Exhibit 99.3
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE STATES OF THE UNITED STATES.
CONVERTIBLE PROMISSORY NOTE
U.S.$137,100,000 Dated: September 19, 1997
FOR VALUE RECEIVED, the undersigned, Merisel, Inc. ("Merisel Parent")
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and Merisel Americas, Inc. ("Merisel Americas"), each a Delaware corporation
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(each individually, a "Co-Issuer" and, collectively, the "Co-Issuers"), HEREBY
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JOINTLY AND SEVERALLY PROMISE TO PAY to the Holder hereof (or its permitted
transferees or assignees) the principal amount of $137,100,000, to be repaid in
the amounts and on the respective maturity dates set forth below:
Aggregate
Principal Amount Maturity Date
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$123,900,000 January 31, 1998
$4,400,000 March 10, 1998
$4,400,000 March 10, 1999
$4,400,000 March 10, 2000
ARTICLE I
DEFINED TERMS
SECTION 1.01. Certain Defined Terms. As used in this Note, the
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following terms shall have the following meanings:
"Additional Restructuring Fees" means all fees directly or indirectly
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related to the restructuring, amending or monitoring of Debt of Merisel Parent
or any of its Subsidiaries, including, without limitation, amendment fees, legal
fees, consultant fees, financial advisor fees and other related fees.
"Affiliate" means, as applied to any Person, any other Person
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controlling, controlled by or under common control with such Person.
"Asset Sale" means any sale, transfer or disposition of assets or Sale
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and Leaseback Transaction permitted under Section 5.02(f)(vi).
"Average Consolidated Net Inventory" means for any fiscal quarter, (i)
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the consolidated amount of inventory of Merisel Parent on the first day of such
period plus the consolidated amount of inventory of Merisel Parent on the last
day of the first month of such fiscal quarter plus the consolidated amount of
inventory of Merisel Parent on the last day of the second month of such fiscal
quarter plus the consolidated amount of inventory of Merisel Parent on the last
day of such fiscal quarter divided by (ii) four, all as determined in accordance
with GAAP.
"Board of Directors" means the board of directors of Merisel Parent.
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"Business Day" means a day of the year on which banks in New York City
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or the City of Los Angeles are not authorized or required to close.
"Capital Leases" means leases of property (whether real, personal or
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mixed) which should, in accordance with GAAP, be recorded as capital leases.
"Cash Equivalents" means readily marketable short term direct
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obligations of the United States of America and certificates of deposit issued
by commercial banks of recognized standing operating in the United States of
America rated A or higher and prime commercial paper.
"Change of Control" means either (i) Merisel Americas ceases to be a
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wholly-owned Subsidiary of Merisel Parent or Merisel Parent enters into a
definitive agreement with respect to the foregoing; or (ii) any Person or any
two or more Persons acting in concert shall have acquired, or shall have entered
into a definitive agreement providing for the acquisition of, beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act), directly or indirectly, of Securities of
Merisel Parent (or other Securities convertible into such Securities), other
than the Notes, representing 50% or more of the combined voting power of all
Securities of Merisel Parent entitled to vote in the election of directors.
"Common Stock" means the common stock, par value $.01 per share, of
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Merisel Parent.
"Company Stockholder Approvals" means, collectively, (i) the
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affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of Merisel Parent entitled to vote which is necessary to approve
the Reverse Stock Split and (ii) the affirmative vote of the holders of a
majority of the shares of Common Stock of Merisel Parent casting
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votes which is necessary to approve the issuance of the shares of Common Stock
of Merisel Parent issuable upon a conversion pursuant to Section 4.01 hereof and
to implement the 1997 Stock Award and Incentive Plan of Merisel Parent.
"Consolidated Adjusted Tangible Net Worth" means Consolidated Tangible
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Net Worth calculated without giving effect to any foreign currency translation
adjustments.
"Consolidated Capital Expenditures" means, for any period, with
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respect to any Person, the expenditures with respect to capital assets (whether
paid in cash or other consideration or accrued as a liability and including that
portion of Capital Leases that is capitalized on the consolidated balance sheet
of such Person and its Subsidiaries) by such Person and its Subsidiaries during
that period that in conformity with GAAP are included in "capital expenditures."
"Consolidated Debt" means Debt (other than intercompany Debt) of
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Merisel Parent and its consolidated Subsidiaries.
"Consolidated Debt Equivalents" means, as of any date of
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determination, the aggregate of Consolidated Debt plus the aggregate amount of
liability assumed or net cash proceeds received by Merisel Parent and its
consolidated Subsidiaries in an accounts receivable securitization, transfer or
sale (without duplication).
"Consolidated EBITSDA" means, for any period, with respect to Merisel
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Parent and its consolidated Subsidiaries, the sum of the amounts for such period
of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii)
Consolidated Interest Charges, (iv) total depreciation expense and (v) total
amortization expense less other non-cash items increasing Consolidated Net
Income, all determined in accordance with GAAP.
"Consolidated Interest Charges" means, for any period, the sum of (i)
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total interest expense during such period of Merisel Parent and its consolidated
Subsidiaries with respect to all Debt (including, without limitation, the
interest component of Capital Leases), plus (ii) the discount expense on sales
of commercial paper and fees associated with the sales of accounts receivable
permitted under Section 5.02(j), all determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income of
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Merisel Parent and its consolidated Subsidiaries for such period determined in
accordance with GAAP (but without taking into account the effects of (i)
Additional Restructuring Fees or (ii) any write-downs in connection with any
sale of any Subsidiaries of Merisel Parent or any restructuring in connection
with such sale), after deducting portions of income properly attributable to
minority interests, if any, in the stock and surplus of such Subsidiaries,
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provided that there shall be excluded (a) the income of any Person accrued prior
to the date it became a Subsidiary of Merisel Parent or was merged into or
consolidated with Merisel Parent or any of its Subsidiaries or such Person's
assets were acquired by Merisel Parent or any of its Subsidiaries, (b) any gains
or losses on the sale or other disposition of investments permitted by Section
5.02(g) hereof or fixed or capital assets, and any taxes on such excluded gains
and any tax deductions or credit on account of any such excluded losses, (c) the
proceeds of any life insurance policy, (d) earnings resulting from any
reappraisal, revaluation or write-up of assets, (e) any deferred or other credit
representing any excess of the equity in any Subsidiary of Merisel Parent at the
date of acquisition thereof over the amount invested in such Subsidiary, (f) any
gain or loss arising from the acquisition of any securities of Merisel Parent or
any of its Subsidiaries and (g) any reversal of any contingency reserve not in
the ordinary course of business, except to the extent that provisions for such
contingency reserve shall have been made from income arising during the most
recently audited fiscal year.
"Consolidated Net Worth" means, as of any date of determination, total
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consolidated assets of Merisel Parent and its consolidated Subsidiaries minus
total consolidated liabilities of Merisel Parent and its consolidated
Subsidiaries, such assets and liabilities each to be determined in accordance
with GAAP, including in the determination of total consolidated liabilities
Subordinated Debt.
"Consolidated Payables" has the meaning set forth in Section 5.01(j).
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"Consolidated Rental Payments" means, for any period, the aggregate
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amount of all rents paid and payable by Merisel Parent and its Subsidiaries on a
consolidated basis during that period under all Operating Leases.
"Consolidated Tangible Net Worth" means, as of any date of
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determination, the Consolidated Net Worth of Merisel Parent (but without taking
into account the effects of (i) Additional Restructuring Fees or (ii) any write-
downs in connection with any sale of any Subsidiaries of Merisel Parent or any
restructuring in connection with such sale), less goodwill, patents, trademarks,
organizational expenses, deferred research and development costs, deferred
marketing expenses and other intangible assets of Merisel Parent and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Contingent Obligations" means, as applied to any Person, any direct
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or indirect liability, contingent or otherwise, of that Person with respect to
any Debt, Lease, dividend, letter of credit or other obligation of another
Person, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable, including, without limitation, any such obligation for which
that Person is in effect liable
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through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or to maintain
the solvency or any balance sheet, income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the non-
delivery or non-furnishing thereof, in any case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the amount of the obligation so guaranteed or otherwise supported.
"Conversion Date" means (i) in the case of conversion pursuant to
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Section 4.01(a), the date on which the conditions contained in Sections 4.01(c)
and 4.01(d) are satisfied or, to the extent permissible, waived as provided
therein, or (ii) in the case of conversion pursuant to Section 4.01(b), the date
on which the conditions contained in Section 4.01(c) are satisfied or, to the
extent permissible, waived as provided therein and on which a Holder satisfies
the requirements set forth in Section 4.02(a).
"Current Market Price" per share of Common Stock means (i) the average
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of the last reported sale price of the Common Stock on the NASDAQ National
Market System for 30 consecutive Trading Days commencing 45 Trading Days before
the day in question or (ii) if the Common Stock shall not be quoted on the
NASDAQ National Market System, the price that could be negotiated in an arm's-
length free market transaction, for cash, between a willing seller and a willing
buyer, neither of whom is under pressure or compulsion to complete the
transaction, as determined by a U.S. investment banking institution of national
repute.
"Debt" means (i) indebtedness for borrowed money; (ii) obligations
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evidenced by bonds, debentures, notes or other similar instruments; (iii)
obligations to pay the deferred purchase price of property or services (it being
understood that Debt shall not include obligations both (a) classified as
accounts payable, accrued liabilities or income taxes payable under GAAP and (b)
incurred in the ordinary course of business); (iv) principal obligations as
lessee under Capital Leases; (v) reimbursement obligations under letters of
credit; (vi) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise assure a creditor against loss in respect of, indebtedness or the
obligations referred to in clauses (i) through (iv) above; or (vii) liabilities
in respect of unfunded vested benefits under plans covered by Title IV of ERISA,
provided that no obligations included in Debt shall be included in more than one
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of clauses (i) through (vii); provided further that Debt shall not include any
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obligations under or
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resulting from any agreement for the sale, transfer or securitization of
accounts receivable permitted by Section 5.02(j) and Section 5.02(a)(vi).
"Employee Benefit Plan" means any Pension Plan, any employee welfare
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benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of Merisel Parent or any
ERISA Affiliate of Merisel Parent and that is not exempted from ERISA pursuant
to regulations promulgated thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended from time to time and any successor statute.
"ERISA Affiliate" means, as applied to any Person, any trade or
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business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
Section 414(b) and (c) of the Internal Revenue Code of Section 4001 of ERISA;
provided, however, that no Foreign Subsidiary shall be considered an ERISA
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Affiliate unless at least one of such Subsidiary's employee benefit plans are
subject to ERISA.
"Events of Default" has the meaning specified in Section 6.01.
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"Excess Cash and Excess Cash Equivalents" means with respect to any
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Person, all cash and Cash Equivalents in excess of what is required for the
normal operation of the business of such Person.
"Existing Receivables Program" has the meaning set forth in Section
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5.02(j).
"Foreign Subsidiary" means a Subsidiary other than a Subsidiary
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incorporated in a state of the United States of America.
"GAAP" means generally accepted accounting principles set forth in
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opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Entity" means any federal, state or local government or
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any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign.
"Hazardous Materials" means (i) any oil, flammable substances,
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explosives, radioactive materials, hazardous wastes or substances, toxic wastes
or substances or any
7
other materials or pollutants which (a) pose a hazard to any property of Merisel
Parent or any of its Subsidiaries or to Persons on or about such property or (b)
cause such property to be in violation of any Hazardous Materials Laws; (ii)
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts per
million; (iii) any chemical, material or substance defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste" or "toxic substances"
or words of similar import under any applicable provincial, local, state or
federal law or under the regulations adopted or publications promulgated
pursuant thereto, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec.
9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
Sec. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Sec. 6901, et seq.; the Federal Water Pollution Control Act, as amended,
33 U.S.C. Sec. 1251, et seq.; applicable state statutes and (iv) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority or may or could pose a hazard to the
health and safety of the occupants of any of the properties of Merisel Parent or
any of its Subsidiaries or the owners and/or occupants of property adjacent to
or surrounding any such property.
"Hazardous Materials Laws" means federal, state, provincial or local
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laws, ordinances, regulations, or policies now or hereafter existing or enacted
relating to the environment, health and safety, any Hazardous Materials
(including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof) or to industrial hygiene or the
environmental conditions on, under or about any of the property of Merisel
Parent or any of its Subsidiaries, including, without limitation, soil and
groundwater conditions.
"Holder" shall mean each holder from time to time of an outstanding
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Note.
"Incipient Default" means an event which would constitute an Event of
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Default but for the requirement that notice be given or time elapse or both.
"Indenture" means the Indenture dated as of October 15, 1994 between
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Merisel Parent, as Issuer, and Nationsbank of Texas, N.A., as Trustee, relating
to the 12 1/2% Senior Notes.
"Interest Rate Agreement" means any interest rate swap agreement,
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interest rate cap agreement, interest rate collar agreement or other similar
agreement.
"Lien" means any lien, mortgage, deed of trust, assignment, pledge,
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security interest or other charge or encumbrance, or any preferential
arrangement which has the
8
practical effect of constituting a lien or security interest; provided, however,
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that any restrictions contained in any software license or any vendor repurchase
right, territorial distribution or export restriction, authorized dealer
requirement or any other restriction imposed by Merisel Parent's or its
Subsidiaries' vendors to control the distribution channel for their products
shall not constitute a "Lien" as defined herein.
"Limited Waiver and Agreement to Amend" means the Limited Waiver and
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Agreement to Amend dated as of April 14, 1997 among Merisel Parent, Merisel
Americas, Merisel Europe, Inc., the Consenting Lenders parties thereto, the
Consenting Senior Noteholders parties thereto and the Consenting Subordinated
Noteholders parties thereto.
"Limited Waiver and Voting Agreement" means the Limited Waiver and
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Voting Agreement dated as of April 11, 1997 among Merisel Parent and the
Consenting Noteholders parties thereto.
"Loan Documents" means the Notes, the Stock and Note Purchase
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Agreement and all other writings related to the Notes, now or hereafter executed
by or on behalf of either Merisel Parent or Merisel Americas and delivered to
any Holder, together with all agreements, instruments or documents referred to
therein or contemplated thereby.
"Majority Holders" means, at any time, Holders of at least 60% of the
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aggregate principal amount of the outstanding Notes.
"Material Adverse Effect" means any change or effect that is, or would
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be reasonably likely to be, materially adverse to the assets, liabilities,
business, prospects, operations, properties (including intangible properties),
condition (financial or otherwise) or results of operations of Merisel Parent
and its Subsidiaries, taken as a whole.
"Merisel Americas" has the meaning specified in the first paragraph of
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this Note.
"Merisel Canada" means Merisel Canada, Inc., a corporation organized
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under the laws of Ontario, Canada.
"Merisel Parent" has the meaning specified in the first paragraph of
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this Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
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Section 4001(a)(3) of ERISA and which is maintained for employees of Merisel
Parent or any ERISA Affiliate of Merisel Parent.
"Net Asset Sale Proceeds" means, with respect to any Asset Sale, cash
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payments (including any cash received by way of repayment of intercompany Debt
or
9
deferred payment pursuant to, or by monetization of, a note receivable or
otherwise, but only as and when so received) received from such Asset Sale, net
of any reasonable costs and expenses incurred in connection with such Asset
Sale, including without limitation (i) reasonable legal fees and expenses, (ii)
taxes reasonably estimated to be actually payable within one year of the date of
such Asset Sale, including income taxes as a result of any gain recognized in
connection with such Asset Sale, (iii) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Debt to parties other
than Merisel Parent or any of its Subsidiaries that is secured by a Lien on the
stock or assets in question and that is required to be paid under the terms
thereof as a result of such Asset Sale and (iv) amounts reserved in accordance
with GAAP for (1) liabilities due and payable within twelve months from the date
of such Asset Sale retained by the seller in connection with such Asset Sale and
(2) indemnities provided by the Seller relating to inventory and/or accounts
receivable in connection with such Asset Sale, in an aggregate amount not to
exceed 5% of the purchase price payable in cash with respect to such Asset Sale;
provided that in the case of any Asset Sale by a Foreign Subsidiary of Merisel
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Parent, Net Asset Sale Proceeds shall not include cash proceeds applied to the
repayment to parties other than Merisel Parent or any of its Subsidiaries of
local lines of credit of such Subsidiary; and provided further that Net Asset
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Sale Proceeds shall include all amounts in respect of payment, forgiveness,
cancellation or reduction of intercompany Debt in connection with or arising out
of such Asset Sale.
"Note" or "Notes" means this Note or any portion thereof (including
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notes issued pursuant to Section 4.02(c), Section 7.04 or Section 7.05 hereof).
"Operating Lease" means, as applied to any Person, any lease
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(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"Pension Plan" means any employee plan which is subject to Section 412
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of the Internal Revenue Code and which is maintained for employees of Merisel
Parent or any ERISA Affiliate of Merisel Parent, other than a Multiemployer
Plan.
"Person" means an individual, partnership, corporation (including a
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business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Receivables Program" has the meaning specified in Section 5.02(j).
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"Related Accrued Interest Rights" means, with respect to any Note or
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portion thereof, the right to receive all accrued and unpaid interest (including
deferred interest and interest on deferred interest, if any) relating thereto.
10
"Reverse Stock Split" means the one-for-five reverse stock split of
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shares of Common Stock of Merisel Parent.
"Sale and Leaseback Transaction" means, with respect to any Person,
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any transaction in which such Person, directly or indirectly, becomes or remains
liable as lessee or as a guarantor or other surety with respect to any lease,
whether an Operating Lease or a Capital Lease, of any property (whether real,
personal or mixed), whether then owned or thereafter acquired, (i) which such
Person has sold or transferred or is to sell or transfer to any other Person or
(ii) which such Person intends to use for substantially the same purposes as any
other property which has been or is to be sold or transferred by such Person to
any other Person in connection with such lease.
"Securities" means any stock, shares, partnership interests, limited
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liability company interests, voting trust certificates, certificates of interest
or participation in any profit-sharing agreement or arrangement, options,
warrants, bonds, debentures, notes, or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"Stock and Note Purchase Agreement" means the Stock and Note Purchase
---------------------------------
Agreement dated September 19, 1997 among Phoenix Acquisition Company II, L.L.C.,
Merisel Parent and Merisel Americas relating to this Note.
"Subordinated Debt" means all Debt of Merisel Parent or any of its
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Subsidiaries that is subordinated in right of payment to this Note pursuant to
documents containing maturities, amortization schedules, covenants, defaults,
remedies, subordination provisions and other material terms in form and
substance satisfactory to the Majority Holders.
"Subsidiary" means, as applied to any Person, any corporation of which
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50% or more of the outstanding voting securities of such corporation shall at
the time be owned or controlled, directly or indirectly, by such Person or by
one or more Subsidiaries of such Person or by such Person and one or more of its
Subsidiaries, or any similar business organization which is so owned or
controlled.
"Termination Event" means (i) a "Reportable Event" described in
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Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of
Merisel Parent or any of its ERISA Affiliates from a Pension Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001(a)(2)
or 4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a
11
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA or (iv) the institution of proceedings to terminate a
Pension Plan by the Pension Benefit Guaranty Corporation or (v) any other event
or condition which might constitute grounds under ERISA for the termination of,
or the appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a Lien pursuant to Section 412(n) of the Revenue Code.
"Trading Day" means a day on when the NASDAQ National Market System is
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open for the transaction of business.
"12 1/2% Senior Notes" means the 12 1/2% Senior Notes due December 31,
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2004 of Merisel Parent issued pursuant to the Indenture.
Terms not defined herein shall have the meanings set forth in the
Stock and Note Purchase Agreement.
ARTICLE II
TERMS OF PAYMENT
SECTION 2.01. No Prepayment. Except as expressly provided herein,
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this Note may not be prepaid in whole or in part. No such prepayment which is
not expressly permitted hereby shall affect the right to the extent set forth
herein of the Holders to receive the shares of Common Stock issuable upon
conversion of the Notes.
SECTION 2.02. Interest. (a) Subject to the provisions of Section
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2.02(b) below, Merisel Parent and Merisel Americas, jointly and severally,
promise to pay to the Holders interest on all unpaid principal amounts hereunder
from the respective dates of issuance of such principal amounts until the
earlier to occur of (i) the payment in full of such principal amounts on the
respective due dates for payment thereof or (ii) with respect to any portion
hereof that is converted as provided herein, the Conversion Date, payable
quarterly on each August 1, November 1, February 1 and May 1 during the term
hereof and on the final day when each such principal amount is paid in full, at
an interest rate per annum equal at all times to 11.5% per annum, increasing by
an additional 1% at the end of each month commencing at the end of the second
month after the date hereof for as long as any portion of this Note remains
outstanding; provided, however, that the maximum interest rate payable hereunder
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shall be 18.0% per annum.
(b) Merisel Parent and Merisel Americas may, at their option by
notice delivered to each Holder at least seven days prior to any interest
payment date specified in Section 2.01(a) above, elect to defer payment of any
interest on the Notes due on such
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interest payment date. Such notice shall specify the principal amount and
maturity date or maturity dates to which such election relates. If such election
is made, interest shall accrue on the amount of such deferred interest at the
applicable interest rate determined in accordance with Section 2.01(a) until
payment in full of such deferred interest. Deferred interest, together with
accrued interest thereon, shall become payable in full in cash upon the due date
for payment or earlier redemption or repayment of the principal amount to which
such interest relates.
(c) Notwithstanding the provisions of Section 2.02(b) above, if
Merisel Parent or Merisel Americas defaults in the payment of any principal on
the Notes when due, interest, including accrued interest, deferred interest and
interest on deferred interest, if any, on the Notes shall thereafter become due
and payable in cash.
SECTION 2.03. Payments and Computations. (a) The Co-Issuers shall
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make each payment hereunder prior to 1:00 p.m., New York time, on the day when
due in U.S. dollars to the Holders by wire transfer in immediately available
funds to a bank account in the United States designated by each Holder no later
than three Business Days prior to the date of payment.
(b) All computations of interest (including interest on deferred
interest, if any) shall be made by the Holder on the basis of a year of 365 or
366, as applicable, days for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest is
payable.
(c) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest (including interest on deferred interest, if
any).
ARTICLE III
REDEMPTION; REPAYMENT UPON CHANGE OF CONTROL
SECTION 3.01. Optional Redemption. The Notes may be redeemed, at the
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option of the Co-Issuers, in whole only, at any time prior to maturity upon not
less than 20 nor more than 40 days' notice mailed to each Holder, at a
redemption price equal to 108% of the principal amount of Notes to be redeemed
plus accrued interest, deferred interest and interest on deferred interest, if
any, to the due date for redemption specified in such notice; provided that such
--------
redemption price will be reduced by the aggregate amount of the Transaction Fee,
the Termination Fee and Expenses (payable pursuant to, and as defined in, the
Stock and Note Purchase Agreement) paid to Stonington Partners, Inc. on behalf
of
13
Phoenix Acquisition Company II, L.L.C., as the initial Holder of this Note;
and provided further that the Notes may not be redeemed prior to termination of
-------- -------
the Stock and Note Purchase Agreement pursuant to Section 8.01 thereof.
SECTION 3.02. Repayment upon Change of Control. Within 15 days of a
--------------------------------
Change of Control or upon the occurrence of an event that will result in the
Termination Fee being payable pursuant to Section 6.05 of the Stock and Note
Purchase Agreement, each Holder has the right to notify the Co-Issuers requiring
the repayment of all or, at the option of such Holder, a portion of the
aggregate principal amount of the Notes held by such Holder as of a date
occurring not more than seven days following such notice, in the case of a
Change of Control, or one day following such notice in the case of the
occurrence an event resulting in the payment of the Termination Fee at a price
equal to 100% of the principal amount thereof, and the Co-Issuers shall pay on
such date such amounts plus accrued interest, deferred interest and interest on
deferred interest, if any, on the principal amount to be repaid to the due date
for payment specified in such notice. In the case of repayment of a portion
only of the aggregate principal amount of the Notes held by a Holder, such
Holder shall determine in the notice referred to above the maturity dates of the
Notes to be repaid.
ARTICLE IV
CONVERSION
SECTION 4.01. Conversion Rights. (a) Upon the satisfaction or
-----------------
waiver of the conditions contained in Sections 4.01(c) and 4.01(d) below, the
full unpaid principal amount of the Notes and the Related Accrued Interest
Rights shall be converted into fully paid and nonassessable shares of Common
Stock in accordance with the following provisions of this Article IV, which
conversion shall occur automatically upon the satisfaction or waiver of such
conditions, without any further action on the part of the Holders. Upon the
occurrence of such conversion, the Notes shall cease to represent Debt and shall
instead be deemed to represent rights to receive the Common Stock issuable upon
conversion of the Notes.
(b) In addition, any Holder may at any time, at its option upon the
satisfaction or waiver of the conditions contained in Section 4.01(c) below,
convert a portion of its Notes and the Related Accrued Interest Rights into
fully paid and nonassessable shares of Common Stock by delivery to Merisel
Parent of a conversion notice in accordance with Section 4.02. The maximum
aggregate principal amount of Notes and Related Accrued Interest Rights that may
be converted by all Holders pursuant to this Section 4.01(b) shall be limited to
such amount as shall be convertible into 19.9% of the Common Stock issued and
outstanding immediately prior to any such proposed conversion, reduced by the
number of shares of Common Stock previously purchased by any of the Holders
pursuant to the Stock
14
and Note Purchase Agreement. A partial conversion pursuant to this Section
4.01(b) shall be effected in accordance with the following provisions of this
Article IV.
(c) The conversion of the Notes and Related Accrued Interest Rights
pursuant to Sections 4.01(a) and 4.01(b) above shall be subject to the
satisfaction or, to the extent permissible, to the waiver by (a) in the case of
a conversion under Section 4.01(a), all Holders or (b) in the case of a
conversion under Section 4.01(b), Holders that wish to convert their Notes, of
the following conditions:
(i) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order
issued by any Governmental Entity or other legal restraint or prohibition
preventing the conversion of the Notes and the Related Accrued Interest
Rights shall be in effect; provided, however, that, in the case of a
-------- -------
decree, injunction or order, each of Merisel Parent, Merisel Americas and
each Holder shall have used its best efforts to prevent the entry of any
such decree, injunction or order and to appeal as promptly as possible any
decree, injunction or order that may be entered.
(ii) All consents, approvals and authorizations from any third party
in connection with the conversion of the Notes and the Related Accrued
Interest Rights shall have been obtained, except where the failure to
obtain same would not have a Material Adverse Effect.
(iii) The waiting period (and any extension thereof) applicable to
the conversion of the Notes and the Related Accrued Interest Rights under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1996, to the extent
required, shall have expired or been terminated.
(iv) Merisel Parent shall have a sufficient number of shares of
Common Stock to effect such conversion.
(v) The shares of Common Stock to be issued pursuant to Sections
4.01(a) or (b), as the case may be, shall have been authorized for listing
on the NASDAQ National Market System, subject to official notice of
issuance.
(d) The conversion of the Notes and the Related Accrued Interest
Rights pursuant to Section 4.01(a) above shall be subject to the satisfaction or
waiver by all the Holders of the following additional conditions:
(i) Each of the representations and warranties of Merisel Parent and
Merisel Americas contained in the Stock and Note Purchase Agreement (i)
that is qualified as to materiality shall be true and correct and (ii) that
is not so qualified
15
shall be true and correct in all material respects, in each case as of the
Conversion Date as though made as of the Conversion Date (except that the
accuracy of representations and warranties that by their terms speak only
as to an earlier date will be determined as of such earlier date), and the
Holders shall have received a certificate of the Chief Executive Officer of
each of Merisel Parent and Merisel Americas dated the Conversion Date to
that effect.
(ii) No Event of Default or Incipient Default under the Notes shall
have occurred or be in effect, and the Holders shall have received a
certificate of the Chief Executive Officer of each of Merisel Parent and
Merisel Americas dated the Conversion Date to that effect.
(iii) There shall have been no Material Adverse Effect.
(iv) The Company Stockholder Approvals, to the extent required, shall
have been obtained.
(v) There shall be no (A) injunction, order or similar restraint
issued by any Governmental Entity that imposes limitations on any Holder's
ability to exercise full rights of ownership with respect to the shares of
Common Stock to be issued pursuant to Section 4.01(a) or (B) finding that
Merisel Parent has breached or is in breach of any material obligation
under either the Limited Waiver and Agreement to Amend or the Limited
Waiver and Voting Agreement, whether preliminary, interlocutory or final,
by a Governmental Entity.
(e) The conversion of the Notes and Related Accrued Interest Rights
pursuant to Section 4.01(a) above shall be subject to the satisfaction or, to
the extent permissible, to the waiver by Merisel Parent and all Holders of the
condition that Phoenix Acquisition Company II, L.L.C., as initial Holder of this
Note, shall have delivered to Merisel Parent in accordance with Section 5.03(b)
of the Stock and Note Purchase Agreement an executed commitment letter from one
or more financial institutions for a stand-by credit or remarketing facility
having commercially reasonable terms and conditions for the repurchase or
remarketing, as the case may be, of any 12 1/2% Senior Notes put to Merisel
Parent pursuant to Section 4.15 of the Indenture following such conversion.
(f) The conversion of the Notes and the Related Accrued Interest
Rights pursuant to Section 4.01(a) above shall be subject to the satisfaction or
waiver by Merisel Parent of the condition that Phoenix Acquisition Company II,
L.L.C., as initial Holder of this Note, shall have delivered to Merisel Parent
in accordance with Section 5.03(a) of the Stock and Note Purchase Agreement
either (A) an executed commitment letter from one or more financial institutions
reasonably satisfactory to Merisel Parent for a revolving credit facility to
provide working capital for the operating Subsidiaries of Merisel Parent
following
16
the Conversion Date in the aggregate amount of $50,000,000 and otherwise having
terms and conditions which are commercially reasonable and reasonably
satisfactory to Merisel Parent and such initial Holder or (B) a revolving credit
facility to provide working capital for the operating Subsidiaries of Merisel
Parent following the Conversion Date in the aggregate amount of $50,000,000 and
otherwise having terms and conditions substantially similar to those set forth
on Exhibit B to the Stock and Note Purchase Agreement.
(g) Each of Merisel Parent and Merisel Americas shall give prompt
notice to the Holders of the occurrence of any event that could cause the
conditions contained in Section 4.01(c) or 4.01(d) not to be satisfied;
provided, however, that no such notification shall affect the conditions to the
-------- -------
obligations of Merisel Parent, Merisel Americas or the Holders under such
Sections.
SECTION 4.02. Conversion Procedure. (a) To convert any portion of
--------------------
the Notes and the Related Accrued Interest Rights pursuant to Section 4.01(b), a
Holder must (i) complete and sign the conversion notice attached to the Notes to
be converted (which, in the case of conversion of a portion only of such
Holder's Notes and Related Accrued Interest Rights, shall be determined in
accordance with Section 4.07 hereof), (ii) surrender such Notes to Merisel
Parent, (iii) if the Common Stock issuable upon conversion is to be issued to a
Person other than the converting Holder, furnish appropriate endorsements and
transfer documents reasonably requested by Merisel Parent and (iv) pay any
transfer or similar tax required pursuant to Section 4.04.
(b) As soon as practical after the relevant Conversion Date, Merisel
Parent shall deliver a certificate for the number of full shares of Common Stock
issuable upon conversion. Delivery of the Common Stock shall be made only
against a tender of the Notes, or portion thereof, so converted. The Person in
whose name the certificate is registered shall be treated as a stockholder of
record on and after the Conversion Date. No certificates representing
fractional shares of Common Stock shall be issued and, in lieu of any such
fractional shares, Merisel Parent shall, as soon as practicable after the
relevant Conversion Date, aggregate all such fractional interests and either
purchase such interests or sell such interests on the NASDAQ National Market
System. Following such purchase or sale, Merisel Parent shall determine the
portion of the proceeds therefrom to which each Holder is entitled and promptly
remit such amount to each such Holder by check.
(c) Upon partial conversion of a Note together with Related Accrued
Interest Rights thereon, the Co-Issuers shall issue to the Holder of such Note a
new Note equal in principal amount to the unconverted portion of the Note
surrendered. Interest on such unconverted portion shall continue to accrue.
SECTION 4.03. Conversion Rate. (a) The initial conversion rate is
---------------
328.9473684211 shares of Common Stock for each $1,000 principal amount of Notes,
17
together with any and all Related Accrued Interest Rights. The conversion rate
is subject to adjustment as provided in Section 4.06. Each of Merisel Parent
and the Holders hereby agrees and acknowledges that such conversion rate (as
adjusted, as the case may be) represents a fair value as between such parties of
any shares of Common Stock to be issued by Merisel Parent pursuant to Section
4.01 of this Note.
(b) The number of shares of Common Stock issuable upon conversion of a
Note and Related Accrued Interest Rights is determined by (i) dividing the
principal amount of the Note or portion thereof to be converted by $1,000, (ii)
multiplying the result by the conversion rate in effect on the Conversion Date
and (iii) rounding the result to the nearest 1/1000 of a share.
SECTION 4.04. Taxes on Conversion. Merisel Parent shall pay any
-------------------
documentary, stamp or similar issue or transfer tax due on the issuance of
shares of Common Stock upon any conversion hereunder. However, the Holder shall
pay any such tax that is due as a result of such Holder's request to have the
shares of Common Stock issuable upon such conversion issued in a name other than
such converting Holder's name.
SECTION 4.05. Merisel Parent to Provide Stock. From and after the
-------------------------------
date upon which the Reverse Stock Split becomes effective, Merisel Parent shall
at all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of the Notes and Related Accrued Interest Rights, the full number of
shares of Common Stock then deliverable upon the conversion of all Notes then
outstanding together with Related Accrued Interest Rights.
SECTION 4.06. Adjustments to Conversion Rate. (a) Subdivisions,
------------------------------ -------------
Combinations, Reclassifications, Issuances. In the event of (i) the
------------------------------------------
subdivision, combination or reclassification of the outstanding shares of Common
Stock (including, without limitation, pursuant to the Reverse Stock Split) or
(ii) the issuance by Merisel Parent of shares of Common Stock as a dividend or
distribution on the Common Stock, the conversion rate in effect immediately
prior to such event shall be adjusted by Merisel Parent so that the Holder of a
Note and Related Accrued Interest Rights thereafter converted shall receive the
number of shares of Common Stock that such Holder would have owned immediately
following such action if such Note and Related Accrued Interest Rights had been
converted immediately prior to the effective date of such subdivision,
combination or reclassification or immediately prior to the record date of such
dividend or distribution.
The foregoing adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
18
If, after an adjustment pursuant to this Section 4.06(a), a Holder
would receive, upon conversion of a Note and Related Accrued Interest Rights,
shares of two or more classes of capital stock of the Company, the Company shall
determine the allocation of the adjusted conversion rate between the classes of
capital stock. After such allocation, the conversion rate of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Article IV.
(b) Rights, Warrants and Other Issuances. In the event of (i) the
------------------------------------
offering of any shares of Common Stock at a price per share less than the
Current Market Price of the Common Stock on the date of such offering or (ii)
the issuance of rights or warrants to all holders of Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share) less than the Current Market Price of
the Common Stock on the date of such issuance (other than, in the case of (i) or
(ii) above, any conversion pursuant to Section 4.01 hereof), the conversion rate
shall be adjusted in accordance with the formula:
C' = C x O + N
-----------
N x P
-----
O + M
where:
C' = the adjusted conversion rate.
C = the current conversion rate.
O = the number of shares of Common Stock
outstanding on the offering date or issuance
date, as applicable.
N = the number of additional shares of Common
Stock offered or issuable upon conversion or
exchange.
P = the offering, conversion or exchange price
per share of the additional shares.
M = the Current Market Price per share of Common
Stock on the offering date or issuance date,
as applicable.
Upon the occurrence of any event specified in this Section 4.06(b),
the adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such shares, rights or
warrants, as applicable; provided, however, that, in the event that all the
-------- -------
shares of Common Stock offered for purchase are not delivered upon the exercise
of such rights or warrants, upon the expiration of such rights or
19
warrants the conversion rate shall be immediately readjusted to be what it would
have been if "N" in the above formula had been the number of shares actually
issued.
(c) Other Distributions. In the event of the distribution by Merisel
-------------------
Parent to all holders of Common Stock of shares of capital stock (other than
Common Stock), debt securities, assets or rights or warrants to purchase assets
or securities of Merisel Parent or its Subsidiaries (excluding the rights and
warrants referred to in Section 4.06(b)), the conversion rate shall be adjusted
in accordance with the formula:
C' = C x M
------
M - F
where:
C' = the adjusted conversion rate.
C = the current conversion rate.
M = the Current Market Price per share of Common
Stock on the record date of the assets,
securities, rights or warrants to be
distributed;
F = the fair market value (as determined by
Merisel Parent) on the record date of the
assets, securities, rights or warrants to be
distributed attributable to one share of
Common Stock;
provided that in the event that the difference "M-F" as defined in the above
--------
formula is less than $0.01 or "F" above is equal to or greater than the Current
Market Price of the Common Stock on the record date mentioned above, in lieu of
the foregoing adjustment, adequate provision shall be made so that each Holder
shall thereafter have the right to receive upon conversion the amount of
securities or assets such Holder would have received had such Holder converted
its Notes and Related Accrued Interest Rights on such record date. In the event
that such dividend or distribution is not so paid or made, the conversion rate
shall again be adjusted to be the conversion rate that would then be in effect
if such dividend or distribution had not been declared. If Merisel Parent
determines the fair market value of any distribution for purposes of this
Section 4.06(c) by reference to the actual or when issued trading market for any
such assets, securities, rights or warrants, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.
The adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
20
(d) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to Section 4.06(b), the following
shall apply:
(i) in the case of issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
--------
shall any deduction be made for commissions, discounts or other expenses
incurred by Merisel Parent for any underwriting of the issue or otherwise
in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors (irrespective of the accounting
treatment thereof), whose determination shall be conclusive, and described
in a resolution of the Board of Directors; and
(iii) in the case of the issuance of securities convertible into or
exchangeable or exercisable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration received by
Merisel Parent for the issuance of such securities plus the additional
minimum consideration, if any, to be received by Merisel Parent upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (i) and (ii) of this
Section 4.06(d)).
(e) When Adjustment May Be Deferred. No adjustment in the
-------------------------------
conversion rate need be made unless the cumulative adjustments would require a
decrease or an increase (subject to the provisions of Section 4.06(f)) of at
least 1% in the conversion rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
(f) When No Adjustment Required. No adjustment need be made for a
---------------------------
change in the par value or no par value of the Common Stock. No downward
adjustment in the conversion rate shall be made except in the event of a reverse
split.
(g) Notice of Adjustment. Whenever the conversion rate is adjusted,
--------------------
Merisel Parent shall promptly mail to all Holders a notice of the adjustment,
together with a certificate from Merisel Parent's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it. The certificate shall be conclusive evidence that the adjustment is
correct.
(h) Voluntary Increase. Merisel Parent from time to time may
------------------
increase the conversion rate by any amount for any period of time if the period
is at least twenty days and if the increase is irrevocable during such period.
21
Whenever the conversion rate is increased pursuant to this Section
4.06(h), Merisel Parent shall mail to all Holders a notice of the increase. The
notice shall state the increased conversion rate and the period it will be in
effect.
An increase of the conversion rate does not change or adjust the
conversion rate otherwise in effect for purposes of calculating the adjustments
required by this Section 4.06.
(i) Reorganization of Merisel Parent. If Merisel Parent is party
--------------------------------
to a merger, consolidation or other transaction or subject to another event that
reclassifies or changes its outstanding Common Stock, the Person assuming the
obligations of Merisel Parent shall irrevocably agree and undertake for the
benefit of each Holder of outstanding Notes that each such Holder shall have the
right to convert such Notes into the kind and amount of shares of stock and
other securities and property (including cash) received in such transaction by a
holder of the number of shares of Common Stock into which each such Note was
convertible immediately prior to the effective date of such transaction or
event. Such irrevocable agreement and undertaking shall provide for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Section 4.06. The Person assuming the obligations of
Merisel Parent shall mail to all Holders a notice briefly describing such
irrevocable agreement and undertaking.
If this Section 4.06(i) applies to a transaction or event described
above, the provisions for adjustment of the conversion rate set forth in Section
4.06(a) shall not apply to the same transaction or event. The provisions of
this Section 4.06(i) shall in no way limit a Holder's rights to require Merisel
Parent to repay the Notes of such Holder pursuant to Section 3.02.
(j) Notice of Certain Transactions. If:
------------------------------
(i) Merisel Parent takes any action that would require an adjustment
in the conversion rate pursuant to this Section 4.06; or
(ii) there is a liquidation or dissolution of Merisel Parent;
Merisel Parent shall mail to all Holders a notice describing the proposed action
and the proposed record date, if applicable, or effective date of such action.
Merisel Parent shall mail such notice at least 30 days before such date,
provided that failure to give such notice shall not affect the validity of the
--------
action taken or proposed to be taken.
(k) Determination Final. Any determination that Merisel Parent or
-------------------
the Board of Directors must make pursuant to this Article IV or with respect to
the Current Market Price of Common Stock shall be conclusive.
22
SECTION 4.07. Order of Conversion. In the case of conversion of a
-------------------
portion only of a Holder's Notes, such Notes shall be converted in reverse
maturity date order, commencing with the Notes with the latest maturity dates
(together with the Related Accrued Interest Rights).
ARTICLE V
COVENANTS OF THE CO-ISSUERS
SECTION 5.01. Affirmative Covenants. So long as any amount shall
---------------------
remain unpaid hereunder, Merisel Parent shall, unless the Majority Holders shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
-------------------------
Subsidiaries to comply with all applicable laws, rules, regulations and orders
(including, without limitation, any Hazardous Materials Laws) noncompliance with
which could materially adversely affect the business or credit of Merisel
Americas or Merisel Parent or ability of either of them to perform under any
Loan Document or the ability of any of such Subsidiaries to perform its
obligations under any Loan Document to which it is a party.
(b) Corporate Existence. Take and fulfill, and cause each of its
-------------------
Subsidiaries to take and fulfill, all actions and conditions necessary to
preserve and keep in full force and effect its existence, rights and privileges
as a corporation and will not liquidate or dissolve (except as permitted in
Section 5.02(e)), and shall take and fulfill, and cause each of its Subsidiaries
to take and fulfill, all actions and conditions necessary to qualify to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business or the ownership or leasing of its properties requires such
qualification except where failure to do so could not have a material adverse
effect on Merisel Parent or any such Subsidiary or on Merisel Parent's or any
such Subsidiary's ability to perform its obligations under any Loan Document to
which it is a party.
(c) General Maintenance of Properties and Business, Etc. Maintain
---------------------------------------------------
and cause each of its Subsidiaries to maintain its property in good condition
(ordinary wear and tear excepted) and make all reasonable and necessary
renewals, replacements, additions and improvements thereof and thereto, so that
the business carried on in connection therewith may be conducted properly at all
times; and maintain and cause each of its Subsidiaries to maintain, with
financially sound insurers of nationally recognized stature and responsibility,
insurance with respect to its property and business of such a nature, with such
terms and in such amounts, as is customary in the case of corporations engaged
in the same or similar businesses similarly situated against loss or damage of
the kinds and in the amounts customarily insured against and for by such
corporations, and carry or cause to be carried,
23
with such insurers in customary amounts, such other insurance, including public
liability insurance, as is usually carried by such corporations.
(d) Inspection. Permit any Holder, by its representatives, agents or
----------
attorneys, (i) to examine books of account, records, reports or other papers of
Merisel Parent or any of its Subsidiaries, to make copies and take extracts from
any thereof, (ii) with the consent of Merisel Parent, such consent not to be
unreasonably withheld, to discuss the affairs, finances and accounts of Merisel
Parent and/or any of its Subsidiaries with the independent certified public
accountants thereof (and by this provision Merisel Parent hereby authorizes said
accountants to discuss with any such Holder the finances and accounts of Merisel
Parent and its Subsidiaries) and (iii) to visit and inspect, all upon reasonable
notice, at reasonable times during normal business hours the properties of
Merisel Parent or any of its Subsidiaries. Each such inspection shall be at the
expense of the Person making the inspection, unless such inspection shall be
made during the continuance of an Event of Default (in which event, the expense
of such inspection shall be borne by the Co-Issuers). Notwithstanding the
foregoing sentence, it is understood and agreed by the Co-Issuers that all
expenses incurred by Merisel Parent or any of its Subsidiaries, any officers and
employees thereof and the independent certified public accountants thereof in
connection with any such inspection shall be expenses payable by the Co-Issuers
or such Subsidiary and shall not be expenses of the Person making the
inspection.
(e) Keeping of Books, Separate Records, Etc. (i) Keep, and cause
---------------------------------------
each of its Subsidiaries to keep, proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of Merisel Parent and each of its Subsidiaries in accordance
with GAAP and consistent with prudent business practices provided, however, that
-------- -------
(y) Merisel Americas and its respective Subsidiaries shall maintain its assets
and transactions separately from those of both Merisel Parent and its other
Subsidiaries (collectively, the "Other Corporations") and shall reflect such
------------------
assets and transactions in financial statements separate and distinct from those
of the Other Corporations and shall evidence such assets and transactions by
appropriate entries in books and records separate and distinct from those of the
Other Corporations; and (z) except as otherwise expressly permitted herein,
Merisel Americas and its Subsidiaries shall at all times provide for their own
operating expenses and liabilities from their own funds other than certain
expenses and liabilities relating to basic corporate overhead which may be
allocated between Merisel Americas and its Subsidiaries and the Other
Corporations; and (ii) except as permitted by Section 5.02(j), collect its
accounts receivable and sell its inventory only in the ordinary course of its
business.
(f) Maintenance of Merisel Parent's Consolidated Adjusted Tangible
--------------------------------------------------------------
Net Worth. Maintain its Consolidated Adjusted Tangible Net Worth as of the
---------
end of the periods indicated below at a level not less than the correlative
amount indicated below:
24
Consolidated Adjusted
Period Tangible Net Worth
------ ---------------------
3rd Quarter of 1997 $(9,549,000)
4th Quarter of 1997 $(8,269,000)
1st Quarter of 1998 $(7,134,000)
2nd Quarter of 1998 $(6,092,000)
3rd Quarter of 1998 $(4,991,000)
4th Quarter of 1998 $(3,876,000)
1st Quarter of 1999 $(3,399,000)
2nd Quarter of 1999 $(3,399,000)
3rd Quarter of 1999 $(3,399,000)
4th Quarter of 1999 $(3,399,000)
(g) Minimum Consolidated EBITSDA of Merisel Parent. Maintain its
----------------------------------------------
aggregate Consolidated EBITSDA for the periods indicated below at a level not
less than the correlative amount indicated below:
Period Consolidated EBITSDA
------ --------------------
Three Quarters ended
3rd Quarter of 1997 $33,000,000
Four Quarters ended
4th Quarter of 1997 $50,000,000
Four Quarters ended
1st Quarter of 1998 $56,000,000
Four Quarters ended
2nd Quarter of 1998 $60,000,000
Four Quarters ended
3rd Quarter of 1998 $64,000,000
Four Quarters ended
4th Quarter of 1998 $68,000,000
Four Quarters ended
1st Quarter of 1999 $68,000,000
25
Four Quarters ended
2nd Quarter of 1999 $68,000,000
Four Quarters ended
3rd Quarter of 1999 $68,000,000
Four Quarters ended
4th Quarter of 1999 $68,000,000
(h) Maintenance of Merisel Parent's Fixed Charge Coverage Ratio.
-----------------------------------------------------------
Maintain, for each period indicated below, a ratio of (i) Consolidated EBITSDA
to (ii) Consolidated Interest Charges of not less than the correlative amount
indicated below:
Period Ratio
------ -----
3rd Quarter of 1997 1.10:1.00
4th Quarter of 1997 1.10:1.00
1st Quarter of 1998 1.10:1.00
2nd Quarter of 1998 1.10:1.00
3rd Quarter of 1998 1.10:1.00
4th Quarter of 1998 1.10:1.00
1st Quarter of 1999 1.10:1.00
2nd Quarter of 1999 1.10:1.00
3rd Quarter of 1999 1.10:1.00
4th Quarter of 1999 1.10:1.00
(i) Maintenance of Inventory Turnover Ratio. Maintain (i) at the end
---------------------------------------
of each quarter ending prior to repayment in full of the principal amount of the
Notes, a ratio of (x) consolidated aggregate cost of sales of Merisel Parent for
such quarter multiplied by four to (y) Average Consolidated Net Inventory of not
less than 8.00:1.00.
(j) Minimum Ratio of Accounts Payable to Inventory. Maintain a ratio
----------------------------------------------
of consolidated amount of accounts payable ("Consolidated Payables") to
---------------------
consolidated amount of inventory of 0.90:1.00 on the last day of each quarter
ending prior to repayment in full of the principal amount of the Notes.
26
(k) Reporting Requirements. Furnish to each Holder the following:
----------------------
(i) promptly after (y) the occurrence of each Event of Default or
Incipient Default or any development (an "Adverse Development"), financial
-------------------
or otherwise, including, without limitation, litigation, arbitration
proceedings and regulatory proceedings, which could reasonably be expected
to materially adversely affect the business, properties or affairs of
Merisel Parent or Merisel Americas or the ability of Merisel Parent or
Merisel Americas to make payment of or perform their respective obligations
under the Loan Documents, or (z) any change by any rating agency (including
any insurance rating agency) in the rating of any publicly-held long-term
Debt of Merisel Parent or Merisel Americas, a statement of the Treasurer(s)
of Merisel Parent and Merisel Americas setting forth details of such Event
of Default or Incipient Default or Adverse Development and, in the case of
clause (y), the action which Merisel Parent or Merisel Americas proposes to
take with respect thereto;
(ii) within the earlier of (x) five Business Days of completion
thereof or (y) 30 days following the end of the applicable month (or, in
the case of the end of a fiscal quarter, 45 days after the end of the
applicable month), the Company's standard internal monthly report in
substantially the form set forth in Exhibit A hereto. The Holders
acknowledge that the information described in this Section 5.01(k)(ii)
shall be preliminary information subject to adjustment and may be
materially different from the information contained in the reports and
statements to be provided under Section 5.01(k)(iii) and 5.01(k)(iv)
hereof;
(iii) as soon as available and in any event within 50 days after the
end of each of the first three fiscal quarters in each fiscal year, (a)
consolidated and consolidating balance sheets of Merisel Parent and its
Subsidiaries as of the end of such fiscal quarter and consolidated and
consolidating statements of income and retained earnings of Merisel Parent
and its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter, and (b)
consolidated balance sheets of Merisel Americas and its Subsidiaries as of
the end of such fiscal quarter and consolidated statements of income and
retained earnings of Merisel Americas and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end
of such fiscal quarter, in the case of clauses (a) and (b), all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by the Treasurer(s) of Merisel Parent and Merisel Americas as
having been prepared in accordance with GAAP (other than the absence of
footnotes), together with (x) a certificate of each such officer stating
that no Event of Default or Incipient Default or Adverse Development has
occurred and is continuing or, if an Event of Default or Incipient Default
or Adverse Development has occurred and is continuing, a statement as to
the nature thereof and the action which Merisel Parent or Merisel Americas
proposes to take with respect thereto; and (y) a schedule in form
27
and substance satisfactory to the Holders, substantially in the form of
Exhibit B hereto, of the computations used in determining, as of the end of
such fiscal quarter, compliance with the covenants contained in Sections
5.01(f), (g), (h), (i) and (j) and Sections 5.02(d), (f)(iii), (h) and (i)
of this Note;
(iv) as soon as available and in any event within 95 days after the
end of each fiscal year of Merisel Parent, a copy of the annual audit
report for such year for Merisel Parent and its consolidated Subsidiaries,
including therein consolidated balance sheets of Merisel Parent and its
consolidated Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of source and
application of funds of Merisel Parent and its consolidated Subsidiaries
for such fiscal year, together with a consolidating balance sheet of
Merisel Parent and its Subsidiaries as of the end of such fiscal year and
consolidating statements of income and retained earnings and of source and
application of funds of Merisel Parent and its Subsidiaries for such fiscal
year, which consolidated balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by independent
public accountants of recognized standing acceptable to the Majority
Holders and which consolidating balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by the Treasurer
of Merisel Parent, together with (a) a statement in the notes to such
financial statements if any default exists under the terms of this Note;
and (b) a schedule in form and substance satisfactory to the Majority
Holders substantially in the form of Exhibit B hereto, of the computations
used in determining, as of the end of such fiscal year, compliance with the
covenants contained in Sections 5.01(f), (g), (h), (i) and (j) and Sections
5.02(d), (f)(iii), (h) and (i) of this Note;
(v) as soon as available and in any event within 95 days after the
end of each fiscal year of Merisel Americas, consolidated balance sheets of
Merisel Americas and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of source and
application of funds of Merisel Americas and its Subsidiaries for such
fiscal year, which consolidated balance sheets and financial statements are
certified in a manner acceptable to the Majority Holders by the Treasurer
of Merisel Americas; provided, however, that if any of the foregoing have
-------- -------
been the subject of an audit separate to the audit described in Section
5.01(k)(iv) by independent public accountants (provided that such
--------
accountants shall be the same accounting firm as referred to in Section
5.01(k)(iv), unless otherwise agreed by the Majority Holders), then the
same shall be delivered with a certification of such accountants in a
manner acceptable to the Majority Holders;
(vi) within 180 days after the close of each fiscal year, a
statement of the unfunded liabilities of each Pension Plan, if any,
certified as correct by an actuary enrolled under ERISA;
28
(vii) promptly after the filing or receiving thereof, copies of all
reports and notices with respect to any "Reportable Event" as defined in
Title IV of ERISA which Merisel Parent or any of its Subsidiaries files
under ERISA with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation or the U.S. Department of Labor or which Merisel
Parent or any of its Subsidiaries receives from such Corporation;
(viii) as soon as practicable, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by
Merisel Parent or Merisel Americas to its public security holders or by any
Subsidiary of Merisel Parent or Merisel Americas to its public security
holders, of all regular and periodic reports and all registration
statements, proxy statements and prospectuses, if any, filed by Merisel
Parent or Merisel Americas or any of their respective Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions; and of all press
releases and other statements made available generally by Merisel Parent or
Merisel Americas or any such Subsidiary to the public concerning material
developments in the business of Merisel Parent or Merisel Americas or any
such Subsidiary;
(ix) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any (a) Termination Event, or (b) "prohibited
transaction," as such term is defined in Section 4975 of the Internal
Revenue Code or Section 406 of ERISA, in connection with any Employee
Benefit Plan or any trust created thereunder, a written notice specifying
the nature thereof, what action Merisel Parent or Merisel Americas has
taken, is taking or proposes to take with respect thereto, and, when known,
any action taken or threatened by the Internal Revenue Service, the
Department of Labor, or the Pension Benefit Guaranty Corporation with
respect thereto;
(x) with reasonable promptness copies of (a) all notices received
by Merisel Parent or any of its ERISA Affiliates of the Pension Benefit
Guaranty Corporation's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan; (b) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by
Merisel Parent or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan; and (c) all notices received by
Merisel Parent or any of its ERISA Affiliates from a Multiemployer Plan
sponsor concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA;
(xi) with reasonable promptness, notice to the Holders in writing of
(a) any release, spill, discharge or emission by Merisel Parent or any of
its Subsidiaries or on or from its properties of any Hazardous Materials
into the environment that must be
29
reported to any federal, state, provincial or local government or
regulatory agency under any applicable Hazardous Materials Laws, (b) any
remedial action taken by Merisel Parent or any of its Subsidiaries in
response to (x) the presence of Hazardous Materials on, under or about any
of its properties that could be reasonably likely to materially adversely
affect the business or credit of Merisel Parent or Merisel Americas or the
ability of either Merisel Parent or Merisel Americas or any of their
respective Subsidiaries to perform under the Loan Documents or (y)
Hazardous Materials Claims, and (c) the discovery by Merisel Parent or any
of its Subsidiaries of any occurrence or condition on any real property
adjoining or in the vicinity of property owned or leased by Merisel Parent
or such Subsidiary that could reasonably be expected to cause such property
or any part thereof to be classified as "border zone property", or to
otherwise be subject to any restrictions on the ownership, occupancy,
transferability or use thereof under any Hazardous Materials Laws;
(xii) with reasonable promptness, copies of all material
communications to or from Merisel Parent or any of its Subsidiaries with
federal, state and local governments or agencies relating to Hazardous
Materials Laws and all communications to or from Merisel Parent or any of
its Subsidiaries relating to Hazardous Materials Claims;
(xiii) within 60 days after the beginning of each fiscal year,
projected consolidated balance sheets, consolidated statements of income
and consolidated cash flows from operations for Merisel Parent and its
Subsidiaries for such fiscal year on a fiscal year or a fiscal quarter by
fiscal quarter basis;
(xiv) promptly upon any officer of Merisel Parent or Merisel Americas
obtaining knowledge that any Person has given any notice to Merisel Parent
or any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section
6.01(e), a written notice specifying the notice given or action taken by
such Person and the nature and period of existence of such claimed default,
event or condition, and what action Merisel Parent or Merisel Americas has
taken, is taking and proposes to take with respect thereto;
(xv) immediately upon receipt by Merisel Parent or any of its
Subsidiaries of any notice or communication relating to a default or
termination of any material real property lease with respect to which the
landlord has not agreed in writing to provide the Holders with notice of
any such default or termination, copies of such communication, or if such
notice or communication was made orally, a written notice describing such
oral notice or communication;
(xvi) within 5 Business Days of completion of the response of Merisel
Parent or any of its Subsidiaries to any comment letter submitted by
independent certified
30
public accountants to Merisel Parent, Merisel Americas or the management
thereof in connection with their annual audit of the financial statements
of Merisel Parent and its Subsidiaries or Merisel Americas and its
Subsidiaries, a copy of such comment letter together with copies of all
responses of Merisel Parent and Merisel Americas to such comment letter;
and
(xvii) such other information respecting the business, properties or
the condition or operations, financial or otherwise, of Merisel Parent or
any of its Subsidiaries as any Holder (or counsel for any Holder) may from
time to time reasonably request.
(l) Payment of Taxes. Pay and discharge, and cause its respective
----------------
Subsidiaries to pay and discharge, promptly when due all taxes, assessments and
governmental charges and levies payable by it which are imposed upon it, its
income or profits or any of its properties, before the same shall become
delinquent; provided, however, that none of the foregoing need be paid while the
-------- -------
same is being contested in good faith by appropriate proceedings diligently
conducted so long as adequate reserves shall have been established in accordance
with GAAP with respect thereto, title of Merisel Parent or such Subsidiary to
the particular property shall not be divested thereby and its right to use the
particular property shall not be materially adversely affected thereby.
(m) Maintain Cash in Name of Merisel Parent. Deposit and maintain,
---------------------------------------
and cause its respective Subsidiaries to deposit and maintain, all Excess Cash
and Excess Cash Equivalents in the name of Merisel Parent or its Subsidiaries.
(n) Further Assurances. At any time or from time to time upon the
------------------
request of the Majority Holders, execute and deliver such further documents and
do such other acts and things as the Majority Holders may reasonably request in
order to effect fully the purposes of this Note and the other Loan Documents.
SECTION 5.02. Negative Covenants. So long as any amount shall remain
------------------
unpaid hereunder, Merisel Parent shall not, unless the Majority Holders shall
otherwise consent in writing:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
----------
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien (including the Lien of a conditional vendor) of any kind upon or with
respect to any of its properties of any character whether now owned or hereafter
acquired, or sign or file, or permit any of its Subsidiaries to sign or file,
under the Uniform Commercial Code or similar law of any jurisdiction a financing
statement or other registration (other than a precautionary filing of a
financing statement solely for notice purposes) which names Merisel Parent or
any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to
sign, any security agreement
31
authorizing any secured party thereunder to file such financing statement or
other registration, or assign, or permit any of its Subsidiaries to assign, any
accounts receivable, or enter into or permit any of its Subsidiaries to enter
into, any agreement prohibiting the creation or assumption of any Lien upon its
respective properties or assets, whether now owned or hereafter acquired,
excluding, however, from the operation of the foregoing restrictions the
--------- -------
following:
(i) Liens for taxes, assessments or governmental charges or levies
to the extent not required to be paid by Section 5.01(l);
(ii) Liens imposed by law such as a materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising
in the ordinary course of business securing obligations which are not
overdue for a period of more than 60 days;
(iii) pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation or to secure public or statutory
obligations of Merisel Parent or any of its Subsidiaries;
(iv) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of Merisel Parent or any of its
Subsidiaries;
(v) Liens caused by any judgment if such judgment has not resulted
in an Event of Default pursuant to Section 6.01(g);
(vi) Liens in favor of the Holders, in connection with Debt of
Merisel Americas and Merisel Parent incurred hereunder and Liens consisting
of security interests in accounts receivable (and in property securing or
otherwise supporting accounts receivable) in connection with agreements for
sales, transfers or securitization of accounts receivable (or interests
therein) referred to in Section 5.02(j);
(vii) Liens in favor of Merisel Parent or Merisel Americas on the
assets of any of their respective Subsidiaries;
(viii) Liens in favor of customs and revenue authorities arising by
operation of law to secure payment of customs duties in connection with the
importation of goods which are not overdue for a period of more than 60
days;
32
(ix) Liens not otherwise permitted under the other clauses of this
Section 5.02(a) that are in existence on the date of issuance of this Note,
(all of which such Liens known to Merisel Parent or Merisel Americas are
set forth on Schedule I hereto, which Schedule shall be updated if Merisel
Parent or Merisel Americas obtains knowledge of any other Liens);
(x) Liens in connection with Sale and Leaseback Transactions
permitted under Section 5.02(f);
(xi) Liens securing obligations of Merisel Parent and its
Subsidiaries under foreign exchange hedging arrangements or other similar
contracts and agreements entered into for non-speculative purposes to
protect Merisel Parent and its Subsidiaries against fluctuations in
currency exchange rates; provided, however, that the maximum aggregate
-------- -------
amount of assets subject to such Liens shall not exceed $10,000,000;
(xii) Liens permitted under that certain letter dated as of September
19, 1997 between Merisel Parent and Merisel Americas and Phoenix
Acquisition Company II, L.L.C., as amended from time to time;
(xiii) Liens on inventory purchased from vendors pursuant to the
specific vendor inventory financing and purchase programs; and
(xiv) Liens incurred in connection with Capital Leases to the extent
permitted by the terms hereof.
(b) Debt. Create or suffer to exist, or permit any of its
----
Subsidiaries to create or suffer to exist, any Debt not in existence on the date
of initial issuance of the Notes as set forth on Schedule I except (i) a
------
revolving credit facility in a maximum amount of $50,000,000; (ii) refinancings
of Debt (other then the revolving credit facility referred to in (i)) otherwise
permitted under this Section 5.02(b); provided that (x) the terms of such
--------
refinanced Debt shall not either (1) increase materially the obligations of the
obligor or (2) confer additional rights on the holder of such Debt which in the
aggregate could be materially adverse to Merisel Parent, Merisel Americas or the
Holders and (y) after giving effect to such refinancing, there would not result
an Incipient Default or Event of Default; (iii) Debt otherwise permitted under
Section 5.02(g), Section 5.02(j) and Section 5.02(c) (to the extent such
permitted Contingent Obligations constitute Debt); (iv) Debt incurred to vendors
pursuant to the specific vendor inventory financing and purchase programs; and
(v) Capital Leases in an aggregate amount of $5,000,000 at any time outstanding
in addition to those in existence of the date of initial issuance of the Notes.
33
(c) Contingent Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Contingent Obligations, except:
(i) by reason of indorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;
(ii) guaranties by Merisel Parent or Merisel Americas in existence
on the date of issuance of this Note (all of which such guaranties known to
Merisel Parent or Merisel Americas are set forth on Schedule II hereto,
which Schedule shall be updated if Merisel Parent or Merisel Americas
obtains knowledge of any such other guaranties) in connection with credit
extended to Merisel Parent's or Merisel Americas' respective wholly-owned
Subsidiaries;
(iii) guaranties by Merisel Parent or Merisel Americas of accounts
payable incurred in the ordinary course of business of any of their
respective wholly-owned Subsidiaries or of leases entered into by such
wholly-owned Subsidiaries in each case in the ordinary course of business,
in each case consistent with Merisel Parent's and Merisel Americas' past
practice;
(iv) guaranties by Merisel Parent or Merisel Americas in connection
with obligations of their respective Subsidiaries;
(v) obligations of Merisel Parent or its wholly-owned Subsidiaries
under flooring arrangements, under their return policies, or under
arrangements providing for rebates to purchasers of inventory or other
arrangements of a similar nature, in each case in the ordinary course of
business and consistent with Merisel Parent's or Merisel Americas' past
practice;
(vi) Contingent Obligations relating to letters of credit issued for
the account of Merisel Parent or its wholly-owned Subsidiaries;
(vii) Contingent Obligations relating to transactions permitted under
Section 5.02(j); and
(viii) Contingent Obligations in respect of foreign exchange hedging
arrangements or other similar contracts and agreements entered into for
non-speculative purposes to protect Merisel Parent and its Subsidiaries
against fluctuations in currency exchange rates.
(d) Dividends, Etc. Declare or pay any dividends, purchase, redeem,
--------------
retire, or otherwise acquire for value any of its capital stock now or hereafter
outstanding,
34
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any of its Subsidiaries to
purchase, redeem, retire or otherwise acquire for value any stock of Merisel
Parent, except that:
------
(i) Merisel Parent may declare and deliver dividends and
distributions payable only in common stock of Merisel Parent; and
(ii) any direct or indirect wholly-owned Subsidiary of Merisel
Parent may declare and deliver dividends and distributions payable in cash,
common stock or other assets to its respective parent.
(e) Mergers, Etc. Merge with or into or consolidate with or into,
------------
or convey, transfer, 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, or acquire all or substantially all of the
assets of, any Person, or permit any Subsidiary to do so, except that (i) any
------
wholly-owned Subsidiary of Merisel Parent or its Subsidiaries may merge or
amalgamate or consolidate with, or transfer all or substantially all of its
assets to, Merisel Parent or any other wholly-owned Subsidiary of Merisel Parent
and (ii) any Subsidiary of Merisel Parent may merge into, amalgamate with or
transfer all or substantially all of its assets to Merisel Parent (so long as
Merisel Parent is the surviving entity); provided in any case in this Section
--------
5.02(e) that, immediately after giving effect thereto, no event shall occur and
be continuing which constitutes an Event of Default or an Incipient Default.
(f) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
---------------------
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any of its assets (whether tangible or intangible, and
including, without limitation, any stock of any Subsidiary), or enter into any
Sale and Leaseback Transaction, or permit any of its Subsidiaries to enter into
any Sale and Leaseback Transaction, except for:
------
(i) sales of inventory sold in the ordinary course of business
(including intercompany sales other than sales to Merisel Properties,
Inc.); provided that the consideration therefor adequately reflects the
--------
fair value of the property disposed of;
(ii) sales of assets (whether tangible or intangible); provided that
--------
the aggregate value of such assets sold in any single transaction or
related series of transactions is equal to or less than $100,000;
(iii) sales or transfers of inventory or fixed assets by Merisel
Americas or any of its wholly-owned Subsidiaries to Merisel Americas or any
of its wholly-owned Subsidiaries and Sale and Leaseback Transactions among
Merisel Americas and any of its wholly-owned Subsidiaries; provided that
--------
(i) the aggregate value of such assets sold or transferred and such Sale
and Leaseback Transactions entered into by Merisel
35
Americas and its wholly-owned Subsidiaries to or with Persons other than
Merisel Americas and its wholly-owned Subsidiaries shall not exceed
$10,000,000, (ii) the aggregate value of inventory sold or transferred by
Merisel Americas and any of its wholly-owned Subsidiaries to Merisel Parent
shall not exceed $1,000,000 in any calendar year and (iii) the aggregate
value of fixed assets sold or transferred by Merisel Americas and any of
its wholly-owned Subsidiaries to Merisel Parent shall not exceed $1,000,000
in any calendar year;
(iv) dispositions of obsolete assets in the ordinary course of
business for nominal consideration;
(v) transfers of assets permitted under Section 5.02(e) and Section
5.02(j); and
(vi) any other sale, transfer or disposition of assets or Sale and
Leaseback Transaction occurring after January 31, 1998; provided that (x)
--------
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof, (y) the sale consideration received
in excess of liabilities assumed shall be (I) in cash or (II) in a
combination of cash for at least 90% of the sale consideration and notes
payable within 12 months for the balance, and (z) at least 60% of the Net
Asset Sale Proceeds of such sale, transfer, disposition or Sale and
Leaseback Transaction shall be applied to repay any unconverted principal
amount of the Notes.
(g) Investments in Other Persons. Make, or permit any of its
----------------------------
Subsidiaries to make, any loan or advance to any Person, or purchase or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any capital stock, obligations or other securities of, make any capital
contribution to, or otherwise invest in, any Person, except:
------
(i) Cash Equivalents;
(ii) loans and advances by Merisel Americas to wholly-owned
Subsidiaries of Merisel Americas; provided that such loans and advances by
--------
Merisel Americas to its wholly-owned Subsidiaries may be converted to
equity Securities of such Subsidiaries if required to satisfy local legal
or regulatory requirements relating to the capitalization of such
Subsidiary;
(iii) loans, advances and investments by any Subsidiary of Merisel
Parent to Merisel Parent and its Subsidiaries; provided that any loan or
--------
advance by any Subsidiary of Merisel Parent (other than Merisel Americas)
to Merisel Parent shall be subordinated (both as to payment and remedies)
to this Note;
36
(iv) investments consisting of mergers, consolidations and
acquisitions permitted by Section 5.02(e);
(v) loans and advances by Merisel Parent to any of its direct and
indirect Subsidiaries;
(vi) loans, advances and investments to or in a Subsidiary in
connection with a sale, transfer or securitization of accounts receivable
permitted by Section 5.02(j);
(vii) loans, advances and investments permitted by Section 5.02(b)
and Section 5.02(e); and
(viii) investments in customers that result from the conversion or
exchange of accounts receivable for securities pursuant to a bankruptcy
plan of reorganization or pursuant to a general arrangement with creditors
of such customer.
The amount of any loan, advance or investment shall be determined in
accordance with GAAP.
(h) Consolidated Capital Expenditures. Make or incur or permit any
---------------------------------
of its Subsidiaries to make or incur Consolidated Capital Expenditures in an
amount exceeding $18,000,000 in fiscal 1997, $35,000,000 in fiscal 1998 and
$35,000,000 in fiscal 1999; provided that up to 50% of such maximum amount for
--------
any year, if unused in such year, may be used to increase the maximum amount
available for the next following year.
(i) Operating Leases. Become liable, or permit any of its
----------------
Subsidiaries to become liable, in any way, whether directly or by assignment or
as a guarantor or other surety, for the obligations of the lessee under any
Operating Lease, unless, immediately after giving effect to the incurrence of
liability with respect to such lease, the Consolidated Rental Payments for
Merisel Parent and its Subsidiaries at any time in effect during the then
current fiscal year shall not exceed $35,000,000.
(j) Sales of Accounts Receivable. Sell, transfer or dispose of
----------------------------
(with or without recourse) or otherwise finance, or permit any of its
Subsidiaries to sell, transfer or dispose of (with or without recourse) or
otherwise finance, accounts receivable except (i) Merisel Canada or Merisel
------
Americas may sell accounts receivable pursuant to the securitization programs
identified on Schedule III hereto (the "Existing Receivables Programs");
-----------------------------
provided that any renewal, amendment, replacement or refinancing of any Existing
--------
Receivables Program shall not be on terms more adverse to Merisel Canada or
Merisel Americas, as the case may be, than the terms of the Existing Receivables
Program being so renewed, amended, replaced or refinanced (it being agreed that
an increase in the
37
interest rate is not an adverse change); (ii) Merisel Americas and its wholly-
owned Subsidiaries may sell or transfer accounts receivable to Merisel Americas
and its wholly-owned Subsidiaries; provided that the aggregate value of such
--------
accounts receivable sold or transferred by Merisel Americas and its wholly-owned
Subsidiaries under this Section 5.02(j)(ii) to Persons other than Merisel
Americas and its wholly-owned Subsidiaries shall not exceed $0; and (iii)
Merisel Parent may, and may permit its Subsidiaries to, enter into one or more
transactions occurring after January 31, 1998 (other than those referred to in
clause (ii) above, each such transaction being referred to herein as a
"Receivables Program") involving the sale or other financing by Merisel Parent
-------------------
or its Subsidiaries of accounts receivable arising in the ordinary course of
business of Merisel Parent or its Subsidiaries; and provided further that 60% of
-------- -------
the proceeds of all such Receivables Programs shall be applied to repay any
outstanding amount under any revolving credit facility permitted under Section
5.02(b)(i).
(k) Subordinated Note Payments. Order, pay, make or set apart, or
--------------------------
permit any Subsidiary to, directly or indirectly, order, pay, make or set apart,
any sum for any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance, sinking fund or
similar payment with respect to any Subordinated Debt.
(l) Amendments or Waivers of Certain Documents; Prepayments of
----------------------------------------------------------
Certain Debt. (i) Amend, waive or otherwise change the terms of, or permit any
------------
Subsidiary to amend, waive or otherwise change the terms of any Debt or make any
payment consistent with an amendment or change thereto, if the effect of such
amendment or change is to increase the interest rate on such Debt, change the
dates upon which payments of principal or interest are due thereon, change any
event of default or condition to an event of default with respect to such Debt,
change the redemption provisions thereof or change the subordination provisions
thereof (or any guaranty thereof) or which, together with all other amendments
or changes made, increase materially the obligations of the obligor or confers
additional rights on the holder of such Debt which could be adverse to Merisel
Parent, Merisel Americas or the Holders; or (ii) defease, or make any payments
the effect of which is to defease, or permit any Subsidiary to, directly or
indirectly, defease, or make any payments the effect of which is to defease any
Debt in whole or in part, or otherwise make, or permit any Subsidiary, directly
or indirectly, to make any payments with respect to any Debt prior to any
scheduled maturity or scheduled repayment, except for payments pursuant to
Section 4.13(c) of the Indenture and Section 4.15 of the Indenture.
(m) Compliance with Law, Etc. (i) Violate any laws, ordinances,
------------------------
governmental rules or regulations to which it is or may become subject or (ii)
fail to obtain or maintain any patents, trademarks, service marks, trade names,
copyrights, design patents, licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or the conduct of its
business, in either case where such failure would have a
38
Material Adverse Effect or affect the ability of Merisel Parent or Merisel
Americas to perform its obligations under any of the Loan Documents.
(n) Transactions with Shareholders and Affiliates. Enter into or
---------------------------------------------
permit to exist, or permit any direct or indirect Subsidiary of Merisel Parent
to enter into or permit to exist, any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any holder of 5% or more of any class of equity
securities of Merisel Parent, or with any Affiliate of Merisel Parent (excluding
any Subsidiaries of Merisel Parent and excluding Phoenix Acquisition Company II,
L.L.C.) or any such holder, on terms that are not fair and reasonable in the
circumstances or that are less favorable to Merisel Parent than those which
might be obtained at the time from Persons who are not such a holder or
Affiliate.
(o) Material Agreements. Permit any Subsidiary to enter into any
-------------------
material contractual obligation without the consent of Merisel Parent.
(p) Interest Rate Agreements. Enter into or permit any of its
------------------------
Subsidiaries to enter into any Interest Rate Agreements except those entered
into for non-speculative purposes to protect Merisel Parent or any of its
Subsidiaries against fluctuations in interest rates.
(q) Change in Business. Engage, or permit any Subsidiary to engage,
------------------
in any business other than the business engaged in by each such particular
Person at the date of initial issuance of the Notes or other businesses directly
related to the distribution or marketing of computer products, services and
information (it being acknowledged that, in case of Merisel Parent, such
business is limited to the owning of stock in its Subsidiaries and activities
necessarily incidental thereto).
(r) Fiscal Year. Change its fiscal year end from the Saturday
-----------
closest to December 31 and, unless otherwise agreed by the Majority Holders, the
fiscal year end date shall be the same for each of Merisel Parent and Merisel
Americas.
(s) Merisel Parent Debt Restructuring. Issue, or cause or permit to
---------------------------------
be issued, Securities of Merisel Parent, or make, or cause or permit to be made,
any payment, to or for the benefit of the holders of Debt of Merisel Parent,
except for the issuance of common equity Securities of Merisel Parent to the
Holders upon conversion of the Notes and Related Accrued Interest Rights in
whole or in part.
39
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
-----------------
(a) Merisel Parent or Merisel Americas shall fail to pay any
installment of principal when due hereunder or (subject to the provisions of
Section 2.02(b) hereof) to pay any interest due hereunder within three days
after such interest shall become due; or
(b) Any representation or warranty or certification made by either
Co-Issuer (or any of their respective officers) under or in connection with any
Loan Document shall prove to have been incorrect in any material respect when
made; or
(c) Merisel Parent or Merisel Americas shall fail to perform or
observe any of the covenants found in Section 5.01(b), (f), (g), (h), (i), (j),
(k) or (m) or Section 5.02 applicable to it; or
(d) Merisel Parent or Merisel Americas shall fail to perform or
observe any other term, covenant or agreement contained in any Loan Document on
its part to be performed or observed and such default shall not have been
remedied within 10 days of notice from any Holder of any such default; or
(e) Merisel Parent or any of its Subsidiaries shall fail to pay any
Debt outstanding (excluding Debt incurred hereunder) of Merisel Parent or such
Subsidiary (as the case may be) exceeding in the aggregate $5,000,000, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other default under any agreement or
instrument relating to such Debt, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt 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;
or any default under any agreement or instrument relating to the Existing
Receivables Programs or any Receivables Program, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to terminate,
or unwind such Existing Receivables Program or Receivables Program or related
document or instrument or substantially reduce the advance rate provided for
therein; or
40
(f) Merisel Parent or any of its Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against Merisel Parent
or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 30
days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or any substantial
part of its property) shall occur; or Merisel Parent or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth above
in this Section 6.01(f); or
(g) Any judgment or judgments or orders or order of money
aggregating in excess of $5,000,000 shall be rendered against Merisel Parent or
any of its Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order in excess of $5,000,000 or
judgments or orders aggregating in excess of $5,000,000 and shall not have been
stayed or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order in excess of $5,000,000 or
judgments or orders aggregating in excess of $5,000,000, by reason of a pending
appeal or otherwise, shall not be in effect; or
(h) (A) Merisel Parent or any of its ERISA Affiliates fails to make
full payment when due of all amounts which, under the provisions of any Pension
Plan or Section 412 of the Internal Revenue Code, Merisel Parent or any of its
ERISA Affiliates is required to pay as contributions thereto;
(B) Any accumulated funding deficiency occurs or exists, whether or
not waived, with respect to any Pension Plan;
(C) The excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets of
such Pension Plans (excluding in such computation Pension Plans with assets
greater than benefit liabilities) allocable to such benefit liabilities are
greater than $250,000;
(D) Merisel Parent or any of its ERISA Affiliates enters into any
transaction which has as its principal purpose the evasion of liability under
Subtitle D of Title IV of ERISA;
41
(E) (i) Any Pension Plan shall be terminated within the meaning of
Title IV of ERISA, or (ii) a trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan, or (iii) the Pension
Benefit Guaranty Corporation (or any successor thereto) shall institute
proceedings to terminate any Pension Plan or to appoint a trustee to administer
any Pension Plan, or (iv) Merisel Parent or any of its ERISA Affiliates shall
withdraw (under Section 4063 of ERISA) from a Pension Plan, if as of the date of
the event listed in subclauses (i)-(iv) above or any subsequent date, either
Merisel Parent or its ERISA Affiliates has any liability (such liability to
include, without limitation, any liability to the Pension Benefit Guaranty
Corporation, or any successor thereto, or to any other party under Section 4062,
4063 or 4064 of ERISA or any other provision of law) resulting from or otherwise
associated with the events listed in subclauses (i)-(iv) above;
As used in this Section 6.01(h) the term "accumulated funding
deficiency" has the meaning specified in Section 412 of the Internal Revenue
Code, and the terms "actuarial present value" and "benefit liabilities" have the
meanings specified in Section 4001 of ERISA; or
(i) The emission, discharge, release or threatened release,
generation, storage, transportation, disposal or presence of Hazardous Materials
on any property owned or leased by Merisel Parent or any of its Subsidiaries
which is reasonably likely to materially adversely affect the business or credit
of Merisel Parent or Merisel Americas or the ability of either of them, or the
ability of any other Subsidiary of Merisel Parent, to perform under the Loan
Documents; or
(j) A material adverse change in the business, earnings,
properties, condition (financial or otherwise) or operations of Merisel Parent
or Merisel Americas shall have occurred since the date of initial issuance of
the Notes;
THEN, and in any such event, the Majority Holders may, by notice to Merisel
Parent and Merisel Americas, declare the unpaid principal amount of and accrued
interest (including deferred interest and interest on deferred interest, if any)
on the Notes to be forthwith due and payable, whereupon the Notes and all
accrued interest (including deferred interest and interest on deferred interest,
if any) shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by Merisel Parent and Merisel Americas; provided, however, that in the
-------- -------
event of an actual or deemed entry of an order for relief with respect to
Merisel Parent or Merisel Americas or any of their Subsidiaries under the
Federal Bankruptcy Code or similar applicable laws in other jurisdictions, the
Notes shall automatically become and be due and payable, together with accrued
interest thereon (including deferred interest and interest on deferred interest,
if any), without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by Merisel Parent and Merisel Americas.
42
Notwithstanding anything contained in the foregoing paragraph, if at
any time within 15 days after acceleration of the maturity of the Notes, Merisel
Parent and Merisel Americas shall pay all arrears of interest (including
deferred interest and interest on deferred interest, if any) and all payments on
account of the principal which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified herein) and all Events of Default and
Incipient Defaults (other than nonpayment of principal of and interest on that
amounts that have become due and payable solely by virtue of acceleration) shall
be remedied or shall be waived by the Majority Holders, then the Majority
Holders, by written notice to Merisel Parent and Merisel Americas, may at their
option rescind and annul the acceleration and its consequences; but such action
shall not affect any subsequent Event of Default or Incipient Default or impair
any right consequent thereon.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Note, nor consent to any departure by Merisel Parent or
Merisel Americas herefrom, shall in any event be effective unless the same shall
be in writing and signed by all Holders and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 7.02. Notices. All notices, requests and other
-------
communications hereunder shall be in writing (including telex, telecopy or
similar writing) and shall be given, if to Merisel Parent or Merisel Americas:
to:
Merisel, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
43
with a copy to:
Merisel, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
if to Phoenix Acquisition Company II, L.L.C.,
as initial Holder of this Note, to:
Stonington Partners, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ III
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Shearman & Sterling
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopy number and with such other copies, as
Merisel Parent, Merisel Americas or Phoenix Acquisition Company II, L.L.C. may
hereafter specify for the purpose by notice to the other, and if to subsequent
Holders, to the address, telecopy number, marked for the attention and with such
other copies as communicated in writing by each such Holder from time to time to
Merisel Parent and Merisel Americas. Each such notice, request or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section 7.02 and evidence
of receipt is received or (ii) if given by any other means, upon delivery or
refusal of delivery at the address specified in this Section 7.02.
SECTION 7.03. No Waiver; Remedies. No failure on the part of any
-------------------
Holder to exercise, and no delay in exercising, any right hereunder prior to the
Conversion Date shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
44
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 7.04. Transfers. Each Holder may by notice to Merisel Parent
---------
and Merisel Americas assign to one or more banks or other entities all or a
portion of its rights under this Note; provided that any such assignment shall
--------
be in accordance with the Securities Act of 1933, as amended and all applicable
rules and regulations thereunder; provided further that no such transfers may
-------- -------
take place without the consent of Merisel Parent prior to the earlier of January
31, 1998 or the occurrence of an event resulting in the Termination Fee becoming
payable under Section 6.05 of the Stock and Note Purchase Agreement. Upon
receipt of such notice together with the Note to be so transferred, Merisel
Parent and Merisel Americas shall issue a new Note to such assignee in the
principal amount so assigned and, in the case of a partial assignment, shall
issue a new Note to the assignor in the principal amount not assigned in
exchange for such Holder's existing Note. Merisel Parent and Merisel Americas
may treat the Holders from time to time as the owner of Notes for all purposes,
and Merisel Parent and Merisel Americas shall not be affected by any notice to
the contrary. Neither Merisel Parent nor Merisel Americas may assign or
transfer any of its rights or obligations under the Notes.
SECTION 7.05. Mutilated, Destroyed, Lost and Stolen Notes. If (i)
-------------------------------------------
any mutilated Note is surrendered to the Co-Issuers or (ii) the Co-Issuers
receive evidence to their satisfaction of the destruction, loss or theft of any
Note, and there is delivered to the Co-Issuers such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice to the Co-Issuers that such Note has been acquired by a bona fide
purchaser, the Co-Issuers shall execute and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Co-Issuers in their discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 7.05, the Co-
Issuers may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Note issued pursuant to this Section 7.05 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional joint and several contractual obligation of the Co-Issuers, whether
or not the mutilated, destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all benefits to which the
Holders are entitled, equally and proportionately with the Holders of any and
all other Notes duly issued and outstanding.
45
The provisions of this Section 7.05 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 7.06. Binding Effect. This Note shall be binding upon and
--------------
inure to the benefit of Merisel Parent and Merisel Americas and the Holders and
their respective successors and permitted assignees and transferees.
SECTION 7.07. Severability. Any provision of this Note which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 7.08. Payment of Costs and Expenses. Merisel Parent and
-----------------------------
Merisel Americas hereby agree, jointly and severally, to reimburse the Holders
upon demand for all reasonable out-of-pocket expenses (including attorneys' fees
and legal expenses) incurred by the Holders in connection with the enforcement
of any rights of the Holders or obligations of Merisel Parent or Merisel
Americas hereunder.
SECTION 7.09. Headings. The various headings of this Note are
--------
inserted for convenience only and shall not affect the meaning or interpretation
of this Note or any provisions hereof.
SECTION 7.10. Governing Law. This Note shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York, without giving
effect to such laws relating to conflicts of laws.
46
IN WITNESS WHEREOF, Merisel Parent and Merisel Americas caused this
Note to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
MERISEL, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------
Title: Chief Executive Officer
MERISEL AMERICAS, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------
Title: Chief Executive Officer
