413 14,382 366 32,161 Income (loss) from operations before interest and income taxes 37,062 (2,847) (1,122) 33,093 Identifiable assets 422,967 182,298 2,577 607,842 Asia/ Year Ended December 31, 1995 North America Europe Pacific Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $1,130,292 $546,559 $7,776 $1,684,627 Income from operations before interest and income taxes 40,290 17,354 71 57,715 Identifiable assets 370,573 179,798 4,175 554,546
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 1997 and 1996:
First Second Third Fourth Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------------- 1997 Net sales $529,503 500,420 522,072 $573,703 Gross profit 87,465 83,913 86,457 94,141 Net income (loss) 7,813 7,821 (7,118) (45,197) Basic net income (loss) per share (A) $0.23 $0.23 ($0.21) ($1.30) Diluted net income (loss) per share (A) $0.23 $0.23 ($0.21) ($1.30) Shares used in per share calculation - Basic 34,364 34,432 34,550 34,637 Incremental shares from assumed conversion of options (B) 73 300 -- -- Diluted 34,437 34,732 34,550 34,637 - ----------------------------------------------------------------------------------------------------------------------------------- 1996 Net sales $514,391 $437,175 $437,981 $526,697 Gross profit 98,542 84,987 78,692 80,225 Income (loss) before extraordinary charge (5,101) 5,410 10,725 5,848 Net income (loss) (6,685) 5,410 10,725 5,848 Basic income (loss) before extraordinary charge per share ($0.15) $0.16 $0.31 $0.17 Diluted income (loss) before extraordinary charge per share ($0.15) $0.16 $0.31 $0.17 Basic net income (loss) per share (A) ($0.20) $0.16 $0.31 $0.17 Diluted net income (loss) per share (A) ($0.20) $0.16 $0.31 $0.17 Shares used in per share calculation -
F-15 Basic 33,996 34,175 34,294 34,345 Incremental shares from assumed conversion of options(B) -- 526 336 312 Diluted 33,996 34,701 34,630 34,657
(A) The sum of the quarterly amounts on a per share basis do not equal amounts for the year due to rounding. (B) Incremental shares were not included for periods with a net loss as they would have had an antidilutive effect. NOTE 14. LEGAL PROCEEDINGS A pre-tax charge of $20,700 was recorded in the third quarter of 1997 for the proposed settlements of the consolidated class action and derivative lawsuit that arose out of the facts underlying the Company's announcements in September and October, 1996 that it intended to restate certain prior financial statements covering years 1992 through 1995. The charge of $20,700 was comprised of $31,600 for the settlements of the consolidated class action and derivative lawsuit including estimated legal fees, offset by insurance proceeds of $10,900. The settlements are contingent upon final approval by the United States District Court following hearing upon notice to class participants and, as appropriate, other shareholders. The settlement of these matters excludes a separate action relating to the restatement of prior year financial statements brought in the United States District Court in Connecticut against the Company and certain of its present and former officers and directors by the State Board of Administration of Florida covering its purchase of fewer than 60,000 shares. The settlement also excludes the lawsuit brought by holders of approximately 1.3 million shares of the Company's stock against the Company and certain of its officers, former officers and directors in Santa Clara County, California, arising out of the stock merger between the Company and Inmac Corp. on January 25, 1996. The Company has made no provision for the outcome or financial impact of these litigations in the consolidated financial statements. In addition, the staff of the Securities and Exchange Commission ("SEC") is conducting a formal investigation into the events underlying the restatement of prior years financial statements. The Company is cooperating with the SEC in its investigation. F-16 SCHEDULE II MICRO WAREHOUSE, INC. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Balance at Additions Deductions Balance at Beginning of Charged from End Year to Operations Reserves of Year ---- ------------- -------- ------- (in thousands) Allowance for doubtful accounts Year ended: December 31, 1995 5,676 7,099 (4,967) 7,808 December 31, 1996 7,808 8,195 (5,127) 10,876 December 31, 1997 10,876 11,242 (8,719) 13,399 Reserve for obsolete inventory Year ended: December 31, 1995 6,333 6,388 (4,385) 8,336 December 31, 1996 8,336 5,601 (3,416) 10,521 December 31, 1997 10,521 10,246 (8,030) 12,737
INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors and Stockholders of Micro Warehouse, Inc. Under date of February 18, 1998, we reported on the consolidated balance sheets of Micro Warehouse, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997 which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed under (a)(2). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits. In our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Stamford, Connecticut February 18, 1998 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of the Company ................................................... 3.2 Amended and Restated By-Laws of the Company ................. 4.1* Stockholders Rights Plan dated June 27, 1996 ................ 10.1** 1992 Stock Option Plan ...................................... 10.2*** Amendment No. 1 to 1992 Stock Option Plan ................... 10.3**** Amendment No. 2 to 1992 Stock Option Plan ................... 10.4 Amended and Restated 1994 Stock Option Plan ................. 10.5** Lease Agreements between C.P. Lakewood, L.P. and the Company relating to the Lakewood, New Jersey facilities ................................................ 10.6** Lease Agreement between Miller-Valentine Partners and the Company relating to the Wilmington, Ohio facility .................................................. 10.7** Lease Agreement between Peter Godfrey and the Company relating to the South Norwalk, Connecticut facility .................................................. 10.8** (a)Lease Agreement between Hialet Associates and the Company relating to a South Norwalk, Connecticut facility (53 Water Street) ................................ 10.9** (b)Lease Agreement between Hialet Associates and the Company relating to a South Norwalk, Connecticut facility (29 Haviland Street) ............................. 10.10** Lease Agreement between 50 Water Street Associates and the Company relating to the South Norwalk, Connecticut facility ...................................... 10.11** Lease between Union Square Assoc. Ltd. Part. and the Company relating to the South Norwalk, Connecticut facility .................................................. 10.12** Lease Agreement between South Norwalk Redevelopment Partnership and the Company relating to the South Norwalk, Connecticut facility ............................. 10.13** Second Amendment to Lease Agreement between Peter Godfrey and the Company relating to the South Norwalk, Connecticut facility (47 Water Street) ........... 10.14** Second Amendment to Lease Agreement between Hialet Associates and the Company relating to the South Norwalk, Connecticut facility (53 Water Street) ........... 10.15***** Lease Agreement between BBS Norwalk One Inc. and the Company relating to the Norwalk, Connecticut facility .................................................. 10.16*** Employment Agreement between Peter Godfrey and the Company ................................................... 10.17** Employment Agreement between Stephen England and the Company ................................................... 10.18****** Employment Agreement between Adam W. Shaffer and the Company ................................................... 10.19****** Amendment to Employment Agreement between Adam W. Shaffer and the Company ................................... 10.20******* Employment Agreement between Linwood A. Lacy, Jr. and the Company ............................................... 10.21******* Amendment to Employment Agreement between Linwood A. Lacy, Jr. and the Company ................................. 10.22*** Employment Agreement between Bruce L. Lev and the Company ................................................... EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------------------------------------------------------------------------- 10.23 Consulting Services Agreement between Felix Dennis and the Company, as amended ....................................... 10.24 Form of Indemnification Agreement with Officers and Directors ................................................. 10.25 Amended and Restated Credit Agreement among the Company, the Subsidiaries of the Company, and The Chase Manhattan Bank dated as of December 31, 1997 ........ 10.26 Resignation Agreement by and between Linwood A. Lacy, Jr. and the Company dated December 8, 1997 ................ 10.27 Resignation Agreement by and between Kris Rogers and the Company dated January 28, 1998 ........................ 11 Statement re Computation of Per Share Earnings .............. 21.1 Subsidiaries of the Company ................................. 23.1 Consent of Independent Auditors ............................. 24.1 Power of Attorney (included on signature page)............... 27 Financial Data Schedule ..................................... * Incorporated by reference to the Company's Registration Statement on Form 8-A (File No. 00-20730) ** Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-53100) *** Incorporated by reference to the Company's Annual Report on Form 10-K for fiscal year 1995 **** Incorporated by reference to the Company's Annual Report on Form 10-K for fiscal year 1996 ***** Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1994 ****** Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-66066) ******* Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1996 EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF MICRO WAREHOUSE, INC. Micro Warehouse, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of the corporation is Micro Warehouse, Inc. (hereinafter, the "Corporation"). SECOND: The date of filing of its original Certificate of Incorporation with the Secretary of State of Delaware was August 27, 1992. THIRD: Pursuant to the sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and further amends the provisions of the Certificate of Incorporation of this Corporation. FOURTH: The Amended and Restated Certificate of Incorporation of said Corporation shall be amended and restated to read in full as follows: 1. Name: The name of the corporation is Micro Warehouse, Inc. 2. Registered Office: The address of the registered office of the Corporation in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at that address is The Corporation Trust Company. 3. Purpose: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the General Corporation Law of the State of Delaware. 4. Corporation Stock: (a) The total number of shares of stock which the Corporation shall have authority to issue is One Hundred Million One Hundred Thousand (100,100,000) shares, consisting of One Hundred Million (100,000,000) shares of Common Stock, having a par value of $.01 per share, and One Hundred Thousand (100,000) shares of Preferred Stock, having a par value of $.01 per share. (b) Holders of shares of Common Stock shall be entitled to one (1) vote for each share held of record. Shares of the Common Stock shall have no preference over any other shares of capital stock of the Corporation with respect to distribution of assets on dissolution or liquidation or with respect to payment of dividends. (c) Shares of the Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation (the "Board of Directors") prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualification, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any class or series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the class or series of Preferred Stock. (d) The shares of Common Stock and Preferred Stock shall be issued only as fully paid and non-assessable shares. 5. The Corporation is to have perpetual existence. 6. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the by-laws of the Corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board, to designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a 2 quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in the by-laws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Amended and Restated Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the by-laws of the Corporation; and, unless the resolution or by-laws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with law, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the Corporation. 7. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. 8. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 9. The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 10. A director of the Corporation shall not be personally liable to the Corporation or 3 its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derives any improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this paragraph 10 shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification. This paragraph shall not be deemed to limit or preclude indemnification of a director by the Corporation for any liability of a director which has not been eliminated by this paragraph 10. FOURTH: This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of this Corporation. FIFTH: This Amended and Restated Certificate of Incorporation was approved by the holders of the necessary number of outstanding shares of the Corporation as required by the General Corporation Law of the State of Delaware and by the existing Certificate of Incorporation at the annual meeting of stockholders held on June 4, 1996. IN WITNESS WHEREOF, said Micro Warehouse, Inc., has caused this certificate to be signed by its Vice President, General Counsel and Secretary this day of June, 1996. MICRO WAREHOUSE, INC. By /s/ Bruce L. Lev -------------------------------------- Name: Bruce L. Lev Title: Vice President, General Counsel and Secretary 4 EX-3.2 3 AMENDED AND RESTATED BY LAWS EXHIBIT 3.2 MICRO WAREHOUSE, INC. AMENDED AND RESTATED BY LAWS ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle and State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Norwalk, State of Connecticut, at such place as may be fixed from time to time by the Board of Directors, or such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders commencing with the year 1993, shall be held on or about the 1st day of May, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m. or at such other date and at such time as shall be designated from time to- time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote, a board of directors, and transact such other business as may properly be brought before the meeting in accordance with this Article II. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning at least 80% of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. A majority of the stockholders, holding stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. ORDER OF BUSINESS Section 11. The president, or such other officer of the Corporation designated by a majority of the board of directors, will call meetings of the stockholders to order and will act as presiding officer thereof. Unless otherwise determined by the board of directors prior to the meeting, the presiding officer of the meeting of the stockholders will also determine the order of business and have the authority in his or her sole discretion to regulate the conduct of any such meeting, including without limitation by imposing restrictions on the persons (other than stockholders of the Corporation or their duly appointed proxies) who may attend any such stockholders' meeting, by ascertaining whether any stockholder or his or her proxy may be excluded from any meeting of the stockholders based upon any determination by the presiding officer, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and by determining the circumstances in which any person may make a statement or ask questions at any meeting of the stockholders. Section 12. At an annual meeting of the stockholders, only such business will be conducted or considered as is properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board in accordance with Section 3 of this Article, (b) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the board of directors, or (c) otherwise properly requested to be brought before the meeting by a stockholder of the Corporation in accordance with Section 13 of this Article. Section 13. For business to be properly requested by a stockholder to be brought before an annual meeting, the stockholder must (a) be a stockholder of the Corporation of record at the time of the giving of the notice for such annual meeting provided for in these By Laws, (b) be entitled to vote at such meeting, and (c) have given timely notice thereof in writing to the secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 calendar days prior to the annual meeting; provided, however, that in the event public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the date of the annual meeting. A stockholder's notice to the secretary must set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a description in reasonable detail of the business desired to brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class and number of shares of the Corporation that are owned beneficially and of record by the stockholder proposing such business and by the beneficial owner, if any, on whose behalf the proposal is made, and (iv) any material interest of such stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made in such business. Notwithstanding the foregoing provisions of this Section 13, a stockholder must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 13. For purposes of this Section 13 and Section 5 of Article III, "public announcement" means disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or furnished to stockholders. Nothing in this Section 13 will be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended. Section 14. At a special meeting of stockholders, only such business may be conducted or considered as is properly brought before the meeting. To be properly brought before a special meeting, business must be (a) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the president or a majority of the board of directors in accordance with Section 6 of this Article II, or (b) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the board of directors. Section 15. The determination of whether any business sought to be brought before any annual or special meeting of the stockholders is properly brought before such meeting in accordance with this Article II will be made by the presiding officer of such meeting. If the presiding officer determines that any business is not properly brought before such meeting, he or she will so declare to the meeting and any such business will not be conducted or considered. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than two nor more than five. The first board shall consist of two directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the vote of at least 80% of the stockholders entitled to vote for the election of directors at an annual meeting. Subject to the proper nomination procedure under this Article III, the directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. NOMINATIONS OF DIRECTORS Section 3. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock designation, only persons who are nominated in accordance with the following procedures will be eligible for election at a meeting of stockholders as directors of the Corporation. Section 4. Nominations of persons for election as directors of the Corporation may be made only at an annual meeting of stockholders (a) by or at the direction of the board of directors or (b) by any stockholder who (i) is a stockholder of record at the time such stockholder gave notice as provided for in this Section 4; (ii) is entitled to vote for the election of directors at such meeting, and (iii) complies with the procedures set forth in Section 5 of this Article 3. All nominations by stockholders must be made pursuant to timely notice in proper written form to the secretary. Section 5. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 calendar days prior to the annual meeting of stockholders; provided, however, that in the event that public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the date of the annual meeting. To be in proper written form, such stockholder's notice must set forth or include (a) the name and address, as they appear on the Corporation's books, of the stockholder giving the notice and of the beneficial owner, if any, on whose behalf the nomination is made; (b) a representation that the stockholder giving the notice is a holder of record of stock of the Corporation entitled to vote at such annual meeting and intends to appear in person or by proxy at the annual meeting to nominate the person or persons specified in the notice; (c) the class and number of shares of stock of the Corporation owned beneficially and of record by the stockholder giving the notice and by the beneficial owner, if any, on whose behalf the nomination is made; (d) a description of all arrangements or understandings between or among any of (i) the stockholder giving the notice, (ii) the beneficial owner on whose behalf the notice is given, (iii) each nominee, and (iv) any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder giving the notice; (e) such other information regarding each nominee proposed by the stockholder giving the notice as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the board of directors; and (f) the signed consent of each nominee to serve as a director of the Corporation if so elected. At the request of the board of directors, any person nominated by the board of directors for election as a director must furnish to the secretary that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The presiding officer of any annual meeting will, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this Article III, and if he or she should so determine, he or she will so declare to the meeting and the defective nomination will be disregarded. Notwithstanding the foregoing provisions of this Article III, a stockholder must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Article III. BUSINESS OF CORPORATION Section 6. The business of the Corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By Laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 7. The board of directors of the Corporation may hold meetings, both regular and special, either within or without the States of Delaware. Section 8. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such- time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 9. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 10. Special meetings of the board may be called by the chairman or president on two day's notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 11. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 12. Unless prohibited by the certificate of incorporation or these By Laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 13. Unless prohibited by the certificate of incorporation or these By Laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. INTERESTED DIRECTORS Section 14. Whenever the business being transacted by the Board relates to any contract or transaction between the Corporation and one or more of its directors or officers, the Board shall conduct said meeting and vote on said matter in full compliance with Section 144 of the Delaware Corporation Law as the same may be amended from time to time. COMMITTEES OF THE BOARD Section 15. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a), fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By Laws of the Corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 16. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 17. Unless otherwise restricted by the certificate of incorporation or these By Laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board-of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 18. Unless otherwise restricted by the certificate of incorporation or by law, any director may be removed with cause by a majority of the board of directors and any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these By Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these By Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the Corporation shall be chosen by the board of directors and shall be a president, a vice president, a secretary and a treasurer. The board of directors may also choose additional vice presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these By Laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers of the Corporation shall be fixed by the board of directors. Section 5. The officers of the Corporation shall hold --office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. THE VICE PRESIDENT-CHIEF OPERATING OFFICER Section 8. In the absence of the president or in the event of his inability or refusal to act, a vice president who shall be the chief operating officer shall have all the powers of and be subject to all of the restrictions upon the president. The vice president-chief operating officer shall perform such other duties and shall have such other powers as the board of directors may from time to time prescribe. THE VICE PRESIDENTS Section 9. In the absence of the president and the vice president-chief operating officer or in the event of their inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president and vice president-chief operating officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president and vice president-chief operating officer. The vice presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 10. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURER Section 12. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipt and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. Section 13. He shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. Section 14. If required by the board of directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 15. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the Corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the Corporation by, the chairman or vice chairman of the board of directors, or the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of property transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. FIXING RECORD DATE Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to Corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. CHECKS Section 4. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. The Corporation shall indemnify its officers, directors, employees and agents to the full extent permitted by the General Corporation Law of Delaware. ARTICLE VIII AMENDMENTS Section 1. These By Laws may be altered, amended or repealed or new By Laws may be adopted by the stockholders or by the board of directors when such power is conferred upon the board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new By Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal By Laws is conferred upon the board of directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal By Law. EX-10.4 4 AMENDED AND RESTATED 1994 STOCK OPTION PLAN MICRO WAREHOUSE, INC. AMENDED AND RESTATED 1994 STOCK OPTION PLAN 1. Purpose. The purpose of this 1994 Stock Option Plan (the "1994 Plan") is to secure for Micro Warehouse, Inc., a Delaware corporation (the "Company"), and its shareholders the benefits arising from capital stock ownership by employees, directors and consultants of the Company and any subsidiaries who will be responsible for the Company's future by stimulating their efforts on behalf of the Company's further growth and continued success. 2. Shares Subject to the 1994 Plan. Subject to adjustment, as provided in paragraph 10, the stock to be offered under the 1994 Plan shall consist of shares of the Company's Common Stock ("Stock"), and the number of shares of Stock that may be issued upon exercise of all options granted under the 1994 Plan shall not exceed in the aggregate 4,000,000 shares; however, the maximum number of shares underlying an option grant shall not exceed 500,000 in any one year to any individual. Such shares may be authorized and unissued shares or may be treasury shares. If an option granted under the 1994 Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available under the 1994 Plan. Stock issued under the 1994 Plan may be subject to such restrictions on transfer, repurchase rights or other restrictions as shall be determined by the Board of Directors of the Company ("the Board") or a Committee of the Board (the "Committee") as determined under paragraph 4 hereinbelow. 3. Effective Date and Duration of the 1994 Plan. (a) Effective Date. The 1994 Plan shall become effective when adopted by the Board or the Committee, but no option granted under the 1994 Plan shall be exercised prior to the approval of the 1994 Plan by the holders of at least a majority of the outstanding shares of capital stock of the Company voting thereon. Subject to this limitation, options may be granted at any time after the effective date and before termination of the 1994 Plan. (b) Duration. The 1994 Plan shall continue in effect until, in the aggregate, options have been granted and exercised with respect to all of the shares available under the 1994 Plan as set forth in paragraph 2, subject to any adjustments herein; provided, however, that unless sooner terminated by action of the Board or the Committee, the 1994 Plan shall terminate on, and no options shall be granted on or after, the tenth (10th) anniversary of the effective date. The Board or the Committee shall have the right to suspend or terminate the 1994 Plan at any time except with respect to options then outstanding under the 1994 Plan. 4. Administration. The 1994 Plan shall at all times be administered in accordance with the regulations of Rule 16b-3 of the Securities and Exchange Act of 1934 as amended by the Securities and Exchange Commission release No. 34-37260. The 1994 Plan may be administered by the Board of Directors or by a Committee of two or more "non-employee directors". The Board or the Committee shall determine and designate, from time to time the employees, directors and consultants to whom options shall be granted and the number of shares to be covered by each option, the option price, the period of each option, and the time or times at which options may be exercised. Subject to the provisions of the 1994 Plan, the Board or the Committee may, from time to time, adopt rules and regulation relating to administration of the 1994 Plan and make all other determinations in the judgment of the Board or the Committee necessary or desirable for the administration of the 1994 Plan. The interpretation and construction of the provisions of the 1994 Plan and stock option agreements implemented thereunder by the Board or the Committee shall be final and conclusive. The Board or the Committee may correct any defect or supply any omission or reconcile any inconsistency in the 1994 Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the 1994 Plan into effect and it shall be the sole and final judge of such expediency. 5. Grants, Awards and Sales. (a) Type of Security. The Board or the Committee may, from time to time, take the following action, separately or in combination, under the 1994 Plan: (i) grant Incentive Stock Options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraph 5(b); and (ii) grant options other than Incentive Stock Options (herein "Nonstatutory Stock Options") as provided in paragraph 5(c). The Board or the Committee shall specify the action taken with respect to each optionee granted any option under the 1994 Plan, and shall specifically designate each option granted under the 1994 Plan as an Incentive Stock Option or Nonstatutory Stock Option. (b) Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: (i) In no event shall the aggregate fair market value (determined at the time such options are granted) of the Stock with respect to which the employee's Incentive Stock Options first become exercisable during any calendar year under the 1994 Plan or under any other incentive stock option plan (within the meaning of Section 422A of the Code) of the Company or a subsidiary or parent corporation of the Company exceed $100,000. (ii) An Incentive Stock Option may be granted under the 1994 Plan to an employee possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least one hundred ten percent (110%) of the fair market value of the Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of ten (10) years from the date it is granted. 2 (iii) Incentive Stock Options may be granted under the 1994 Plan only to employees of the Company or any parent or subsidiary of the Company. Except as provided in paragraph 9, no Incentive Stock Options granted under the 1994 Plan may be exercised unless at the time of such exercise the optionee is employed by the Company or any parent or subsidiary of the Company and shall have been so employed continuously since the date such option was granted. Absence on leave or on account of illness or disability shall not be deemed an interruption of employment for this purpose, except under rules prescribed by the Board or Committee in its discretion. (iv) Subject to paragraphs 5(b)(ii) and 5(b)(iii), Incentive Stock Options granted under the 1994 Plan shall continue in effect for the period fixed by the Board or the Committee, except that no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it is granted. (v) The option price per share shall be determined by the Board or the Committee at the time of grant. Except as provided in paragraph 5(b)(ii), the option price shall not be less than one hundred percent (100%) of the fair market value of the shares covered by the Incentive Stock Option at the date the option is granted. The fair market value of shares covered by an Incentive Stock Option shall be determined by the Board or the Committee. (vi) Stock acquired upon exercise of the Incentive Stock Options shall not be disposed of: [1] within two (2) years following the date the option was granted and [2] within one (1) year following the date the Stock is transferred to the employee. (c) Nonstatutory Stock Options. Nonstatutory Stock Options shall be subject to the following terms and conditions: (i) Nonstatutory Stock Options may be granted under the 1994 Plan to employees, directors and consultants of the Company or any parent or subsidiary of the Company. Nonstatutory Stock Options granted under the 1994 Plan shall continue in effect for the period fixed by the Board or the Committee, except that a Nonstatutory Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted. (ii) The option price per share shall be determined by the Board or Committee at the time of grant. The option price may be more or less than or equal to the fair market value of the shares covered by the Nonstatutory Stock Option on the date the option is granted, provided that in no event shall the exercise price be less than eighty-five percent (85%) of the fair market value on such date. The fair market value of the shares covered by a Nonstatutory Stock Option shall be determined by the Board or the Committee. (d) Long Term Incentive Compensation Plan. Options may be granted under the Company's long Term Incentive Compensation Plan to certain key executives of the Company. The number of option grants is determined in advance on the basis of the Company's earnings per share, earnings before interest and taxes and revenue target levels, subject to amendment by the Board or Committee. 6. Exercise of Options. Except as provided in paragraph 8, options granted under the 1994 Plan may be exercised from time to time over the period stated in each option agreement in such amounts and at such times as shall be prescribed by the Board or the Committee, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board or the Committee at the date of grant, if the optionee does not exercise an option in any 3 one (1) year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may exercise an option as to those shares in any subsequent year during the term of the option. 7. Nontransferability. (a) Options. Each option granted under the 1994 Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except that options may be assigned or transferred as follows to: members of the optionee's immediate family intended to include parents, spouse, children or grandchildren; or trusts, family partnerships, or other like entities provided that all of the beneficiaries of the same are members of said immediate family, or to any person or entity by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. In all events, the transferrees' rights with respect to any such option shall be subject to and fully governed by the provisions of the Plan and any provisions which would have affected any transferred options had the same not been transferred shall, pari passu, govern said options. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under this 1994 Plan or of any right or privilege conferred hereby or hereunder contrary to the provisions hereof, or upon the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby or hereunder, such option relating thereto shall thereupon terminate and become null and void. In all events, each such option by its terms shall be exercisable by either the optionees or transferrees permitted hereinabove. (b) Stock. Stock issued upon exercise of an option may have, in addition to restrictions on transfer imposed by law, such restrictions on transfer as may be determined by the Board or the Committee. 8. Termination of Employment or Death. (a) In the event the employment by or affiliation with the Company or any parent or subsidiary of the Company by an optionee is terminated by retirement or for any reason, voluntarily or involuntarily, with or without cause, other than in the circumstances specified in the subparagraph (b) below, any option held by such optionee may be exercised at any time prior to its expiration date or the expiration of three (3) months after the date of such termination of employment (or affiliation), whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option on the date of such termination. With reference to Nonstatutory Stock Options, the Board or the Committee may, in its discretion, extend the three (3) month period any length of time not later than the expiration date of the option, subject to such terms and conditions as the Board or the Committee may determine. (b) In the event an optionee's employment by or affiliation with the Company or any parent or subsidiary of the Company is terminated because of death or permanent disability ("permanent disability" is defined as an illness which will prevent an optionee from performing his duties for a continuous period of six months), any and all Incentive Stock Options and/or Nonstatutory Stock Options held by such optionee shall immediately vest and become 4 exercisable. If an optionee's employment by or affiliation with the Company is terminated by death, any option held by the optionee shall be exercisable only by the person or persons to whom such optionee's rights under such option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. Any option governed by this subparagraph must be exercised prior to the earlier of the expiration of twelve (12) months from the date of disability or death or the expiration of the option; provided, however, in the event optionee's employment or affiliation with the Company is terminated because of death or permanent disability, the Board or the Committee may, in its discretion, extend the twelve (12) month period any length of time not later than the expiration date of the option, subject to such terms and conditions as the Board or the Committee may determine. (c) To the extent an option held by any deceased optionee or by any optionee whose employment or affiliation with the Company is terminated shall not have been exercised within the limited periods provided above, all further rights to purchase shares pursuant to such option and all other rights relating to such option shall cease and terminate at the expiration of such periods. (9) Purchase of Shares Pursuant to Option. Shares may be purchased or acquired pursuant to an option granted under the 1994 Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, which shall not be more than thirty (30) days after receipt of the notice and, unless in the opinion of counsel for the Company such a representation is not required in order to comply with the Securities Act of 1933, as amended, containing a representation that is the optionee's present intention to acquire the shares for investment and not with a view to distribution. Unless otherwise approved, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company for the full purchase price for such shares in cash (including cash which may be the proceeds of a loan from the Company), in shares of Common Stock of the Company previously acquired valued at fair market value as determined by the Board or the Committee, or in any combination of cash and such shares of Common Stock of the Company. No shares shall be issued until full payment therefor has been made. Each optionee who has exercised an option shall, upon notification of the amount due, if any, and prior to or concurrently with delivery of the certificates representing the shares with respect to which the option was exercised, pay to the Company amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. 10. Changes in Capital Structure. In the event that the outstanding shares of Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares or dividend payable in shares, appropriate adjustment shall be made by 5 the Board or the Committee in the number and kind of shares issuable upon exercise of outstanding options, for which options may be granted under the 1994 Plan. In addition, the Board or the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof when unexercised, shall be exercisable, to the end that each optionee's proportionate interest shall be maintained as before the occurrence of such event. The Board or the Committee shall have no obligation to effect any adjustment which would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board or the Committee. Any such adjustment made by the Board or the Committee shall be conclusive. In the event of dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, in lieu of providing for options or Stock subject to restrictions as described above in this paragraph 10, the Board or the Committee may, in its sole discretion, (i) provide a thirty (30) day period immediately prior to such event during which optionees shall have the right to exercise options in whole or in part without any limitation on exercisability, except as limited by paragraph 5(b)(i) of the 1994 Plan, and (ii) waive or modify any such restrictions. 11. Corporate Mergers, Acquisitions, Etc. The Board or the Committee may also grant options having terms, conditions and provisions which vary from those specified in this 1994 Plan provided that any options granted pursuant to this section are granted in substitution for, or in connection with the assumption of, existing options or Stock issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party. 12. Amendment of 1994 Plan. The Board or the Committee may, at any time and from time to time, modify or amend the 1994 Plan in such respects as it shall deem advisable because of changes in the law while the 1994 Plan is in effect or for any other reason. Except as provided in paragraph 10, however, no change in a option already granted shall be made without the written consent of the holder of such option. Furthermore, unless approved at an annual meeting or a special meeting by the holders of at least a majority of the votes cast, no amendment or change shall be made in the 1994 Plan (i) increasing the total number of shares which may be purchased under the 1994 Plan, (ii) changing the minimum purchase prices specified in the 1994 Plan, or (iii) increasing the maximum option periods. 13. Approvals. The obligations of the Company under the 1994 Plan shall be subject to the approval of such state or federal authorities or agencies, if any, as may have jurisdiction in the matter. The Company will use its best efforts to take such steps as may be required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange in which the Company's shares may then be listed, in connection with the granting of any option under the 1994 Plan, the issuance or sale of any shares purchased upon exercise of any option under the 1994 Plan or the listing of such shares on said exchange. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver shares of Stock under the 1994 Plan if the Company is advised by its legal counsel that such issuance or delivery would violate applicable state or federal securities laws. 6 14. Employment Rights. Nothing in the 1994 Plan or any option or Stock granted pursuant to the 1994 Plan shall confer upon (i) any employee any right to be continued in the employment of the Company or any parent or subsidiary of the Company, or to interfere in any way with the right of the Company or any parent or subsidiary of the Company by whom such employee is employed to terminate such employee's employment at any time, with or without cause, or to increase or decrease such employee's compensation, or (ii) any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by the Company. 15. Rights as a Stockholder. The holder of an option shall have no rights as a stockholder with respect to any shares covered by any option agreement until the date of issue of a stock certificate to him or her for such shares. Except as otherwise expressly provided in the 1994 Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 7 EX-10.23 5 CONSULTING SERVICES AGREEMENT EXHIBIT 10.23 CONSULTING SERVICES AGREEMENT AGREEMENT made as of the 1st day of January, 1997 by and between MICRO WAREHOUSE, INC., a Delaware corporation, whose principal office is located at 535 Connecticut Avenue, Norwalk, Connecticut (hereinafter referred to as "Company") and FELIX DENNIS, 39 Goodge Street, London, W1P 1FD, England (hereinafter referred to as "Consultant"). W I T N E S S E T H WHEREAS, an Amendment to Consulting Services Agreement dated as of January 1, 1992 between the Company and Consultant expired on December 31, 1996; and WHEREAS, the Company is desirous of retaining Consultant to provide certain consultancy services for the Company as set forth herein; and WHEREAS, Consultant is willing to perform such services under the terms and conditions recited herein. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: 1. Consulting Services. The Company hereby retains Consultant and Consultant hereby agrees to render such services as he has previously rendered to the Company as the Company from time to time shall require such services. Consultant agrees to perform such consulting services related to the business of the Company as shall from time to time be mutually agreed. 2. Term of Engagement. The engagement hereunder shall be for a period which shall commence on January 1, 1997 and shall end on December 31, 1997 (the "Term of Engagement"). 3. Compensation. 3.1 Compensation. As compensation for services to be rendered hereunder, the Company shall during the Term of Engagement pay to Consultant Fifty Thousand Dollars ($50,000) which shall be payable in equal quarterly installments on March 31, June 30, September 30, and December 31 in arrears. 3.2 No Other Benefits. With the exception of reasonable expenses incurred by the Consultant in connection with the discharge of his duties described herein, no other fringe benefits, perquisites, or other benefits are included in this Agreement. 4. Intellectual Property; Confidentiality. Consultant agrees that he will not divulge to anyone other than authorized representatives of the Company any knowledge or information of any type whatsoever of a confidential nature relating to the business of the Company, including without limitation all types of trade secrets, unless such information is readily ascertainable from public or published information or trade sources. Consultant further agrees not to disclose, publish or make use of any such knowledge or information of a confidential nature without the prior written consent of the Company. 5. Reimbursement of Expenses. Consultant shall be entitled to be reimbursed for travel and other expenses incurred in connection with Consultant's services to the Company during the Term of Engagement. 6. Breach by Consultant. The parties hereto recognize that the services to be rendered under this Agreement by Consultant are special, unique and extraordinary in character, and that in the event of a breach by Consultant of the terms and conditions of this Agreement to be performed by Consultant, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain direct and actual damages for any breach of this Agreement, or to enforce the specific performance thereof by Consultant, or to obtain such other and further relief as the court may deem proper. 7. Relationship. The relationship of Consultant to the Company shall be that of independent contractor. Nothing herein shall be deemed to constitute an employment or agency relationship between Consultant and the Company. Nevertheless, nothing contained herein shall be deemed to preclude the creation of such relationship by separate agreement of the parties, in writing, for a particular purpose. Except as expressly agreed in writing, Consultant shall not have the authority to obligate, bind or commit the Company in any manner whatsoever. Unless required by statute, regulation or treaty, the Company shall not (i) withhold any monies payable hereunder in respect of any Federal, State, local or foreign withholding tax or other similar tax or regulation or (ii) provide Consultant with any worker's compensation, disability insurance; or (iii) pay for other insurance coverage. 8. Consultant's Warranties and Representation. The Consultant warrants and represents that he has full power and authority to enter into this Agreement and to perform the obligations hereunder and that to the best of his knowledge, there are no suits or proceedings pending or threatened against or affecting him, which if adversely determined, would impair the terms of this Agreement. No consent of any other party and no declaration with any governmental authority, bureau or agency is required in connection with the execution or performance of this Agreement. 9. Company's Warranties and Representation. The Company represents and warrants that it has the full power and authority to enter into this Agreement and to perform the obligations hereunder and that to the best of its knowledge, there are no suits or proceedings pending or threatened against or affecting it which, if adversely determined, would impair the terms of this Agreement. No consent of any other party and no declaration with any governmental authority, bureau or agency is required in connection with the execution or performance of this Agreement. 10. Survival of Warranties and Representations. All warranties and representations made by the parties hereunder shall survive the termination of this Agreement. 11. Waiver. No failure on the part of any party hereto to enforce the breach of any of the obligations, agreements or conditions hereunder shall be construed as a waiver of such breach or any subsequent performance hereunder unless such waiver shall be in writing signed by the party to whom such obligations or compliance is owed. No executory agreement shall be effective to change or modify or to discharge in whole or in part this Agreement unless such executory agreement is in writing and signed by the parties. 12. Governing Law; Headings. This Agreement contains the entire agreement between the parties and shall be governed by the laws of the State of Connecticut without regard to its laws in the area of conflicts of law. Paragraph headings herein are for convenience of reference only and shall not be considered a part of this Agreement. 13. Prior Agreements. This Agreement supersedes and terminates all prior agreements, written or oral, between the parties relating to the subject matter herein addressed. 14.Notices. All notices, elections, demands or other communications required or permitted to be made or given pursuant to this Agreement shall be in writing and shall be considered properly given or made if sent by courier service or if transmitted (and actually received by the addressee) by any telecommunication device (e.g. telex or telecopier) or if sent to such party by prepaid first class certified mail, return receipt requested, or by courier service, to the addresses set forth below. Any party may change its address by giving notice in writing to the other parties of its new address. To the Company: Micro Warehouse, Inc. 535 Connecticut Avenue Norwalk, CT 06854 Attention: Linwood A. Lacy, Jr. Facsimile (203) 899-4400 with a copy to: Bruce L. Lev, Esquire Vice President and General Counsel Micro Warehouse, Inc. 535 Connecticut Avenue Norwalk, CT 06854 Facsimile (203) 899-4312 To Consultant: Mr. Felix Dennis c/o 39 Goodge Street London, England W1P 1FD Facsimile 011 44 171 636 1305 with a copy to: Michael H. Nixon, Esquire Gersten & Nixon National House 60/66 Wardour Street London, England W1V 3HP Facsimile 011 44 171 734 2479 16. Successors. This Agreement shall be binding on the parties hereto and their successors. IN WITNESS WHEREOF, the Company has, by its appropriate officer, signed this Agreement, and Consultant, as an individual, has signed this Agreement, as of the 1st day of January, 1997. THE COMPANY MICRO WAREHOUSE, INC. By /s/ Linwood A. Lacy, Jr. ------------------------- Linwood A. Lacy, Jr. Its President and Chief Executive Officer Hereunto Duly Authorized ATTEST: /s/ Bruce L. Lev ---------------- Its Secretary CONSULTANT /s/ Felix Dennis ---------------- Felix Dennis EX-10.24 6 FORM OF INDEMNIFICATION AGREEMENT [FORM OF] INDEMNIFICATION AGREEMENT This agreement ("Agreement") is made as of this 1st day of January, l994 between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred to as the "Corporation") and _____________________________ (hereinafter referred to as "Indemnitee"). W I T N E S S E T H: WHEREAS, Indemnitee is an officer of Micro Warehouse, Inc., and in such capacity is performing a valuable service to the Corporation; and WHEREAS, the Board of Directors of the Corporation has adopted by-laws providing for the indemnification of the officers, directors, agents (as hereinafter defined) and employees of the Corporation to the maximum extent authorized by Section 145 of the Delaware General Corporation Law; and WHEREAS, Section 145(f) of the Delaware General Corporation Law allows for the indemnification of officers, directors, agents and employees of the Corporation by means of indemnification agreements such as contemplated herein; and WHEREAS, in order to thereby induce Indemnitee to serve or to continue to serve the Corporation, the Corporation has determined and agreed to enter into this Agreement with Indemnitee. NOW, THEREFORE, in consideration of Indemnitee's service or continued service as a director or officer of the Corporation after the date hereof, the parties hereto agree as follows: 1. Definitions. (a) The term "Agent" means any person who is or was a director, officer, employee or other agent of the Corporation or a subsidiary of the Corporation; or is or was serving at the request of, for the convenience of, or to represent the interests of, the Corporation or a subsidiary of the Corporation as a director, officer, employee or agent of another entity or enterprise; or was a director, officer, employee or agent of a predecessor corporation of the Corporation or a subsidiary (as hereinafter defined) of the Corporation, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation. (b) The term "Expenses" means all direct and indirect costs of any type or nature whatsoever (including without limitation, all attorneys' fees, costs of investigation and related disbursements) incurred by the Indemnitee in connection with the investigation, settlement, defense or appeal of a claim or proceeding (as hereinafter defined) covered hereby or establishing or enforcing a right to indemnification under this Agreement. (c) The term "Proceeding" means any threatened, pending or completed claim, suit or action, whether civil, criminal, administrative, investigative or otherwise. (d) "Subsidiary" means any corporation of which more than 10% of the outstanding voting securities is owned directly or indirectly by the Corporation, and one or more Subsidiaries, taken as a whole. 2. Maintenance of Liability Insurance. (a) The Corporation hereby covenants and agrees to each Indemnitee that, so long as such Indemnitee shall continue to serve as an Agent of the Corporation and thereafter so long as the Indemnitee shall be subject to any claim or Proceeding by reason of the fact that the Indemnitee was an Agent of the Corporation or in connection with such Indemnitee's acts as such an Agent, the Corporation, subject to paragraph 2(b), shall obtain and maintain or cause to be obtained and maintained in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from established and reputable insurers, but no less than the amounts currently in effect on the date hereof. (b) Notwithstanding the foregoing, the Corporation shall have no obligation to obtain or maintain D&O Insurance if the Corporation determines in good faith that the premium costs for such insurance are disproportionate to the amount of coverage provided after giving effect to exclusions. 3. Mandatory Indemnification. The Corporation shall defend, indemnify and hold harmless each Indemnitee: (a) Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Corporation) by reason of the fact that such Indemnitee is or was an Agent of the Corporation, or by reason of anything done or not done by the Indemnitee in any such capacity, against any and all Expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) incurred by him or her in connection with the investigation, defense, settlement or appeal of such Proceeding, so long as the Indemnitee acted in good faith and in a manner he or she reasonably believed to be 2 in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or Proceeding, had reasonable cause to believe his or her conduct was not unlawful. (b) Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Corporation by reason of the fact that he or she is or was an Agent of the Corporation, or by reason of anything done or not done by him or her in any such capacity, against any amounts paid in settlement of any such Proceeding and all other Expenses incurred by him or her in connection with the investigation, defense, settlement or appeal of such Proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification under this subparagraph shall be made, and the Indemnitee shall repay all amounts previously advanced by the Corporation, in respect of any claim, issue or matter for which such person is judged to be liable to the Corporation by a court of competent jurisdiction due to misconduct in the performance of his or her duties to the Corporation, unless and only to the extent that the court in which such Proceeding was brought shall determine that such person is fairly and reasonably entitled to indemnity. (c) Actions Where Indemnitee is Deceased. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was an Agent of the Corporation, or by reason of anything done or not done by him or her in any such capacity, and prior to, during the pendency of, or after completion of, such Proceeding, the Indemnitee shall die, then the Corporation shall defend, indemnify and hold harmless the estate, heirs and legatees of the Indemnitee against any and all Expenses and liabilities incurred by or for such persons or entities in connection with the investigation, defense, settlement or appeal of such Proceeding on the same basis as provided for the Indemnitee in paragraphs 3(a) and 3(b) above. The Expenses and liabilities covered hereby shall be net of any payments by D&O Insurance carriers or others. 4. Partial Indemnification. If an Indemnitee is found under paragraph 3(b), 7 or 10 hereof not to be entitled to indemnification for all of the Expenses relating to a Proceeding, the Corporation shall indemnify the Indemnitee for any portion of such Expenses not specifically precluded by the operation of such paragraph 3(b), 7 or 10. 5. Mandatory Advancement of Expenses. Until a determination to the contrary under paragraph 7 hereof is made and unless the provisions of paragraph 10 apply, the Corporation shall advance all Expenses incurred by each Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party covered by the indemnification in paragraph 3 hereof. As a condition to such advance, each Indemnitee shall, at the request of the Corporation, undertake in a manner satisfactory to the Corporation to repay such amounts advanced if it shall ultimately be determined by an order of a court that the Indemnitee is not entitled to be indemnified by the 3 Corporation by the terms hereof or under applicable law. Subject to paragraph 6 hereof, the advances to be made hereunder shall be paid by the Corporation to the Indemnitee within twenty (20) days following delivery of a written request by 4 the Indemnitee to the Corporation, which request shall be accompanied by vouchers, invoices and similar evidence documenting the amounts requested. 6. Indemnification Procedures. (a) Promptly after receipt by the Indemnitee of notice of the commencement or threat of any Proceeding covered hereby, the Indemnitee shall notify the Corporation of the commencement or threat thereof, provided that any failure to so notify shall not relieve the Corporation of any of its obligations hereunder, except to the extent that such failure or delay increases the liability of the Corporation hereunder. (b) If, at the time of the receipt of a notice pursuant to paragraph 6(a) above, the Corporation has D&O Insurance in effect, the Corporation shall give prompt notice of the Proceeding or claim to its insurers in accordance with the procedures set forth in the applicable policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such Proceeding in accordance with the terms of such policies and the Indemnitee shall not take any action (by waiver, settlement or otherwise) which would adversely affect the ability of the Corporation to obtain payment from its insurers. (c) If the Corporation shall be obligated to pay the Expenses of any Indemnitee, the Corporation shall assume the defense of the Proceeding to which the Expenses relate and shall deliver a notice of assumption to the Indemnitee. The Corporation will not be liable to the Indemnitee under this Agreement for any fees of counsel incurred after delivery of such notice with respect to such Proceeding or any costs of settlement not approved in advance in writing by the Corporation, provided that (i) the Indemnitee shall have the right to employ his or her own counsel in any such Proceeding at the Indemnitee's expense, and (ii) if (1) the employment of counsel by the Indemnitee has been previously authorized by the Corporation, (2) the Indemnitee shall have provided the Corporation with an opinion of counsel stating that there is a strong argument that a conflict of interest exists between the Corporation and the Indemnitee in the conduct of any such defense, or (3) the Corporation shall not have assumed the defense of such Proceeding, the fees and Expenses of Indemnitee's counsel shall be at the expense of the Corporation. 7. Determination of Right to Indemnification. (a) To the extent an Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, claim, issue or matter covered hereby, the Indemnitee need not repay any of the Expenses advanced in connection with the investigation, defense or appeal of such Proceeding. 5 (b) If paragraph 7(a) is inapplicable, the Corporation shall remain obligated to indemnify the Indemnitee, and the Indemnitee need not repay Expenses previously advanced, unless the Corporation, by contested motion before a court of competent jurisdiction, obtains preliminary or permanent relief suspending or denying the obligation to advance or indemnification for Expenses. (c) Notwithstanding a determination by a court that the Indemnitee is not entitled to indemnification with respect to a specific Proceeding, the Indemnitee shall have the right to apply to the Court of Chancery of Delaware for the purpose of enforcing the Indemnitee's right to indemnification pursuant to this Agreement. (d) Notwithstanding any other provision in this Agreement to the contrary, the Corporation shall indemnify the Indemnitee against all Expenses incurred by the Indemnitee in connection with any Proceeding under paragraph 7(b) or 7(c) above and against all Expenses incurred by the Indemnitee in connection with any other Proceeding between the Corporation and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that the material claims and/or defenses of the Indemnitee in any such Proceeding were frivolous or made in bad faith. 8. Certificate of Incorporation and By Laws. The Corporation agrees that the Certificate of Incorporation and By Laws of the Corporation in effect on the date hereof shall not be amended to reduce, limit, hinder or delay (i) the rights of the Indemnitee granted hereby or (ii) the ability of the Corporation to indemnify the Indemnitee as required hereby. The Corporation further agrees that it shall exercise the powers granted to it under its Certificate of Incorporation, its By Laws and by applicable law to indemnify any Indemnitee to the fullest extent possible as required hereby. The Corporation further covenants and agrees that Articles 9 and 10 of the Corporation's Certificate of Incorporation shall not be amended in a manner (i) adverse to any Indemnitee or (ii) inconsistent with the benefits granted to the Indemnitee hereby. 9. Witness Expenses. The Corporation agrees to reimburse each Indemnitee for all Expenses, including attorneys' fees and travel costs, incurred by such Indemnitee in connection with being a witness, or if an Indemnitee is threatened to be made a witness, with respect to any Proceeding, by reason of his serving or having served as an Agent of the Corporation. 10. Exceptions. Notwithstanding any other provision herein to the contrary, the Corporation shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense (other than Proceedings brought to establish or enforce a right to indemnification under this Agreement or the provisions of the Corporation's Certificate of Incorporation or By Laws unless a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such Proceeding was not made in good faith or was 6 frivolous). (b) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a Proceeding covered hereby without the prior written consent of the Corporation to such settlement. 11. Non-exclusivity. This Agreement is not the exclusive arrangement between the Corporation and any Indemnitee regarding the subject mater hereof and shall not diminish or affect any other rights which each Indemnitee may have under any provision of law, the Corporation's Certificate of Incorporation or By Laws, under other agreements, or otherwise. 12. Continuation after Term. Each Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as a director or Agent of the Corporation and the benefits hereof shall inure to the benefit of the heirs, executors and administrators of each Indemnitee. 13. Interpretation of Agreement. This Agreement shall be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent now or hereafter permitted by law. 14. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, (i) the validity, legality and enforceability of the remaining provisions of the Agreement shall not in any way be effected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement shall be construed or altered by the court so as to remain enforceable and to provide the Indemnitee with as many of the benefits contemplated hereby as are permitted under law. 15. Counterparts, Modification and Waiver. This Agreement may be signed in counterparts. This Agreement constitutes a separate agreement between the Corporation and each Indemnitee and may be supplemented or amended as to an Indemnitee only by a written instrument signed by the Corporation and such Indemnitee, with such amendment binding only the Corporation and the signing Indemnitee(s). All waivers must be in a written document signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be implied by the conduct of the parties. A waiver of any right hereunder shall not constitute a waiver of any other right hereunder. 7 IN WITNESS WHEREOF, the parties hereby have caused this agreement to be duly executed as of the day and year first above written. MICRO WAREHOUSE, INC. By____________________________ Bruce L. Lev, Its Executive Vice President Hereunto Duly Authorized ---------------------------- 8 EX-10.25 7 AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 31, 1997 among MICRO WAREHOUSE, INC. THE SUBSIDIARIES OF MICRO WAREHOUSE, INC. THE LENDERS SIGNATORY HERETO and THE CHASE MANHATTAN BANK as Administrative Agent TABLE OF CONTENTS ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS......................................2 Section 1.01. Definitions...............................................2 Section 1.02. Accounting Terms.........................................17 ARTICLE 2. THE CREDIT........................................................17 Section 2.01. Revolving Credit Loans...................................17 Section 2.02. The Revolving Credit Notes...............................18 Section 2.03. Purpose..................................................18 Section 2.04. Borrowing Procedures.....................................18 Section 2.05. Prepayments and Conversions..............................18 Section 2.06. Interest Periods; Renewals...............................19 Section 2.07. Changes of Revolving Credit Commitments..................20 Section 2.08. Certain Notices..........................................20 Section 2.09. Minimum Amounts..........................................20 Section 2.10. Interest.................................................21 Section 2.11. Fees.....................................................21 Section 2.12. Payments Generally.......................................22 Section 2.13. Novation.................................................22 ARTICLE 3. THE LETTERS OF CREDIT.............................................23 Section 3.01. Letters of Credit........................................23 Section 3.02. Purposes.................................................23 Section 3.03. Procedures for Issuance of Letters of Credit.............23 Section 3.04. Participating Interests..................................23 Section 3.05. Payments.................................................24 Section 3.06. Further Assurances.......................................25 Section 3.07. Obligations Absolute.....................................25 Section 3.08. Cash Collateral Account..................................25 Section 3.09. Letter of Credit Fees....................................26 ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC.................................26 Section 4.01. Additional Costs.........................................26 Section 4.02. Limitation on Eurocurrency Loans.........................28 Section 4.03. Illegality...............................................28 Section 4.04. Certain Conversions pursuant to Sections 4.01 and 4.03.................................................29 Section 4.05. Certain Compensation.....................................30 Section 4.06. Taxes....................................................30 ARTICLE 5. CONDITIONS PRECEDENT..............................................32 Section 5.01. Documentary Conditions Precedent.........................32 Section 5.02. Additional Conditions Precedent..........................33 Section 5.03. Deemed Representations...................................33 i ARTICLE 6. REPRESENTATIONS AND WARRANTIES....................................33 Section 6.01. Incorporation, Good Standing and Due Qualification.......33 Section 6.02. Corporate Power and Authority; No Conflicts..............33 Section 6.03. Legally Enforceable Agreements...........................34 Section 6.04. Litigation...............................................34 Section 6.05. Financial Statements.....................................34 Section 6.06. Ownership and Liens......................................35 Section 6.07. Taxes....................................................35 Section 6.08. ERISA....................................................35 Section 6.09. Consolidated Entities and Affiliates.....................36 Section 6.10. Credit Arrangements......................................36 Section 6.11. Operation of Business....................................36 Section 6.12. Hazardous Materials......................................36 Section 6.13. No Default on Outstanding Judgments or Orders............37 Section 6.14. No Defaults on Other Agreements..........................37 Section 6.15. Labor Disputes and Acts of God...........................37 Section 6.16. Governmental Regulation..................................37 Section 6.17. No Forfeiture............................................37 Section 6.18. Solvency.................................................37 ARTICLE 7. AFFIRMATIVE COVENANTS.............................................38 Section 7.01. Maintenance of Existence.................................38 Section 7.02. Conduct of Business......................................38 Section 7.03. Maintenance of Properties................................38 Section 7.04. Maintenance of Records...................................38 Section 7.05. Maintenance of Insurance.................................39 Section 7.06. Compliance with Laws.....................................39 Section 7.07. Right of Inspection......................................39 Section 7.08. Reporting Requirements...................................39 Section 7.09. Additional Subsidiary Guarantors.........................43 ARTICLE 8. NEGATIVE COVENANTS................................................43 Section 8.01. Debt.....................................................43 Section 8.02. Guaranties...............................................44 Section 8.03. Liens....................................................44 Section 8.04. Leases...................................................45 Section 8.05. Investments..............................................46 Section 8.06. Distributions............................................46 Section 8.07. Sale of Assets...........................................47 Section 8.08. Subsidiary Capital Stock.................................47 Section 8.09. Transactions with Affiliates.............................47 Section 8.10. Mergers, Etc.............................................47 Section 8.11. Acquisitions.............................................48 Section 8.12. No Activities Leading to Forfeiture......................48 ii Section 8.13. Capital Expenditures.....................................48 Section 8.14. Restrictions.............................................48 Section 8.15. Fiscal Year..............................................48 ARTICLE 9. FINANCIAL COVENANTS...............................................48 Section 9.01. Interest Coverage Ratio..................................49 Section 9.02. Minimum Tangible Net Worth...............................49 Section 9.03. Leverage Ratio...........................................49 Section 9.04. Current Ratio............................................49 Section 9.05. Domestic Net Worth.......................................49 ARTICLE 10. EVENTS OF DEFAULT................................................49 Section 10.01. Events of Default.......................................49 ARTICLE 11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS.......................52 Section 11.01. Guarantied Obligations..................................52 Section 11.02. Performance Under This Agreement........................52 Section 11.03. Waivers.................................................52 Section 11.04. Releases................................................54 Section 11.05. Marshaling..............................................54 Section 11.06. Liability...............................................55 Section 11.07. Unconditional Obligation................................55 Section 11.08. Election to Perform Obligations.........................55 Section 11.09. No Election.............................................55 Section 11.10. Severability............................................56 Section 11.11. Other Enforcement Rights................................56 Section 11.12. Delay or Omission; No Waiver............................56 Section 11.13. Restoration of Rights and Remedies......................56 Section 11.14. Cumulative Remedies.....................................57 Section 11.15. Survival................................................57 Section 11.16. No Setoff, Counterclaim or Withholding; Gross-Up........57 Section 11.17. Payment in Applicable Currency..........................57 ARTICLE 12. THE ADMINISTRATIVE AGENT.........................................57 Section 12.01. Appointment, Powers and Immunities of Administrative Agent....................................57 Section 12.02. Reliance by Administrative Agent........................58 Section 12.03. Defaults................................................58 Section 12.04. Rights of Administrative Agent as a Lender..............59 Section 12.05. Indemnification of Administrative Agent.................59 Section 12.06. Documents...............................................60 Section 12.07. Non-Reliance on Administrative Agent and Other Lenders.................................................60 Section 12.08. Failure of Administrative Agent to Act..................60 Section 12.09. Resignation or Removal of Administrative Agent..........60 iii Section 12.10. Amendments Concerning Agency Function...................61 Section 12.11. Liability of Administrative Agent.......................61 Section 12.12. Transfer of Agency Function.............................61 Section 12.13. Non-Receipt of Funds by the Administrative Agent........61 Section 12.14. Withholding Taxes.......................................62 Section 12.15. Several Obligations and Rights of Lenders...............62 Section 12.16. Pro Rata Treatment of Revolving Credit Loans, Etc.......62 Section 12.17. Sharing of Payments Among Lenders.......................63 ARTICLE 13. MISCELLANEOUS.....................................................63 Section 13.01. Amendments and Waivers..................................63 Section 13.02. Usury...................................................64 Section 13.03. Expenses................................................64 Section 13.04. Survival................................................65 Section 13.05. Assignment; Participations..............................65 Section 13.06. Notices.................................................66 Section 13.07. Setoff..................................................66 SECTION 13.08. JURISDICTION; IMMUNITIES......................................66 Section 13.09. Table of Contents; Headings.............................68 Section 13.10. Severability............................................68 Section 13.11. Counterparts............................................68 Section 13.12. Integration.............................................68 Section 13.13. Governing Law...........................................68 Section 13.14. Confidentiality.........................................68 Section 13.15. Treatment of Certain Information........................69 Section 13.16. Judgment Currency.......................................69 iv v vi vii EXHIBITS Exhibit A Opinion of Outside Counsel to the Consolidated Entities SCHEDULES Schedule I Revolving Credit Commitments Schedule II Consolidated Entities and Affiliates Schedule III Credit Arrangements viii AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 31, 1997 among MICRO WAREHOUSE, INC., a corporation organized under the laws of Delaware ("Micro Warehouse"); each of the Subsidiaries of Micro Warehouse which is a signatory hereto as a "Subsidiary Borrower" (individually a "Subsidiary Borrower" and collectively the "Subsidiary Borrowers" and, together with Micro Warehouse, the "Borrowers"); each of the other Subsidiaries of Micro Warehouse which is a signatory hereto as a "Subsidiary Guarantor" or which shall become a party hereto as a "Subsidiary Guarantor" from time to time (individually a "Subsidiary Guarantor" and collectively the "Subsidiary Guarantors" and, together with the Borrowers, the "Obligors"); each of the financial institutions which is a signatory hereto as a "Lender" or which shall become a party hereto as a "Lender" from time to time (individually a "Lender" and collectively the "Lenders"); and THE CHASE MANHATTAN BANK, a bank organized under the laws of New York, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). WHEREAS, Micro Warehouse, the Subsidiary Borrowers (other than Micro Warehouse Limited), the Subsidiary Guarantors, the Lenders and the Administrative Agent have entered into that certain Credit Agreement dated as of July 25, 1995 (as amended, the "Existing Credit Agreement") pursuant to which the Lenders have extended credit to the Obligors evidenced by certain Revolving Credit Notes issued by the respective Borrower (other than Micro Warehouse Limited) and guarantied by the other Borrowers (other than Micro Warehouse Limited) and the Subsidiary Guarantors; WHEREAS, Micro Warehouse Limited acquired the entire business and undertaking of the company of that name ("the Old MWL") which is party to the Existing Credit Agreement. Micro Warehouse Limited wishes to step into the position of the Old MWL and be treated in all respects as if it had by a novation replaced the Old MWL as party to the Existing Credit Agreement. WHEREAS, Micro Warehouse, the Subsidiary Borrowers, the Subsidiary Guarantors, the Lenders and the Administrative Agent have agreed to enter into this Agreement to amend and restate the Existing Credit Agreement to provide for, among other things, an extension of the Revolving Credit Termination Date, an automatic reduction in the Revolving Credit Commitments and modifications of certain covenants and definitions contained therein; and WHEREAS, the Obligors have requested that the Lenders make loans to the respective Borrower, the repayment of which will be guarantied by the other Borrowers and the Subsidiary Guarantors; each Obligor will receive direct economic and financial benefits from the Debt incurred under this Agreement and the incurrence of such Debt is in the best interests of such Obligor; and each Obligor acknowledges that the Lenders would not provide the financing hereunder but for the joint and several obligations of such Obligor hereunder with respect hereto. 1 NOW THEREFORE, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. Section 1.1. Definitions. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "Acceptable Acquisition" means any Acquisition which meets all of the following conditions: (a) the aggregate consideration paid for such Acquisition and for all prior Acquisitions during the same Fiscal Year does not exceed $50,000,000; (b) such Acquisition has been approved in good faith by the Board of Directors of the Person making the Acquisition; (c) no Default or Event of Default exists or would exist after giving effect to such Acquisition; and (d) after reviewing historical financial statements of the business being acquired and considering the pro forma position of the Consolidated Entities subsequent to such Acquisition, Micro Warehouse believes in good faith that the Consolidated Entities will continue to be in compliance with the financial covenants contained in Article 9 on a pro forma basis. "Acquisition" means any transaction pursuant to which any Consolidated Entity (a) acquires equity securities (or warrants, options or other rights to acquire such securities) of any Person, (b) causes or permits any Person to be merged into such Consolidated Entity, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding securities, in exchange for such securities, of cash or securities of any Consolidated Entity, or a combination thereof, or (c) purchases all or substantially all of the business or assets of any Person. "Additional Costs" shall have the meaning assigned to such term in Section 4.01 hereof. "Affiliate" means any Person: (a) which directly or indirectly controls, or is controlled by, or is under common control with, any Consolidated Entity; (b) which directly or indirectly beneficially owns or holds 5% or more of any class of voting stock of any Consolidated Entity; (c) 5% or more of the voting stock of which is directly or indirectly beneficially owned or held by any Consolidated Entity; or (d) which is a partnership in which any Consolidated Entity is a general partner. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Administrative Agent" shall have the meaning assigned to such term in the introductory paragraph hereof. 2 "Agreement" means this Credit Agreement, as amended or supplemented from time to time. References to Articles, Sections, Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. "Alternative Currency" means any currency other than Dollars which is commonly dealt with in the London interbank market and is freely transferable and convertible into Dollars. "Alternative Currency Equivalent" means, with respect to an amount of Dollars on any date in relation to any specified Alternative Currency, the amount of such specified Alternative Currency that may be purchased with such amount of Dollars at the Spot Exchange Rate with respect to Dollars on such date. "Assumption Agreements" means each of the Assumption Agreements in the form of Exhibit E to the Existing Credit Agreement delivered under Section 7.09 hereof. "Banking Day" means any day on which commercial banks are not authorized or required to close in New York, New York and whenever such day relates to a Eurocurrency Loan or notice with respect to any Eurocurrency Loan, a day on which dealings in Dollar or the applicable Alternative Currency deposits are also carried out in the London interbank market. "Borrowers" shall have the meaning assigned to such term in the introductory paragraph hereof. "Capital Expenditures" means, with respect to any Person, any expenditures made by such Person to acquire or construct fixed assets, plant and equipment (including renewals, improvements, replacements and incurrence of obligations under Capital Leases, but excluding repairs and Acquisitions). "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Closing Date" means the date upon which the initial borrowing or initial issuance of a Letter of Credit hereunder occurs. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment Percentage" means, as to any Lender at any date of determination thereof, the percentage of the aggregate Revolving Credit Commitments constituted by such Lender's Revolving Credit Commitments at such date. 3 "Compliance Certificate" means the compliance certificate in the form of Exhibit B2 to the Existing Credit Agreement to be delivered by Micro Warehouse under the terms of this Agreement. "Consolidated Capital Expenditures" means, with respect to any fiscal period, the aggregate amount of Capital Expenditures of the Consolidated Entities for such period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Current Assets" means, at any date of determination thereof, all assets of the Consolidated Entities treated as current assets, as determined on a consolidated basis in accordance with GAAP. "Consolidated Current Liabilities" means, at any date of determination thereof, all liabilities of the Consolidated Entities treated as current liabilities, as determined on a consolidated basis in accordance with GAAP. "Consolidated Debt" means, at any date of determination thereof, the aggregate amount of Debt of the Consolidated Entities, as determined on a consolidated basis in accordance with GAAP. "Consolidated EBIT" means, with respect to any fiscal period, the sum of (a) Consolidated Net Income for such period, plus (b) the aggregate amount of (i) income taxes, (ii) Consolidated Interest Expense, (iii) non-cash charges taken in the Fiscal Quarter ending on December 31, 1997 arising from the implementation of the Restructuring Plan not to exceed $53,000,000 and (iv) non-cash charges arising from any resolution of the action of certain stockholders pending against Micro Warehouse arising out of the stock merger between Micro Warehouse and Inmac Corp., to the extent that such aggregate amount was deducted in the computation of Consolidated Net Income for such period. "Consolidated Entity" means Micro Warehouse or any Subsidiary of Micro Warehouse whose accounts are or are required to be consolidated with the accounts of Micro Warehouse in accordance with GAAP. "Consolidated Intangible Assets" means, at any date of determination thereof, all assets of the Consolidated Entities which would be classified as intangibles under GAAP but in any event including, without limitation, unamortized debt discount and expense, unamortized acquisition, organization and reorganization expense, patents, copyrights, trademarks, trade names, franchises, goodwill and other similar intangible assets. "Consolidated Interest Expense" means, with respect to any fiscal period, the amount of interest accrued on, and with respect to, Consolidated Debt (including, without limitation, amortization of debt discount and imputed interest on Capital Leases) plus all finance charges, premiums and other fees, charges and expenses 4 extracted in exchange for the forbearance from the collection of money during such period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Liabilities" means, at any date of determination thereof, all liabilities of the Consolidated Entities (other than (a) the litigation settlement accrual arising from the proposed settlements of the consolidated securities class action lawsuit arising out of Micro Warehouse's announcements in September and October 1996 that it intended to restate certain financial statements covering the 1992 through 1995 Fiscal Years not to exceed $9,000,000 and (b) the non-cash portion of the litigation settlement accrual arising from any resolution of the action of certain stockholders pending against Micro Warehouse arising out of the stock merger between Micro Warehouse and Inmac Corp.), as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any fiscal period, net income for the Consolidated Entities for such fiscal period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth" means, at any date of determination thereof, all amounts which would be included under stockholders' equity on a consolidated balance sheet of the Consolidated Entities, as determined on a consolidated basis in accordance with GAAP. "Consolidated Subordinated Debt" means, at any date of determination thereof, all Debt of the Consolidated Entities which is subordinated to all obligations owed to the Required Lenders on terms and conditions acceptable to the Lenders, as determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Net Worth" means, at any date of determination thereof, the result of (a) Consolidated Net Worth minus (b) Consolidated Intangible Assets. "Currency Protection Agreement" means, with respect to any Person, any foreign exchange contract, currency swap agreement or other financial agreement or arrangement between one or more Lenders and a Consolidated Entity designed to protect against fluctuations in currency values. "Current Ratio" means, at any date of determination thereof, the ratio of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities. "Customer" means the account debtor with respect to any of the Receivables and/or the purchaser of goods, services or both with respect to any contract or contract right, and/or any Person who enters into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal Property or perform any services. 5 "Debt" means, with respect to any Person: (a) indebtedness of such Person for borrowed money; (b) indebtedness for the deferred purchase price of Property or services (except trade payables and accrued expenses in the ordinary course of business); (c) Unfunded Benefit Liabilities of such Person (if such Person is not a Consolidated Entity, determined in a manner analogous to that of determining Unfunded Benefit Liabilities of the Consolidated Entities); (d) the face amount of any outstanding letters of credit issued for the account of such Person; (e) obligations arising under acceptance facilities; (f) Guaranties of such Person; (g) obligations secured by any Lien on Property of such Person; (h) obligations of such Person as lessee under Capital Leases; (i) obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging arrangements; and (j) all capital stock of such Person subject to repurchase or redemption other than at the sole option of such Person. "Debt to EBIT Ratio" means, at any date of determination thereof, the ratio of (a) Consolidated Debt (exclusive of "Debt" included under clause (i) of the definition thereof) to (b) Consolidated EBIT for the four most recently ended Fiscal Quarters. "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. "Default Rate" means, with respect to the principal of any Revolving Credit Loan and, to the extent permitted by law, any other amount payable by any Obligor under this Agreement, any Revolving Credit Note or any other Facility Document, that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date, to, but excluding the date on which such amount is paid in full equal to four percent (4%) above the Variable Rate as in effect from time to time plus the Interest Margin (if any); provided that, if the amount so in default is principal of a Eurocurrency Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest Period therefor, two percent (2%) above the interest rate for such Eurocurrency Loan as provided in Section 2.10 hereof and, thereafter, the rate provided for above in this definition. "Denomination Date" means, in relation to any borrowing, conversion or renewal in an Alternative Currency, the date that is three Banking Days before the date such borrowing, conversion or renewal is made. "Distribution" means, with respect to any Person, the declaration or payment of any dividends by such Person, or the purchase, redemption, retirement or other acquisition for value of any of its capital stock now or hereafter outstanding, or the making of any distribution of assets to its stockholders as such whether in cash, assets or in obligations of such Person, or the allocation or other setting apart of any sum for the payment of any dividend or distribution on, or for the purchase, 6 redemption or retirement of any shares of its capital stock, or the making of any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock, or the making of payments of interest on, or payments or prepayments of principal of, or payments (or setting apart of money for a sinking or other analogous fund) for the purchase,redemption, retirement or other acquisition of principal or interest, on Consolidated Subordinated Debt. "Dollar Equivalent" means, with respect to an amount of any Alternative Currency on any date, the amount of Dollars that may be purchased with such amount of such Alternative Currency at the Spot Exchange Rate with respect to such Alternative Currency on such date. "Dollars" and the sign "$" mean lawful money of the United States of America. "Domestic Cash Equivalents" means: (a) direct obligations of, or obligations fully guarantied or insured by, the United States of America or any agency or instrumentality thereof with maturities of one year or less from the date of acquisition; (b) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (c) time deposits or certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating within the United States of America having capital and surplus in excess of $100,000,000; and (d) money market or mutual funds whose sole investments are comprised of investments permitted under the foregoing clauses (a) through (c). "Domestic Net Worth" means, at any date of determination thereof, all amounts which would be included under stockholders' equity on a combined balance sheet of Micro Warehouse and the Domestic Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Domestic Obligations" means all Obligations of Micro Warehouse and the Domestic Subsidiaries. "Domestic Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by the Consolidated Entities or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Domestic Subsidiary" means a direct or indirect Subsidiary of Micro Warehouse which is not a Foreign Subsidiary. "Effective Date" shall have the meaning assigned to such term in Article 5. "Environmental Laws" means any and all domestic, foreign, federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, 7 permits, licenses, agreements with Governmental Authorities or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which any Consolidated Entity is a member, or (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which any Consolidated Entity is a member. "Eurocurrency Loan" means any Revolving Credit Loan when and to the extent the interest rate therefor is determined on the basis of the definition "Fixed Base Rate." "Event of Default" shall have the meaning assigned to such term in Section 10.01 hereof. "Existing Credit Agreement" shall have the meaning assigned to such term in the first recital hereto. "Facility Documents" means this Agreement, the Revolving Credit Notes, the Letters of Credit, each Assumption Agreement, each Interest Rate Protection Agreement and each Currency Protection Agreement, as each may be amended or supplemented from time to time. "Federal Funds Rate" means, for any day, the rate per annum (expressed on a 365/366 day basis of calculation, if the rate on Variable Rate Loans is so calculated) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Lender of New York for such day (or for any day that is not a Banking Day, for the immediately preceding Banking Day). "Fiscal Quarter" means any calendar quarter. "Fiscal Year" means any calendar year. "Fiscal Year Net Worth Increase Amounts" means, with respect to each Fiscal Year, the sum of (a) the greater of (i) Zero Dollars ($0) and (ii) 50% of Consolidated 8 Net Income for such Fiscal Year plus (b) 50% of the proceeds (net of underwriting commissions and discounts and reasonable fees and expenses) from the sale of capital stock of Micro Warehouse during such Fiscal Year. "Fixed Base Rate" means with respect to any Interest Period for a Eurocurrency Loan: the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of one percent (1%)) quoted at approximately 11:00 a.m. London time by the principal London branch of the Reference Lender two Banking Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of Dollar or Alternative Currency deposits in immediately available funds, for a period, and in an amount, comparable to the Interest Period and principal amount of the Eurocurrency Loan which shall be made. "Fixed Rate" means, for any Eurocurrency Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of one percent (1%)) determined by the Administrative Agent to be equal to the quotient of (i) the Fixed Base Rate for such Eurocurrency Loan for such Interest Period, divided by (ii) one minus the Reserve Requirement for such Eurocurrency Loan for such Interest Period. "Foreign Cash Equivalents" means: (a) direct obligations of, or obligations fully guarantied or insured by, the government of the country in which any Foreign Subsidiary is incorporated or has its principal place of business with maturities of one year or less from the date of acquisition; and (b) direct demand obligations issued by the principal banking institutions located in any such country. "Foreign Plan" means any pension plan or other deferred compensation plan, program or arrangement maintained by any Foreign Subsidiary which may or may not, under applicable local law, be required to be funded through a trust or other funding vehicle. "Foreign Subsidiary" means each direct or indirect Subsidiary of Micro Warehouse which was created or organized under the laws of a jurisdiction other than the United States of America, any state thereof or the District of Columbia. "Forfeiture Proceeding" means any action, proceeding or investigation affecting any Consolidated Entity or any of its Affiliates before any Governmental Authority, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, which may result in an indictment of any of them or the seizure or forfeiture of any of their respective Properties. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 6.05 (except for material changes determined preferable by the Consolidated Entities' independent public accountants). 9 "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantied Obligations" shall have the meaning assigned to such term in Section 11.01 hereof. "Guarantor" shall have the meaning assigned to such term in Section 11.01 hereof. "Guaranty" means, with respect to any Person, guaranties, endorsements (other than for collection in the ordinary course of business) and other contingent obligations of such Person with respect to the obligations of any other Person (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods or services or to supply or advance any funds, assets, goods or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any such other Person against loss). "Hazardous Materials" means any and all pollutants, contaminants, toxic or hazardous wastes or any other substances, the removal of which is required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is restricted, prohibited or penalized by any applicable Environmental Law. "Interest Coverage Ratio" means, at any date of determination thereof, the ratio of (a) Consolidated EBIT for the most recently ended four Fiscal Quarters to (b) Consolidated Interest Expense during such four Fiscal Quarters. "Interest Margin" means, for each type of Revolving Credit Loan, the percentage for such type of Revolving Credit Loan set forth below opposite the range of the Debt to EBIT Ratio in the schedule below as determined as of the last day of each Fiscal Quarter, with adjustments to become effective on the date of receipt by the Administrative Agent of the most recent financial statements of the Consolidated Entities required to be furnished to the Lenders under Section 7.08: Interest Margin --------------- Debt to EBIT Ratio Variable Rate Eurocurrency Loans Loans (a) less than .75 to 1.00 0% .50% (b) equal to or greater 0% .75% 10 than .75 to 1.00 and less than 1.00 to 1.00 (c) equal to or greater 0% 1.00% than 1.00 to 1.00 and less than 2.00 to 1.00 (d) equal to or greater 0% 1.25% than 2.00 to 1.00 "Interest Period" means: with respect to any Eurocurrency Loan, the period commencing on the date such Eurocurrency Loan is made, is converted from a Variable Rate Loan or an Eurocurrency Loan denominated in another currency or is renewed, as the case may be, and ending, as any Borrower may select pursuant to Section 2.06: on the numerically corresponding day in the first, second, third, or sixth calendar month thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month. "Interest Rate Protection Agreement" means an interest rate swap, cap or collar agreement or similar arrangement between one or more Lenders and a Consolidated Entity providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Investment" means any loan or advance to any Person or any purchase or other acquisition of any capital stock, assets, obligations or other securities of and Person, or any capital contribution to, investment in, or other acquisition of any interest in, any Person. "Issuing Lender" means The Chase Manhattan Bank, a bank organized under the laws of New York, acting in its capacity as Lender hereunder. "Judgment Currency" shall have the meaning assigned to such term in Section 13.16 hereof. "Judgment Currency Conversion Date" shall have the meaning assigned to such term in Section 13.16 hereof. "Lender" shall have the meaning assigned to such term in the introductory paragraph hereof. "Lending Office" means, for each Lender and for each type of Revolving Credit Loan, the lending office of such Lender (or of an affiliate of such Lender) designated as such for such type of Revolving Credit Loan on its signature page hereof or such 11 other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and Micro Warehouse as the office by which its Revolving Credit Loans of such type are to be made and maintained. "Letter of Credit Availability" means, at any date of determination thereof, the amount by which (a) the lesser of (i) the result of (A) the aggregate amount of the Revolving Credit Commitments to Micro Warehouse as of such date minus (B) the unpaid aggregate principal amount of the Revolving Credit Loans to Micro Warehouse then outstanding and (ii) $10,000,000 exceeds (b) the aggregate amount of the Letter of Credit Obligations at such date. "Letter of Credit Funding" shall have the meaning assigned to such term in Section 3.05(b) hereof. "Letter of Credit Obligations" means, at any date of determination thereof, all liabilities of Micro Warehouse with respect to Letters of Credit, whether or not any liability is contingent, including, without limitation, the sum of (a) the aggregate amount available to be drawn under the Letters of Credit then outstanding plus (b) the aggregate amount of all unpaid Reimbursement Obligations. "Letters of Credit" shall have the meaning assigned to such term in Section 3.01(a) hereof. "Leverage Ratio" means, at any date of determination thereof, the ratio of (a) Consolidated Liabilities to (b) Consolidated Tangible Net Worth. "Lien" means any lien (statutory or otherwise), security interest, mortgage, deed of trust, priority, pledge, charge, conditional sale, title retention agreement, financing lease or other similar encumbrance or right of others, or any agreement to give any of the foregoing. "Material Adverse Effect" means any material adverse effect on (a) the business, profits, properties or condition of the Consolidated Entities, taken as a whole, (b) the ability of any Obligor to perform its obligations under each of the Facility Documents to which it is a party or (c) the binding nature, validity or enforceability of any of the Facility Documents, which, in each case, arises from, or reasonably could be expected to arise from, any action or omission of action on the part of any Consolidated Entity or the occurrence of any event or the existence of any fact or condition in respect of any Consolidated Entity or any of its Properties. "Micro Warehouse" shall have the meaning assigned to such term in the introductory paragraph hereof. 12 "Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by any Consolidated Entity or any ERISA Affiliate and which is covered by Title IV of ERISA. "Obligation Currency" shall have the meaning assigned to such term in Section 13.16 hereof. "Obligations" means the unpaid principal of and interest on (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Revolving Credit Notes and all other obligations and liabilities of any Obligor to the Administrative Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any Revolving Credit Note, any Letter of Credit, any other Facility Document and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, Guaranties, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or any Lender) or otherwise. "Obligor" shall have the meaning assigned to such term in the introductory paragraph hereof. "Participating Lender" means, any Lender (other than Issuing Lender) with respect to its Participating Interest in each Letter of Credit. "Participating Interest" means, with respect to each Letter of Credit, (a) in the case of the Issuing Lender, its interest in such Letter of Credit after giving effect to the granting of any participating interest therein pursuant hereto and (b) in the case of each Participating Lender, its undivided participating interest in such Letter of Credit. "Payor" shall have the meaning assigned to such term in Section 12.13 hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Prime Rate" means that rate of interest from time to time announced by the Reference Lender at its Principal Office as its prime commercial lending rate. "Principal Office" means the principal office of the Administrative Agent, presently located at 270 Park Avenue, New York, New York 10017. 13 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Pro Rata Share" means, with respect to each Lender, a share proportional to such Lender's Commitment Percentage. "Purchase Money Lien" means a Lien on any Property acquired by any Consolidated Entity or placed on any Property in order to finance the acquisition of such Property, or the assumption of any Lien on Property existing at the time of the acquisition of such Property or a Lien incurred in connection with any conditional sale or other title retention agreement or a Capital Lease. "Receivables" means all accounts, contract rights, instruments, documents, chattel paper, general intangibles relating to accounts, drafts and acceptances, and all other forms of obligations arising out of or in connection with the sale or lease of inventory or for services rendered (including, without limitation, all rights to receive payments under all contracts), all guarantees and other security therefor, whether secured or unsecured and whether now existing or hereafter created. "Reference Lender" means The Chase Manhattan Bank (or if The Chase Manhattan Bank no longer quotes on the London interbank market, such successor leading bank in the London interbank market which shall be reasonably appointed by the Administrative Agent). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks of which such bank is a member, of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligation" means the obligation of Micro Warehouse to reimburse the Issuing Lender in accordance with the terms of this Agreement for the payment made by the Issuing Lender under any Letter of Credit. "Required Lenders" means, at any time while no Obligations are outstanding, Lenders having at least 51% of the aggregate amount of the Revolving Credit 14 Commitments and, at any time while Obligations are outstanding, Lenders holding at least 51% of the aggregate amount of Obligations. For purposes of determining the Required Lenders, any amounts denominated in an Alternative Currency shall be translated into Dollars at the Spot Exchange Rate in effect at such time. "Required Payment" shall have the meaning assigned to such term in Section 12.13 hereof. "Reserve Requirement" means, for any Interest Period for any Eurocurrency Loan for any Interest Period therefor, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against in the case of Eurocurrency Loans, "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Fixed Base Rate for Eurocurrency Loans is to be determined as provided in the definition of "Fixed Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets which include Eurocurrency Loans. "Restructuring Plan" means the proposed restructuring of operations of the Consolidated Entities involving the closing of businesses in Australia and Japan and the disposal of its operations in Norway, Denmark and Finland and the restructuring of USA Flex and OnLine Interactive, Inc. "Revolving Credit Commitments" means, with respect to each Lender, the obligation of such Lender to make its Revolving Credit Loans to the respective Borrower under this Agreement in the aggregate principal amount set forth in Schedule I, as such amount may be reduced or otherwise modified from time to time. "Revolving Credit Loans" shall have the meaning assigned to such term in Section 2.01. "Revolving Credit Notes" means the promissory notes of the respective Borrower in the form of Exhibit A to the Existing Credit Agreement evidencing the Revolving Credit Loans made by a Lender hereunder and all promissory notes delivered in substitution or exchange therefor, as amended or supplemented from time to time. "Revolving Credit Termination Date" means June 30, 1999. "Spot Exchange Rate" means, on any date of determination thereof, (a) with respect to any Alternative Currency, the spot rate at which Dollars are offered on such day by the principal London branch of the Reference Lender at approximately 11:00 a.m. (London time) and (b) with respect to Dollars in relation to any specified 15 Alternative Currency, the spot rate at which such specified Alternative Currency is offered on such date by the principal London branch for Dollars at approximately 11:00 a.m. (London time). For purposes of determining the Spot Exchange Rate in connection with a borrowing, conversion or renewal in an Alternative Currency, such Spot Exchange Rate shall be determined as of the Denomination Date for such borrowing, conversion or renewal with respect to transactions in the applicable Alternative Currency that will settle on the date of such borrowing, conversion or renewal. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by such Person. "Wholly-Owned Subsidiary" means any such corporation or other entity of which all of such securities or other ownership interests are so owned directly or indirectly by such Person. "Subsidiary Borrower" shall have the meaning assigned to such term in the introductory paragraph hereof. "Subsidiary Guarantor" shall have the meaning assigned to such term in the introductory paragraph hereof. "Taxes" shall have the meaning assigned to such term in Section 4.06 hereof. "`type' of Loan" shall have the meaning assigned to such term in Section 2.01 hereof. "UCP" shall have the meaning assigned to such term in Section 13.13 hereof. "Unconditional Guaranty" shall have the meaning assigned to such term in Section 11.01 hereof. "Unfunded Benefit Liabilities" means, with respect to any Domestic Plan or Foreign Plan, the amount (if any) by which the present value of all benefit liabilities (within the meaning of Section 4001(a)(16) of ERISA or within the meaning of any similar foreign law) under such Domestic Plan or Foreign Plan exceeds the fair market value of all assets of such Domestic Plan or Foreign Plan allocable to such benefit liabilities, as determined on the most recent valuation date of such Domestic Plan or Foreign Plan and in accordance with the provisions of ERISA or such similar foreign law for calculating the potential liability of any Consolidated Entity or any ERISA Affiliate under Title IV of ERISA or such similar foreign law. "Variable Rate" means, for any day, the higher of (a) the Federal Funds Rate for such day plus 1/4 of one percent and (b) the Prime Rate for such day. 16 "Variable Rate Loan" means any Revolving Credit Loan when and to the extent the interest rate for such Revolving Credit Loan is determined in relation to the Variable Rate. Section 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. ARTICLE 2. THE CREDIT. Section 2.1. Revolving Credit Loans. (a) Subject to the terms and conditions of this Agreement, each of the Lenders severally agrees to make revolving credit loans (the "Revolving Credit Loans") to each Borrower (as specified in the notice of each borrowing pursuant to Section 2.08) from time to time from and including the date hereof to and including the Revolving Credit Termination Date, up to but not exceeding in the aggregate principal amount at any one time outstanding, the amount of the respective Revolving Credit Commitments of such Lender to such Borrower. The aggregate amount of the Revolving Credit Loans outstanding at any time shall never exceed the result of (i) the aggregate amount of the Revolving Credit Commitments minus (ii) the aggregate amount of Letter of Credit Obligations outstanding at such time. The Revolving Credit Loans shall be due and payable on the Revolving Credit Termination Date. The Revolving Credit Loans may be outstanding as Variable Rate Loans or Eurocurrency Loans (each a "type" of Revolving Credit Loans). Eurocurrency Loans may be denominated in Dollars or in one or more Alternative Currencies but Variable Rate Loans shall be denominated only in Dollars. Each type of Revolving Credit Loans of each Lender shall be made and maintained at such Lender's applicable Lending Office for such type of Revolving Credit Loans. (b) Any Eurocurrency Loan may be made in the Alternative Currency specified in the notice of each borrowing pursuant to Section 2.08 in an amount equal to the Alternative Currency Equivalent of the Dollar amount specified in such notice, as determined by the Administrative Agent as of the Denomination Date for such borrowing (which determination shall be conclusive absent manifest error). For purposes of determining the amount outstanding under any Lender's Revolving Credit Commitments, each Eurocurrency Loan denominated in an Alternative Currency shall be the Dollar Equivalent for such Eurocurrency Loan as of the Denomination Date. Section 2.2. The Revolving Credit Notes. The Revolving Credit Loans of each Lender to each Borrower are evidenced by a Revolving Credit Note in the case of Micro Warehouse and Micro Warehouse Limited, dated the Effective Date, and, in the case of each other Borrower, dated May 10, 1996, duly completed and executed by such Borrower. Section 2.3. Purpose. Each Borrower shall use the proceeds of the Revolving Credit Loans for general corporate purposes (including, without limitation, working 17 capital and to finance Acceptable Acquisitions). Such proceeds shall not be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying "margin stock" within the meaning of Regulation U. Section 2.4. Borrowing Procedures. Each Borrower shall give the Administrative Agent notice of each borrowing to be made by it hereunder as provided in Section 2.08. Not later than 12:00 noon New York, New York time on the date specified for such borrowing hereunder, each Lender shall, through its applicable Lending Office and subject to the conditions of this Agreement, make the amount of the Revolving Credit Loan to be made by it on such day in the currency in which such Revolving Credit Loan is to be made available to the Administrative Agent at the Principal Office and in immediately available funds for the account of the Administrative Agent. The amount so received by the Administrative Agent shall, subject to the conditions of this Agreement, be made available to such Borrower, in immediately available funds, by the Administrative Agent crediting an account of such Borrower designated by such Borrower and maintained with the Administrative Agent at the Principal Office. Section 2.5. Prepayments and Conversions. (a) Each Borrower shall have the right to make prepayments of principal, to convert one type of Revolving Credit Loans into another type of Revolving Credit Loans or to convert Eurocurrency Loans denominated in one currency to Eurocurrency Loans denominated in another currency, at any time or from time to time; provided that: (a) such Borrower shall give the Administrative Agent notice of each such prepayment or conversion as provided in Section 2.08; and (b) Eurocurrency Loans may be prepaid or converted only on the last day of an Interest Period for such Eurocurrency Loans unless such Borrower agrees to provide to the Administrative Agent for the account of each Lender compensation in accordance with Section 4.05. (b) If at any time prior to the Revolving Credit Termination Date, the aggregate amount of Revolving Credit Loans to any Borrower (plus, in the case of Micro Warehouse, the Letter of Credit Obligations) shall exceed the aggregate amount of the Revolving Credit Commitments to such Borrower, such Borrower shall repay the Lenders forthwith such amounts as may be necessary to eliminate such excess (and, in the case of Micro Warehouse, if the Revolving Credit Loans cannot be repaid to eliminate such excess due to the amount of outstanding Letters of Credit, Micro Warehouse shall deposit with the Administrative Agent sufficient cash collateral to cover such excess), and the failure of such Borrower to make and the Lenders to receive such payments shall constitute an Event of Default hereunder. For the purposes of this Section 2.05(b), the amount outstanding under any Eurocurrency Loan denominated in an Alternative Currency at any time shall be the Dollar Equivalent thereof as of the Denomination Date. Section 2.6. Interest Periods; Renewals. (a) In the case of each Eurocurrency Loan, the Borrower thereunder shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the 18 following limitations: (i) no Interest Period may extend beyond the Revolving Credit Termination Date; (ii) notwithstanding clause (i) above, no Interest Period shall have a duration less than 30 days, and if any such proposed Interest Period would otherwise be for a shorter period, such Interest Period shall not be available; (iii) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless such Banking Day would fall in the next calendar month in which event such Interest Period shall end on the immediately preceding Banking Day; (iv) no more than ten Interest Periods may be outstanding at any one time; (v) no more than two Eurocurrency Loan borrowings in each Alternative Currency may be outstanding at any one time; and (vi) no more than twenty Eurocurrency Loan borrowings may be outstanding at any one time. For purposes of this Section 2.06(a), borrowings having different Interest Periods or denominated in different currencies, regardless of whether they commence on the same date, shall be considered separate borrowings. (b) Upon notice to the Administrative Agent as provided in Section 2.08, each Borrower may renew any Eurocurrency Loan on the last day of the Interest Period therefor as the same type of Revolving Credit Loans with an Interest Period of the same or different duration in accordance with the limitations provided above. If such Borrower shall fail to give notice to the Administrative Agent of such a renewal, (i) in the case of a Eurocurrency Loan denominated in Dollars, such Eurocurrency Loan shall automatically become a Variable Rate Loan on the last day of the current Interest Period and (ii) in the case of a Eurocurrency Loan denominated in an Alternative Currency, such Eurocurrency Loan shall automatically become a Eurocurrency Loan denominated in the same Alternative Currency having an Interest Period of one month. Section 2.7. Changes of Revolving Credit Commitments. If the aggregate amount of the Revolving Credit Commitment of The Chase Manhattan Bank to the Borrowers shall have not been reduced by $15,000,000 prior to June 30, 1998 (whether by assignment or otherwise), the aggregate amount of Revolving Credit Commitments of all of the Lenders shall be automatically reduced by $6,666,666.67 on June 30, 1998, $6,666,666.67 on September 30, 1998 and $6,666,666.66 on December 31, 1998, each such reduction to be made pro rata in accordance with each Lender's Pro Rata Share. The Borrowers shall have the right to elect to have each such reduction applied to the Revolving Credit Commitments extended to any Borrower(s) upon notice to the Administrative Agent as provided in Section 2.08; provided that if no such election is made, the Revolving Credit Commitments of each Lender to Micro Warehouse shall be automatically reduced. Each Borrower shall have the right to further reduce or terminate the amount of unused Revolving Credit Commitments at any time or from time to time, provided that: (i) such Borrower shall give notice of each such reduction or termination to the Administrative Agent as provided in Section 2.08; and (ii) each partial reduction shall be in an aggregate amount at least equal to $1,000,000. The Revolving Credit Commitments once reduced or terminated may not be reinstated. 19 Section 2.8. Certain Notices. Notices by any Borrower to the Administrative Agent of each borrowing pursuant to Section 2.04, and each prepayment or conversion pursuant to Section 2.05 and each renewal pursuant to Section 2.06(b), and each reduction or termination of the Revolving Credit Commitments pursuant to Section 2.07(a) shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 11:00 a.m. New York, New York time, and (a) in the case of borrowings and prepayments of, conversions into and (in the case of Eurocurrency Loans) renewals of (i) Variable Rate Loans, given the same Banking Day; and (ii) Eurocurrency Loans, given three Banking Days prior thereto; and (b) in the case of reductions or termination of the Revolving Credit Commitments, given the same Banking Day. Each such notice shall specify the Revolving Credit Loans to be borrowed, prepaid, converted or renewed, the amount (subject to Section 2.09), the type and the currency of the Revolving Credit Loans to be borrowed, or converted, or prepaid or renewed (and, in the case of a conversion, the type of Revolving Credit Loans to result from such conversion and, in the case of a Eurocurrency Loan, the Interest Period therefor) and the date of the borrowing or prepayment, or conversion or renewal (which shall be a Banking Day). Each such notice of reduction or termination shall specify the amount of the Revolving Credit Commitments to be reduced or terminated. The Administrative Agent shall promptly notify the Lenders of the contents of each such notice. Section 2.9. Minimum Amounts. Except for borrowings which exhaust the full remaining amount of the Revolving Credit Commitments, prepayments or conversions which result in the prepayment or conversion of all Revolving Credit Loans of a particular type and a particular currency or conversions made pursuant to Section 4.04, each borrowing, prepayment, conversion and renewal of principal of Revolving Credit Loans of a particular type and a particular currency shall be in an amount not less than (i) $100,000 in the aggregate for all Lenders in the case of Variable Rate Loans and (ii) $1,000,000 (or the Dollar Equivalent thereof) in the aggregate and in increments of $100,000 (or the Dollar Equivalent thereof) in the case of Eurocurrency Loans unless such minimum amount is waived by the Required Lenders (borrowings, prepayments, conversions or renewals of or into Revolving Credit Loans of different types or, in the case of Eurocurrency Loans, having different Interest Periods or denominated in different currencies at the same time hereunder to be deemed separate borrowings, prepayments, conversions and renewals for the purposes of the foregoing). Section 2.10. Interest. (a) Interest shall accrue on the outstanding and unpaid principal amount of each Revolving Credit Loan for the period from and including the date of such Revolving Credit Loan to but excluding the date such Revolving Credit Loan is due at the following rates per annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to the Variable Rate plus the Interest Margin and (ii) for a Eurocurrency Loan, at a fixed rate equal to the Fixed Rate plus the Interest Margin. If the principal amount of any Revolving Credit Loan and any other amount payable by any Obligor hereunder, under the Revolving Credit Notes or under the other Facility 20 Documents shall not be paid when due (at stated maturity, by acceleration or otherwise), interest shall accrue on such amount to the fullest extent permitted by law from and including such due date to but excluding the date such amount is paid in full at the Default Rate. (b) The interest rate on each Variable Rate Loan shall change when the Variable Rate changes and interest on each such Variable Rate Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest on each Eurocurrency Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent shall notify the applicable Borrower and the Lenders. (c) Accrued interest shall be due and payable in the relevant currency in arrears upon any full payment of principal or conversion and (i) for each Variable Rate Loan, on the last day of each March, June, September and December, commencing the first such date after such Variable Rate Loan; and (ii) for each Eurocurrency Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months, at three month intervals following the first day of such Interest Period; provided that interest accruing at the Default Rate shall be due and payable from time to time on demand of the Administrative Agent. Section 2.11. Fees. Each Borrower shall pay to the Administrative Agent for the account of each Lender a commitment fee on the daily average of the unused Revolving Credit Commitments to such Borrower of such Lender (minus, in the case of Micro Warehouse, such Lender's Pro Rata Share of Letter of Credit Obligations), for the period from and including the date hereof to the earlier of the date the Revolving Credit Commitments are terminated or the Revolving Credit Termination Date at a rate per annum (i) if the Debt to EBIT Ratio is less than .75 to 1.00, equal to 1/8 of one percent, (ii) if the Debt to EBIT Ratio is equal to or greater than .75 to 1.00 and less than 2.00 to 1.00, equal to 1/4 of one percent or (iii) if the Debt to EBIT Ratio is equal to or greater than 2.00 to 1.00, equal to 3/8 of one percent, calculated in each case on the basis of a year of 360 days for the actual number of days elapsed. The accrued commitment fee shall be due and payable in arrears upon any reduction or termination of the Revolving Credit Commitments and on the last day of each March, June, September and December, commencing on the first such date after the Closing Date. Section 2.12. Payments Generally. All payments under this Agreement, the Revolving Credit Notes and the other Facility Documents shall be made in immediately available funds in Dollars except that payments on Eurocurrency Loans denominated in an Alternative Currency shall be made in such Alternative Currency. All payments shall be made not later than 11:00 a.m. New York, New York time on the relevant dates specified above (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Banking Day) to an account of the Administrative Agent maintained at the Principal Office for the account of the 21 applicable Lending Office of each Lender. The Administrative Agent, or any Lender for whose account any such payment is to be made, may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the applicable Borrower with the Administrative Agent or such Lender, as the case may be, and any Lender so doing shall promptly notify the Administrative Agent. The applicable Borrower shall, at the time of making each payment under this Agreement, any Revolving Credit Note or any other Facility Document, specify to the Administrative Agent the principal or other amount payable by such Borrower under this Agreement, such Revolving Credit Note or such other Facility Document to which such payment is to be applied (and in the event that it fails to so specify, or if a Default or Event of Default has occurred and is continuing, the Administrative Agent may apply such payment as it may elect in its sole discretion (subject to Section 12.16)). If the due date of any payment under this Agreement, any Revolving Credit Note or any other Facility Document would otherwise fall on a day which is not a Banking Day, such date shall be extended to the next succeeding Banking Day and interest shall be payable for any principal so extended for the period of such extension. Each payment received by the Administrative Agent hereunder, under any Revolving Credit Note or under any other Facility Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds, for the account of such Lender's applicable Lending Office. Section 2.13. Novation. Micro Warehouse Limited (Company No. 2640772) hereby agrees to assume all liabilities and obligations whatsoever of the Old MWL (Company No. 2431673) pursuant to the Existing Credit Agreement (as amended.) ARTICLE 3. THE LETTERS OF CREDIT. Section 3.1. Letters of Credit. (a) Subject to the terms and conditions of this Agreement, the Issuing Lender, on behalf of the Lenders, and in reliance on the agreement of the Lenders set forth in Section 3.04, agrees to issue on any Banking Day prior to the Revolving Credit Termination Date for the account of Micro Warehouse irrevocable standby letters of credit in such form as may from time to time be approved by the Issuing Lender acting reasonably (together with the applications therefor, the "Letters of Credit"); provided that on the date of the issuance of any Letter of Credit, and after giving effect to such issuance, the Letter of Credit Obligations shall not exceed the Letter of Credit Availability. (b) Each Letter of Credit shall (i) have an expiry date no later than the earlier of (A) one year from the date of issuance and (B) the Revolving Credit Termination Date, (ii) be denominated in Dollars, (iii) be in a minimum face amount of $100,000 and (iv) provide for the payment of sight drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described or when such documents are presented, as the case may be. 22 Section 3.2. Purposes. Micro Warehouse shall use the Letters of Credit for the purpose of securing obligations incurred in the ordinary course of business (including, without limitation, to secure obligations under insurance programs). Section 3.3. Procedures for Issuance of Letters of Credit. Micro Warehouse may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an application therefor in such form as may from time to time be approved by the Issuing Lender acting reasonably, completed to the reasonable satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any application, the Issuing Lender will process such application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit in such customized form as may reasonably be requested by Micro Warehouse (but in no event shall the Issuing Lender issue any Letter of Credit later than five Banking Days after receipt of the application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and Micro Warehouse. the Issuing Lender shall furnish a copy of such Letter of Credit to Micro Warehouse promptly following the issuance thereof. Section 3.4. Participating Interests. In the case of each Letter of Credit, effective as of the date of the issuance thereof, the Issuing Lender agrees to allot and does allot to each other Lender, and each such Lender severally and irrevocably agrees to take and does take a Participating Interest in such Letter of Credit in a percentage equal to such Lender's Pro Rata Share of the Letter of Credit Obligations. On the date that any Lender becomes a party to this Agreement in accordance with Section 13.05, Participating Interests in any outstanding Letter of Credit held by the transferor Lender from which such transferee Lender acquired its interest hereunder shall be proportionately reallotted between such transferee Lender and such transferor Lender. Each Participating Lender hereby agrees that its obligation to participate in each Letter of Credit, and to pay or to reimburse the Issuing Lender for its participating share of the drafts drawn thereunder, is absolute, irrevocable and unconditional and shall not be affected by any circumstances whatsoever, including, without limitation, the occurrence and continuance of any Default or Event of Default, and that each such payment shall be made without any offset, abatement, withholding or other reduction whatsoever. Section 3.5. Payments. (a) In order to induce the Issuing Lender to issue the Letters of Credit, Micro Warehouse hereby agrees to reimburse the Issuing Lender, unless such Reimbursement Obligation has been accelerated pursuant to Section 10.02, on each date that Micro Warehouse has been notified by the Issuing Lender that any draft presented under any Letter of Credit is paid by the Issuing Lender, for (i) the amount of the draft paid by the Issuing Lender and (ii) the amount of any taxes, 23 fees, charges or other costs or expenses whatsoever incurred by the Issuing Lender in connection with any payment made by the Issuing Lender under, or with respect to, such Letter of Credit. Each such payment shall be made to the Issuing Lender at its office specified in Section 13.06, in lawful money of the United States and in immediately available funds on the day that payment is made by the Issuing Lender. Interest on any and all amounts remaining unpaid by Micro Warehouse under this Section 3.05 at any time from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full shall be payable to the Issuing Lender on demand at a fluctuating rate per annum equal to the Variable Rate plus 2% per annum. (b) In the event that the Issuing Lender makes a payment (a "Letter of Credit Funding") under any Letter of Credit and is not reimbursed in full therefor on the date of such Letter of Credit Funding, in accordance with the terms hereof, the Issuing Lender will promptly through the Administrative Agent notify each Participating Lender that acquired its Participating Interest in such Letter of Credit from the Issuing Lender. No later than the close of business on the date such notice is given if such notice is given, each such Participating Lender will transfer to the Administrative Agent, for the account of the Issuing Lender, in immediately available funds, an amount equal to such Participating Lender's Pro Rata Share of the unreimbursed portion of such Letter of Credit Funding, together with interest, if any, accrued thereon from and including the date of such transfer at a rate per annum equal to the Federal Funds Rate. (c) Whenever, at any time after the Issuing Lender has made payment under a Letter of Credit and has received from any Participating Lender such Participating Lender's Pro Rata Share of the unreimbursed portion of such payment, the Issuing Lender receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, the Issuing Lender will distribute to the Administrative Agent, for the account of such Participating Lender, its Pro Rata Share thereof; provided, however, that in the event that the receipt by the Issuing Lender of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Participating Lender will promptly return to the Administrative Agent, for the account of the Issuing Lender, any portion thereof previously distributed by the Issuing Lender to it. Section 3.6. Further Assurances. Micro Warehouse hereby agrees to do and perform any and all acts and to execute any and all further instruments from time to time reasonably requested by the Issuing Lender more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit opened hereunder. Section 3.7. Obligations Absolute. The payment obligations of Micro Warehouse under Section 3.05 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: 24 (a) the existence of any claim, set-off, defense or other right which Micro Warehouse may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender or any Participating Lender, or any other Person, whether in connection with this Agreement, any other Facility Document, the transactions contemplated herein, or any unrelated transaction; (b) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (c) payment by the Issuing Lender under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing. Section 3.8. Cash Collateral Account. If the Revolving Credit Commitments are duly terminated and all amounts owing under this Agreement, the Revolving Credit Notes and the Letters of Credit become due and payable pursuant to Section 10, Micro Warehouse shall deposit with the Administrative Agent, on the date such obligations become due and payable, an amount in cash equal to the Letter of Credit Obligations as of such date and the Letter of Credit fees in accordance with Section 3.09. Such amount shall be deposited in a cash collateral account to be established by the Administrative Agent, for the benefit of the Lenders, and shall constitute collateral security for the Letter of Credit Obligations and other amounts owing hereunder. All amounts in such cash collateral account shall be maintained pursuant to a cash collateral account agreement which shall grant to the Administrative Agent exclusive dominion and control (including exclusive rights of withdrawal) over all such amounts and shall be otherwise satisfactory in form and substance to the Administrative Agent. Section 3.9. Letter of Credit Fees. (a) Micro Warehouse agrees to pay the Administrative Agent, for the account of the Issuing Lender and the Participating Lenders, a non-refundable letter of credit fee with respect to each Letter of Credit, payable in Dollars, computed at the rate per annum equal to 3/4 of one percent, calculated on the basis of a year of 360 days for the actual days elapsed, of the aggregate undrawn amount under such Letter of Credit on the date on which such fee is calculated. Such fees shall be payable in advance on the date of issuance of such Letter of Credit and shall be nonrefundable. (b) Micro Warehouse agrees to pay the Issuing Lender, for its own account, its normal and customary administration, amendment, transfer, payment and 25 negotiation fees charged in connection with its issuance and administration of letters of credit. ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC. Section 4.1. Additional Costs. (a) Each Borrower shall pay directly to each Lender from time to time on demand such amounts as such Lender may determine to be necessary to compensate it for any costs which such Lender determines are attributable to its making or maintaining any Eurocurrency Loans to such Borrower under this Agreement or its Revolving Credit Note of such Borrower or its obligation to make any such Eurocurrency Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any such Eurocurrency Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Revolving Credit Notes in respect of any of such Eurocurrency Loans to such Borrower (other than taxes imposed on the overall net income or profits of such Lender or of its Lending Office for any of such Eurocurrency Loans by the jurisdiction in which such Lender has its principal office or such Lending Office, or any branch or franchise tax applicable thereto); or (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including any of such Eurocurrency Loans or any deposits referred to in the definition of "Fixed Base Rate" in Section 1.01); or (iii) imposes any other condition affecting this Agreement or its Revolving Credit Notes (or any of such extensions of credit or liabilities). Each Lender will notify the applicable Borrower of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section 4.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. If any Lender requests compensation from a Borrower under this Section 4.01(a), or under Section 4.01(c), such Borrower may, by notice to such Lender (with a copy to the Administrative Agent), require that such Lender's affected Eurocurrency Credit Loans with respect to which such compensation is requested be converted in accordance with Section 4.04. (b) Without limiting the effect of the foregoing provisions of this Section 4.01, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurocurrency Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurocurrency Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the applicable Borrower (with a copy to the Administrative Agent), the obligation of such Lender to make or renew, and to convert 26 Variable Rate Loans and unaffected Eurocurrency Loans into, affected Eurocurrency Loans hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (and all affected Eurocurrency Loans held by such Lender then outstanding shall be converted in accordance with Section 4.04). (c) Without limiting the effect of the foregoing provisions of this Section 4.01 (but without duplication), each Borrower shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to the maintenance by it or any of its affiliates pursuant to any law or regulation of any jurisdiction or any interpretation, directive or request (whether or not having the force of law and whether in effect on the date of this Agreement or thereafter) of any court or governmental or monetary authority of capital in respect of its Revolving Credit Loans to such Borrower hereunder or its obligation to make Revolving Credit Loans hereunder (such compensation to include, without limitation, an amount equal to any reduction in return on assets or equity of such Lender to a level below that which it could have achieved but for such law, regulation, interpretation, directive or request). Each Lender will notify the applicable Borrower if it is entitled to compensation pursuant to this Section 4.01(c) as promptly as practicable after it determines to request such compensation. (d) Determinations and allocations by a Lender for purposes of this Section 4.01 of the effect of any Regulatory Change pursuant to subsections (a) or (b), or of the effect of capital maintained pursuant to subsection (c), on its costs of making or maintaining Revolving Credit Loans or its obligation to make Revolving Credit Loans, or on amounts receivable by, or the rate of return to, it in respect of Revolving Credit Loans or such obligation, and of the additional amounts required to compensate such Lender under this Section 4.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. Section 4.2. Limitation on Eurocurrency Loans. Anything herein to the contrary notwithstanding, if: (a) the Administrative Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Fixed Base Rate" in Section 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for any Eurocurrency Loans as provided in this Agreement; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Administrative Agent that the relevant rates of interest referred to in the definition of "Fixed Base Rate" in Section 1.01 upon the basis of which the rate of interest for any Eurocurrency Loans is to be determined do not adequately cover the cost to the Lenders of making or maintaining such Eurocurrency Loans; or 27 (c) in the case of Eurocurrency Loans denominated in an Alternative Currency, any Lender shall determine (which determination shall be conclusive) and notify the Administrative Agent that the relevant Alternative Currency is not available in the relevant amounts or for the relevant period, or that a change in national or international controls has occurred which would, in the opinion of such Lender, make it impracticable for such Lender to make, fund or maintain its Eurocurrency Loans to be made in such Alternative Currency or for any Borrower to pay the principal of or interest on such Eurocurrency Loans as provided in this Agreement; then the Administrative Agent shall give the applicable Borrower and each Lender prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make or renew affected Eurocurrency Loans or to convert Variable Rate Loans or unaffected Eurocurrency Loans into affected Eurocurrency Loans and such Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding affected Eurocurrency Loans, either prepay such affected Eurocurrency Loans or convert such affected Eurocurrency Loans into Variable Rate Loans in accordance with Section 2.05. Section 4.3. Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make, maintain or renew Eurocurrency Loans in any currency hereunder or convert Variable Rate Loans or Eurocurrency Loans in a different currency to Eurocurrency Loans in such currency, then such Lender shall promptly notify the Borrower thereunder (with a copy to the Administrative Agent) and such Lender's obligation to make or renew affected Eurocurrency Loans and to convert Variable Rate Loans or unaffected Eurocurrency Loans into affected Eurocurrency Loans hereunder shall be suspended until such time as such Lender may again make, renew, or convert and maintain such affected Eurocurrency Loans and such Lender's outstanding affected Eurocurrency Loans, as the case may be, shall be converted in accordance with Section 4.04. Section 4.4. Certain Conversions pursuant to Sections 4.01 and 4.03. If affected Eurocurrency Loans are to be converted pursuant to Section 4.01 or 4.03, such Lender's affected Eurocurrency Loans shall be automatically converted into Variable Rate Loans on the last day(s) of the then current Interest Period(s) for the affected Eurocurrency Loans (or, in the case of a conversion required by Section 4.01(b) or 4.03, on such earlier date as such Lender may specify to the Borrower thereunder with a copy to the Administrative Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 4.01 or 4.03 which gave rise to such conversion no longer exist: (a) to the extent that such Lender's affected Eurocurrency Loans have been so converted, all payments and prepayments of principal which would 28 otherwise be applied to such Lender's affected Eurocurrency Loans shall be applied instead to its Variable Rate Loans; (b) all Eurocurrency Loans which would otherwise be made or renewed by such Lender as affected Eurocurrency Loans shall be made instead as Variable Rate Loans and all Variable Rate Loans or unaffected Eurocurrency Loans of such Lender which would otherwise be converted into affected Eurocurrency Loans shall be converted instead into (or shall remain as) Variable Rate Loans; and (c) if affected Eurocurrency Loans of other Lenders are subsequently converted into unaffected Eurocurrency Loans, such Lender's Variable Rate Loans shall be automatically converted on the conversion date into such other unaffected Eurocurrency Loans to the extent necessary so that, after giving effect thereto, all Revolving Credit Loans held by such Lender and the Lenders whose Revolving Credit Loans are so converted are held pro rata (as to principal amounts, types, currencies and Interest Periods) in accordance with their respective Revolving Credit Commitments. If such Lender gives notice to the applicable Borrower (with a copy to the Administrative Agent) that the circumstances specified in Section 4.01 or 4.03 which gave rise to the conversion of such Lender's affected Eurocurrency Loans pursuant to this Section 4.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when affected Eurocurrency Loans are outstanding, such Lender's Variable Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding affected Eurocurrency Loans to the extent necessary so that, after giving effect thereto, all Revolving Credit Loans held by the Lenders holding affected Eurocurrency Loans and by such Lender are held pro rata (as to principal amounts, types, currencies and Interest Periods) in accordance with their respective Revolving Credit Commitments. Section 4.5. Certain Compensation. Each Borrower shall pay to the Administrative Agent for the account of each Lender, upon the request of such Lender through the Administrative Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense which such Lender determines is attributable to: (a) any payment, prepayment, conversion or renewal of a Eurocurrency Loan of such Borrower made by such Lender on a date other than the last day of an Interest Period for such Eurocurrency Loan (whether by reason of acceleration or otherwise); or (b) any failure by such Borrower to borrow, convert into or renew a Eurocurrency Loan to be made, converted into or renewed by such Lender on the date specified therefor in the relevant notice under Sections 2.04, 2.05 or 2.06, as the case may be. 29 Without limiting the foregoing, such compensation shall include an amount equal to the excess, if any, of: (i) the amount of interest which otherwise would have accrued on the principal amount so paid, prepaid, converted or renewed or not borrowed, converted or renewed for the period from and including the date of such payment, prepayment or conversion or failure to borrow, convert or renew to but excluding the last day of the then current Interest Period for such Eurocurrency Loan (or, in the case of a failure to borrow, convert or renew, to but excluding the last day of the Interest Period for such Eurocurrency Loan which would have commenced on the date specified therefor in the relevant notice) at the applicable rate of interest for such Eurocurrency Loan provided for herein; over (ii) the amount of interest (as reasonably determined by such Lender) such Lender would have bid in the London interbank market for deposits in the relevant currency of leading banks for amounts comparable to such principal amount and maturities comparable to such period. A determination of any Lender as to the amounts payable pursuant to this Section 4.05 shall be conclusive absent manifest error; provided that such determination is made on a reasonable basis. Section 4.6. Taxes. Each Borrower covenants and agrees that: (a) All payments on account of the principal of and interest on its Revolving Credit Loans and the Revolving Credit Notes, and all other amounts payable by such Borrower hereunder, under any Revolving Credit Note or under any other Facility Document, including without limitation amounts payable under Section 4.06(b), shall be made without any set-off or counterclaim and free and clear of and without reduction by reason of, all present and future income, stamp, registration and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings whatsoever (other than taxes imposed on the overall net income of any Lender, or of its applicable Lending Office, by the jurisdiction in which such Lender's principal office or its applicable Lending Office is located), and all interest, penalties or similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by any country or any political subdivision or taxing authority thereof or therein or by any federation or association of or with which any country may be a member or associated or by any jurisdiction from which any payment hereunder or under any Revolving Credit Note is made or any taxing authority thereof or therein, on or in respect of this Agreement, the Revolving Credit Loans, any Revolving Credit Note, any other Facility Document, the recording, registration, notarization or other formalization of any thereof, the enforcement thereof or the introduction thereof in any judicial proceedings, or on or in respect of any payments of principal, interest, premiums, charges, fees or other amounts made on, under or in respect of any thereof (hereinafter called "Taxes"), all of which will be paid by such Borrower, for its own account, prior to the date on which penalties attach thereto; (b) Such Borrower shall indemnify each Lender against, and reimburse each Lender on demand for, any Taxes and any loss, liability, claim or 30 expense, including interest, penalties and reasonable legal fees (net of any refunds or tax credits for such Taxes which such Lender shall actually receive or utilize), which such Lender may incur at any time arising out of or in connection with any failure of such Borrower to make any payments of Taxes when due; (c) In the event that such Borrower is required by applicable law, decree or regulation to deduct or withhold Taxes from any amounts payable to any Lender on, under or in respect of this Agreement, the Revolving Credit Loans, any Revolving Credit Note or any other Facility Document, such Borrower shall pay to such Lender such additional amount(s) as may be required, after the deduction or withholding of Taxes, to enable such Lender to receive from such Borrower an amount equal to the amount stated to be payable by such Borrower to such Lender under this Agreement, its Revolving Credit Note held by such Lender or under any other Facility Document; (d) Such Borrower shall furnish to each Lender the official tax receipts in respect of each payment of Taxes required under this Section 4.06 within 30 days after the date such payment is due pursuant to applicable law, and such Borrower shall promptly furnish to each Lender at its request any other information, documents and receipts that such Lender may, in its reasonable discretion from time to time, require to establish to its satisfaction that full and timely payment has been made of all Taxes required to be paid under this Section 4.06; and (e) In the event that the payments by such Borrower hereunder become exempt from or not subject to Taxes, such Borrower will, upon the reasonable request of any Lender, furnish to such Lender either a certificate from each appropriate taxing authority or an opinion of counsel reasonably acceptable to such Lender, in either case stating that payments hereunder are exempt from or not subject to Taxes. ARTICLE 5. CONDITIONS PRECEDENT. Section 5.1. Documentary Conditions Precedent. The obligations of the Lenders to make the Revolving Credit Loans constituting the initial borrowing and of the Issuing Lender to issue the Letters of Credit are subject to the condition precedent that the Administrative Agent shall have received on or before March 27, 1998 (the "Effective Date") each of the following, in form and substance satisfactory to the Administrative Agent and its counsel: (a) counterparts of this Agreement duly executed by each of Micro Warehouse, the Subsidiary Borrowers, the Subsidiary Guarantors, the Lenders and the Administrative Agent; (b) new Revolving Credit Notes executed by each of Micro Warehouse and Micro Warehouse Limited; 31 (c) certificates of the Secretary or Assistant Secretary of each of the Obligors, dated the Effective Date, (i) attesting to all corporate action taken by such Obligor, including resolutions of its Board of Directors authorizing the execution, delivery and performance of each of the Facility Documents to which it is a party and each other document to be delivered pursuant to this Agreement, (ii) certifying the names and true signatures of the officers of such Obligor authorized to sign the Facility Documents to which it is a party and the other documents to be delivered by such Obligor under this Agreement and (iii) verifying that the charter and by-laws (or other analogous documents) of such Obligor attached thereto are true, correct and complete as of the date thereof; (d) an opinion of Lev, Berlin & Dale, P.C., outside counsel to each of the Consolidated Entities, dated the Effective Date, in substantially the form of Exhibit A and as to such other matters as the Administrative Agent or any Lender may reasonably request; (e) an opinion of Courts & Co, United Kingdom counsel to Micro Warehouse Limited, dated the Effective Date, in substantially the form of Exhibit B; and (f) certified complete and correct copies of all financial statements described in Section 6.05 (including, without limitation, the 1998 budget of the Consolidated Entities dated March 13, 1998). Section 5.2. Additional Conditions Precedent. The obligations of the Lenders to make any Revolving Credit Loans pursuant to a borrowing which increases the amount outstanding hereunder (including the initial borrowing) and of the Issuing Lender to issue any Letters of Credit shall be subject to the further conditions precedent that on the date of such Revolving Credit Loans or the issuance of such Letters of Credit: (a) the following statements shall be true: (i) the representations and warranties contained in Article 6 and in each of the other Facility Documents are true and correct in all material respects on and as of the date of such Revolving Credit Loans or the issuance of such Letter of Credit as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such Revolving Credit Loans or the issuance of such Letters of Credit; (b) the Administrative Agent shall have received such independent appraisals, audits and valuations of assets reasonably satisfactory to the Administrative Agent as the Administrative Agent may reasonably request; and (c) the Administrative Agent shall have received such approvals, opinions or documents as the Administrative Agent may reasonably request. Section 5.3. Deemed Representations. Each notice of borrowing or request for the issuance of a Letter of Credit hereunder and acceptance by any Borrower of the proceeds of such borrowing or the benefit of such Letter of Credit shall constitute a representation and warranty that the statements contained in Section 5.02 are true 32 and correct both on the date of such notice and, unless such Borrower otherwise notifies the Administrative Agent prior to such borrowing or issuance, as of the date of such borrowing or issuance. ARTICLE 6. REPRESENTATIONS AND WARRANTIES. Each of the Obligors (as to itself and its Subsidiaries) hereby represents and warrants that: Section 6.1. Incorporation, Good Standing and Due Qualification. Each of the Consolidated Entities is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. Section 6.2. Corporate Power and Authority; No Conflicts. The execution, delivery and performance by each of the Obligors of the Facility Documents to which it is a party, the borrowings hereunder and the issuance of the Letters of Credit have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of its stockholders (other than with respect to Micro Warehouse France SARL, T.D. S.A. and T.D. 2 S.A.); (b) contravene its charter or by-laws; (c) violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation (including, without limitation, any exchange control law or regulation), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to any Consolidated Entity; (d) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Consolidated Entity is a party or by which it or its Properties may be bound or affected; (e) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the Properties now owned or hereafter acquired by any Consolidated Entity; or (f) cause any Consolidated Entity to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. Section 6.3. Legally Enforceable Agreements. Each Facility Document to which any Obligor is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. Section 6.4. Litigation. Except as otherwise disclosed in the financial statements described in Section 6.05(a), there are no actions, suits or proceedings pending or, to the knowledge of any Obligor, threatened, against or affecting any 33 Consolidated Entity before any Governmental Authority which could reasonably be expected to have a Material Adverse Effect. Section 6.5. Financial Statements. (a) The consolidated and consolidating balance sheets of the Consolidated Entities as at December 31, 1996, 1995 and 1994, and the related consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for the Fiscal Years then ended, and the accompanying footnotes, together with the opinion on the consolidated statements of KPMG Peat Marwick, independent certified public accountants, and the interim consolidated and consolidating balance sheets as at September 30, 1997 and the related consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for the nine month period then ended, copies of which have been furnished to each of the Lenders, are complete and correct and fairly present the financial condition of the Consolidated Entities at such dates and the results of the operations of the Consolidated Entities for the periods covered by such statements, all in accordance with GAAP consistently applied. (b) The operating plan for the Consolidated Entities for the current and subsequent Fiscal Years, including budget, personnel, facilities and Capital Expenditure projections, on a quarterly basis, and projected income and cash flow statements for each such Fiscal Year, on a quarterly basis, incorporating the items detailed in such operating plan for each such Fiscal Year, and accompanied by a description of the material assumptions used in making such operating plan, have each been prepared in good faith and are based on reasonable estimates for the operating performance of the Consolidated Entities on and after the Closing Date. (c) Except as set forth on the consolidated balance sheet of the Consolidated Entities as at December 31, 1996, there are no liabilities of any Consolidated Entity, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto and which would be required to be recorded in such financial statements or notes in accordance with GAAP. No written information, exhibit or report furnished by any Consolidated Entity to the Lenders in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not materially misleading in each case as determined as of the date of the provision of such information, exhibit or report. Since December 31, 1997, there has been no change which could reasonably be expected to have a Material Adverse Effect. Section 6.6. Ownership and Liens. Each of the Consolidated Entities has title to, or valid leasehold interests in, all of its Properties, including the Properties reflected in the financial statements referred to in Section 6.05 (other than any Properties disposed of in the ordinary course of business), and none of the Properties owned by 34 any Consolidated Entity and none of its leasehold interests is subject to any Lien, except as may be permitted hereunder. Section 6.7. Taxes. Each of the Consolidated Entities has filed (or obtained extensions for) all tax returns (domestic, foreign, federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies shown thereon to be due, including interest and penalties. The charges, accruals and reserves on the books of the Consolidated Entities in respect of taxes, assessments and other governmental charges are adequate. Section 6.8. ERISA. Each Domestic Plan, Foreign Plan and, to the best knowledge of each Obligor, Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other applicable domestic, foreign, federal, state or local law, and no event or condition is occurring or exists concerning which any Consolidated Entity would be under an obligation to furnish a report to the Lenders in accordance with Section 7.08(j) hereof. Each of the Consolidated Entities and the ERISA Affiliates have fulfilled its obligations under the minimum funding standards of ERISA, the Code and any other applicable domestic, foreign, federal, state or local law. Section 6.9. Consolidated Entities and Affiliates. Schedule II sets forth the name of each Consolidated Entity and each Affiliate, in each case showing (a) the jurisdiction of its incorporation, (b) the percentage of each Person's ownership of the outstanding capital stock of such Consolidated Entity or such Affiliate and (c) its business and primary geographic scope of operation. All of the outstanding shares of capital stock of each Consolidated Entity are validly issued, fully paid and nonassessable, and all such shares are owned free and clear of all Liens. Except as set forth on Schedule II, no Consolidated Entity owns or holds the right to acquire any shares of stock or any other security or interest in any other Person. Section 6.10. Credit Arrangements. Schedule III is a complete and correct list of all credit agreements, indentures, note purchase agreements, guaranties, Capital Leases and other investments, agreements and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which any Consolidated Entity is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule. 35 Section 6.11. Operation of Business. Each of the Consolidated Entities possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted, and no Consolidated Entity is in material violation of any valid rights of others with respect to any of the foregoing. Section 6.12. Hazardous Materials. Each of the Consolidated Entities is in compliance in all material respects with all Environmental Laws in effect in each jurisdiction where it is presently doing business. No Consolidated Entity is subject to any material liability under any Environmental Law. In addition, no Consolidated Entity has received any (i) notice from any Governmental Authority by which any of its present or previously-owned or leased real Properties has been designated, listed, or identified in any manner by any Governmental Authority charged with administering or enforcing any Environmental Law as a Hazardous Material disposal or removal site, "Super Fund" clean-up site, or candidate for removal of Hazardous Materials or closure of a Hazardous Material disposal site pursuant to any Environmental Law, (ii) notice of any Lien arising under or in connection with any Environmental Law that has attached to any revenues of, or to, any of its owned or leased real Properties, or (iii) summons, citation, notice, directive, letter, or other written communication from any Governmental Authority concerning any intentional or unintentional action or omission by such Consolidated Entity in connection with its ownership or leasing of any real Property resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping, or otherwise disposing of any Hazardous Material into the environment resulting in any violation of any Environmental Law. Section 6.13. No Default on Outstanding Judgments or Orders. Each of the Consolidated Entities has satisfied all judgments and no Consolidated Entity is in default with respect to any final judgment, writ, injunction or decree of any Governmental Authority. Section 6.14. No Defaults on Other Agreements. No Consolidated Entity is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction which could have a Material Adverse Effect. No Consolidated Entity is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument material to its business to which it is a party. Section 6.15. Labor Disputes and Acts of God. Neither the business nor the Properties of any Consolidated Entity are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), which could have a Material Adverse Effect. 36 Section 6.16. Governmental Regulation. No Consolidated Entity is subject to regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power Act or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. Section 6.17. No Forfeiture. Neither any Consolidated Entity nor any of its Affiliates is engaged in or proposes to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding which could reasonably be expected to have a Material Adverse Effect and no Forfeiture Proceeding against any of them is pending or threatened. Section 6.18. Solvency. (a) The present fair saleable value of the assets of each Obligor after giving effect to all the transactions contemplated by the Facility Documents and the funding of the Revolving Credit Commitments and the issuance of the Letters of Credit hereunder exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of such Obligor as they mature. (b) The Property of each Obligor does not constitute unreasonably small capital for such Obligor to carry out its business as now conducted and as proposed to be conducted including the capital needs of such Obligor. (c) No Obligor intends to, nor does such Obligor believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by such Obligor, and of amounts to be payable on or in respect of Debt of such Obligor). The cash available to such Obligor after taking into account all other anticipated uses of the cash of such Obligor, is anticipated to be sufficient to pay all such amounts on or in respect of debt of such Obligor when such amounts are required to be paid. (d) No Obligor believes that final judgments against it in actions for money damages will be rendered at a time when, or in an amount such that, such Obligor will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum reasonable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to such Obligor after taking into account all other anticipated uses of the cash of such Obligor (including the payments on or in respect of debt referred to in paragraph (c) of this Section 6.18), is anticipated to be sufficient to pay all such judgments promptly in accordance with their terms. ARTICLE 7. AFFIRMATIVE COVENANTS. 37 So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Revolving Credit Commitment, Micro Warehouse shall: Section 7.1. Maintenance of Existence. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required. Section 7.2. Conduct of Business. Continue, and cause each of its Subsidiaries to continue, to engage in the business of the same general type as conducted by it on the date of this Agreement. Section 7.3. Maintenance of Properties. Maintain, keep and preserve, and cause each of its Subsidiaries to maintain, keep and preserve, all of its Properties necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 7.4. Maintenance of Records. Keep, and cause each of its Subsidiaries to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of the Consolidated Entities. Section 7.5. Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. Section 7.6. Compliance with Laws. Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders (including, without limitation, any Environmental Law), such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its Properties. Section 7.7. Right of Inspection. At any reasonable time and from time to time permit the Administrative Agent or any Lender or any agent or representative thereof, to examine and make copies and abstracts from the records and books of account of, and visit the Properties of, any Consolidated Entity, and to discuss the affairs, finances and accounts of such Consolidated Entity with any of their respective officers and directors and independent accountants. Section 7.8. Reporting Requirements. Furnish directly to each of the Lenders: 38 (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, consolidated and consolidating balance sheets of the Consolidated Entities as of the end of such Fiscal Year and consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for such Fiscal Year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year and all prepared in accordance with GAAP and as to the consolidated statements accompanied by an opinion thereon acceptable to the Administrative Agent and each of the Lenders by KPMG Peat Marwick or other independent accountants of national standing selected by the Consolidated Entities; provided that delivery within the period specified above of copies of the Annual Report on Form 10-K of Micro Warehouse filed with the Securities and Exchange Commission, together with the adjustments to such consolidated statements necessary to provide consolidating information for each of the Consolidated Entities, shall be deemed to satisfy the requirements of this Section 7.08(a) so long as such Form 10-K as so adjusted shall contain the information referred to in this Section 7.08(a); (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters, consolidated and consolidating balance sheet of the Consolidated Entities as of the end of such Fiscal Quarter and consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, all in reasonable detail and stating in comparative form the respective consolidated figures for the corresponding date and period in the previous Fiscal Year and all prepared in accordance with GAAP and certified by the chief financial officer of the Consolidated Entities (subject to year-end adjustments); provided that delivery within the period specified above of copies of the Quarterly Report on Form 10-Q of Micro Warehouse filed with the Securities and Exchange Commission, together with the adjustments to such consolidated statements necessary to provide consolidating information for each of the Consolidated Entities, shall be deemed to satisfy the requirements of this Section 7.08(b) so long as such Form 10-Q as so adjusted shall contain the information referred to in this Section 7.08(b); (c) simultaneously with the delivery of the financial statements referred to above, a Compliance Certificate of the chief financial officer of Micro Warehouse (i) certifying that to the best of his knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) with computations demonstrating compliance with the covenants contained in Article 9; (d) simultaneously with the delivery of the annual financial statements referred to in Section 7.08(a), a certificate of the independent public accountants who audited such statements to the effect that, in making the 39 examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (e) simultaneously with the delivery of the financial statements referred to in Section 7.08(a) and Section 7.08(b), a narrative explanation signed by the chief financial officer of Micro Warehouse of any material variance from the budget of the Consolidated Entities for the Fiscal Year that is reflected in such financial statements; (f) not later than the 30th day subsequent to the commencement of each Fiscal Year, (i) a projected balance sheet of the Consolidated Entities for such Fiscal Year on a quarterly basis and (ii) an operating plan for the Consolidated Entities for such Fiscal Year, including budget, personnel, facilities and Capital Expenditure projections, on a quarterly basis, and a projected income and cash flows statement for such Fiscal Year, on a quarterly basis, incorporating the items detailed in such operating plan for such Fiscal Year, and accompanied by a description of the material assumptions used in making such operating plan; and, as soon as available thereafter, any modifications to any of the foregoing after the Board of Directors of Micro Warehouse has reviewed such plan; (g) promptly after the commencement thereof, notice of all actions, suits, and proceedings before any Governmental Authority; (h) as soon as possible and in any event within 10 days after becoming aware of or having reason to become aware of the occurrence of each Default or Event of Default a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Consolidated Entities with respect thereto; (i) as soon as possible, and in any event within 10 days after any Consolidated Entity knows or has reason to know that any of the events or conditions specified below with respect to any Domestic Plan, Foreign Plan or Multiemployer Plan have occurred or exist, a statement signed by a senior financial officer of such Consolidated Entity setting forth details respecting such event or condition and the action, if any, which such Consolidated Entity or an ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC or any other Governmental Authority by such Consolidated Entity or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA, with respect to a Domestic Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of 40 ERISA including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code) and any request for a waiver under Section 412(d) of the Code for any Domestic Plan; (ii) the distribution under Section 4041 of ERISA or under any similar foreign law of a notice of intent to terminate any Domestic Plan or Foreign Plan or any action taken by such Consolidated Entity or an ERISA Affiliate to terminate any Domestic Plan or Foreign Plan; (iii) the institution by PBGC or any other Governmental Authority of proceedings under Section 4042 of ERISA or under any similar foreign law for the termination of, or the appointment of a trustee to administer, any Domestic Plan or any Foreign Plan, or the receipt by such Consolidated Entity or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by such Consolidated Entity or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt of such Consolidated Entity or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary or any Multiemployer Plan against such Consolidated Entity or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (vi) the adoption of an amendment to any Domestic Plan that pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA would result in the loss of tax-exempt status of the trust of which such Domestic Plan is a part if such Consolidated Entity or an ERISA Affiliate fails to timely provide security to the Domestic Plan in accordance with the provisions of said Sections; (vii) any event or circumstance exists which may reasonably be expected to constitute grounds for such Consolidated Entity or any ERISA Affiliate to incur liability under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Code with respect to any Domestic Plan; and (viii) the Unfunded Benefit Liabilities of one or more Domestic Plans and Foreign Plans increase after the date of this Agreement in an amount which is material in relation to the financial condition of the Consolidated Entities; provided, however, that such increase shall not be deemed to be material so long as it does not exceed during any consecutive 3 year period $1,000,000; (j) promptly after the request of any Lender, copies of each annual report filed pursuant to Section 104 of ERISA with respect to each Domestic Plan (including, to the extent required by Section 104 of ERISA, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information referred to in Section 103) and each annual report filed with respect to each Domestic Plan under Section 4065 of ERISA; provided, however, that in the case of a Multiemployer Plan, such annual reports shall be furnished only if they are available to such Consolidated Entity or an ERISA Affiliate; 41 (k) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which any Consolidated Entity sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements which such Consolidated Entity files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or with any national securities exchange; (l) promptly after becoming aware of the existence of any violation or alleged violation in any material respect of any Environmental Law by any Consolidated Entity, written notice of and a description of the nature of such violation or alleged violation, what action such Consolidated Entity is taking or proposes to take with respect thereto and, when known, any action taken, or proposed to be taken, by any Governmental Authority with respect thereto; (m) promptly after the commencement thereof or promptly after any Consolidated Entity knows of the commencement or threat thereof, notice of any Forfeiture Proceeding; and (n) such other information respecting the condition or operations, financial or otherwise, of any Consolidated Entity as the Administrative Agent or any Lender may from time to time reasonably request. Section 7.09. Additional Subsidiary Guarantors. In the event that any of its Subsidiaries that is not an Obligor as of the date hereof shall have assets greater than $500,000 (as determined as of the end of each Fiscal Quarter), cause such Subsidiary to become a "Subsidiary Guarantor" and thereby an "Obligor" hereunder pursuant to an Assumption Agreement, and shall deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by the Obligors pursuant to Article 5 of the Existing Credit Agreement upon the Closing Date or as the Administrative Agent shall have reasonably requested. ARTICLE 8. NEGATIVE COVENANTS. So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Revolving Credit Commitment, Micro Warehouse shall not: Section 8.1. Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt, except: (a) Debt of the Obligors under this Agreement, the Revolving Credit Notes, the Letters of Credit and the other Facility Documents; (b) Consolidated Subordinated Debt; 42 (c) Debt described on Schedule III but no renewals, extensions or refinancings thereof; (d) Debt consisting of Guaranties permitted pursuant to Section 8.02; (e) Debt of any Obligor to any other Obligor incurred in the ordinary course of business and either consistent with past practices or for cash management services; (f) accounts payable to trade creditors for goods or services and current operating liabilities (other than for borrowed money), in each case incurred in the ordinary course of business and paid within prescribed time limits that are in the ordinary course of business, unless contested in good faith and by appropriate proceedings; (g) Debt of any Consolidated Entity secured by Purchase Money Liens permitted by Section 8.03(j) provided that the aggregate principal amount of such Debt together with all Debt secured by Purchase Money Liens described on Schedule III (other than Debt owing to Apple Computer, Inc. for the purchase of inventory) does not at any time exceed $5,000,000; (h) Debt of any Consolidated Entity under interest rate protection agreements, foreign currency exchange agreements and other interest and exchange rate arrangements so long as the "aggregate net exposure" (conclusively presumed to be equal to 20% of the aggregate notional principal amount) under all such arrangements does not at any time exceed $5,000,000; and (i) Debt of Micro Warehouse Canada Limited so long as the aggregate principal amount of such Debt does not at any time exceed $5,000,000. Section 8.2. Guaranties. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Guaranty, except (a) the Unconditional Guaranties by the Guarantors hereunder, (b) Guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (c) Guaranties by Micro Warehouse of obligations owed by any of its Subsidiaries to trade vendors that have been incurred in the ordinary course of business. Section 8.3. Liens. Create, incur, assume or suffer to exist any Lien, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, upon or with respect to any of its Property, now owned or hereafter acquired, except: 43 (a) Liens in favor of the Administrative Agent on behalf of the Lenders securing the Revolving Credit Loans and the Letter of Credit Obligations hereunder; (b) Liens for taxes or assessments or other government charges or levies if not yet due and payable or if due and payable if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; (c) Liens imposed by law, such as mechanic's, materialmen's, landlord's, warehousemen's and carrier's Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than 90 days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (d) Liens under workmen's compensation, unemployment insurance, social security or similar legislation (other than ERISA); (e) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (f) judgment and other similar Liens arising in connection with court proceedings; provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (g) easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by any Consolidated Entity of the Property encumbered thereby in the normal course of its business or materially impair the value of the Property subject thereto; (h) Liens securing obligations of any Obligor to any other Obligor; (i) Liens described on Schedule III provided that such Liens shall secure only those obligations which they secure on the date hereof; and (j) Purchase Money Liens; provided that: (i) any Property subject to any of the foregoing is acquired by any Consolidated Entity in the ordinary course of its business and the Lien on any such Property is created contemporaneously with such acquisition; 44 (ii) the obligation secured by any Lien so created, assumed or existing shall not exceed 100% of the lesser of cost or fair market value as of the time of acquisition of the Property covered thereby to such Consolidated Entity acquiring the same; (iii) each such Lien shall attach only to the Property so acquired and fixed improvements thereon; and (iv) the obligations secured by such Lien are permitted by the provisions of Section 8.01(g) and the related expenditure is permitted under Section 8.13. Section 8.4. Leases. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any obligation as lessee for the rental or hire of any real or personal Property, except: (a) leases existing on the date of this Agreement and any extensions or renewals thereof; (b) Capital Leases permitted by Section 8.01, Section 8.03 and Section 8.13; and (c) leases (other than Capital Leases) so long as the Consolidated Entities are not required on a consolidated basis to make payments (including taxes, insurance, maintenance and similar expense which any Consolidated Entity is required to pay under the terms of any lease) in the aggregate under all leases (other than Capital Leases) in any Fiscal Year in excess of $20,000,000. Section 8.5. Investments. Make, or permit any of its Subsidiaries to make, any Investment, except for: (a) Investments in Domestic Cash Equivalents and Foreign Cash Equivalents; (b) Investments in Property to be used or useful in the ordinary course of business of the Consolidated Entities; (c) Investments in stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to any Consolidated Entity; (d) Investments to or in any Obligor or in any corporation that concurrently with such Investment becomes an Obligor; 45 (e) Investments made in connection with an Acceptable Acquisition; and (f) other Investments not listed in clauses (a) through (e), inclusive, provided that the aggregate amount of such Investments for all Consolidated Entities does not exceed at any time $5,000,000. Section 8.6. Distributions. Make, or permit any of its Subsidiaries to make, any Distribution, except that: (a) Micro Warehouse may make Distributions payable solely in its common stock; (b) any Consolidated Entity may make Distributions to any Obligor; and (c) so long as no Default or Event of Default would exist after giving effect to such redemption, Micro Warehouse may redeem shares of its capital stock in an amount not to exceed $30,000,000 in the aggregate during the period from the Effective Date to the Revolving Credit Termination Date. Section 8.7. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer or otherwise dispose of, any of its now owned or hereafter acquired Property (including, without limitation, shares of stock and indebtedness, receivables and leasehold interests); except: (a) for inventory disposed of in the ordinary course of business; (b) the sale or other disposition of Property no longer used or useful in the conduct of its business; (c) any Consolidated Entity may sell, lease, assign, or otherwise transfer its Property to any Obligor; and (d) so long as no Default or Event of Default exists or would exist after giving effect to such disposition, the sale or other disposition of Property pursuant to the Restructuring Plan. Section 8.8. Subsidiary Capital Stock. (a) Sell or otherwise dispose of any shares of capital stock of any of its Subsidiaries, except (i) so long as no Default or Event of Default would exist after giving effect to such disposition, the sale or other disposition of shares of Subsidiaries pursuant to the Restructuring Plan (provided that if such disposition involves shares of a Subsidiary Borrower, all Debt under the Revolving Credit Notes of such Subsidiary Borrower shall have been paid in full and all Revolving Credit Commitments to such Subsidiary Borrower shall have been 46 terminated) and (ii) in a transaction permitted by Section 8.10(a), or (b) permit any such Subsidiary to issue any additional shares of its capital stock, except (i) directors' qualifying shares and (ii) to Micro Warehouse or any Wholly-Owned Subsidiary. Section 8.9. Transactions with Affiliates. Enter, or permit any Subsidiary to enter, into any transaction, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Micro Warehouse's or such Subsidiary's business and upon fair and reasonable terms no less favorable to Micro Warehouse or such Subsidiary than would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 8.10. Mergers, Etc. Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or acquire all or substantially all of the assets or the business of any Person (or enter into any agreement to do any of the foregoing), or permit any of its Subsidiaries to do so, except that: (a) any Consolidated Entity may merge into or consolidate with or transfer assets to any Obligor; and (b) any Consolidated Entity may effect any Acquisition permitted by Section 8.11. Section 8.11. Acquisitions. Make, or permit any of its Subsidiaries to make, any Acquisition other than an Acceptable Acquisition. Section 8.12. No Activities Leading to Forfeiture. Engage in or propose to be engaged in, or permit any of its Subsidiaries to engage in or propose to be engaged in, the conduct of any business or activity which could result in a Forfeiture Proceeding which could have a Material Adverse Effect. Section 8.13. Capital Expenditures. Make or commit to make, or permit any of its Subsidiaries to make or commit to make, (other than by way of Acquisition) any expenditures in respect of the purchase or other acquisition of fixed or capital assets, except for Consolidated Capital Expenditures in the ordinary course of business not exceeding $27,000,000 in any Fiscal Year. Section 8.14. Restrictions. Enter into, or suffer to exist, or permit any of its Subsidiaries to enter into, or suffer to exist, any agreement with any Person other than the Lenders that (a) prohibits, requires the consent of such Person for or limits the ability of (i) any Consolidated Entity to pay dividends or make other distributions or pay Debt owed to any other Consolidated Entity, make loans or advances to any other Consolidated Entity or transfer any of its Property to any other Consolidated Entity, (ii) 47 any Consolidated Entity to create, incur, assume or suffer to exist any Lien upon any of its Property or (iii) any Consolidated Entity to enter into any modification or supplement of the Facility Documents; or (b) contains financial covenants which, taken as a whole, are more restrictive on the Consolidated Entities than the financial covenants contained in Article 9. Section 8.15. Fiscal Year. Permit the fiscal year of the Consolidated Entities to end on a day other than December 31. ARTICLE 9. FINANCIAL COVENANTS. So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Revolving Credit Commitment and as determined as of the end of each Fiscal Quarter: Section 9.1. Interest Coverage Ratio. Micro Warehouse shall maintain at all times an Interest Coverage Ratio of not less than 3.00 to 1.00. Section 9.2. Minimum Tangible Net Worth. Micro Warehouse shall maintain at all times Consolidated Tangible Net Worth of not less than the sum of (a) $175,000,000 plus (b) the aggregate sum of the Fiscal Year Net Worth Increase Amounts calculated for each Fiscal Year ending on or after the Closing Date. Section 9.3. Leverage Ratio. Micro Warehouse shall maintain at all times a Leverage Ratio of not greater than 1.00 to 1.00. Section 9.4. Current Ratio. Micro Warehouse shall maintain at all times a Current Ratio of not less than 1.50 to 1.00. Section 9.5. Domestic Net Worth. Micro Warehouse shall maintain at all times a Domestic Net Worth of not less than $150,000,000. ARTICLE 10. EVENTS OF DEFAULT. Section 10.1. Events of Default. Any of the following events shall be an "Event of Default": (a) any Borrower shall: (i) fail to pay the principal of any Revolving Credit Note or any Reimbursement Obligation on or before the date when due and payable; or (ii) fail to pay interest on any Revolving Credit Note or any fee or other amount due hereunder on or before the date when due and payable; (b) any representation or warranty made or deemed made by any Consolidated Entity in this Agreement or in any other Facility Document or which is contained in any certificate, document, opinion, financial or other statement furnished 48 at any time under or in connection with any Facility Document shall prove to have been incorrect in any material respect on or as of the date made; (c) (i) any Obligor shall fail to perform or observe any term, covenant or agreement contained in Section 2.03 or 3.02 or Articles 8 or 9; or (ii) any Obligor shall fail to perform or observe any term, covenant or agreement on its part to be performed or observed (other than the obligations specifically referred to elsewhere in this Section 10.01) in any Facility Document to which it is a party and such failure shall continue for 30 consecutive days; (d) any Consolidated Entity shall: (i) fail to pay any indebtedness in excess of $1,000,000 (other than the payment obligations described in (a) above), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (e) any Consolidated Entity: (i) shall generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed for a period of 30 days or more; or shall be the subject of any proceeding under which its assets may be subject to seizure, forfeiture or divestiture (other than a proceeding in respect of a Lien permitted under Section 8.03(b)); or (v) by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its Property; or (vi) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of 30 days or more; (f) one or more judgments, decrees or orders for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against any Consolidated Entity and such judgments, decrees or orders shall continue unsatisfied 49 and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (g) any event or condition shall occur or exist with respect to any Domestic Plan, Foreign Plan or Multiemployer Plan concerning which any Consolidated Entity is under an obligation to furnish a report to the Lenders in accordance with Section 7.08(j) hereof and as a result of such event or condition, together with all other such events or conditions, such Consolidated Entity or any ERISA Affiliate has incurred or in the opinion of the Lenders is reasonably likely to incur a liability to a Domestic Plan, a Foreign Plan, a Multiemployer Plan, the PBGC, a Section 4042 Trustee or any other Governmental Authority (or any combination of the foregoing) which is material in relation to the financial position of the Consolidated Entities; provided, however, that any such amount shall not be deemed to be material so long as all such amounts do not exceed $1,000,000 in the aggregate during the term of this Agreement; (h) the Unfunded Benefit Liabilities of one or more Domestic Plans or Foreign Plans have increased after the date of this Agreement in an amount which is material (as specified in Section 7.08(j)(viii) hereof); (i) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rules 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 10% or more of the outstanding shares of voting capital stock of Micro Warehouse; or (ii) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 12-month period were directors (or persons nominated by such individuals) of Micro Warehouse cease for any reason to constitute a majority of the Board of Directors of Micro Warehouse; or (j) any Forfeiture Proceeding shall have been commenced or any Consolidated Entity shall have given any Lender written notice of the commencement of any Forfeiture Proceeding as provided in Section 7.08(n) which, in either case, could reasonably be expected to have a Material Adverse Effect. Section 10.2. Remedies. If any Event of Default shall occur and be continuing, the Administrative Agent shall, upon request of the Required Lenders, by notice to Micro Warehouse (a) declare the Revolving Credit Commitments to be terminated, whereupon the same shall forthwith terminate and so shall the obligations of the Issuing Lender to issue any Letter of Credit, (b) declare the outstanding principal of any or all of the Revolving Credit Notes, all interest thereon and all other amounts payable under this Agreement, the Revolving Credit Notes and the other Facility Documents to be forthwith due and payable, whereupon such Revolving Credit Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby 50 expressly waived by the Borrowers and/or (c) direct Micro Warehouse to pay to the Administrative Agent an amount, to be held as cash security in the cash collateral account held by the Administrative Agent under Section 3.08, equal to the Letter of Credit Obligations then outstanding; provided that, in the case of an Event of Default referred to in Section 10.01(e) or Section 10.01(i) above, the Revolving Credit Commitments and the obligation to issue Letters of Credit shall be immediately terminated, and the Revolving Credit Notes, all interest thereon and all other amounts payable under this Agreement, the Revolving Credit Notes and the other Facility Documents shall be immediately due and payable without notice, presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrowers. ARTICLE 11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS. Guarantied Obligations. (a) Each of (x) the Borrowers other than, in each of their respective capacities as the primary obligor under the respective Revolving Credit Note to which it is party and (y) the Subsidiary Guarantors (each of the foregoing entities individually a "Guarantor" and collectively the "Guarantors") (but in the case of Micro Warehouse (Deutschland) GmbH, subject to the limitations of Sections 30 and 31 of the German Act on Limited Liability Companies), jointly and severally, in consideration of the execution and delivery of this Agreement by the Lenders and the Administrative Agent, hereby irrevocably and unconditionally guarantees to the Administrative Agent, for the benefit of the Lenders, as and for such Guarantor's own debt, until final payment has been made, the due and punctual payment and performance in full in cash in the applicable currency of the Obligations (but excluding, with respect to each Foreign Subsidiary, the Domestic Obligations) (all such obligations so guarantied are herein collectively referred to as the "Guarantied Obligations"), in each case when and as the same shall become due and payable, whether at maturity, pursuant to mandatory or optional prepayment, by acceleration or otherwise, all in accordance with the terms and provisions hereof and thereof, it being the intent of the Guarantors that the guaranty set forth in this Section 11.01 (the "Unconditional Guaranty") shall be a guaranty of payment and not a guaranty of collection. (b) As a separate and alternative stipulation, each of the Guarantors unconditionally and irrevocably agrees that any sum expressed to be payable by any Guarantor under Section 11.01(a) but which is for any reason (whether or not now existing and whether or not now known or becoming known to any party to this Agreement) not recoverable from such Guarantor on the basis of a guaranty shall nevertheless be recoverable from it as if it were the sole principal debtor and shall be paid by it to the Administrative Agent, for the benefit of the Lenders, on demand. Section 11.2. Performance Under This Agreement. In the event any Borrower fails to make, on or before the due date thereof, any payment of the Guarantied Obligations, the Guarantors shall cause forthwith to be paid the moneys, or to be 51 performed, kept, observed, or fulfilled each of such Guarantied Obligations, in respect of which such failure has occurred. Section 11.3. Waivers. To the fullest extent permitted by law, each Guarantor does hereby waive: (a) notice of acceptance of the Unconditional Guaranty; (b) notice of any borrowings under this Agreement, or the creation, existence or acquisition of any of the Guarantied Obligations, subject to such Guarantor's right to make inquiry of the Administrative Agent to ascertain the amount of the Guarantied Obligations at any reasonable time; (c) notice of the amount of the Guarantied Obligations, subject to such Guarantor's right to make inquiry of the Administrative Agent to ascertain the amount of the Guarantied Obligations at any reasonable time; (d) notice of adverse change in the financial condition of any Borrower, any other Guarantor or any other fact that might increase such Guarantor's risk hereunder; (e) notice of presentment for payment, demand, protest, and notice thereof as to the Revolving Credit Notes or any other instrument; (f) notice of any Default or Event of Default; (g) all other notices and demands to which such Guarantor might otherwise be entitled (except if such notice or demand is specifically otherwise required to be given to such Guarantor hereunder or under the other Facility Documents); (h) the right by statute or otherwise to require any or each Lender or the Administrative Agent to institute suit against any Borrower or to exhaust the rights and remedies of any or each Lender or the Administrative Agent against any Borrower, such Guarantor being bound to the payment of each and all Guarantied Obligations, whether now existing or hereafter accruing, as fully as if such Guarantied Obligations were directly owing to each Lender by such Guarantor; (i) any defense arising by reason of any disability or other defense (other than the defense that the Guarantied Obligations shall have been fully and finally performed and indefeasibly paid) of any Borrower or by reason of the cessation from any cause whatsoever of the liability of any Borrower in respect thereof; and (j) any stay (except in connection with a pending appeal), valuation, appraisal, redemption or extension law now or at any time hereafter in force which, but for this waiver, might be applicable to any sale of Property of such Guarantor made 52 under any judgment, order or decree based on this Agreement, and such Guarantor covenants that it will not at any time insist upon or plead, or in any manner claim or take the benefit or advantage of such law. Until all of the Guarantied Obligations shall have been paid in full, none of the Guarantors shall have any right of subrogation, reimbursement, or indemnity whatsoever in respect thereof and any right of recourse to or with respect to any assets or Property of any Borrower or any other Guarantor. Nothing shall discharge or satisfy the obligations of the Guarantors hereunder except the full and final performance and indefeasible payment of the Guarantied Obligations in cash in the applicable currency by the Guarantors, upon which each Lender agrees to transfer and assign its interest in the Revolving Credit Notes to the Guarantors without recourse, representation or warranty of any kind (other than that such Lender owns such Revolving Credit Notes and that such Revolving Credit Notes are free of Liens created by such holder). All of the Guarantied Obligations shall in the manner and subject to the limitations provided herein for the acceleration of, the Revolving Credit Notes and the Letter of Credit Obligations, forthwith become due and payable without notice. Section 11.4. Releases. Each of the Guarantors consents and agrees that, without notice to or by such Guarantor and without affecting or impairing the obligations of such Guarantor hereunder, each Lender or the Administrative Agent, in the manner provided herein, by action or inaction, may: (a) compromise or settle, extend the period of duration or the time for the payment, or discharge the performance of, or may refuse to, or otherwise not, enforce, or may, by action or inaction, release all or any one or more parties to, any one or more of the Revolving Credit Notes or the other Facility Documents; (b) grant other indulgences to any Borrower in respect thereof; (c) amend or modify in any manner and at any time (or from time to time) any one or more of the Revolving Credit Notes, the Letters of Credit and the other Facility Documents in accordance with Section 13.01 or otherwise; (d) release or substitute any one or more of the endorsers or guarantors of the Guarantied Obligations whether parties hereto or not; and (e) exchange, enforce, waive, or release, by action or inaction, any security for the Guarantied Obligations (including, without limitation, any of the collateral therefor) or any other guaranty of any of the Revolving Credit Notes or the Letter of Credit Obligations. 53 Section 11.5. Marshaling. Each of the Guarantors consents and agrees that: (a) the Administrative Agent shall be under no obligation to marshal any assets in favor of such Guarantor or against or in payment of any or all of the Guarantied Obligations; and (b) to the extent any Borrower or any other Guarantor makes a payment or payments to any Lender, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, or required, for any of the foregoing reasons or for any other reason, to be repaid or paid over to a custodian, trustee, receiver, or any other party under any bankruptcy law, common law, or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made and such Guarantor shall be primarily liable for such obligation. Section 11.6. Liability. Each of the Guarantors agrees that the liability of such Guarantor in respect of this Article 11 shall not be contingent upon the exercise or enforcement by any Lender or the Administrative Agent of whatever remedies such Lender or the Administrative Agent may have against any Borrower or any other Guarantor or the enforcement of any Lien or realization upon any security such Lender or the Administrative Agent may at any time possess. Section 11.7. Unconditional Obligation. The Unconditional Guaranty set forth in this Article 11 is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and shall remain in full force and effect until the full and final payment of the Guarantied Obligations without respect to future changes in conditions, including change of law or any invalidity or irregularity with respect to the issuance or assumption of any obligations (including, without limitation, the Revolving Credit Notes and the Letter of Credit Obligations) of or by any Borrower or any other Guarantor, or with respect to the execution and delivery of any agreement (including, without limitation, the Revolving Credit Notes and the other Facility Documents) of any Borrower or any other Guarantor. Section 11.08. Election to Perform Obligations. Any election by any of the Guarantors to pay or otherwise perform any of the obligations of any Borrower under the Revolving Credit Notes or under any of the other Facility Documents, whether pursuant to this Article 11 or otherwise, shall not release such Borrower from such obligations or any of its other obligations under the Revolving Credit Notes or under any of the other Facility Documents. Section 11.09. No Election. The Administrative Agent shall have the right to seek recourse against any one or more of the Guarantors to the fullest extent provided for herein for such Guarantor's obligations under this Agreement (including, without limitation, this Article 11) in respect of the Revolving Credit Notes and the Letters of 54 Credit. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of the Administrative Agent's right to proceed in any other form of action or proceeding or against other parties unless such holder has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by any Lender or the Administrative Agent against any Borrower under any document or instrument evidencing obligations of such Borrower to such Lender or the Administrative Agent shall serve to diminish the liability of any of the Guarantors under this Agreement (including, without limitation, this Article 11) except to the extent that such Lender finally and unconditionally shall have realized payment by such action or proceeding, notwithstanding the effect of any such action or proceeding upon any Guarantor's right of subrogation against such Borrower. Section 11.10. Severability. Subject to Article 10 hereof and applicable law, each of the rights and remedies granted under this Article 11 to the Administrative Agent may be exercised by the Administrative Agent without notice by the Administrative Agent to, or the consent of or any other action by, the Administrative Agent, provided that each of the Guarantors will give each Lender immediate notice of any exercise of rights and remedies by the Administrative Agent under this Article 11. Section 11.11. Other Enforcement Rights. The Administrative Agent may proceed, as provided in Article 11 hereof, to protect and enforce the Unconditional Guaranty by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement contained herein (including, without limitation, in this Article 11) or in execution or aid of any power herein granted; or for the recovery of judgment for the obligations hereby guarantied or for the enforcement of any other proper, legal or equitable remedy available under applicable law. Each Lender shall have, to the fullest extent permitted by law and this Agreement, a right of set-off against, any and all credits and any and all other Property of any Guarantor, now or at any time whatsoever with, or in the possession of, such holder, or anyone acting for such holder, as security for any and all obligations of the Guarantors hereunder and such Lien shall be deemed permitted for all purposes under Article 8 hereof. Section 11.12. Delay or Omission; No Waiver. No course of dealing on the part of any Lender or the Administrative Agent and no delay or failure on the part of any such Person to exercise any right hereunder (including, without limitation, this Article 11) shall impair such right or operate as a waiver of such right or otherwise prejudice such Person's rights, powers and remedies hereunder. Every right and remedy given by the Unconditional Guaranty or by law to any Lender or the Administrative Agent may be exercised from time to time as often as may be deemed expedient by such Person. 55 Section 11.13. Restoration of Rights and Remedies. If any Lender or the Administrative Agent shall have instituted any proceeding to enforce any right or remedy under the Unconditional Guaranty, under any Revolving Credit Note held by such Lender, or under the Security Agreement, and such proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely to such Lender or the Administrative Agent, then and in every such case each such Lender, the Administrative Agent, each Borrower and each Guarantor shall, except as may be limited or affected by any determination in such proceeding, be restored severally and respectively to its respective former positions hereunder and thereunder, and thereafter, subject as aforesaid, the rights and remedies of such Lender or the Administrative Agent shall continue as though no such proceeding had been instituted. Section 11.14. Cumulative Remedies. No remedy under this Agreement (including, without limitation, this Article 11), the Revolving Credit Notes, the Letters of Credit or any of the other Facility Documents is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given hereunder this Agreement (including, without limitation, this Article 11), under the Revolving Credit Notes, the Letters of Credit or under any of the other Facility Documents. Section 11.15. Survival. So long as the Guarantied Obligations shall not have been fully and finally performed and indefeasibly paid, the obligations of the Guarantors under this Article 11 shall survive the transfer and payment of any Revolving Credit Note or Letter of Credit Obligation and the payment in full of all the Revolving Credit Notes and Letter of Credit Obligations and the expiration and termination of the Revolving Credit Commitments. Section 11.16. No Setoff, Counterclaim or Withholding; Gross-Up. Each payment by a Guarantor shall be made without setoff or counterclaim and without withholding for or on account of any present or future Taxes imposed by any Governmental Authority. If any such withholding is so required, such Guarantor shall make the withholding and pay the amount withheld to the appropriate Governmental Authority before penalties attach thereto or interest accrues thereon. Section 11.17. Payment in Applicable Currency. Any payment of a Guarantied Obligation required to be made pursuant to this Agreement shall be made in the currency in which such Guarantied Obligation is required to be made pursuant to this Agreement, any Revolving Credit Note or any other Facility Document. ARTICLE 12. THE ADMINISTRATIVE AGENT. 56 Section 12.1. Appointment, Powers and Immunities of Administrative Agent. Each Lender hereby irrevocably (but subject to removal by the Required Lenders pursuant to Section 12.09) appoints and authorizes the Administrative Agent to act as its agent hereunder and under any other Facility Document with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and any other Facility Document, together with such other powers as are reasonably incidental thereto. The Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Facility Document, and shall not by reason of this Agreement be a trustee for any Lender. The Administrative Agent shall not be responsible to the Lenders for any recitals, statements, representations or warranties made by any Obligor or any officer or official of such Obligor or any other Person contained in this Agreement or any other Facility Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Facility Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Facility Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any collateral security for the Revolving Credit Loans or the Letters of Credit or for any failure by any Obligor to perform any of its obligations hereunder or thereunder. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. Section 12.2. Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat each Lender as the holder of the Revolving Credit Loans made by it and the Letter of Credit Obligations attributable to it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Administrative Agent signed by such Lender shall have been furnished to the Administrative Agent but the Administrative Agent shall not be required to deal with any Person who has acquired a participation in any Revolving Credit Loan or Letter of Credit Obligation from a Lender. As to any matters not expressly provided for by this Agreement or any other Facility Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act 57 pursuant thereto shall be binding on all of the Lenders and any other holder of all or any portion of any Revolving Credit Loan or Letter of Credit Obligation. Section 12.3. Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Revolving Credit Loans and the Letter of Credit Obligations to the extent the same is required to be paid to the Administrative Agent for the account of the Lenders) unless the Administrative Agent has received notice from a Lender or any Obligor specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, the Administrative Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Administrative Agent shall (subject to Section 12.08) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Lenders; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders; and provided further that the Administrative Agent shall not be required to take any such action which it determines to be contrary to law. Section 12.4. Rights of Administrative Agent as a Lender. With respect to its Revolving Credit Commitments and the Revolving Credit Loans made by it and the Letter of Credit Obligations attributable to it, the Administrative Agent in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its capacity as a Lender. The Administrative Agent and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with, any Consolidated Entity (and any of its affiliates) as if it were not acting as the Administrative Agent, and the Administrative Agent may accept fees and other consideration from any Consolidated Entity for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Although the Administrative Agent and its affiliates may in the course of such relationships and relationships with other Persons acquire information about any Obligor, its Affiliates and such other Persons, the Administrative Agent shall have no duty to disclose such information to the Lenders. Section 12.5. Indemnification of Administrative Agent. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 13.03 or under the applicable provisions of any other Facility Document, but without limiting the obligations of the Obligors under Section 13.03 or such provisions), ratably in accordance with the aggregate unpaid principal amount of the Obligations held by the 58 Lenders (without giving effect to any participations, in all or any portion of such Obligations, sold by them to any other Person) (or, if no Obligations are at the time outstanding, ratably in accordance with their respective Revolving Credit Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, any other Facility Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Obligors are obligated to pay under Section 13.03 or under the applicable provisions of any other Facility Document but excluding, unless a Default or Event of Default has occurred, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. Section 12.6. Documents. The Administrative Agent will forward to each Lender, promptly after the Administrative Agent's receipt thereof but in any event within 10 days, a copy of each report, notice or other document required by this Agreement or any other Facility Document to be delivered to the Administrative Agent for such Lender. Section 12.7. Non-Reliance on Administrative Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Consolidated Entities and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Facility Document. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Consolidated Entities of this Agreement or any other Facility Document or any other document referred to or provided for herein or therein or to inspect the Properties or books of any Consolidated Entity. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of any Consolidated Entity (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its affiliates. The Administrative Agent shall not be required to file this Agreement, any other Facility Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Facility Document or any document or instrument referred to herein or therein, to anyone. 59 Section 12.8. Failure of Administrative Agent to Act. Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Lenders under Section 12.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Section 12.9. Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving written notice thereof to the Lenders and Micro Warehouse, and the Administrative Agent may be removed at any time with or without cause by the Required Lenders; provided that Micro Warehouse and the other Lenders shall be promptly notified thereof. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a bank which has an office in New York, New York. The Required Lenders or the retiring Administrative Agent, as the case may be, shall upon the appointment of a successor Administrative Agent promptly so notify Micro Warehouse and the other Lenders. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. Section 12.10. Amendments Concerning Agency Function. The Administrative Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Facility Document which affects its duties hereunder or thereunder unless it shall have given its prior consent thereto. Section 12.11. Liability of Administrative Agent. The Administrative Agent shall not have any liabilities or responsibilities to any Consolidated Entity on account of the failure of any Lender to perform its obligations hereunder or to any Lender on account of the failure of any Consolidated Entity to perform its obligations hereunder or under any other Facility Document. 60 Section 12.12. Transfer of Agency Function. Without the consent of the Obligors or any Lender, the Administrative Agent may at any time or from time to time transfer its functions as Administrative Agent hereunder to any of its offices wherever located, provided that the Administrative Agent shall promptly notify Micro Warehouse and the Lenders thereof. Section 12.13. Non-Receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Lender or Micro Warehouse (either one as appropriate being the "Payor") prior to the date on which such Lender is to make payment hereunder to the Administrative Agent of the proceeds of a Revolving Credit Loan or any Borrower is to make payment to the Administrative Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Administrative Agent, the recipient of such payment (and, if such recipient is a Borrower and the Payor Lender fails to pay the amount thereof to the Administrative Agent forthwith upon demand, such Borrower) shall, on demand, repay to the Administrative Agent the amount made available to it together with interest thereon for the period from the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the average daily Federal Funds Rate for such period. Section 12.14. Withholding Taxes. Each Lender represents that it will furnish to the Administrative Agent such forms, certifications, statements and other documents as the Administrative Agent may request from time to time to evidence such Lender's exemption from the withholding of any tax imposed by any jurisdiction to the extent an exemption is available or to enable the Administrative Agent to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Lender is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by any Borrower is treated for U.S. income tax purposes as derived in whole or in part from sources from within the U.S., such Lender will furnish to the Administrative Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements or documents, duly executed and completed by such Lender as evidence of such Lender's exemption from the withholding of U.S. tax with respect thereto. The Administrative Agent shall not be obligated to make any payments hereunder to such Lender in respect of any Revolving Credit Loan or such Lender's Revolving Credit Commitments until such Lender shall have furnished to the Administrative Agent the requested form, certification, statement or document. 61 Section 12.15. Several Obligations and Rights of Lenders. The failure of any Lender to make any Revolving Credit Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Revolving Credit Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make a Revolving Credit Loan to be made by such other Lender. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Section 12.16. Pro Rata Treatment of Revolving Credit Loans, Etc. Except to the extent otherwise provided: (a) each borrowing under Section 2.01 shall be made from the Lenders, each reduction or termination of the amount of the Revolving Credit Commitments under Section 2.06 shall be applied to the Revolving Credit Commitments of the Lenders, and each payment of commitment fee accruing under Section 2.09 shall be made for the account of the Lenders, according to their Pro Rata Share; and (b) each prepayment and payment of principal of or interest on Revolving Credit Loans shall be made to the Administrative Agent for the account of the Lenders holding Revolving Credit Loans pro rata in accordance with the respective unpaid principal amounts of such Revolving Credit Loans held by such Lenders; and (c) each prepayment and payment of fees under Section 3.09(a) and Letter of Credit Obligations shall be made pro rata in accordance with the Pro Rata Share of the Lenders in the Letter of Credit Obligations held by each of them. Section 12.17. Sharing of Payments Among Lenders. If a Lender shall obtain payment of any Obligation owed to it through the exercise of any right of setoff, banker's lien, counterclaim, or by any other means, it shall promptly purchase from the other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Obligations of the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the amount of Obligations held by each of them. To such end the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Each Obligor agrees that any Lender so purchasing a participation (or direct interest) in the Obligations owed to the other Lenders may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation (or direct interest). Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of any Consolidated Entity. ARTICLE 13. MISCELLANEOUS. 62 Section 13.01. Amendments and Waivers. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by Micro Warehouse, the affected Borrowers, the Administrative Agent and the Required Lenders, or by Micro Warehouse, the affected Borrowers and the Administrative Agent acting with the consent of the Required Lenders and any provision of this Agreement may be waived by the Required Lenders or by the Administrative Agent acting with the consent of the Required Lenders; provided that no amendment, modification or waiver shall, unless by an instrument signed by all of the Lenders or by the Administrative Agent acting with the consent of all of the Lenders: (a) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Revolving Credit Commitments; (b) modify the date fixed for the payment of principal of or interest on any Revolving Credit Loan, any Letter of Credit Obligation or any fee payable hereunder; (c) reduce the amount of any payment of principal thereof or the rate at which interest is payable thereon or any fee payable hereunder; (d) alter the terms of this Section 13.01; (e) amend the definition of the term "Required Lenders"; (f) waive any of the conditions precedent set forth in Section 4.01 hereof; or (g) discharge any Guarantor from its Unconditional Guaranty under Article 11 hereof; and provided, further, that any amendment of Article 12 hereof or any amendment which increases the obligations of the Administrative Agent hereunder shall require the consent of the Administrative Agent. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 13.02. Usury. Anything herein to the contrary notwithstanding, the obligations of the Borrowers under this Agreement, the Revolving Credit Notes and the other Facility Documents shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to a Lender limiting rates of interest which may be charged or collected by such Lender. Section 13.03. Expenses. Micro Warehouse (and, insofar it is responsible for such expenses, each Obligor) shall reimburse the Administrative Agent on demand for all reasonable costs, expenses and charges (including, without limitation, reasonable fees and charges of external domestic and foreign legal counsel for the Administrative Agent) in connection with the preparation of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any other Facility Document and any other documents prepared in connection herewith or therewith. Micro Warehouse (and, insofar it is responsible for such expenses, each Obligor) shall reimburse the Administrative Agent and each Lender for all reasonable costs expenses and charges (including, without limitation, reasonable fees and charges of external domestic and foreign legal counsel for the Administrative Agent and each Lender) in connection with the enforcement or preservation of any rights or remedies 63 during the existence of an Event of Default (including, without limitation, in connection with any restructuring or insolvency or bankruptcy proceeding). Micro Warehouse (and, insofar as it is responsible for the indemnified liability in question, each Obligor) agrees to indemnify the Administrative Agent and each Lender and their respective directors, officers, employees and agent from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to this Agreement or any other Facility Document or to any actual or proposed use by any Borrower of the proceeds of the Revolving Credit Loans or the Letters of Credit or to the performance or enforcement of this Agreement or the other Facility Documents, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the negligence or wilful misconduct of the Person to be indemnified). Section 13.04. Survival. The obligations of the Obligors under Sections 4.01, 4.05, 4.06, 13.03 and 13.16 shall survive the repayment of the Obligations and the termination of the Revolving Credit Commitments. Section 13.05. Assignment; Participations. (a) This Agreement shall be binding upon, and shall inure to the benefit of, Micro Warehouse, the Subsidiary Borrowers, the Subsidiary Guarantors, the Administrative Agent, the Lenders and their respective successors and assigns, except that none of the Obligors may not assign or transfer their rights or obligations hereunder. So long as any assignment or participation by any Lender of its rights and obligations in respect of the Letters of Credit shall require the prior consent of the Issuing Lender such consent not to be unreasonably withheld, each Lender may assign, or sell participations in, all or any part of any Obligation to another bank or other entity, in which event (i) in the case of an assignment, upon notice thereof by the Lender to Micro Warehouse with a copy to the Administrative Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were a Lender hereunder; and (ii) in the case of a participation, the participant shall have no rights under the Facility Documents and all amounts payable by the Borrowers under Articles 2 and 3 shall be determined as if such Lender had not sold such participation. The agreement executed by such Lender in favor of the participant shall not give the participant the right to require such Lender to take or omit to take any action hereunder except action directly relating to (i) the extension of a payment date with respect to any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (ii) the reduction of the principal amount outstanding hereunder or (iii) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the participant is entitled to receive under its agreement with such Lender. Such Lender 64 may furnish any information concerning the Consolidated Entities in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants); provided that such Lender shall require any such prospective assignee or such participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. In connection with any assignment pursuant to this paragraph (a), the assigning Lender shall pay the Administrative Agent an administrative fee for processing such assignment in the amount of $5,000. (b) In addition to the assignments and participations permitted under paragraph (a) above, any Lender may assign and pledge all or any portion of its Revolving Credit Loans and Revolving Credit Notes to (i) any affiliate of such Lender or (ii) any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. Section 13.06. Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be given to the Administrative Agent by telephone, confirmed by telex, telecopy or other writing, and to the Lenders and to the Obligors by ordinary mail or telecopier addressed to such party at its address on the signature page of this Agreement. Notices shall be effective: (a) if given by mail, 72 hours after deposit in the mails with first class postage prepaid, addressed as aforesaid; and (b) if given by telecopier, when the telecopy is transmitted to the telecopier number as aforesaid; provided that notices to the Administrative Agent and the Lenders shall be effective upon receipt. Section 13.07. Setoff. Each Obligor agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of such Obligor at any of such Lender's offices, in Dollars or in any other currency, against any amount payable by such Obligor to such Lender under this Agreement, such Lender's Revolving Credit Notes, any Letter of Credit or any other Facility Document which is not paid when due (regardless of whether such balances are then due to such Obligor), in which case it shall promptly notify such Obligor and the Administrative Agent thereof; provided that such Lender's failure to give such notice shall not affect the validity thereof. Payments by any Obligor hereunder shall be made without setoff or counterclaim. SECTION 13.08. JURISDICTION; IMMUNITIES. (a) EACH OF THE OBLIGORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CONNECTICUT STATE OR UNITED STATES FEDERAL COURT SITTING IN FAIRFIELD COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY REVOLVING CREDIT NOTE, ANY LETTER OF CREDIT OR ANY 65 OTHER FACILITY DOCUMENT, AND EACH OF THE OBLIGORS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CONNECTICUT STATE OR FEDERAL COURT. EACH OF THE OBLIGORS DESIGNATES AND APPOINTS MICRO WAREHOUSE, INC., 535 CONNECTICUT AVENUE, NORWALK, CONNECTICUT 06854 AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH OBLIGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED TO THE APPLICABLE OBLIGOR AT ITS ADDRESS SPECIFIED IN SECTION 13.06 EXCEPT ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. EACH OF THE OBLIGORS AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH OF THE OBLIGORS FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. (b) EACH OF THE OBLIGORS WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY EACH OF THE OBLIGORS AND SUCH OBLIGOR ACKNOWLEDGES THAT NO PERSON ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. EACH OF THE OBLIGORS FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. (c) TO INDUCE THE LENDERS TO ENTER INTO THE COMMERCIAL LOAN TRANSACTION EVIDENCED BY THE FACILITY DOCUMENTS, EACH OF THE OBLIGORS AGREES THAT THE SAID TRANSACTION IS COMMERCIAL AND NOT A CONSUMER TRANSACTION AND WAIVES ANY RIGHT TO NOTICE OF AND HEARING OF THE RIGHTS OF THE ADMINISTRATIVE AGENT AND THE LENDERS UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, REVISIONS OF 1958, AS AMENDED, OR OTHER STATUTE OR STATUTES AFFECTING PREJUDGMENT REMEDIES AND AUTHORIZES THE ADMINISTRATIVE AGENT'S OR ANY LENDER'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THAT THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER. (d) Nothing in this Section 13.08 shall affect the right of the Administrative Agent or any Lender to serve legal process in any other manner 66 permitted by law or affect the right of the Administrative Agent or any Lender to bring any action or proceeding against any Obligor or its Property in the courts of any other jurisdictions. (e) To the extent that any Obligor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its Property, such Obligor hereby irrevocably waives such immunity in respect of its obligations under this Agreement, the Revolving Credit Notes, the Letters of Credit and the other Facility Documents. Section 13.09. Table of Contents; Headings. Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 13.10. Severability. The provisions of this Agreement are intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. Without limiting the foregoing, to the extent that mandatory and non-waivable provisions of applicable law (including but not limited to any applicable laws pertaining to fraudulent conveyance and any applicable business corporation laws (including, in the case of Micro Warehouse (Deutschland) GmbH, Section 30 of the German Act on Limited Liability Companies) otherwise would render the full amount of any Obligor's obligations under this Agreement and under the other Facility Documents invalid or unenforceable such Obligor's obligations under this Agreement and under the other Facility Documents shall be limited to the maximum amount which does not result in such invalidity or unenforceability. Section 13.11. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. Section 13.12. Integration. The Facility Documents set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. SECTION 13.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS 67 OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UCP") AND AS TO MATTERS NOT GOVERNED BY THE UCP, THE LAWS OF THE STATE OF CONNECTICUT. Section 13.14. Confidentiality. Each Lender and the Administrative Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with safe and sound banking practices, any non-public information supplied to it by any Consolidated Entity pursuant to this Agreement which is identified by such Consolidated Entity as being confidential at the time the same is delivered to the Lenders or the Administrative Agent, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Administrative Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which any one or more of the Lenders is a party or (v) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) agrees to use reasonable precautions to keep such information confidential; and provided finally that in no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished by such Consolidated Entity. Section 13.15. Treatment of Certain Information. Each of the Obligors (a) acknowledges that services may be offered or provided to it (in connection with this Agreement or otherwise) by each Lender or by one or more of their respective subsidiaries or affiliates and (b) acknowledges that information delivered to each Lender by any Consolidated Entity may be provided to each such subsidiary and affiliate. Section 13.16. Judgment Currency. The obligations of each Obligor under this Agreement, the Revolving Credit Notes, the Letters of Credit and the other Facility Documents to make payments in Dollars or in any Alternative Currency (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent or a Lender of the full amount of the Obligation Currency expressed to be payable to them under this Agreement, the Revolving Credit Notes, the Letters of Credit and the other Facility Documents. If for the purpose of obtaining or enforcing judgment against any Obligor in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the Alternative Currency Equivalent or Dollar Equivalent, in the case of any Alternative Currency or Dollars, and, in the case of other currencies, the rate of 68 exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as on the day immediately preceding the day on which the judgment is given (such Banking Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, each Obligor covenants and agrees to pay such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the Alternative Currency Equivalent or Dollar Equivalent or rate of exchange for this Section 13.16, such amount shall include any premium and costs payable in connection with the purchase of the Obligation Currency. 69 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Address for Notices: MICRO WAREHOUSE, INC. 535 Connecticut Avenue Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev Telephone No.: (203) 899-4000 --------------------------- Telecopier No.: (203) 899-4203 Name: Attention: Chief Financial Officer Title: Attention: General Manager SUBSIDIARY BORROWERS: Address for Notices: MICRO WAREHOUSE SWEDEN AB Midskogsgrand 1 S-115 43 Stockholm By:/s/ Bruce L. Lev Sweden --------------------------- Telephone No.: 011-46-8664-4650 Name: Telecopier No.: 011-46-8664-4668 Title: Attention: General Manager Address for Notices: MICRO WAREHOUSE HOLDING B.V. GSA Business Center B.V. Prof. Lorenziann 3A By:/s/ Bruce L. Lev 3701 CA ZEIST --------------------------- Telephone No.: 011-31-34043-6200 Name: Telecopier No.: 011-31-34043-3248 Title: Attention: General Manager Address for Notices: MICRO WAREHOUSE LIMITED Unit 6, Wolsey Park Tolpits Lane By:/s/ Bruce L. Lev Wetford Herts WD18QP --------------------------- Telephone No.: 011-441-192321-1277 Name: Telecopier No.: 011-441-192323-4112 Title: Attention: General Manager [SIGNATURE PAGE TO CREDIT AGREEMENT] Address for Notices: MICRO WAREHOUSE FRANCE SARL Techno Direct 6 Boulevard Henri Sollier By:/s/ Bruce L. Lev 92150 Sureanes --------------------------- Telephone No.: 011-33-14099-2847 Name: Telecopier No.: 011-33-14099-2888 Title: Attention: General Manager Address for Notices: MICRO WAREHOUSE (DEUTSCHLAND) GMBH Odenwaldatrasse 1 63283 Neu-isenburg Deutschland By:/s/ Bruce L. Lev Telephone No.: 011-49-6102-705110 --------------------------- Telecopier No.: 011-49-6102-705200 Name: Attention: General Manager Title: [SIGNATURE PAGE TO CREDIT AGREEMENT] SUBSIDIARY GUARANTORS: Address for Notices: MICRO WAREHOUSE CANADA LIMITED 651 Queen Street East Toronto, Ontario By:/s/ Bruce L. Lev Canada M4M 1G4 --------------------------- Telephone No.: 416-466-8107 Name: Telecopier No.: 416-466-7390 Title: Attention: General Manager Address for Notices: MICRO WAREHOUSE, INC. OF OHIO 535 Connecticut Avenue Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev Telephone No.: (203) 899-4000 --------------------------- Telecopier No.: (203) 899-4203 Name: Attention: Chief Financial Officer Title: Address for Notices: MICRO WAREHOUSE, INC. OF NEW JERSEY 535 Connecticut Avenue Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev Telephone No.: (203) 899-4000 --------------------------- Telecopier No.: (203) 899-4203 Name: Attention: Chief Financial Officer Title: Address for Notices: MICRO WAREHOUSE INTERNATIONAL, INC. 535 Connecticut Avenue Norwalk, Connecticut 06854 By:/s/ Bruce L. Lev Telephone No.: (203) 899-4000 --------------------------- Telecopier No.: (203) 899-4203 Name: Attention: Chief Financial Officer Title: [SIGNATURE PAGE TO CREDIT AGREEMENT] Address for Notices: BENTON SISTEMAS, S.A. de C.V. Circuito Novelistas 129-106 Ciudad Satelite By:/s/ Bruce L. Lev Naucalpan --------------------------- Estado. de Mexico C.P. 53100 Name: Telephone No.: 011-52-5572-53100 Title: Telecopier No.: 011-52-5393-4777 Attention: General Manager Address for Notices: INMAC AB SWEDEN Midskogsgrand 1 S-115 43 Stockholm By:/s/ Bruce L. Lev Sweden --------------------------- Telephone No.: 011-46-8664-4650 Name: Telecopier No.: 011-46-8664-4668 Title: Attention: General Manager Address for Notices: MICRO WAREHOUSE B.V. GSA Business Center B.V. Prof. Lorenziann 3A By:/s/ Bruce L. Lev 3701 CA ZEIST --------------------------- Telephone No.: 011-31-34043-6200 Name: Telecopier No.: 011-31-34043-3248 Title: Attention: General Manager [SIGNATURE PAGE TO CREDIT AGREEMENT] ADMINISTRATIVE AGENT: THE CHASE MANHATTAN BANK By /s/ Alan Aria ------------------------------- Name: Title: Address for Notices: New York Agency 4 Chase Metrotech Center Brooklyn, New York 11245 with a copy to: 999 Broad Street Bridgeport, CT 06604 Attn: Alan J. Aria Telecopier No.: (203)382-6573 [SIGNATURE PAGE TO CREDIT AGREEMENT] LENDERS: THE CHASE MANHATTAN BANK By /s/ Alan Aria ------------------------------- Name: Title: Lending Office for Variable Rate Loans: 1 Chase Manhattan Plaza New York, New York 10081 Lending Office for Eurocurrency Loans: Nassau Branch c/o Eurocurrency Operations 4 Chase Metrotech Center Brooklyn, New York 11245 Address for Notices: 999 Broad Street Bridgeport, CT 06604 Attn: Alan J. Aria Telecopier No.: (203) 382-6573 [SIGNATURE PAGE TO CREDIT AGREEMENT] LENDERS: STATE STREET BANK AND TRUST COMPANY By /s/ Arlene M. Doherty ------------------------------- Name: Title: Address for Notices: 225 Franklin Street Boston, MA 02110 Attn: William Zola Telecopier No.: (617) 654-4176 [SIGNATURE PAGE TO CREDIT AGREEMENT] SCHEDULE I REVOLVING CREDIT COMMITMENTS ================================================================================ THE CHASE STATE STREET BORROWER MANHATTAN BANK AND TRUST BANK COMPANY ================================================================================ MICRO WAREHOUSE, INC $28,666,666.66 $14,333,333.34 - -------------------------------------------------------------------------------- MICRO WAREHOUSE SWEDEN AB 2,666,666.67 1,333,333.33 - -------------------------------------------------------------------------------- MICRO WAREHOUSE HOLDING B.V 4,000,000.00 2,000,000.00 - -------------------------------------------------------------------------------- MICRO WAREHOUSE LIMITED 6,666,666.67 3,333,333.33 - -------------------------------------------------------------------------------- MICRO WAREHOUSE FRANCE SARL 4,000,000.00 2,000,000.00 - -------------------------------------------------------------------------------- MICRO WAREHOUSE (DEUTSCHLAND) GMBH 4,000,000.00 2,000,000.00 - -------------------------------------------------------------------------------- TOTAL REVOLVING CREDIT COMMITMENTS 50,000,000.00 25,000,000.00 ================================================================================ EX-10.26 8 RESIGNATION AGREEMENT -- LINWOOD A. LACY December 8, 1997 Mr. Linwood A. Lacy, Jr. 2304 Cranborne Road Midlothian, Virginia 23113 Dear Chip: This agreement will serve to confirm the terms and conditions under which we will accept your resignation as President, Chief Executive Officer and member of the Board of Directors. 1. Resignations. Effective October 27, 1997 (hereinafter the "Resignation Date") you have resigned as President and Chief Executive Officer and any other officerships of Micro Warehouse, Inc. or any of its affiliates, sister companies or subsidiaries (hereinafter "the Company"). Effective as of the date hereof, you will resign as member of the Board of Directors of the Company by tendering a letter of resignation substantially in the form appended hereto as Schedule A. 2. Employment Agreement. Your employment agreement with the Company made as of the 4th day of September, 1996 has been terminated as of the Resignation Date. Except for compensation previously paid to you or otherwise described in this agreement, you shall not be eligible to receive any bonus or incentive compensation or any other compensation for 1997 or any other period. 3. COBRA Benefits. For a period not to exceed six (6) months subsequent to the Resignation Date, the Company agrees to pay directly or reimburse you for the COBRA payments required to maintain your current health insurance coverage through the Company. You acknowledge that the Company will have no obligation to pay directly or reimburse you for any COBRA payments attributable to any period of time after you are eligible to receive health insurance benefits with any new employer nor, in any event, for any payments due more than 6 months subsequent to the Resignation Date. 4. Stock Options. Schedule B sets forth stock options granted to you which have already vested and which may be exercised by you on or prior to April 27, 1999. Schedule B also sets forth stock options granted to you which as of the date of this agreement have not yet vested. We confirm that out of the total unvested options, you, although no longer an officer, director or employee of the Company, will retain rights in (a) 83,333 of them so labeled on Schedule B which will vest on March 4, 1998 pursuant to their original terms and conditions, (b) 125,000 of them so labeled on Schedule B which will vest on October 14, 1998 pursuant to their original terms and conditions and (c) 83,333 of them so labeled on Schedule B which will vest on March 4, 1999 pursuant to their original terms and conditions. All of such options referred to in (a), (b) and (c) above may be exercised by you on or prior to April 27, 1999. In the event of a "Change of Control" (as such term is defined in a resolution of the Company's Board of Directors with respect to accelerated vesting of options dated April 16, 1997 (the "April 16, 1997 Board Resolution")) of the Company at any time on or between the date hereof and June 10, 1998, you shall be entitled to one year accelerated vesting of options as if you had remained a director of the Company until June 10, 1998 pursuant to the April 16, 1997 Board Resolution. Notwithstanding the foregoing, in the event the independent certified public accountants of the acquiring or merging entity in a Change of Control transaction are unwilling to provide a "pooling opinion" because of your retention of rights in options described in this Paragraph 4 (i.e. such retention will prevent the Change of Control from being accounted as a pooling of interests under APB Opinion Number 16 or any successor or related regulation or interpretation), such retention of rights in options shall become null and void and of no further force or effect. Further and notwithstanding the foregoing, in the event the independent certified public accountants of the acquiring or merging entity in a Change of Control transaction are unwilling to provide a "pooling opinion" because of the acceleration of your rights in options described in this Paragraph 4 (i.e. such acceleration will prevent the Change of Control from being accounted as a pooling of interests under APB Opinion Number 16 or any successor or related regulation or interpretation), such acceleration shall not occur and you shall continue to have such option rights but without any rights of acceleration. Except as specifically set forth in this Paragraph 4 and subject to the following sentence, all other options reflected as not vested on Schedule B are hereby deemed forfeited and of no further force or effect as of June 10, 1998. You will, however, retain rights to such options reflected on Schedule B as being forfeited in the event that you are rehired as President and/or Chief Executive Officer (or other senior executive position) of the Company by the Board of Directors of the Company at any time prior to June 10, 1998. You will not be eligible to receive any further stock options or otherwise participate in any deferred compensation programs. You also agree that any such stock options that you retain pursuant to this agreement will continue to be subject to the terms and conditions of the agreements under which the applicable stock options were granted to you unless the terms of such agreements conflict with this agreement in which case this agreement shall prevail. Notwithstanding the foregoing, in the event, prior to June 10, 1998, there are changes made to the terms and conditions of options previously granted to members of the Board of Directors which increase or expand the rights of such board members in connection with such options, you shall be entitled to receive pari passu the benefits of such changes in connection with your options. 5. Rescission of Stock Purchase Loan. You and the Company agree to hereby rescind the transaction which took place on or about September 4, 1996 whereby the Company loaned you One 2 Million Four Hundred Thousand Dollars ($1,400,000.00) in order to purchase Fifty Thousand (50,000) of the Company's common shares (the "Shares") from the Company. Promptly after the date hereof, you shall deliver to the Company the original stock certificate (Number MWC 1329) evidencing your ownership of the Shares together with an executed, undated stock power transferring the Shares from you to the Company. You hereby authorize the Company to date said Stock Power, register the Shares in its name, and, at its option, to retire or sell them. Upon receipt of the original certificate MWC 1329 and Stock Power, the Company will surrender to you the original canceled Secured Note dated September 4, 1996 securing the loan to purchase the Shares and will return to you the interest payments that you have made to the Company on the loan in the amount of $46,848.28. You acknowledge that the foregoing agreed rescission of the stock purchase transaction resolves any dispute with respect to your eligibility to participate as a class member in the consolidated class action litigation against the Company currently pending in the Federal District Court for the District of Connecticut and you are not eligible to participate as a class member by reason of your rescinded ownership of said Shares. 6. Indemnification. We confirm that the Indemnification Agreement between you and the Company dated as of October 14, 1996 is in full force and effect. 7. Release. (a) As consideration for the Company to enter into this agreement and as consideration for the covenants contained herein, subject to the immediately following sentence, you irrevocably and unconditionally release, remit, acquit and forever discharge the Company, its officers, directors, shareholders, agents, employees, representatives, attorneys, parents, divisions, subsidiaries, affiliates, related companies or entities, successors and assigns and the officers, executives, directors, shareholders, agents and employees of any and all of the Company's parents, divisions, subsidiaries, affiliates, related companies or entities or successors (separately or collectively, the "Released Parties"), jointly and individually, from any and all claims, charges, complaints, expenses and causes of action of any nature or kind whatsoever, known or unknown, which you, your heirs, successors or assigns have or may have against the Released Parties based upon, related to or arising out of your employment with the Company or your service as a member of the Board of Directors of the Company through the date hereof, including, but not limited to, claims, charges, complaints, liabilities, losses, obligations, demands, damages, costs, expenses and causes of action relating to the terms, conditions, commencement, duration or termination of your employment, or claims of discrimination under any federal, state or local law, rule, regulation or common law, whether such claims are past or present, whether they arise from equity, common law or statute, and whether they arise from labor laws or discrimination laws, such as the Age Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.1981, the Equal Pay Act, as amended, the Americans with Disabilities Act, or any other federal, state or local law, rule or regulation. This release is intended to cover all possible relief, including, but not limited to, reinstatement, wages, back pay, front pay, vacation pay, bonuses or incentive compensation, supplemental or other retirement benefits, 3 perquisites, compensatory damages, punitive damages, damages for pain or suffering, and attorneys' fees, provided, however, that nothing in this agreement will limit or otherwise affect any right you may have to indemnification under the Company's Articles of Incorporation, By Laws or any insurance policy in effect as of the termination of your employment with the Company or pursuant to Article 6 hereof. In addition, if the Company complies with its obligations hereunder, you agree you will not be entitled to any benefit from any claim or proceeding filed by you or on your behalf with any agency or court which is within the scope of this agreement or which goes to the validity of any provision of this agreement. (b) The releases under this Paragraph 7 are intended to cover all possible rights, obligations and liabilities, including any such rights, obligations or liabilities based upon, relating to or arising from any claim which goes to the validity of any provision of this agreement, other than a claim for any breach of this agreement. (c) You acknowledge that you have been given a period of at least 21 days to review and consider this agreement before signing it, and that you understand that you may use as much of the 21-day period as you wish prior to signing. You also acknowledge that you obtained independent legal counsel in connection with reviewing this agreement. 8. Covenant Not to Compete. (a) In consideration for the Company's undertakings described in this agreement and the payments set forth in sub-paragraph (b) hereinbelow, you hereby covenant and agree that for a period of three (3) months subsequent to the Resignation Date (the "Non-Compete Period"), you shall not, directly or indirectly, own, operate, manage, join, control, participate in the ownership, management, operation or control of, or be paid or employed by, or acquire any securities of, or otherwise become associated with or provide assistance to, as an employee, consultant, director, officer, shareholder, partner, agent, associate, principal, representative or in any other capacity, any business entity or activity which is directly or indirectly a "Competitive Business" (as hereinafter defined); provided, however, that the foregoing shall not prevent you from (i) performing services for a Competitive Business if such Competitive Business is also engaged in other lines of business and if your services are restricted to employment in such other lines of business; or (ii) acquiring the securities of or an interest in any Competitive Business, provided such ownership of securities or interests represents at the time of such acquisition, but including any previously held ownership interests, less than five percent (5%) of any class or type of securities of, or interest in, such Business. The term "Competitive Business" shall mean and include any business or activity that is substantially the same as any business or activity conducted by the Company, regardless of where such Competitive Business is located. (b) In partial consideration for the Covenant not to Compete in sub-paragraph 8(a) hereinabove the Company shall make three payments to you in the gross amount of $60,651.00 (Sixty Thousand 4 Six Hundred and Fifty One Dollars) each (less any taxes required to be withheld). The initial payment shall be made within 5 business days after this agreement is fully executed and the two subsequent payments shall be made on or before December 27, 1997 and January 27, 1998. 9. Confidential Information. You acknowledge that the Company would be damaged if your knowledge with respect to the business of the Company was disclosed to or utilized by parties other than the Company. Accordingly, you covenant and agree that you will not disclose any presently known or hereafter acquired confidential or proprietary information of the Company or its business to any person, firm, corporation or other entity. For the purposes of this paragraph, the term "confidential or proprietary information" shall mean all information which is currently known to or hereafter acquired by you and relates to such matters as budget and forecasts, customer mailing lists, data base management techniques, pricing and credit techniques, marketing techniques, research and development activities, sources of product, and other confidential or restricted information which is not in the public domain. Confidential or proprietary information shall not be deemed to include information released generally to the public by the Company or others, information required by law to be disclosed or information learned by you from third parties without restrictions on disclosure. 10. Covenant Not to Solicit Employees. Unless you receive the prior written consent of the Company you hereby covenant and agree that during the Non-Compete Period you shall not, for or on behalf of any person or business, directly or indirectly, as owner, officer, director, stockholder, partner, associate, consultant, manager, advisor, representative, employee, agent, creditor or otherwise, attempt to solicit any person who has been an employee of the Company at any time during your period of employment with the Company and who is employed by the Company at the time of the solicitation. 11. Company Representation. The Company hereby represents, based on representations of Peter Godfrey, Felix Dennis, Joseph Walsh, Frederick Fruitman, Bruce L. Lev, Kris Rogers and Wayne Garten, that at the date hereof the Company has no actual knowledge of any claims or causes of action of any nature or kind whatsoever against you except that no representation is made with respect to any claim of the Company for disclosure of confidential or proprietary information. You agree that in the event of a breach of this Paragraph 11 your claims, if any, may be asserted only against the Company and not any of the individuals listed above. 12. Assignment. This agreement is not assignable, except that the Company may assign it to any successor of substantially all of the Company's business or assets. This agreement will be binding upon, and inure to the benefit of, the parties and their successors and assigns. 13. Partial Invalidity. If any provision of this agreement is held to be invalid, void or unenforceable, the remaining provisions shall continue in full force without being impaired or invalidated in any way. 5 14. Governing Law. This agreement will be governed by the laws of the State of Connecticut, without giving effect to the conflict of laws principles thereof. 15. Entire Agreement. This agreement reflects the complete agreement between the parties with respect to the subject matter hereof, and there are no written or oral understandings, promises or agreements directly or indirectly related to this letter agreement or the subject matter hereof that are not incorporated herein. 16. Revocation Period. For a period of seven (7) calendar days following your execution of this agreement, you may revoke this agreement. This agreement will not become effective or enforceable to release any claims or rights which you may have under the Age Discrimination in Employment Act until this revocation period has expired. This agreement also will not become effective or enforceable with respect to any obligations that the Company may have hereunder until this revocation period has expired. You acknowledge and agree that if the Company satisfies any obligations hereunder that otherwise would have arisen during this revocation period as soon as practicable after the revocation period has expired, such action will constitute timely satisfaction of such obligations hereunder. You also acknowledge and agree that the benefits to you of the covenants contained herein, including, but not limited to, payments hereunder, are provided to you in exchange for the promises in this agreement, are not normally available under Company policy or practice to employees whose employment is terminated and provide for the payments of amounts to which you might not otherwise be entitled. 17. Confidentiality and Intent to be Bound. The terms and conditions of this agreement are confidential and must not be disclosed to any person other than those who must perform tasks to effect the agreement. Notwithstanding the foregoing, the Company and you may disclose any term of this agreement, after prior written notice to the other party that disclosure is about to take place, (i) to any governing authority if disclosure is required to comply with applicable law; or (ii) to either party's attorneys, accountants or advisors with whom a fiduciary relationship has been established. In addition, nothing contained herein shall be construed to prohibit either party from disclosing the terms and conditions of this agreement to its attorneys, accountants or bookkeepers or to any other person with whom a fiduciary relationship has been established. Both parties have read this agreement, have had the opportunity to consult with counsel, fully understand the agreement's terms and conditions, and enter this agreement freely, voluntarily and intending to be legally bound hereby. 18. Enforcement of Agreement. You hereby acknowledge and agree that your obligations under Paragraphs 8, 9 and 10 are a material part of the consideration for this agreement and for the payments from the Company to you under Paragraph 8(b), that your failure to satisfy any of such obligations could cause irreparable harm to the Company and that the damages caused by such failure would be 6 uncertain and difficult to measure. You further acknowledge and agree that the Company may seek injunctive relief to prevent your failure or further failure to satisfy any of such obligations, in addition to all other rights, remedies and claims that it may have under this agreement, at law or in equity. 19. No Waiver. No failure on the part of either party at any time to require the performance by the other party of any term hereof shall be taken or held to be a waiver of such term or in any way affect such party's right to enforce such term, and no waiver on the part of either party of any term hereof shall be taken or held to be a waiver of any other term hereof or the breach thereof. If you agree to and accept the terms and conditions of this agreement, please sign both copies hereof in the space provided below, retain one copy for your records and return the other copy to the undersigned. Very truly yours, MICRO WAREHOUSE, INC. By:/s/ Peter Godfrey ----------------------- Name: Peter Godfrey Title: President and Chief Executive Officer Agreed to and accepted on the date first above written: /s/ Linwood A. Lacy, Jr. - ------------------------- Linwood A. Lacy, Jr. Date Signed: December 8, 1997 7 SCHEDULE A TO LETTER AGREEMENT WITH LINWOOD A. LACY, JR. DATED AS OF DECEMBER 8, 1997 FORM OF RESIGNATION LETTER Effective immediately, I, Linwood A. Lacy, Jr., hereby resign as a member of the Board of Directors of Micro Warehouse, Inc. and any of its affiliates, sister companies or subsidiaries. 8 SCHEDULE B TO LETTER AGREEMENT WITH LINWOOD A. LACY, JR. DATED AS OF DECEMBER 8, 1997 Stock options already granted to you and already vested which may be exercised pursuant to Paragraph 4 on or prior to April 27, 1999. 125,000 options at an exercise price of $25.00 per share granted per agreement dated September 4, 1996. Stock options already granted to you in which you will retain rights subject to Paragraph 4 which may be exercised subject to Paragraph 4 on or prior to April 27, 1999. 83,333 options at an exercise price of $12.625 per share which will vest on March 4, 1998 granted per resolutions of the Board of Directors dated January 23, 1997. 125,000 options at an exercise price of $25.00 per share which will vest on October 14, 1998 granted per agreement dated September 4, 1996. 83,333 options at an exercise price of $12.625 per share which will vest on March 4, 1999 granted per resolutions of the Board of Directors dated January 23, 1997. Stock options deemed forfeited and of no further force or effect as of June 10, 1998 subject to Paragraph 4. 250,000 options at an exercise price of $25.00 per share granted per agreement dated September 4, 1996. 333,334 options at an exercise price of 12.625 per share granted per resolutions of the Board of Directors dated January 23, 1997. 9 EX-10.27 9 RESIGNATION AGREEMENT -- KRIS ROGERS January 28, 1998 Ms. Kris Rogers 81 Lyons Plain Road Weston, CT 06883 Dear Kris: This agreement will serve to confirm the terms and conditions under which we will accept your resignation as Executive Vice President and General Manager of the U.S. Business Unit. 1. Resignations. Effective April 30, 1998 or such earlier date as shall be mutually agreed (hereinafter the "Resignation Date") you will resign from employment as Executive Vice President and General Manager of the U.S. Business Unit and any other officerships or directorships of Micro Warehouse, Inc. or any of its affiliates, sister companies or subsidiaries (hereinafter "the Company"). 2. Employment Agreement. Any employment agreement with the Company, whether written or oral, except for the agreement set forth herein is terminated as of the Resignation Date. Through the Resignation Date you shall be paid your current salary and receive all benefits generally provided to all employees of the Company and all of the Company's employment practices will be applicable to you. You shall be entitled to receive your guaranteed bonus of Fifty Thousand Dollars ($50,000.00) for fiscal year 1997. You shall also be entitled to receive any other 1997 bonus (less the guaranteed amount) if the total 1997 bonus amount to which you would be entitled exceeds the guaranteed amount. It is confirmed that your entitlement to 1997 bonus compensation, except for the guaranteed bonus which will be paid in any event, will be based on the achievement of defined goals by the Company's U.S. (and not worldwide) operations. Your 1997 bonus will be paid on or about February 28, 1998. You shall also be entitled to receive an agreed bonus of Fifty Thousand Dollars ($50,000.00) for the period from January 1, 1998 through the Resignation Date which will be paid on or about April 30, 1998. Except as described herein, you shall not be eligible to receive any other 1997 or 1998 bonus notwithstanding the possibility that other comparably compensated employees might receive bonuses attributable to said years. As of the Resignation Date you will be entitled to a lump sum payment equal to the sum of your base salary for nine months of One Hundred and Eighty Seven Thousand Five Hundred Dollars ($187,500.00) and salary for 10 days of accrued unused vacation time of Nine Thousand Six Hundred and Fifteen Dollars and Thirty Eight Cents ($9,615.38). You shall also be entitled to reimbursement of (i) reasonable relocation expenses of up to Forty Thousand Dollars ($40,000.00) if you accept a new position out of the area and such expenses are not covered by your new employer; and (ii) actual legal fees incurred by you in connection with this agreement of up to Five Hundred Dollars ($500.00). Payments described in this paragraph shall be reduced by deducting all required withholding amounts. 3. COBRA Benefits. For a period of nine (9) months subsequent to the Resignation Date the Company agrees to pay directly or reimburse you for COBRA payments required to maintain your current health insurance coverage through the Company. You acknowledge that the Company will have no obligation to pay directly or reimburse you for any COBRA payments attributable to any period of time after you are eligible to receive health insurance benefits with any new employer nor, in any event, for any payments due more than nine (9) months subsequent to the Resignation Date. 4. Stock Options. Schedule A sets forth stock options granted to you which as of the date of this agreement have not yet vested. We confirm that 20,000 of the stock options will vest on April 7, 1998. We further confirm that an additional 20,000 options, of the total 60,000 options which would have vested on April 7, 1999, will not be caused to be forfeited and deem these options vested as of the Resignation Date. The total of said 40,000 options which will have vested by the Resignation Date as described on Schedule A may be exercised by you on or prior to April 30, 1999. Schedule A also sets forth other stock options granted to you which are deemed forfeited and of no further force and effect. You will not be eligible to receive any further stock options or otherwise participate in any deferred compensation programs notwithstanding the possibility that the Company might provide the same participation to other comparably compensated employees. You also agree that any such stock options that you retain pursuant to this agreement will continue to be subject to the terms and conditions of the agreement under which the applicable stock options were granted to you unless the terms of such agreement conflicts with this agreement in which case this agreement shall prevail. 5. Indemnification. We confirm that the Indemnification Agreement between you and the Company dated as of April 7, 1997 is in full force and effect. 6. Release. (a) As consideration for the Company to enter into this agreement and as consideration for the covenants contained herein, subject to the immediately following sentence, you irrevocably and unconditionally release, remit, acquit and forever discharge the Company, its officers, directors, shareholders, agents, employees, representatives, attorneys, parents, divisions, subsidiaries, affiliates, related companies or entities, successors and assigns and the officers, executives, directors, shareholders, agents and employees of any and all of the Company's parents, divisions, subsidiaries, affiliates, related companies or entities, successors or entities (separately or collectively, the "Released Parties"), jointly and individually, from any and all claims, charges, complaints, expenses and causes of action of any nature or kind whatsoever, known or unknown, which you, your heirs, successors or assigns have or may have against the Released Parties based upon, related to or arising out of your employment with the Company through the date hereof, including, but not limited to, claims, charges, complaints, liabilities, losses, obligations, demands, damages, costs, expenses and causes of action relating to the terms, conditions, commencement, duration or termination of your employment, or claims of discrimination under any federal, state or local law, rule, regulation or common law, whether such claims are past or present, whether they arise from equity, common law or statute, and whether they arise from labor laws or discrimination laws, such as the Age Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.1981, the Equal Pay Act, as amended, the Americans with Disabilities Act, or any other federal, state or local law, rule or regulation. This release is intended to cover all possible relief, including, but not limited to, reinstatement, wages, back pay, front pay, vacation pay, bonuses or incentive compensation, supplemental or other retirement benefits, perquisites, compensatory damages, punitive damages, damages for pain or suffering, and attorneys' fees, provided, however, that nothing in this agreement will limit or otherwise affect any right you may have to indemnification under the Company's Articles of Incorporation, By Laws or any insurance policy in effect as of the termination of your employment with the Company or pursuant to Article 5 hereof. In addition, if the Company complies with its obligations hereunder, you agree you will not be entitled to any benefit from any claim or proceeding filed by you or on your behalf with any agency or court which is within the scope of this agreement or which goes to the validity of any provision of this agreement. (b) Effective as of the Resignation Date, the releases provided for in Paragraph 6(a) will, without further action, be automatically extended to the Resignation Date (except the same will not cover any breach of this agreement by the Company). (c) The releases under this Paragraph 6 are intended to cover all possible rights, obligations and liabilities, including any such rights, obligations or liabilities based upon, relating to or arising from any claim which goes to the validity of any provision of this agreement, other than a claim for any breach of this agreement. (d) You acknowledge that you have been given a period of at least 21 days to review and consider this agreement before signing it and that you may use as much of the 21-day period as you wish prior to signing it. 7. Covenant Not to Compete. You hereby covenant and agree that until the Resignation Date you shall not, directly or indirectly, own, operate, manage, join, control, participate in the ownership, management, operation or control of, or be paid or employed by, or acquire any securities of, or otherwise become associated with or provide assistance to, as an employee, consultant, director, officer, shareholder, partner, agent, associate, principal, representative or in any other capacity, any business entity or activity which is directly or indirectly a "Competitive Business" (as hereinafter defined); provided, however, that the foregoing shall not prevent you from (a) performing services for a Competitive Business if such Competitive Business is also engaged in other lines of business and if your services are restricted to employment in such other lines of business; or (b) acquiring the securities of or an interest in any Competitive Business, provided such ownership of securities or interests represents at the time of such acquisition, but including any previously held ownership interests, less than two percent (2%) of any class or type of securities of, or interest in, such Business. The term "Competitive Business" shall mean and include any business or activity that is substantially the same as any business or activity conducted by the Company as of the date of cessation of your employment with the Company, regardless of where such Competitive Business is located. 8. Covenant Not to Solicit Employees. Unless you have obtained the prior written consent of the Company, you hereby covenant and agree that until the expiration of two years from the Resignation Date, you shall not, for or on behalf of any party, directly or indirectly, as owner, officer, director, stockholder, partner, associate, consultant, manager, advisor, representative, employee, agent creditor or otherwise, attempt to solicit for employment any person who has been an employee of the Company at any time or times during your employment by Company. 9. Confidential Information. You acknowledge that the Company would be damaged if your knowledge with respect to the business of the Company was disclosed to or utilized by parties other than the Company. Accordingly, you covenant and agree that you will not disclose any presently known or hereafter acquired confidential or proprietary information of the Company or its business to any person, firm, corporation or other entity. For the purposes of this paragraph, the term "confidential or proprietary information" shall mean all information which is currently known to or hereafter acquired by you and relates to such matters as budget and forecasts, customer mailing lists, data base management techniques, pricing and credit techniques, marketing techniques, research and development activities, sources of product, and other confidential or restricted information which is not in the public domain. Confidential or proprietary information shall not be deemed to include information released generally to the public by the Company or others, information required by law to be disclosed or information learned by you from third parties without restrictions on disclosure provided the same would not, if released, damage the Company. 10. Continued Services. Through the Resignation Date you will continue to have user access to the Company's voice mail system and you shall be entitled to receive up to 2 hours per month of administrative support from an administrative assistant employed by the Company. 11. Assignment. This agreement is not assignable, except that the Company may assign it to any successor of substantially all of the Company's business or assets. This agreement will be binding upon, and inure to the benefit of, the parties and their successors, heirs and assigns. Any payments due to you under this agreement shall be paid to your estate in the event that you should die before said payments are made. 12. Partial Invalidity. If any provision of this agreement is held to be invalid, void or unenforceable, the remaining provisions shall continue in full force without being impaired or invalidated in any way. 13. Governing Law. This agreement will be governed by the laws of the State of Connecticut, without giving effect to the conflict of laws principles thereof. 14. Entire Agreement. This agreement reflects the complete agreement between the parties with respect to the subject matter hereof, and there are no written or oral understandings, promises or agreements directly or indirectly related to this letter agreement or the subject matter hereof that are not incorporated herein. 15. Revocation Period. For a period of seven (7) calendar days following your execution of this agreement, you may revoke this agreement. This agreement will not become effective or enforceable to release any claims or rights which you may have under the Age Discrimination in Employment Act until this revocation period has expired. This agreement also will not become effective or enforceable with respect to any obligations that the Company may have hereunder until this revocation period has expired. You acknowledge and agree that if the Company satisfies any obligations hereunder that otherwise would have arisen during this revocation period as soon as practicable after the revocation period has expired, such action will constitute timely satisfaction of such obligations hereunder. You also acknowledge and agree that the benefits to you of the covenants contained herein, including, but not limited to, payments hereunder, are provided to you in exchange for the promises in this agreement, are not normally available under Company policy or practice to employees whose employment is terminated and provide for the payments of amounts to which you would not otherwise be entitled. 16. Confidentiality and Intent to be Bound. The terms and conditions of this agreement are confidential and must not be disclosed to any person other than those who must perform tasks to effect the agreement. Notwithstanding the foregoing, the Company and you may disclose any term of this agreement, after prior written notice to the other party that disclosure is about to take place, (i) to any governing authority if disclosure is required to comply with applicable law; or (ii) to either party's attorneys, accountants or advisors with whom a fiduciary relationship has been established. In addition, the Company shall be under no obligation to give you notice of disclosure if the disclosure is required in connection with reporting requirements imposed on the Company as a public company. Both parties have read this agreement, have had the opportunity to consult with counsel, fully understand the agreement's terms and conditions, and enter this agreement freely, voluntarily and intending to be legally bound hereby. 17. Enforcement of Agreement; Liquidated Damages. You hereby acknowledge and agree that your obligations under Paragraphs 7, 8 and 9 are a material part of the consideration for this agreement and for the payments from the Company to you under Paragraph 2; that your failure to satisfy any of such obligations could cause irreparable harm to the Company and that the damages caused by such failure would be uncertain and difficult to measure. You further acknowledge and agree that the Company may seek injunctive relief to prevent your failure or further failure to satisfy any of such obligations, in addition to all other rights, remedies and claims that it may have under this agreement, at law or in equity. You also acknowledge and agree that, if you fail to satisfy any of your obligations under Paragraphs 7, 8 and 9, the Company will be entitled to receive as liquidated damages for such failure recovery of any amounts paid to you under this agreement, any amounts that you may have earned or received as a result of or in connection with such failure, and all costs and expenses, including fees and disbursements of counsel and other costs thereof, incurred by the Company in connection with the enforcement of such obligations. 18. No Waiver. No failure on the part of either party at any time to require the performance by the other party of any term hereof shall be taken or held to be a waiver of such term or in any way affect such party's right to enforce such term, and no waiver on the part of either party of any term hereof shall be taken or held to be a waiver of any other term hereof or the breach thereof. 19. Non-Binding Mediation. The parties agree to submit any and all disputes and or claims under this agreement to non-binding mediation before a mutually agreeable mediator at Mediation Consultants in New Haven, Connecticut. If you agree to and accept the terms and conditions of this agreement, please sign both copies hereof in the space provided below, retain one copy for your records and return the other copy to the undersigned. Very truly yours, MICRO WAREHOUSE, INC. By: /s/ Peter Godfrey ------------------------- Name: Peter Godfrey Title: President and Chief Executive Officer Agreed to and accepted on the date first above written: /s/ Kris Rogers - ------------------------- Kris Rogers Date Signed: January 30, 1998 SCHEDULE A TO LETTER AGREEMENT WITH KRIS ROGERS DATED AS OF JANUARY 8, 1998 Stock options already granted to you which shall vest on April 7, 1998 and be available for exercise pursuant to Paragraph 4 on or prior to April 30, 1999. 20,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997. Stock options already granted to you, not vested as of the date hereof, which shall be deemed vested as of April 30, 1998 and available for exercise pursuant to Paragraph 4 on or prior to April 30, 1999. 20,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997 which options would have vested as of April 7, 1999. Stock options deemed forfeited and of no further force or effect pursuant to Paragraph 4. 40,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997 which options would have vested as of April 7, 1999. 40,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997 which options would have vested as of April 7, 2000. 40,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997 which options would have vested as of April 7, 2001. 40,000 options at an exercise price of $10.75 per share granted January 10, 1997 per agreement dated as of January 10, 1997 which options would have vested as of April 7, 2002. EX-11 10 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 MICRO WAREHOUSE, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED DECEMBER 31, (in thousands, except per share data)
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net income (loss) Income (loss) before extraordinary charge ($36,681) $16,882 $35,244 $24,556 $4,519 Extraordinary charge, net of taxes - 1,584 - - - ------------ --------- --------- ---------- ----------- Net income (loss) ($36,681) $15,298 $35,244 $24,556 $4,519 ============ ========= ========= ========== =========== Shares Weighted average common shares outstanding 34,475 34,310 32,940 29,847 26,010 Common equivalent shares - 483 665 713 413 ------------ --------- --------- ---------- ----------- Weighted average common shares and common stock equivalent shares outstanding - Diluted 34,475 34,793 33,605 30,560 26,423 ============ ========= ========= ========== =========== Per share - Diluted Income (loss) before extraordinary charge ($1.06) $0.49 $1.05 $0.80 $0.17 Extraordinary charge, net of taxes - 0.05 - - - ------------ --------- --------- ---------- ----------- Net income (loss) ($1.06) $0.44 $1.05 $0.80 $0.17 ============ ========= ========= ========== ===========
EX-21.1 11 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES The following is a list of subsidiaries of the Company as of March 15, 1998 Name Place of Organization - -------------------------------------------------------------------------------- Subsidiaries of Micro Warehouse, Inc. (Delaware): Micro Warehouse Inc. of New Jersey United States Micro Warehouse Inc. of Ohio United States Micro Warehouse Canada Limited Canada Inmac SA de CV Mexico Benton Sistemas SA de CV Mexico Micro Warehouse International, Inc. United States Micro Warehouse Australia Pty. Ltd. Australia Online Interactive Inc. United States Auto Register Inc. United States Micro Warehouse Switzerland AG Switzerland Innosoft SARL France Kelar SARL France Inmac Spa Italy Micro Warehouse Holding BV Netherlands Computer Resources International Svenska AB Sweden Subsidiaries of Micro Warehouse International Inc. : Micro Warehouse Japan, KK Japan Subsidiaries of Micro Warehouse Holding BV : TD SA France Micro Warehouse SARL France Micro Warehouse BV Netherlands Inmac AB Sweden Micro Warehouse (Deutschland) GmbH Germany Micro Warehouse Ltd. United Kingdom Subsidiaries of Micro Warehouse Ltd.: Inmac Ltd. United Kingdom Micro Warehouse (1996) Ltd. United Kingdom Subsidiaries of Micro Warehouse (1996) Ltd.: Technomatic Ltd. United Kingdom Subsidiaries of Inmac AB: Micro Warehouse Sweden AB Sweden Subsidiaries of Micro Warehouse Sweden AB: MacKatalogen AB Sweden EX-23.1 12 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Micro Warehouse, Inc. We consent to incorporation by reference in the registration statements (Nos. 333-33945 and 333-47163) on Form S-8 of Mirco Warehouse, Inc. and subsidiaries (the Company) of our reports dated February 18, 1998, related to the consolidated balance sheets of the Company as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and the related schedule, which reports appear in the December 31, 1997, annual report on form 10-K of the Company. Stanford, Connecticut March 27, 1998 EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 58,051 32,234 81,614 20,817 20,022 20,580 217,475 203,687 172,275 13,339 10,876 7,808 170,543 201,119 143,941 533,004 494,828 468,262 32,416 29,712 32,175 48,727 39,482 32,621 619,344 607,842 554,546 270,477 223,298 169,419 78 376 20,458 0 0 0 0 0 0 346 343 339 348,443 383,825 364,330 619,344 607,842 554,546 2,125,698 1,916,244 1,684,627 2,125,698 1,916,244 1,684,627 1,773,722 1,573,798 1,360,636 1,773,722 1,573,798 1,360,636 305,903 277,192 226,276 0 0 0 1,769 2,209 4,160 (37,816) 36,601 57,903 (1,135) 19,719 22,659 (36,681) 16,882 35,244 0 0 0 0 1,584 0 0 0 0 (36,681) 15,298 35,244 (1.06) 0.45 1.07 (1.06) 0.44 1.05
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