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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 27, 1998
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Alvey Systems, Inc.
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(Exact name of registrant as specified in charter)
Delaware 333-2600 43-0157210
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
9301 Olive Boulevard, St. Louis, Missouri 63132
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (314) 993-4700
--------------
Not applicable
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(Former name or former address, if changed since last report)
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ITEM 2. DISPOSITION OF ASSETS.
On October 27, 1998, Alvey Systems, Inc., a Delaware corporation
("Alvey" or the "Company"), completed the spin-off (the "Initial Spin-Off")
of its wholly-owned subsidiary, McHugh Software International, Inc.
("McHugh"), to Alvey's parent, Pinnacle Automation, Inc. ("Pinnacle").
Pinnacle, in turn, completed the spin-off of McHugh (the "Subsequent
Spin-Off," and with the Initial Spin-Off, the "Spin-Off") to Pinnacle's
common stockholders on the same date, by means of a pro rata distribution of
the shares of McHugh common stock. The Distribution Agreement among Pinnacle,
Alvey and McHugh, which sets forth the terms of the Spin-Off and certain
obligations of the parties after the Spin-Off, is filed herewith as Exhibit
10.3. The Tax Sharing Agreement among those same parties, which sets forth
the obligations of the parties with respect to taxes after the Spin-Off, is
filed herewith as Exhibit 10.4.
Together with its wholly-owned subsidiaries, Weseley Software
Development Corp., Software Architects, Inc. and Gagnon & Associates, Inc.,
McHugh develops, markets, implements and supports open architecture,
client/server planning and execution software products for warehouse and
transportation management (the "McHugh Business"). Following the Spin-Off,
Alvey will continue to own and operate its business as a leading provider of
automated materials handling systems for manufacturing plants, distribution
centers and warehouses (the "Systems Business"), and McHugh will continue to
own and operate the McHugh Business. By separating businesses with
distinctive needs relative to capital investment, growth, financing,
management and human resources, the boards and management of Pinnacle, Alvey
and McHugh believe the Spin-Off will improve capital-raising efficiency and
strategic focus at both the Systems and McHugh Businesses.
Immediately after the consummation of the Spin-Off, also on October 27,
1998, McHugh consummated the sale to affiliates of Advent International
Corporation of a minority interest in McHugh for $49.5 million in cash (the
"Advent Investment"). Upon consummation of the Advent Investment, Alvey
received a cash payment from McHugh in the amount of $36,643,258,
representing payment in full of intercompany indebtedness owing from McHugh
to Alvey on the distribution date ($35,921,538) and a tax-free dividend of a
portion of Alvey's tax basis in McHugh ($721,720).
In order to consummate the Spin-Off and the Advent Investment, among
other things, the receipt of consents from holders of a majority in aggregate
principal amount of Alvey's $100,000,000 of 11-3/8% Senior Subordinated Notes
Due 2003 (the "Notes") was required. On September 30, 1998, Alvey received
and accepted the requisite consents in order to amend the Indenture governing
the Notes to permit the Spin-Off and to provide for certain other matters.
On September 30, 1998, the First Supplemental Indenture was entered into
between Alvey and The Bank of New York, as trustee (the "Trustee"), a copy of
which is filed herewith as Exhibit 10.1. To obtain the consent of its
bondholders, Alvey agreed, among other things, to (i) pay a consent premium
(the "Consent Premium") of $46.00 in cash for each $1,000 principal amount of
Notes for which a consent was properly delivered prior to the expiration of
the consent solicitation and (ii) immediately after the consummation of the
Spin-Off, to commence an offer to all of its bondholders, on a pro rata
basis, to purchase up to $30 million in aggregate principal
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amount of the Notes at a cash purchase price (the "Spin-Off Offer Purchase
Price") equal to 113% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase (the "Spin-Off Offer").
Consents of holders of more than 99% of the Notes were delivered and accepted
prior to the expiration of the consent solicitation. Alvey commenced the
Spin-Off Offer on October 27, 1998 and set November 24, 1998 as the
expiration date, with the repurchase of Notes to be made on November 25,
1998. Upon receipt of the funds from McHugh in payment of intercompany
indebtedness and Alvey's tax basis in McHugh, Alvey transmitted to the
Trustee an amount of cash sufficient to fund both the payment of the Consent
Premium (approximately $4.6 million) and the repurchase of Notes pursuant to
the Spin-Off Offer (approximately $33.9 million).
In addition, in order to consummate the Spin-Off, an amendment to
Alvey's credit agreement was necessary to permit Alvey to spin-off McHugh, a
formerly restricted subsidiary, and to release the lenders' security
interests in McHugh's assets and capital stock. On October 26, 1998, Alvey,
certain of its subsidiaries (as guarantors) and NationsBank, N.A., as agent,
entered into the Fourth Amendment, Consent Waiver and Release, a copy of
which is filed herewith as Exhibit 10.2 (the "Bank Amendment"). Among other
things, the Bank Amendment permits the Spin-Off and the repurchase of Notes,
releases security interests in McHugh's assets and capital stock and amends
certain financial covenants to reflect Alvey's corporate structure on a
post-Spin-Off basis. In addition, within 60 days of the Spin-Off, subject to
compliance with certain covenants, Alvey may elect to increase availability
under the credit facility from its current level of $30 million to $40
million.
Further details regarding the transactions discussed above can be found
in the agreements and press releases filed as exhibits herewith. In
addition, reference is made to Alvey's pro forma financial statements filed
herewith which present Alvey's financial information as if the Spin-Off and
the Notes repurchase occurred on prior dates.
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ITEM 7. PRO FORMA FINANCIAL INFORMATION; EXHIBITS.
(b) PRO FORMA FINANCIAL INFORMATION:
Page
Pro Forma Unaudited Consolidated Statements of
Operations of the Systems Business for the year ended
December 31, 1997 and the six months ended June 30, 1998 6
Notes to the Pro Forma Unaudited Consolidated Statements
of Operations of the Systems Business for the year ended
December 31, 1997 and the six months ended June 30, 1998 6-7
Pro Forma Unaudited Consolidated Balance Sheet of the
Systems Business as of June 30, 1998 8
Notes to the Pro Forma Unaudited Consolidated Balance
Sheet of the Systems Business as of June 30, 1998 8-9
(c) EXHIBITS:
10.1 First Supplemental Indenture, dated as of September 30, 1998,
between Alvey Systems, Inc. and The Bank of New York, as
trustee
10.2 Fourth Amendment, Consent, Waiver and Release, dated as of
October 26, 1998, among Alvey Systems, Inc., the Guarantors
and Credit Parties thereto and NationsBank, N.A., as Agent
10.3 Distribution Agreement, dated as of October 27, 1998, among
Pinnacle Automation, Inc., Alvey Systems, Inc. and McHugh
Software International, Inc.
10.4 Tax Sharing Agreement, dated as of October 27, 1998, among
Pinnacle Automation, Inc., Alvey Systems, Inc. and McHugh
Software International, Inc.
99.1 Press Release of Alvey Systems, Inc., issued October 30, 1998,
announcing completion of the spin-off of McHugh Software
International, Inc. and certain related transactions
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 10, 1998
ALVEY SYSTEMS, INC.
By: /s/ James A. Sharp
---------------------------------
James A. Sharp
Senior Vice President and Chief
Financial Officer
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PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA OF THE SYSTEMS BUSINESS
The following tables set forth pro forma unaudited consolidated
financial data of the Systems Business for the year ended December 31, 1997
and the six months ended June 30, 1998 and as of June 30, 1998 (collectively,
the "Pro Forma Financial Data"). The Pro Forma Financial Data have been
derived by the application of pro forma adjustments to the historical
combined financial statements of the Systems Business. The following pro
forma unaudited consolidated statement of operations data for the year ended
December 31, 1997 and the six months ended June 30, 1998 give effect to
certain adjustments made in connection with the Spin-Off and the Spin-Off
Offer (collectively, the "Pro Forma Transactions") as if the Pro Forma
Transactions were consummated on January 1, 1997 and January 1, 1998,
respectively. The following pro forma unaudited consolidated balance sheet
data as of June 30, 1998 gives effect to the Pro Forma Transactions as if
such events had occurred as of such date. Certain management assumptions and
adjustments relating to the Pro Forma Transactions are described in the
accompanying notes hereto. The Pro Forma Financial Data do not purport to be
indicative of Alvey's financial position or results of operations that would
have actually been obtained had the Pro Forma Transactions been completed as
of the dates assumed, or to project Alvey's financial position or results of
operations at any future date.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS
OF OPERATIONS OF THE SYSTEMS BUSINESS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SYSTEMS BUSINESS SYSTEMS BUSINESS
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
RESULTS OF OPERATIONS(1):
Net sales. . . . . . . . . . . . . . . . . . . . . . $303,427 $155,430
Cost of goods sold . . . . . . . . . . . . . . . . . 236,619 117,469
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . 66,808 37,961
Selling, general and administrative expenses . . . . 50,413 26,286
Research and development expenses. . . . . . . . . . 3,257 2,275
Amortization expense . . . . . . . . . . . . . . . . 1,136 495
Other expense (income), net. . . . . . . . . . . . . 57 (495)
-------- --------
Operating income . . . . . . . . . . . . . . . . . . 11,945 9,400
Cash interest expense, net . . . . . . . . . . . . . 9,767(2) 4,714(3)
Non-cash interest expense. . . . . . . . . . . . . . 627(4) 313(4)
-------- --------
Income before income taxes . . . . . . . . . . . . . 1,551 4,373
Income tax expense(5). . . . . . . . . . . . . . . . 1,071 1,577
-------- --------
Income from continuing operations. . . . . . . . . . $ 480 $ 2,796
-------- --------
-------- --------
OTHER CONSOLIDATED FINANCIAL DATA:
Depreciation expense . . . . . . . . . . . . . . . . $ 3,772 $ 2,125
Capital expenditures, net. . . . . . . . . . . . . . 3,430 1,896
OTHER PERFORMANCE MEASURES (NON-GAAP)(6):
EBITDA(7). . . . . . . . . . . . . . . . . . . . . . $ 16,853 $ 12,020
Ratio of EBITDA to interest expense(8) . . . . . . . 1.73 2.55
Ratio of long-term debt to EBITDA. . . . . . . . . . 4.99 (9)
Ratio of net long-term debt to EBITDA(10). . . . . . 4.82 (9)
</TABLE>
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(1) Amounts reflect the exclusion of the McHugh Business from the consolidated
financial results, giving effect to the Spin-Off. In addition, amounts
give effect to the other Spin-Off-related adjustments detailed below. The
following Spin-Off-related expenses have not been reflected in the
accompanying pro forma unaudited consolidated statement of operations as
they represent nonrecurring items: (i) $4.6 million of Consent Premium;
(ii) $3.9 million of
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repurchase fee on repurchased Notes; (iii) $4.5 million of estimated
transaction costs related to the Spin-Off, the solicitation of
bondholder consents (the "Solicitation"), amending and repurchasing a
portion of the Notes and amending Alvey's revolving credit facility; and
(iv) the effect of the write-off of unamortized debt issuance costs
relating to the Notes and Alvey's revolving credit facility. Items (i),
(ii), (iv) and $1.3 million of (iii) will be reflected as an
extraordinary charge, net of taxes, in the fourth quarter of 1998.
Additionally, the effects of elimination of Alvey's investment in McHugh
at the time of the Spin-Off and balance sheet items that do not impact
the statements of operations have been excluded. Amounts for the year
ended December 31, 1997 also exclude the impacts of (x) nonrecurring
restructuring charges of $11.3 million recorded in the second quarter of
1997 to discontinue offering certain proprietary systems software
products at a Systems Business subsidiary and to recognize and
streamline the size of the organizational structure (collectively, the
"2Q 1997 Restructuring Expense") and (y) legal, accounting and other
nonrecurring charges of $470,000 related to a discontinued initial
public offering of McHugh's common stock and other strategic initiatives
as the Company decided in the fourth quarter of 1997 not to proceed with
the initial public offering and such initiatives (the "Discontinued
McHugh IPO"). Because of the nonrecurring nature of such charges, they
have been eliminated from the pro forma statements of continuing
operations.
(2) Pro forma adjustments reflected in this amount include (i) a $3.4 million
reduction in interest expense due to the repurchase of $30.0 million
principal amount of the Notes, (ii) a $2.2 million increase to interest
expense because, upon consummation of the Spin-Off, interest on long-term
debt will no longer be allocated in part to McHugh and (iii) a $563,000
increase in interest expense due to expected higher borrowing levels under
Alvey's revolving credit facility as a result of the Spin-Off.
(3) Pro forma adjustments reflected in this amount include (i) a $1.7 million
reduction in interest expense due to the repurchase of $30.0 million
principal amount of the Notes, (ii) a $1.4 million increase in interest
expense because, upon consummation of the Spin-Off, interest on long-term
debt will no longer be allocated in part to McHugh and (iii) a $286,000
increase in interest expense to reflect expected higher borrowing levels
under Alvey's revolving credit facility as a result of the Spin-Off.
(4) Pro forma adjustments reflected in this amount include a decrease of
approximately $480,000 for the twelve months ended December 31, 1997 and
$240,000 for the six months ended June 30, 1998 in the amortization of debt
issuance costs resulting from amending and repurchasing a portion of the
Notes and amending Alvey's revolving credit facility.
(5) Pro forma totals include adjustments to reflect the estimated income tax
effect of the Spin-Off-related pro forma adjustments described in footnotes
(2) through (4).
(6) Performance measures such as EBITDA (discussed further in note (7) below)
should not be construed as alternatives to operating income or net income
calculated in accordance with generally accepted accounting principles
("GAAP") or as indicators of operating performance or liquidity. However,
the Company believes such non-GAAP performance measures are commonly used
to evaluate a company's ability to service debt.
(7) EBITDA consists of earnings before interest, income taxes and depreciation
and amortization expense. In 1997, EBITDA excluded the 2Q 1997
Restructuring Expense and costs related to the Discontinued McHugh IPO.
(8) For purposes of this computation, interest expense consists of interest on
indebtedness, net of interest income, and does not include amortization of
deferred financing fees charged to interest expense for such period.
(9) This ratio is intended to compare amounts on a full-year basis; as such,
the ratio is not presented for the six months ended June 30, 1998.
(10) Net long-term debt represents long-term debt less cash and cash
equivalents.
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PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
OF THE SYSTEMS BUSINESS AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------------------------
HISTORICAL HISTORICAL SPIN-OFF PRO FORMA
COMBINED SYSTEMS RELATED SYSTEMS
COMPANY BUSINESS(1) ADJUSTMENTS BUSINESS
---------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
ASSETS:
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 5,151 $ 3,804(2) $ (757)(3) $ 3,047
Receivables:
Trade. . . . . . . . . . . . . . . . . . . . . . . . . 59,503 39,775 -- 39,775
Unbilled and other . . . . . . . . . . . . . . . . . . 10,500 3,842 -- 3,842
Accumulated costs and earnings in excess of
billings on uncompleted contracts . . . . . . . . . 10,706 8,960 -- 8,960
Inventory. . . . . . . . . . . . . . . . . . . . . . . 15,779 15,779 -- 15,779
Deferred income taxes. . . . . . . . . . . . . . . . . 12,913 10,758 5,982 (4) 16,740
Due from McHugh. . . . . . . . . . . . . . . . . . . . -- 29,633 (29,633)(5) --
Prepaid expenses and other assets. . . . . . . . . . . 2,251 742 -- 742
-------- -------- ---------- --------
Total current assets . . . . . . . . . . . . . . . . . 116,803 113,293 (24,408) 88,885
Property, plant and equipment, net . . . . . . . . . . 35,967 31,061 -- 31,061
Other assets, net. . . . . . . . . . . . . . . . . . . 7,047 7,424 (2,561)(6) 4,863
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 24,859 20,174 -- 20,174
-------- -------- ---------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $184,676 $171,952 $ (26,969) $144,983
-------- -------- ---------- --------
-------- -------- ---------- --------
LIABILITIES AND NET INVESTMENT OF PINNACLE:
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . $ 314 $ 314 $ -- $ 314
Accounts payable . . . . . . . . . . . . . . . . . . . 30,455 20,482 -- 20,482
Accrued expenses . . . . . . . . . . . . . . . . . . . 41,505 36,001 (1,422)(7) 34,579
Customer deposits. . . . . . . . . . . . . . . . . . . 5,492 5,111 -- 5,111
Billings in excess of accumulated costs and
earnings on uncompleted contracts . . . . . . . . . 35,085 33,450 -- 33,450
Deferred revenues. . . . . . . . . . . . . . . . . . . 4,639 1,843 -- 1,843
Taxes payable. . . . . . . . . . . . . . . . . . . . . 2,347 2,158 -- 2,158
-------- -------- ---------- --------
Total current liabilities. . . . . . . . . . . . . . . 119,837 99,359 (1,422) 97,937
Senior subordinated long-term debt . . . . . . . . . . 100,000 100,000 (30,000)(8) 70,000
Other senior long-term debt. . . . . . . . . . . . . . 547 547 6,762 (9) 7,309
Other long-term liabilities. . . . . . . . . . . . . . 12,160 8,443 -- 8,443
Deferred income taxes. . . . . . . . . . . . . . . . . 462 2,058 -- 2,058
Commitments and contingencies. . . . . . . . . . . . . -- -- -- --
Net investment (deficit) of Pinnacle . . . . . . . . . (48,330) (38,455) (2,309)(10) (40,764)
-------- -------- ---------- --------
Total liabilities and net investment
(deficit) of Pinnacle. . . . . . . . . . . . . . . . . $184,676 $171,952 $(26,969) $144,983
-------- -------- ---------- --------
-------- -------- ---------- --------
</TABLE>
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(1) Amounts reflect the exclusion of the McHugh Business from the
consolidated financial position, giving effect to the Spin-Off, but do not
give effect to the other Spin-Off-related adjustments which are detailed
below and included in the "Spin-Off Related Adjustments" column above.
(2) Balance includes $760,000 of cash invested in overnight funds which is
available for operating purposes. The remainder of the cash has been
received, but is not yet available for use.
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(3) Adjustment reflects the receipt of an estimated $36.9 million in cash from
McHugh upon consummation of the Spin-Off and $6.8 million in borrowings
under Alvey's revolving credit facility, offset by the payment of
(i) $30.0 million for the purchase of Notes pursuant to the Spin-Off Offer,
(ii) $4.6 million of Consent Premium, (iii) $4.5 million of estimated
transaction costs of the Spin-Off, the Solicitation, amending and
repurchasing a portion of the Notes and amending Alvey's revolving credit
facility, (iv) a $3.9 million repurchase fee on repurchased Notes and
(v) $1.4 million of interest paid on repurchased Notes.
(4) Adjustment reflects (i) a $1.8 million tax benefit on the $4.6 million
Consent Premium, (ii) a $1.6 million tax benefit on the $3.9 million
repurchase fee on repurchased Notes, (iii) $458,000 tax benefit related to
the write-off of prior issuance costs in connection with the exchange of
certain shares of Pinnacle Series A, Series B and Series C Preferred Stock
for McHugh Class B Common Stock and McHugh Class C Common Stock (the
"Preferred Stock Exchange") and (iv) a $2.1 million tax benefit related to
the payment of a portion of the overall transaction costs in the amount of
$1.3 million and a $4.8 million write-off of existing debt issuance costs
as a result of amending and repurchasing a portion of the Notes and
amending Alvey's revolving credit facility.
(5) Adjustment reflects the receipt of an estimated $28.1 million in cash from
McHugh upon consummation of the Spin-Off and Alvey's investment in McHugh
of $1.5 million.
(6) Adjustment reflects (i) a $4.8 million write-off of existing debt issuance
costs related to amending and repurchasing a portion of the Notes and
amending Alvey's revolving credit facility, (ii) $3.2 million in
capitalized debt issuance costs as a result of amending the Indenture
governing the Notes and Alvey's revolving credit facility and (iii) $1.0
million for the elimination of Alvey's original investment in McHugh.
(7) Adjustment reflects the payment of interest due on repurchased Notes.
(8) Adjustment reflects the repurchase of $30.0 million principal amount of
Notes.
(9) Adjustment reflects the borrowing of $6.8 million under Alvey's revolving
credit facility.
(10) Adjustment reflects (i) the receipt of $8.8 million from McHugh for Alvey's
tax basis in McHugh, less $2.5 million for the elimination of Alvey's
investment in McHugh, (ii) $458,000 related to the tax benefit from the
write-off of prior issuance costs related to the Preferred Stock Exchange,
(iii) the payment of $4.6 million of Consent Premium, (iv) the payment of
$3.9 million of repurchase fee on repurchased Notes, (v) a $4.8 million
write-off of existing debt issuance costs related to amending and
repurchasing a portion of the Notes and amending Alvey's revolving credit
facility, (vi) the payment of a portion of the overall transaction costs in
the amount of $1.3 million and (vii) related tax benefits of $5.5 million
from (iii), (iv), (v) and (vi) above.
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EXHIBIT 10.1
ALVEY SYSTEMS, INC.
$100,000,000
11 3/8% SENIOR SUBORDINATED NOTES DUE 2003
_______________________
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 30, 1998
_______________________
THE BANK OF NEW YORK,
TRUSTEE
______________________________________________________________
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of September 30, 1998 (the "FIRST
SUPPLEMENTAL INDENTURE") between ALVEY SYSTEMS INC., a Delaware corporation (the
"COMPANY"), having its principal office at 9301 Olive Boulevard, St. Louis,
Missouri 63132, and THE BANK OF NEW YORK, a New York banking corporation, as
trustee (the "TRUSTEE"), for the Company's 11 3/8% Senior Subordinated Notes Due
2003 (the "NOTES").
The Company has heretofore executed and delivered to the Trustee an
Indenture, dated as of January 24, 1996 (the "INDENTURE"), under which the Notes
in the aggregate principal amount of $100,000,000 were issued and are
outstanding.
In accordance with Sections 9.02 and 9.05 of the Indenture, the Company
has obtained the written consents (the "Consents") of the Holders of a
majority in principal amount of the Notes as of July 29, 1998, the record
date for the Company's solicitation of Consents (the "Requisite Consents"),
to certain amendments to such Indenture. The Requisite Consents have been
delivered to the Trustee and the Company in accordance with Sections 1.05 and
9.02 of the Indenture. The Company is authorized to enter into this First
Supplemental Indenture by a Board Resolution and simultaneously herewith the
Trustee has received an Opinion of Counsel and an Officers' Certificate in
accordance with Section 9.07 of the Indenture stating that this First
Supplemental Indenture is authorized and permitted by the Indenture and that
all conditions precedent under the Indenture to the execution of this First
Supplemental Indenture have been satisfied.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH, that for and
in consideration of the premises and the purchase of the Notes by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE I
SECTION 101. SECTION 1.01 OF THE INDENTURE IS AMENDED BY ADDING THE
FOLLOWING DEFINITIONS IN ALPHABETICAL ORDER:
A. "DEMAND NOTE" means that certain promissory note of McHugh made
payable to the Company in connection with the Spin-Off.
B. "MCHUGH CLASS B COMMON STOCK" means the Class B Common Stock of
McHugh.
C. "MCHUGH CLASS C COMMON STOCK" means the Class C Common Stock of
McHugh.
D. "MCHUGH COMMON STOCK" means the common stock, par value $0.01 per
share, of McHugh.
E. "MCHUGH COMPANIES" means McHugh and each of its Subsidiaries.
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F. "SPIN-OFF" means the distribution by the Company to Pinnacle of
(i) all of the outstanding shares of McHugh Common Stock and (ii) all the
outstanding shares of McHugh Class B Common Stock and McHugh Class C Common
Stock, pursuant to that certain Distribution Agreement to be entered into
among Pinnacle, the Company and McHugh.
G. "SPIN-OFF TRANSACTIONS" means the Spin-Off and the other
transactions contemplated by and payments made pursuant to the Distribution
Agreement to be entered into among Pinnacle, the Company and McHugh and the
Tax Sharing Agreement to be entered into among Pinnacle, the Company and
McHugh and the Preferred Stock Exchange Agreement to be entered into among
Pinnacle, McHugh and the holders of the Series A, Series B and Series C
Preferred Stock of Pinnacle, in each case, in connection with the Spin-Off.
SECTION 102. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "APPROVE PINNACLE PREFERRED STOCKHOLDER" THEREFROM IN ITS ENTIRETY
AND REPLACING SUCH DEFINITION WITH THE FOLLOWING:
"APPROVED PINNACLE PREFERRED STOCKHOLDERS" means Vestar
Equity Partners, L.P., Chase Equity Associates, A California Limited
Partnership ("Chase"), Harbourvest Partners IV Direct Fund, L.P.
(formerly known as Hancock Venture Partners IV Direct Fund L.P.) and
any Person who controls or is controlled by or is under common control
with any of them including, in the case of Chase, The Chase Manhattan
Corporation, or any of their respective Subsidiaries.
SECTION 103. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "ASSET SALE" THEREFROM IN ITS ENTIRETY AND REPLACING SUCH
DEFINITION WITH THE FOLLOWING:
"ASSET SALE" means, with respect to any Person, the sale,
lease, conveyance or other disposition, that does not constitute a
Restricted Payment or an Investment, by such Person of any of its
assets (including, without limitation, by way of a sale and leaseback
and including the issuance, sale or other transfer of any Equity
Interests in any Subsidiary of such Person) other than to the Company
(including the receipt of proceeds of insurance paid on account of the
loss of or damage to any asset and awards of compensation for any
asset taken by condemnation, eminent domain or similar proceeding, and
including the receipt of proceeds of business interruption insurance),
in each case, in one or a series of related transactions; PROVIDED,
that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company, as
permitted pursuant to Section 5.01 hereof, (b) the sale or lease of
equipment, inventory, accounts receivable or other assets in the
ordinary course of business consistent with past practice, (c) a
transfer of assets by the Company to a Wholly Owned Subsidiary of the
Company or by a Wholly Owned Subsidiary of the Company to the Company
or to another Wholly Owned Subsidiary of the Company, (d) an issuance
of Equity Interests by a Wholly Owned Subsidiary of the Company to the
Company or to another Wholly Owned Subsidiary of the Company, PROVIDED
that
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the consideration paid by the Company or such Wholly Owned
Subsidiary for such Equity Interests shall be deemed to be an
Investment, or (e) sale or other disposition of cash or Cash
Equivalents.
SECTION 104. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "CONSOLIDATED EBITDA" THEREFROM IN ITS ENTIRETY AND REPLACING SUCH
DEFINITION WITH THE FOLLOWING:
"CONSOLIDATED EBITDA" means, with respect to any Person for
any period, the sum of, without duplication, (i) the Consolidated Net
Income of such Person and its Subsidiaries for such period, plus
(ii) the Fixed Charges for such period, plus (iii) amortization of
deferred financing charges for such period, plus (iv) provision for
taxes based on income or profits for such period (to the extent such
income or profits were included in computing Consolidated Net Income
for such period), plus (v) consolidated depreciation, amortization and
other noncash charges of such Person and its Subsidiaries required to
be reflected as expenses on the books and records of such Person,
minus (vi) cash payments with respect to any nonrecurring, noncash
charges previously added back pursuant to clause (v), plus (vii) to
the extent deducted in determining Consolidated Net Income for such
period, any extraordinary or nonrecurring loss or expense incurred in
connection with the Spin-Off Transactions, and excluding (viii) the
impact of foreign currency translations. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of,
and the depreciation and amortization and other noncash charges of, a
Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination
to be dividended to such Person by such Subsidiary without prior
approval (unless such approval has been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments or
decrees applicable to that Subsidiary or its stockholders.
SECTION 105. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "CONSOLIDATED NET INCOME" THEREFROM IN ITS ENTIRETY AND REPLACING
SUCH DEFINITION WITH THE FOLLOWING:
"CONSOLIDATED NET INCOME" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; PROVIDED that (i) the Net Income (but not loss)
of any Person that is not a Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the referent
Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of
any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of
that Net Income is not at the date of determination permitted without
any prior governmental approval (unless such approval has been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment or decree applicable to
that Subsidiary or its
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stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded, and (iv) the cumulative effect of a change
in accounting principles shall be excluded.
SECTION 106. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "EXEMPT AFFILIATE TRANSACTIONS" THEREFROM IN ITS ENTIRETY AND
REPLACING SUCH DEFINITION WITH THE FOLLOWING:
"EXEMPT AFFILIATE TRANSACTIONS" means (a) transactions
between or among the Company and/or its Wholly Owned Subsidiaries,
(b) advances to officers of the Company or any Subsidiary of the
Company in the ordinary course of business to provide for the payment
of reasonable expenses incurred by such persons in the performance of
their responsibilities to the Company or such Subsidiary or in
connection with any relocation, (c) fees and compensation paid to and
indemnity provided on behalf of directors, officers or employees of
the Company or any Subsidiary of the Company in the ordinary course of
business, (d) any employment agreement that is in effect on the date
of this Indenture in the ordinary course of business and any such
agreement entered into by the Company or a Subsidiary after the date
of this Indenture in the ordinary course of business of the Company or
such Subsidiary, (e) any Restricted Payment that is not prohibited by
Section 4.11 hereof, (f) payments by the Company to Pinnacle in
respect of corporate expenses of Pinnacle and operating expenses of
Pinnacle attributable to its ownership of Capital Stock of the Company
and to pay taxes allocable to the net income of the Company and its
Subsidiaries, (g) payments or transactions pursuant to the Termination
Agreement dated as of December 31, 1995 by and among Pinnacle, the
Company and Lafarick, Inc. (formerly known as Raebarn Corporation), as
in effect on the date of this Indenture, (h) payments or transactions
pursuant to the Consulting Agreement dated as of December 31, 1995 by
and among Pinnacle, the Company and Mammoth Capital Inc., as in effect
on the date of this Indenture, (i) payments or transactions pursuant
to the Consulting Agreement dated as of the date of the consummation
of this Offering among Pinnacle, the Company and Vestar Capital
Partners, as in effect on the date of this Indenture, (j) payments or
transactions pursuant to Section 6.2 of the Recapitalization Agreement
dated as of September 28, 1995 by and among Pinnacle, the Company and
the selling stockholders named therein, as in effect on the date of
this Indenture, (k) payments made pursuant to the Non-Competition,
Working Capital Guarantee and Security Agreement dated April 15, 1992
by and among the Company, Busse and certain of the former owners of
Busse, as in effect on the date of this Indenture, (l) payments made
pursuant to that certain Lease, dated December 24, 1986, by and
between White Storage & Retrieval Systems, Inc. and Boright Realty (a
general partnership affiliated with Donald J. Weiss), as in effect on
the date of this Indenture and (m) transactions included in the
Spin-Off Transactions.
SECTION 107. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "FIXED CHARGE COVERAGE RATIO" THEREFROM IN ITS ENTIRETY AND
REPLACING SUCH DEFINITION WITH THE FOLLOWING:
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"FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person for any period, the ratio of the Consolidated EBITDA of such
Person and its Subsidiaries for such period to the Fixed Charges of
such Person and its Subsidiaries for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, Guarantees or
repays or redeems any Indebtedness (other than revolving credit
borrowings) or issues preferred stock subsequent to the commencement
of the four-quarter reference period for which the Fixed Charge
Coverage Ratio is being calculated but on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had
occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period, and (ii) if the
Spin-Off Transactions occur during the four-quarter reference period
or subsequent to such reference period and on or prior to the
Calculation Date, the Spin-Off Transactions shall be deemed to have
occurred on the first day of the four-quarter reference period, and
Consolidated EBITDA and Fixed Charges attributable to any of the
McHugh Companies shall be excluded, and (iii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iv) the Fixed Charges
attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations
of the referent Person or any of its Subsidiaries following the
Calculation Date.
SECTION 108. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "MFA" THEREFROM IN ITS ENTIRETY AND REPLACING SUCH DEFINITION WITH
THE FOLLOWING:
"MCHUGH" means McHugh Software International, Inc., a
Delaware corporation.
SECTION 109. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "NET INCOME" THEREFROM IN ITS ENTIRETY AND REPLACING SUCH
DEFINITION WITH THE FOLLOWING:
"NET INCOME" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP and
before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any
related provision for taxes on such gain (but not for such loss),
realized in connection with (a) any Asset Sale (including, without
limitation,
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dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but not
loss, except to the extent such loss is a noncash loss), together with
any related provision for taxes on such extraordinary or nonrecurring
gain (but not for such loss).
SECTION 110. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "PERMITTED INVESTMENTS" THEREFROM IN ITS ENTIRETY AND REPLACING
SUCH DEFINITION WITH THE FOLLOWING:
"PERMITTED INVESTMENTS" means (a) any Investments in the
Company; (b) any Investments in Cash Equivalents; (c) Investments made
as a result of the receipt of noncash consideration from an Asset Sale
that was made pursuant to and in compliance with Section 4.08 hereof;
(d) the Demand Note; (e) Investments outstanding as of the date of
this Indenture; and (f) Investments in Wholly Owned Subsidiaries and
any entity that, as a result of such Investment, is a Wholly Owned
Subsidiary that is engaged in the same or a similar line of business
as the Company or any of its Subsidiaries was engaged in on the date
of this Indenture or any reasonable extensions or expansions thereof.
SECTION 111. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "SUBSIDIARY" THEREFROM IN ITS ENTIRETY AND REPLACING SUCH
DEFINITION WITH THE FOLLOWING:
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of
such Person or (b) the only general partners of which are such Person
or of one or more Subsidiaries of such Person (or any combination
thereof).
SECTION 112. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "UNRESTRICTED SUBSIDIARY" THEREFROM IN ITS ENTIRETY.
SECTION 113. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "WESELEY" THEREFROM IN ITS ENTIRETY.
SECTION 114. SECTION 1.01 OF THE INDENTURE IS AMENDED BY DELETING THE
DEFINITION OF "WHOLLY OWNED SUBSIDIARY" THEREFROM IN ITS ENTIRETY AND REPLACING
SUCH DEFINITION WITH THE FOLLOWING:
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary
of such Person all of the outstanding Capital Stock or other ownership
interests of which
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(other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person.
SECTION 115. SECTION 4.10 OF THE INDENTURE IS AMENDED BY DELETING SUCH
SECTION THEREFROM IN ITS ENTIRETY AND REPLACING SUCH SECTION WITH THE FOLLOWING:
SECTION 4.10. [Intentionally Omitted.]
SECTION 116. SECTION 4.11 OF THE INDENTURE IS AMENDED BY DELETING SUCH
SECTION THEREFROM IN ITS ENTIRETY AND REPLACING SUCH SECTION WITH THE FOLLOWING:
SECTION 4.11. RESTRICTED PAYMENTS. The Company shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution
on account of the Company's or any of its Subsidiaries' Equity
Interests (including, without limitation, any payment to stockholders
of the Company in connection with a merger or consolidation involving
the Company), other than (x) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company or (y) the Spin-Off Transactions;
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of
the Company or Subsidiary or other Affiliate of the Company (other
than any such Equity Interests owned by the Company); (iii) make any
principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is PARI PASSU with
or subordinated to the Notes (other than Notes), except at final
maturity, other than through the purchase, redemption or acquisition
by the Company of Indebtedness through the issuance in exchange
therefor of Equity Interests (other than Disqualified Stock) or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth under Section 4.12(a); and
(c) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the date of this Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii), (iv) and (v) of the next
succeeding paragraph), is less than the sum of (i) $3.7 million, plus
(ii) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the
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date of this Indenture to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (iii) 100%
of the aggregate net cash proceeds received by the Company from the issue
or sale after the date of this Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock).
The foregoing clauses (b) and (c), however, will not
prohibit (i) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment
would have complied with the provisions of this Indenture; (ii) the
making of any Restricted Investment in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); PROVIDED, that any net cash proceeds that
are utilized for any such Restricted Investment, and any Net Income
resulting therefrom, shall be excluded from clause (c) of the
preceding paragraph; (iii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company (or
distribution of cash by the Company to Pinnacle to permit Pinnacle to
redeem, repurchase, retire or otherwise acquire any Equity Interests
of Pinnacle) in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); PROVIDED that any net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded
from clause (c) of the preceding paragraph; (iv) the defeasance,
redemption or repurchase of PARI PASSU or subordinated Indebtedness
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); PROVIDED, that any net cash proceeds that
are utilized for any such defeasance, redemption or repurchase, and
any Net Income resulting therefrom, shall be excluded from
clause (c) of the preceding paragraph; and (v) any payment by the
Company or any of its Subsidiaries pursuant to any agreement described
in clause (f), (g), (h), (i), (j), (k), or (l) of the definition of
"Exempt Affiliate Transactions," in each case as in effect on the date
of this Indenture, or any payment by the Company or any of its
Subsidiaries pursuant to the Spin-Off Transactions.
The amount of all Restricted Payments (other than cash)
shall be the fair market value (evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than the
date of making any Restricted Payment, the Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon
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which the calculations required by this Section 4.11 were computed,
which calculations may be based upon the Company's latest available
financial statements.
SECTION 117. SECTION 4.12 OF THE INDENTURE IS AMENDED BY DELETING SUCH
SECTION THEREFROM IN ITS ENTIRETY AND REPLACING SUCH SECTION WITH THE FOLLOWING:
SECTION 4.12. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK. (a) The Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness) and the Company shall
not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; PROVIDED,
HOWEVER, that the Company and its Subsidiaries may incur Indebtedness
(including Acquired Indebtedness) and the Company may issue shares of
Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 2.5 to 1,
determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case
may be, at the beginning of such four-quarter period; and (ii) no
Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; PROVIDED, that no Guarantee may
be incurred pursuant to this paragraph, unless the guaranteed
Indebtedness is incurred by the Company or a Subsidiary pursuant to
this paragraph.
(b) The foregoing provisions will not apply to:
(i) the incurrence by the Company of Indebtedness under
the Credit Agreement (and the incurrence by Subsidiaries of Guarantees
thereof) in an aggregate principal amount at any time outstanding
(with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Subsidiaries
thereunder) not to exceed $30 million prior to consummation of the
Spin-Off and not to exceed $40 million at the time of consummation of
the Spin-Off or at any time thereafter, less the aggregate amount of
all Net Proceeds of Asset Sales applied to permanently reduce the
outstanding amount or the commitments with respect to such
Indebtedness pursuant to Section 4.08 hereof;
(ii) the incurrence by the Company and its Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness
represented by the Notes;
(iv) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or
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Purchase Money Obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the
Company or such Subsidiary or any Permitted Refinancing
Indebtedness thereof (provided that the requirements of clause (ii)
of the definition of Permitted Refinancing Indebtedness need not be
met for the purposes of this clause (b)(iv)), in an aggregate
principal amount not to exceed $10 million at any time outstanding;
(v) the incurrence by the Company or any of its
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, any Indebtedness described in
Sections 4.12(a) and 4.12(b)(ii) hereof;
(vi) the incurrence by the Company or any of its
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Subsidiaries or between or among any
Wholly Owned Subsidiaries; PROVIDED that, in the case of Indebtedness
of the Company, such obligations shall be unsecured and subordinated
in case of an event of default in all respects to the Company's
obligations pursuant to the Notes; and PROVIDED, HOWEVER, that (i) any
subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than a Wholly Owned
Subsidiary of the Company and (ii) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Wholly Owned Subsidiary of the Company shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or
such Subsidiary, as the case may be;
(vii) the incurrence by the Company of Hedging Obligations
that are incurred for the purpose of fixing or hedging interest rate
risk with respect to any floating rate Indebtedness that is permitted
by this Indenture to be incurred; and
(viii) the incurrence by the Company and its Subsidiaries
of Indebtedness (in addition to Indebtedness permitted by any other
clause of this Section 4.12) in an aggregate principal amount at any
time outstanding not to exceed $10 million.
Notwithstanding the foregoing, (A) the aggregate principal
amount outstanding of Indebtedness incurred by Subsidiaries of the
Company, other than Indebtedness consisting of Guarantees of the
Company's Indebtedness incurred under Section 4.12(b)(i) or Guarantees
of Permitted Refinancing Indebtedness of the Company specified in
clause (B) of this sentence and other than Indebtedness incurred under
Sections 4.12(b)(ii), (b)(iv), (b)(v) and (b)(vi), shall not exceed
$5.0 million, and (B) no Subsidiary shall incur Indebtedness
consisting of a Guarantee of the Company's Indebtedness, except a
Guarantee of Permitted Refinancing Indebtedness of the Company where
the Company's Indebtedness being refinanced was Guaranteed at
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least in the same amount and to the same extent by such Subsidiary and
except a Guarantee permitted pursuant to clause (A) of this sentence.
SECTION 118. SECTION 4.15 OF THE INDENTURE IS AMENDED BY DELETING SUCH
SECTION THEREFROM IN ITS ENTIRETY AND REPLACING SUCH SECTION WITH THE FOLLOWING:
SECTION 4.15. LIMITATION ON LAYERING DEBT. The Company shall
not incur, create, issue, assume, guarantee or otherwise become liable for
(i) any Indebtedness incurred pursuant to Section 4.12(a) hereof that is
unsecured and senior in any respect in right of payment to the Notes or
(ii) any Indebtedness that is subordinated or junior in right of payment to
any Senior Indebtedness and senior in any respect in right of payment to
the Notes.
SECTION 119. THE INDENTURE IS AMENDED BY ADDING A NEW SECTION 4.22 AS
FOLLOWS:
SECTION 4.22. WAIVER RELATING TO SPIN-OFF TRANSACTIONS.
Notwithstanding any other provision of the Indenture to the contrary,
the Company and the McHugh Companies shall be permitted to consummate
the Spin-Off Transactions and the Holders of Notes waive (i) the
effect of any other provision of the Indenture that would otherwise
prohibit the Spin-Off or any other Spin-Off Transaction and (ii) any
Default or Event of Default, and any consequences thereof, resulting
from consummation of the Spin-Off or any other Spin-Off Transaction.
SECTION 119. THE INDENTURE IS AMENDED BY ADDING A NEW SECTION 4.23 AS
FOLLOWS:
SECTION 4.23. REPURCHASE AT THE OPTION OF HOLDERS UPON
SPIN-OFF.
(a) Upon consummation of the Spin-Off, the Company will
be required to make an offer to all Holders of Notes, as described in
Section 4.23(b) hereof (the "Spin-Off Offer"), to purchase from all
Holders, on a pro rata basis, Notes in an aggregate principal amount
equal to the maximum principal amount of Notes that may be purchased
for aggregate consideration equal to $33.9 million, at a purchase
price (the "Spin-Off Offer Purchase Price") in cash in an amount equal
to 113% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase.
(b) Within 10 calendar days after the date the Spin-Off
is consummated, the Company, or the Trustee at the request and expense
of the Company, shall send to each Holder by first class mail, postage
prepaid, a form entitled "Option of Holder to Elect Purchase upon
Spin-Off" and a notice prepared by the Company stating:
(i) that the Spin-Off Offer is being made pursuant to
this Section 4.23, and that all Notes that are timely tendered will be
accepted for payment, subject to proration in the event $30.0 million
is less than the aggregate principal amount of all Notes timely
tendered pursuant to the Spin-Off Offer;
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(ii) the Spin-Off Offer Purchase Price, that $33.9 million
is available to be applied to purchase tendered Notes at the Spin-Off
Offer Purchase Price, the date the Spin-Off Offer expires (the
"Spin-Off Offer Expiration Date"), which date shall be the 20th Business
Day subsequent to the date such notice is mailed to Holders, and the
date Notes are to be purchased pursuant to the Spin-Off Offer
(the "Spin-Off Offer Payment Date"), which date shall be no later than
the third Business Day subsequent to the date such notice is mailed;
(iii) that any Notes or portions thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of
the Spin-Off Offer Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the Spin-Off Offer
shall cease to accrue interest from and after the Spin-Off Offer
Payment Date;
(v) that any Holder electing to have any Notes or
portions thereof purchased pursuant to the Spin-Off Offer will be
required to surrender such Notes and to deliver a duly completed
"Option of Holder to Elect Purchase upon Spin-Off" form to the Paying
Agent at the address specified in the notice, prior to the third
Business Day preceding the Spin-Off Offer Payment Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Spin-Off Offer
Payment Date, a facsimile transmission or letter, setting forth the
name of the Holder, the principal amount of Notes delivered for
purchase, and a statement that such Holder is withdrawing such
Holder's election to have such Notes or portions thereof purchased
pursuant to the Spin-Off Offer;
(vii) that any Holder electing to have Notes purchased
pursuant to the Spin-Off Offer must specify the principal amount that
is being tendered for purchase, which principal amount must be $1,000
or an integral multiple thereof;
(viii) if Certificated Notes have been issued pursuant to
Section 2.06, that any Holder of Certificated Notes whose Certificated
Notes are being purchased only in part will be issued new Certificated
Notes equal in principal amount to the unpurchased portion of the
Certificated Note or Notes surrendered, which unpurchased portion will
be equal in principal amount to $1,000 or an integral multiple
thereof;
(ix) that the Trustee will return to the Holder of a
Global Note that is being purchased in part, such Global Note with a
notation on Schedule A thereof adjusting the principal amount thereof
to be equal to the unpurchased portion of such Global Note; and
(x) any other information necessary to enable any Holder
to tender Notes and to have such Notes purchased pursuant to this
Section 4.23.
12
<PAGE>
(c) If the aggregate principal amount of the Notes
surrendered by Holders exceeds $30.0 million, the Trustee shall select
the Notes to be purchased on a pro rata basis based on the principal
amount of the Notes tendered, with such adjustments as may be deemed
appropriate by the Trustee, so that only Notes in denominations of
$1,000 or integral multiples thereof shall be purchased.
(d) Upon consummation of the Spin-Off, the Company shall
irrevocably deposit with the Paying Agent, in immediately available
funds or a combination of immediately available funds and letters of
credit for the benefit of the Paying Agent, an amount equal to the
Spin-Off Offer Purchase Price in respect of $30 million principal
amount of Notes. On the Spin-Off Offer Payment Date, to the extent
lawful, the Company shall (i) accept for payment any Notes or portions
thereof properly tendered and selected for purchase pursuant to the
Spin-Off Offer and Section 4.23(c) hereof, (ii) deliver, or cause to
be delivered, to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof tendered
to the Company and accepted for purchase and (iii) shall irrevocably
deposit with the Paying Agent, by 10:00 a.m. New York City time, on
such date, immediately available funds in an amount equal to accrued
and unpaid interest, if any, on the Notes or portions thereof tendered
and accepted for purchase. The Paying Agent shall promptly send by
first class mail, postage prepaid, to each Holder of Notes or portions
thereof so accepted for payment the Spin-Off Offer Purchase Price for
such Notes or portions thereof. The Company shall publicly announce
the results of the Spin-Off Offer on or as soon as practicable after
the Spin-Off Offer Payment Date. For purposes of this Section 4.23,
the Trustee shall act as the Paying Agent.
(e) Upon surrender and cancellation of a Certificated
Note that is purchased in part, the Company shall promptly issue and
the Trustee shall authenticate and deliver to the surrendering Holder
of such Certificated Note a new Certificated Note equal in principal
amount to the unpurchased portion of such surrendered Certificated
Note; provided that each such new Certificated Note shall be in a
principal amount of $1,000 or an integral multiple thereof.
Upon surrender of a Global Note that is purchased in part
pursuant to the Spin-Off Offer, the Paying Agent shall forward such
Global Note to the Trustee who shall make a notation on Schedule A
thereof to reduce the principal amount of such Global Note to an
amount equal to the unpurchased portion of such Global Note, as
provided in Section 2.05(c) hereof.
(f) Any funds or letters of credit deposited by the
Company with the Paying Agent pursuant to this Section 4.23 shall be
held in trust and applied by the Paying Agent in accordance with the
provisions of this Section 4.23, but such funds or letters of credit
need not be segregated from other assets except to the extent required
by law. On the Spin-Off Offer Payment Date, promptly following
payment by the Paying Agent of the Spin-Off Offer Payment Price
(together with accrued and unpaid interest, if any) in respect of the
Notes or portions thereof tendered and accepted for
13
<PAGE>
payment, the Paying Agent shall pay over to the Company in immediately
available funds any remaining unused funds, and shall return to the
Company any undrawn letters of credit, deposited by the Company pursuant
to Section 4.23(d) hereof.
(g) The Company shall comply with the requirements of
Section 14(e) under the Exchange Act and any other securities laws or
regulations, to the extent such laws and regulations are applicable,
in connection with the purchase of Notes pursuant to the Spin-Off
Offer.
SECTION 120. SECTION 11.02 OF THE INDENTURE IS AMENDED BY DELETING SUCH
SECTION THEREFROM IN ITS ENTIRETY AND REPLACING SUCH SECTION WITH THE FOLLOWING:
SECTION 11.02. NOTICES. Any notice or communication shall
be in writing and delivered in person or mailed by first class mail,
postage prepaid, addressed as follows: if to the Company: 9301 Olive
Boulevard, St. Louis, Missouri 63132, Attention: Chief Financial
Officer; if to the Trustee: The Bank of New York, 101 Barclay Street,
Floor 21 West, New York, New York 10286, Attention: Corporate Trust
Administration.
The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications. Any notice or communication mailed to a Holder shall
be sent to the Holder by first class mail, postage prepaid, at the
Holder's address as it appears in the Security Register and shall be
duly given if so sent within the time prescribed. Failure to mail a
notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders. If a notice or
communication is mailed to the Company, the Trustee or a Holder in the
manner provided above, it is duly given, whether or not the addressee
receives it. In case by reason of the suspension of regular mail
service or by reason or any other cause it shall be impracticable to
give notice by mail to Holders, then such notification as shall be
made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.
ARTICLE II
SECTION 201. EFFECT OF THIS FIRST SUPPLEMENTAL INDENTURE.
Upon execution of this First Supplemental Indenture on the date first
above written, the Indenture shall be modified in accordance herewith,
and this First Supplemental Indenture shall form a part of the Indenture
for all purposes; and every Holder of Notes heretofore or hereafter
authenticated and delivered under the Indenture shall be bound by the
Indenture as modified by this First Supplemental Indenture. In the
event that the Spin-Off is not consummated within 120 calendar days
after July 29, 1998, the record date (the "Record Date") for the
solicitation of Consents of Holders to the amendments to the Indenture
set forth in this First Supplemental Indenture, then on the 121st
calendar day after the Record Date this First Supplemental Indenture
shall cease to be of any effect and the Indenture shall be reinstated as
it existed immediately prior to the execution of this
14
<PAGE>
First Supplemental Indenture. The Company previously has delivered to the
Trustee evidence of receipt by the Company of the Requisite Consents.
SECTION 202. COMPLIANCE WITH TRUST INDENTURE ACT.
This First Supplemental Indenture complies with the Trust Indenture Act as
in effect on the date first above written.
SECTION 203. INDENTURE RATIFIED.
Except as hereby otherwise expressly provided, the Indenture is in all
respects ratified and confirmed, and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
SECTION 204. TRUSTEE NOT RESPONSIBLE.
The recitals contained herein shall be taken as the statements of the
Company and the Trustee assumes no responsibility for their correctness.
SECTION 205. COUNTERPARTS.
This First Supplemental Indenture may be executed in any number of
counterparts and by the parties thereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 206. DEFINITIONS AND TERMS.
Unless otherwise defined herein, all initially capitalized terms used
herein shall have the meanings assigned to such terms in the Indenture.
SECTION 207. GOVERNING LAW.
This First Supplemental Indenture shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed in said State.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be executed as of the day and year first above written.
ALVEY SYSTEMS, INC.
By:/s/James A. Sharp
--------------------------------------
Senior Vice President, Chief Financial
Officer and Secretary
THE BANK OF NEW YORK, AS TRUSTEE
By:/s/Robert A. Massimillo
--------------------------------------
Assistant Vice President
16
<PAGE>
EXHIBIT 10.2
FOURTH AMENDMENT, CONSENT, WAIVER AND RELEASE
THIS FOURTH AMENDMENT, CONSENT, WAIVER AND RELEASE (the "AGREEMENT") dated
as of October 26, 1998, is to that Credit Agreement dated as of January 24, 1996
as amended by that First Amendment to Credit Agreement dated as of May 15, 1996,
as further amended and modified by that Second Amendment to Credit Agreement
dated as of March 14, 1997, as further amended and modified by that Third
Amendment to Credit Agreement dated as of August 12, 1997 (as amended and
modified hereby and as further amended and modified from time to time hereafter,
the "CREDIT AGREEMENT"; terms used but not otherwise defined herein shall have
the meanings assigned in the Credit Agreement), by and among ALVEY SYSTEMS,
INC., a Delaware corporation (the "BORROWER"), THOSE SUBSIDIARIES AND CREDIT
PARTIES party thereto and identified on the signature pages hereof (together
with the Borrower sometimes being referred to as the "CREDIT PARTIES"), as
Guarantors and Credit Parties, the Lenders party thereto, and NATIONSBANK, N.A.,
as Agent (the "AGENT").
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrower a $30,000,000 credit facility;
WHEREAS, the Borrower has requested that the Lenders consent to its
distribution of all of the outstanding shares of common stock of McHugh
Software International, Inc. to the Parent, the sole stockholder of the Borrower
(the "SPIN-OFF");
WHEREAS, the Lenders have agreed to consent to the Spin-Off on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. OTHER DEFINITIONS. Unless the context otherwise requires, the
following terms used in this Agreement shall have the indicated definitions:
"CONSENT SOLICITATION STATEMENT" means the Consent Solicitation
Statement of the Borrower, dated July 24, 1998, (the "Original Consent
Solicitation Statement") provided to the holders of Subordinated Notes in
connection with the solicitation by the Borrower of consent of such holders
to the Indenture Amendment, as modified by the Supplement thereto dated
September 25, 1998 (the "Supplement").
"INDENTURE AMENDMENTS" means the amendments to and modifications of
the Indenture set forth in Annex A to the Original Consent Solicitation
Statement, as modified by
1
<PAGE>
Annex A to the Supplement, and contained in the First Supplemental
Indenture dated as of September 30, 1998 to the Indenture (the "FIRST
SUPPLEMENTAL INDENTURE").
"MCHUGH COMPANIES" means McHugh and its Subsidiaries.
B. AMENDMENTS. Subject to the satisfaction of the conditions set forth in
Section C below, the Credit Agreement is amended as follows:
1. The following definitions are hereby added to Section 1.1 of the
Credit Agreement in the appropriate alphabetical order to read as follows:
"ADDITIONAL COMMITMENT" means, with respect to any Lender which
executes a New Commitment Agreement in accordance with Section 3.4(d), the
commitment of such Lender in an aggregate principal amount up to the amount
specified in such New Commitment Agreement (i) to make Revolving Loans in
accordance with the provisions of Section 2.1(a) and (ii) to purchase
Participation Interests in Letters of Credit in accordance with the
provisions of Section 2.2(c).
"APPLICATION PERIOD", in respect of any Asset Disposition, means the
lesser of (a) the period of 180 days following the consummation of such
Asset Disposition or (b) such period as is provided for reinvestment of
such proceeds under the Indenture.
"ASSET DISPOSITION" means (a) any sale, lease, transfer or other
disposition of any Property other than cash and Cash Equivalents (including
without limitation pursuant to any sale leaseback transaction) and (b) any
"Asset Sale" as such term is defined in the Indenture. The term "Asset
Disposition" shall not include (i) the sale of inventory in the ordinary
course of business for fair consideration and (ii) the sale or disposition
of machinery and equipment no longer used or useful in the conduct of such
Person's business.
"ASSET DISPOSITION PREPAYMENT EVENT" means, with respect to any Asset
Disposition described in Section 8.4(b)(ii), the failure of the Credit
Parties to apply (or cause to be applied) the Net Cash Proceeds of such
Asset Disposition to the acquisition of Eligible Assets during the
Application Period for such Asset Disposition.
"ELIGIBLE ASSETS" means another business or any substantial part of
another business or other long-term assets, in each case, in, or used or
useful in, the same or a similar line of business as the Borrower and its
Subsidiaries were engaged in on the Closing Date, or any reasonable
extensions or expansions thereof.
"MCHUGH ADVANCE" means a loan or advance by the Borrower to McHugh
pursuant to and in accordance with the McHugh Transaction Documents, in a
principal amount not in excess of $4,000,000, made for the purpose of
financing payments in excess of $3,400,000 required to by made by McHugh to
Mitchell J. Wesley in connection with a dispute among the Parent, the
Borrower, McHugh and Mr. Wesley described in the McHugh Transaction
Documents.
2
<PAGE>
"MCHUGH TRANSACTION DOCUMENTS" means, collectively, the Amended and
Restated Investment Agreement dated as of October 2, 1998 (the "INVESTMENT
AGREEMENT") among the McHugh, the Borrower, the Parent and the purchasers
party thereto, and each of the agreements attached as exhibits thereto (or
as exhibits to such an exhibit), when executed and delivered by the Persons
contemplated thereby to be party thereto in substantially the form so
attached.
"NEW COMMITMENT AGREEMENT" means such term as is defined in Section
3.4(d).
"NET CASH PROCEEDS" means the aggregate cash proceeds received by the
Borrower or its Subsidiaries in respect of any Asset Disposition net of
(a) direct costs in connection therewith (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and
(b) taxes paid or payable as a result thereof; it being understood that
"Net Cash Proceeds" shall include, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration received
by the Borrower or any Subsidiary in any Asset Disposition. In addition,
the "Net Cash Proceeds" of any Asset Disposition shall include any other
amounts defined as "Net Proceeds" of such transaction under the Indenture.
"SPIN-OFF" means the distribution of all of the outstanding shares of
common stock of McHugh to the Parent and related transactions as described
in and in accordance with the McHugh Transaction Documents.
2. The following definitions appearing in Section 1.1 of the Credit
Agreement are hereby amended and restated in their entireties to read as
follows:
"APPLICABLE PERCENTAGE" means, for purposes of calculating the
applicable interest rate for any day for any Revolving Loan or the
applicable rate of the Unused Fee for any day for purposes of Section
3.5(b) or the applicable rate of the Standby Letter of Credit Fee for any
day for purposes of Section 3.5(c)(i) or the applicable rate of the Trade
Letter of Credit Fee for any day for purposes of Section 3.5(c)(ii), the
appropriate applicable percentage corresponding to the Consolidated Funded
Indebtedness Ratio in effect as of the most recent Calculation Date:
3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICING CONSOLIDATED FUNDED EURODOLLAR BASE RATE UNUSED STANDBY TRADE
LEVEL INDEBTEDNESS RATIO LOANS LOANS FEE LOC FEE LOC FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I GREATER THAN OR EQUAL TO 4.0
to 1.0 2.50% 1.50% 0.50% 2.50% 1.25%
- ----------------------------------------------------------------------------------------------------------
II LESS THAN 4.0 to 1.0 but
GREATER THAN OR EQUAL TO 3.5
to 1.0 2.25% 1.25% 0.50% 2.25% 1.125%
- ----------------------------------------------------------------------------------------------------------
III LESS THAN 3.5 to 1.0 but
GREATER THAN OR EQUAL TO 3.0
to 1.0 2.00% 1.00% 0.50% 2.00% 1.00%
- ----------------------------------------------------------------------------------------------------------
IV LESS THAN 3.0 to 1.0 but
GREATER THAN OR EQUAL TO 2.5
to 1.0 1.75% 0.75% 0.375% 1.75% 0.875%
- ----------------------------------------------------------------------------------------------------------
V LESS THAN 2.5 to 1.0 1.50% 0.50% 0.375% 1.50% 0.75%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Determination of the appropriate Applicable Percentages based on the
Consolidated Funded Indebtedness Ratio shall be made as of each Calculation
Date. The Consolidated Funded Indebtedness Ratio in effect as of a
Calculation Date shall establish the Applicable Percentages that shall be
effective as of the date designated by the Agent as the Applicable
Percentage Change Date. The Agent shall determine the Applicable
Percentages as of each Calculation Date and shall promptly notify the
Borrower and the Lenders of the Applicable Percentages so determined and of
the Applicable Percentage Change Date. Such determinations by the Agent of
the Applicable Percentages shall be conclusive absent demonstrable error.
As of the date of the consummation of the Spin-Off, the Applicable
Percentage shall be based on Pricing Level III and shall remain at Pricing
Level III until the Agent has received the Required Financial Information
for the Calculation Date occurring on March 31, 1999.
"CONSOLIDATED EBITDA" means for the four consecutive quarter period
ending as of the Calculation Date, the sum of Consolidated Net Income PLUS
Consolidated Interest Expense PLUS all provisions for any Federal, state or
other income taxes PLUS depreciation, amortization and other non-cash
charges (which shall include amortization of capitalized interest and debt
issuance costs) for the Borrower and its Subsidiaries on a consolidated
basis (excluding any portion of such Consolidated EBITDA which would
otherwise be attributable to McHugh and its Subsidiaries on or prior to the
consummation of the Spin-Off) PLUS, to the extent deducted in determining
such Consolidated Net Income, charges taken, and fees, expenses and other
transaction costs incurred, in connection with the Spin-Off; provided,
however, that with respect to each of the fiscal quarters ending on the
dates set forth below, the amounts corresponding to such dates shall be
deemed to be the Consolidated EBITDA for such quarters:
DATE AMOUNT
September 30, 1997 $5,600,000
4
<PAGE>
December 31, 1997 $5,600,000
March 31, 1998 $5,900,000
June 30, 1998 $6,100,000.
"CONSOLIDATED FUNDED INDEBTEDNESS RATIO" means, as of the last day of
any fiscal quarter, the ratio of (i) Consolidated Funded Indebtedness plus
Indebtedness existing or incurred pursuant to Section 8.1(h)(ii) minus cash
and Cash Equivalents as shown on the consolidated balance sheet of the
Borrower and its Subsidiaries on such day to (ii) Consolidated EBITDA.
"CONSOLIDATED INTEREST EXPENSE" means for the four consecutive quarter
period ending as of the Calculation Date, all net cash interest expense for
such period, including the interest component under Capital Leases, for the
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with GAAP applied on a consistent basis; provided, however, that
with respect to each of the fiscal quarters ending on the dates set forth
below, the amounts corresponding to such dates shall be deemed to be the
Consolidated Interest Expense for such quarters:
DATE AMOUNT
September 30, 1997 $2,125,000
December 31, 1997 $2,125,000
March 31, 1998 $2,125,000
June 30, 1998 $2,125,000
September 30, 1998 $2,125,000.
"INDENTURE" means that certain Indenture dated as of January 24, 1996
between the Borrower and The Bank of New York, as Trustee, as amended or
modified by the First Supplemental Indenture thereto dated as of September
30, 1998, pursuant to which the notes evidencing the Subordinated
Financing are issued, without giving effect to any modification, amendment
and/or waiver of any term or provision of such Indenture subsequent to the
First Supplemental Indenture.
"MFA" or "MCHUGH" means McHugh Software International, Inc., formerly
known as McHugh, Freeman & Associates, Inc.
"REQUIRED LENDERS" means, at any time, a minimum of two Lenders which
are then in compliance with their obligations hereunder (as determined by
the Agent) and holding in the aggregate at least 51% of (i) the Commitments
to make Revolving Loans or (ii) if the Commitments have been terminated,
the outstanding Loans and Participation Interests.
"TERMINATION DATE" means July 31, 2002.
3. The definitions of "Pricing Level I", "Pricing Level II", "Pricing
Level III", "Restricted Subsidiary" and "Unrestricted Subsidiary" are deleted in
their entireties. All references to "Restricted
5
<PAGE>
Subsidiary" or "Restricted Subsidiaries" appearing in the Credit Documents are
amended to refer to "Subsidiary" or "Subsidiaries", as appropriate.
4. Clause (ii) appearing in the first sentence of Section 2.1(a) of the
Credit Agreement is hereby amended as follows:
"(ii) with regard to the Lenders collectively, the aggregate principal
amount of outstanding Revolving Loans PLUS LOC Obligations outstanding
shall not exceed THIRTY MILLION DOLLARS ($30,000,000) (as such aggregate
maximum amount may be increased or reduced from time to time as provided in
Section 3.4, the "REVOLVING COMMITTED AMOUNT")."
5. Clause (b) appearing in Section 3.3 of the Credit Agreement is hereby
renumbered as clause (d) and new clauses (b) and (c) are added to Section 3.3 to
read as follows:
(b) MANDATORY PREPAYMENTS. If at any time, the sum of the aggregate
principal amount of outstanding Revolving Loans PLUS LOC Obligations
outstanding shall exceed the Revolving Committed Amount, the Borrower
immediately shall prepay the Revolving Loans in an amount equal to such
excess (such prepayment to be applied as set forth in clause (c) below).
(c) APPLICATION OF MANDATORY PREPAYMENTS. All amounts prepaid
pursuant to Section 3.3(b), shall be applied to prepay Revolving Loans and
(after all Revolving Loans have been repaid) to a cash collateral account
in respect of LOC Obligations. Within the parameters of the applications
set forth above, prepayments shall be applied first to Base Rate Loans and
then to Eurodollar Loans in direct order of Interest Period maturities.
All prepayments under this Section 3.3(c) shall be subject to Section 3.11
and be accompanied by interest on the principal amount prepaid through the
date of prepayment.
6. Section 3.4 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
3.4 TERMINATION, REDUCTION AND INCREASE OF COMMITMENTS.
(a) VOLUNTARY REDUCTIONS. The Borrower may from time to time
permanently reduce or terminate the Revolving Committed Amount in whole or
in part (in minimum aggregate amounts of $5,000,000 or in integral
multiples of $1,000,000 in excess thereof (or, if less, the full remaining
amount of the Revolving Committed Amount)) upon three Business Days' prior
written notice to the Agent; PROVIDED, HOWEVER, no such termination or
reduction shall be made which would reduce the Revolving Committed Amount
to an amount less than the aggregate principal amount of outstanding
Revolving Loans PLUS LOC Obligations outstanding.
(b) MANDATORY REDUCTIONS. Upon the occurrence of an Asset
Disposition Prepayment Event, the Revolving Committed Amount automatically
shall be permanently reduced in an aggregate amount equal to the Net Cash
Proceeds of the related Asset Disposition
6
<PAGE>
not applied (or caused to be applied) by the Borrower and its Subsidiaries
during the related Application Period to acquire Eligible Assets as
contemplated by the terms of Section 8.4(b)
(c) TERMINATION DATE. The Commitments of the Lenders and the Issuing
Lender shall automatically terminate on the Termination Date. The Agent
shall promptly notify each of the Lenders of receipt by the Agent of any
notice from the Borrower pursuant to this Section 3.4.
(d) INCREASE IN REVOLVING COMMITMENTS. Within the sixty (60) day
period following the consummation of the Spin-Off, the Borrower shall have
the right upon written notice to the Agent to increase the Revolving
Committed Amount by up to $10,000,000, SUBJECT, HOWEVER, in any such case,
to satisfaction of the following conditions precedent:
(A) no Default or Event of Default has occurred and is continuing on
the date on which such Revolving Committed Amount increase is to become
effective;
(B) the representations and warranties set forth in Section 6 of this
Credit Agreement shall be true and correct in all material respects on and
as of the date on which such Revolving Committed Amount increase is to
become effective;
(C) on or before the date on which such Revolving Committed Amount
increase is to become effective, the Agent shall have received, for its own
account, the mutually acceptable fees and expenses required by separate
agreement of the Borrower and the Agent to be paid in connection with such
increase;
(D) such Revolving Committed Amount increase shall be an integral
multiple of $500,000 and shall in no event be less than $2,500,000; and
(E) such requested Commitment increase shall be effective on such
date only to the extent that, on or before such date, (A) the Agent shall
have received and accepted a corresponding amount of Additional
Commitment(s) pursuant to a commitment letter(s) acceptable to the Agent
from one or more Lenders acceptable to the Agent and, with respect to any
Lender that is not at such time a Lender hereunder, the Borrower and (B)
each such Lender has executed an agreement in the form of SCHEDULE 3.4(D)
hereto (each such agreement a "NEW COMMITMENT AGREEMENT"), accepted in
writing therein by the Agent and, with respect to any Lender that is not at
such time a Lender hereunder, the Borrower, with respect to the Additional
Commitment of such Lender.
7. A new Section 6.17 is added to the Credit Agreement to read as
follows:
6.17 YEAR 2000 COMPLIANCE.
Each of the Credit Parties has conducted a review and assessment of its
computer applications and made inquiry of its key suppliers, vendors and
customers with respect to the "year 2000 problem"
7
<PAGE>
(that is, the risk that computer applications may not be able to properly
perform date-sensitive functions after December 31, 1999) and, based on that
review and inquiry, the Credit Parties believe that the year 2000 problem will
not result in a material adverse change in its business condition (financial
or otherwise), operations, business, assets, liabilities or prospects of the
Credit Parties taken as a whole, or on the ability of any Credit Party to
perform any material obligation under the Credit Documents to which it is
a party.
8. Section 7.11 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
7.11 FINANCIAL COVENANTS.
(a) CONSOLIDATED FUNDED INDEBTEDNESS RATIO. There shall be maintained as of
the last day of each fiscal quarter a Consolidated Funded Indebtedness Ratio of
not greater than the amount set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Fiscal Year March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 4.75:1.0 4.75:1.0
- -------------------------------------------------------------------------------
1999 4.75:1.0 4.75:1.0 4.50:1.0 4.50:1.0
- -------------------------------------------------------------------------------
2000 4.25:1.0 4.25:1.0 4.00:1.0 4.00:1.0
- -------------------------------------------------------------------------------
2001 3.67:1.0 3.67:1.0 3.25:1.0 3.25:1.0
- -------------------------------------------------------------------------------
2002 3.00:1.0 3.00:1.0
- -------------------------------------------------------------------------------
</TABLE>
(b) CONSOLIDATED INTEREST COVERAGE RATIO. There shall be maintained
as of the last day of each fiscal quarter a Consolidated Interest Coverage
Ratio of not less than the amount set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Fiscal Year March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 2.00:1.0 2.00:1.0
- -------------------------------------------------------------------------------
1999 2.00:1.0 2.00:1.0 2.10:1.0 2.10:1.0
- -------------------------------------------------------------------------------
2000 2.20:1.0 2.20:1.0 2.35:1.0 2.35:1.0
- -------------------------------------------------------------------------------
2001 2.50:1.0 2.50:1.0 2.65:1.0 2.65:1.0
- -------------------------------------------------------------------------------
2002 2.80:1.0 2.80:1.0
- -------------------------------------------------------------------------------
</TABLE>
9. The final proviso appearing in Section 7.14 of the Credit Agreement is
hereby deleted in its entirety.
10. Sections 8.4(b) and (c) of the Credit Agreement are hereby amended and
restated in their entireties to read as follows:
(b) make any Asset Disposition; PROVIDED, HOWEVER, the Borrower and
its Subsidiaries shall be permitted to (i) consummate the Spin-Off and (ii)
subject to the terms of Section 8.8 and Section 8.12, make other Asset
Dispositions, PROVIDED that (A) after giving
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effect to such Asset Disposition, the aggregate book value of assets sold
or otherwise disposed of pursuant to this subsection (b) since the Closing
Date does not exceed 10% of Consolidated Total Assets determined as of the
end of the Borrower's fiscal quarter most recently ended prior to the date
of such Asset Disposition, (B) after giving effect on a Pro Forma Basis to
such Asset Disposition, no Default or Event of Default would exist
hereunder and (C) no later than 10 days prior to such Asset Disposition,
the Agent and the Lenders shall have received a certificate of an officer
of the Borrower specifying the anticipated or actual date of such Asset
Disposition, briefly describing the assets to be sold or otherwise disposed
of and setting forth the net book value of such assets, the aggregate
consideration and the Net Cash Proceeds to be received for such assets in
connection with such Asset Disposition, and thereafter the Credit Parties
shall, within the Application Period, apply (or cause to be applied) an
amount equal to the Net Cash Proceeds of such Asset Disposition to (i)
acquire Eligible Assets or (ii) prepay the Loans (and cash collateralize
of LOC Obligations) in accordance with the terms of Section 3.3(b).
Pending final application of the Net Cash Proceeds of any Asset
Disposition, the Credit Parties may apply such Net Cash Proceeds to
temporarily reduce the Revolving Loans or to make Permitted Investments;
(c) except as otherwise permitted by Section 8.4(a), acquire all or
any portion of the capital stock or securities of any other Person or
purchase, lease or otherwise acquire (in a single transaction or a series
of related transactions) all or any substantial part of the Property of any
other Person; provided, however that the Borrower may acquire all or any
portion of the capital stock, or all or substantially all of the Property,
of any other Person if (i) after giving effect on a Pro Forma Basis to such
acquisition, no Default or Event of Default would exist hereunder, (ii)
after giving effect to such acquisition there shall be at least $10,000,000
of availability under the Revolving Loan Commitments (iii) the
consideration paid for such acquisition (less equity capital raised by the
Borrower specifically for the purpose of financing such acquisition) shall
not exceed $20,000,000 and (iv) the aggregate consideration paid for all
acquisitions (less equity capital raised by the Borrower specifically for
the purpose of financing such acquisitions) shall not exceed $30,000,000;
or
11. Sections 8.7 of the Credit Agreement is hereby amended by inserting
the following proviso at the end of the first sentence thereof:
"; PROVIDED, HOWEVER, that notwithstanding clause (ii)(B) of this Section
8.7, the Borrower may repurchase up to $30,000,000 principal amount of its
notes representing the Subordinated Financing for an aggregate purchase
price not in excess of $33,900,000 (plus accrued and unpaid interest on
such notes) in connection with, and in consummation of the Spin-Off Offer
(as defined in the Indenture) in accordance with the terms of the
Indenture."
12. Section 8.15 of the Credit Agreement is hereby deleted in its
entirety.
13. Clause (i) appearing in the first sentence of Section 9.1(c) of the
Credit Agreement is hereby amended as follows:
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<PAGE>
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.2, 7.11, or 8.1
through 8.14, inclusive, or
14. Schedule 2.1(a) of the Credit Agreement is hereby deleted and replaced
with Schedule 2.1(a) attached hereto.
15. A new Exhibit 3.4(b) is added to the Credit Agreement in the form of
Exhibit 3.4(b) attached hereto.
C. CONSENT. Notwithstanding anything in the Credit Documents to the
contrary, the Lenders hereby consent to the Spin-Off (including, without
limitation the McHugh Advance) subject to the satisfactions of the conditions
set forth below:
1. The Agent shall have received a certificate executed by the chief
financial officer of the Borrower as of the date hereof stating that
immediately after giving effect to the Spin-Off, (i) the Borrower on a
consolidated basis is Solvent, (ii) no Default or Event of Default exists
and (iii) the representations and warranties set forth in Section 6 of the
Credit Agreement are true and correct in all material respects;
2. The Spin-Off shall have been consummated in accordance with the
terms of the McHugh Transaction Documents and in compliance with applicable
law and regulatory approvals, and the Agent shall have received executed
copies of the McHugh Transaction Documents which shall not have been
altered, amended or otherwise changed or supplemented or any provision
thereof waived in any manner which could materially affect the Agent or the
Lenders, without the prior written consent of the Agent; and
3. The Indenture Amendments contained in the First Supplemental
Indenture shall have become effective and shall be in the form appearing in
the Consent Solicitation Statement.
4. The Agent shall have received satisfactory evidence that the
Borrower has received a payment of at least $35,000,000 in connection with
the Spin-Off.
5. The Agent shall have received a new Revolving Note for each
Lender, executed by the Borrower;
6. The Agent shall have received all documents it may reasonably
request relating to the existence and good standing of each of the Credit
Parties, the corporate or other necessary authority for and the validity of
the Credit Documents and this Amendment, and any other matters relevant
thereto, all in form and substance reasonably satisfactory to the Agent;
7. The Agent shall have received a legal opinion of Gibson, Dunn &
Crutcher LLP, counsel for the Credit Parties, dated as of the date hereof
in form and substance satisfactory to the Agent;
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<PAGE>
8. The Agent shall have received for the account of each Lender, an
amendment fee equal to 37.5 bps on such Lender's Commitment; and
9. The Agent shall have received such other documents, agreements or
information which may be reasonably requested by the Agent.
D. WAIVER. Subject to the satisfaction of the conditions set forth in
Section C above, the Lenders hereby agree to waive application of Sections 8.4,
8.8, or 8.11 of the Credit Agreement only to the extent that the provisions of
any thereof would prohibit the Spin-Off. This is a one time waiver and shall
not be construed to be a waiver of any Event of Default that may exist or an
agreement to waive any Event of Default that may occur in the future.
E. RELEASE. Subject to the satisfaction of the conditions set forth in
Section C above the Lenders hereby (i) release each of the McHugh Companies from
all of their respective obligations under or in respect of the guarantee set
forth in Section 4 of the Credit Agreement or under or in respect of any Joinder
Agreement to which any of them is party and (ii) release, and authorize and
direct the Agent to release, all security interests or other liens in favor of
the Lenders or the Agent, on behalf of the Lenders, and securing the Borrower's
Obligations or the obligations of any of the McHugh Companies under its
guarantee contained in Section 4 hereof or arising under any Joinder Agreement
to which it is party, in or on any and all assets or property of any of the
McHugh Companies arising or created under the Security Agreement or any other
security agreement entered into in connection with the Credit Agreement to which
it is party, and hereby instructs the Agent to execute and deliver to the
Borrower or McHugh, at the sole expense of the Borrower, all documents or
instruments reasonably requested by it in connection therewith.
F. The Borrower will execute such additional documents as are reasonably
requested by the Agent to reflect the terms and conditions of this Agreement,
without limitation, the Borrower shall deliver to the Agent an updated SCHEDULE
6.14 to the Credit Agreement.
G. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
H. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Agreement,
including without limitation the reasonable fees and expenses of the Agent's
legal counsel.
I. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
J. This Agreement shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the State of New
York.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed under seal and delivered as of the date and
year first above written.
BORROWER:
ALVEY SYSTEMS, INC.
By:/s/James A. Sharp
Senior Vice President and
Chief Financial Officer
GUARANTORS:
PINNACLE AUTOMATION, INC.
By:/s/James A. Sharp
Executive Vice President and
Chief Financial Officer
M&E INSTALLERS, INC.
By:/s/Rose O'Brien
Vice President
NEWALV, INC.
By:/s/James A. Sharp
President
BUSSE BROS., INC.
By:/s/James A. Sharp
Treasurer and Chief Financial
Officer
THE BUSCHMAN COMPANY
By:/s/James A. Sharp
Senior Vice President and
Chief Financial Officer
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<PAGE>
WHITE SYSTEMS, INC.
(formerly known as White Storage and
Retrieval Systems, Inc.)
By:/s/James A. Sharp
Treasurer and Chief Financial
Officer
REAL TIME SOLUTIONS, INC.
By:/s/James A. Sharp
Executive Vice President and
Chief Financial Officer
LENDERS:
NATIONSBANK, N.A., individually in its
capacity as a Lender and in its capacity
as Agent
By:/s/Lisa S. Donoghue
Senior Vice President
HARRIS TRUST AND SAVINGS BANK
By:/s/Donald J. Buse
Vice President
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<PAGE>
SCHEDULE 2.1(a)
LENDERS
<TABLE>
<CAPTION>
BANK PERCENTAGE AMOUNT
<S> <C> <C>
NationsBank, N.A. 58.33333333% $17,500,000
Harris Trust and Savings Bank 41.66666667% $12,500,000
</TABLE>
<PAGE>
EXHIBIT 3.4(d)
FORM OF
NEW COMMITMENT AGREEMENT
Reference is made to the Credit Agreement dated as of January 24, 1996 (as
amended, modified, extended or restated from time to time, the "CREDIT
AGREEMENT") among by and among Alvey Systems, Inc., a Delaware corporation (the
"BORROWER"), the other Credit Parties party thereto, the Lenders party thereto
and NationsBank, N.A., as Agent. All of the defined terms in the Credit
Agreement are incorporated herein by reference.
1. Effective as of the Effective Date set forth below, the undersigned
Lender hereby confirms its Additional Commitment, in an aggregate principal
amount of up to the amount of set forth below, to make Revolving Loans in
accordance with the provisions of Section 2.1(a) of the Credit Agreement. If
the undersigned Lender is already a Lender under the Credit Agreement, such
Lender acknowledges and agrees that such Additional Commitment is in addition to
any existing Commitment of such Lender under the Credit Agreement. If the
undersigned Lender is not already a Lender under the Credit Agreement, such
Lender hereby acknowledges, agrees and confirms that, by its execution of this
New Commitment Agreement, such Lender will, as of the Effective Date, be a party
to the Credit Agreement and be bound by the provisions of the Credit Agreement
and, to the extent of its Commitment, have the rights and obligations of a
Lender thereunder.
2. This New Commitment Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Amount of Additional Commitment $___________
Effective Date of Additional Commitment ________________, 19__
The terms set forth above
are hereby agreed to:
[Lender]
By:___________________________
Title:________________________
CONSENTED TO (as required by the Credit Agreement):
NATIONSBANK, N.A., as Agent ALVEY SYSTEMS, INC.
By:____________________________ By:__________________________
Title:__________________________ Title:_________________________
<PAGE>
EXHIBIT 10.3
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement"), dated as of October 27,
1998, is made by and among Pinnacle Automation, Inc., a Delaware corporation
("Pinnacle"), Alvey Systems, Inc., a Delaware corporation and wholly owned
subsidiary of Pinnacle ("Alvey"), and McHugh Software International, Inc., a
Delaware corporation and wholly owned subsidiary of Alvey ("McHugh") and their
respective successors-in-interest.
RECITALS
WHEREAS, prior to the date hereof, Alvey operated directly and through its
five principal and wholly owned subsidiaries, The Buschman Company, an Ohio
corporation ("Buschman"), Busse Bros., Inc., a Wisconsin corporation ("Busse"),
White Systems, Inc., a New Jersey corporation ("White"), Real Time Solutions,
Inc., a Delaware corporation ("RTS"), and McHugh, which in turn owns all of the
issued and outstanding capital stock of Weseley Software Development Corp., a
Connecticut corporation ("Weseley"), Software Architects, Inc., a Wisconsin
corporation, and Gagnon & Associates, Inc., a Minnesota corporation;
WHEREAS, Alvey, Buschman, Busse, White and RTS provide automated materials
handling systems for manufacturing plants, distribution centers and warehouses
and related services (the "Systems Business");
WHEREAS, McHugh and its subsidiaries develop, market, implement and support
software solutions for warehouse and transportation management (the "McHugh
Business");
WHEREAS, the Board of Directors of Pinnacle has determined to separate the
Systems and McHugh Businesses in order (i) to concentrate on its core business
represented by the Systems Business, (ii) to enable McHugh to raise equity
capital by the sale of shares of a newly created class of McHugh common stock
(the "McHugh Class A Common Stock") and warrants to purchase shares of the
common stock, par value $0.01 per share, of McHugh (the "McHugh Common Stock")
and (iii) to enable McHugh to attract and motivate its employees through the
grant of meaningful proprietary equity ownership interests in McHugh to such
employees;
WHEREAS, the Board of Directors of Pinnacle has determined to effect such
separation by distributing (the "Spin-Off") on a PRO RATA basis to Pinnacle's
common stockholders the currently outstanding McHugh Common Stock;
WHEREAS, in order to effect the Spin-Off of McHugh, the parties hereto
desire that Alvey distribute all of the shares of McHugh Common Stock held by
it, which represents all the issued and outstanding McHugh Common Stock, to
Pinnacle (the "Initial Spin-Off Distribution"), and that Pinnacle subsequently
distribute such shares of McHugh Common Stock PRO RATA to its common
stockholders (the "Subsequent Spin-Off Distribution," and collectively with the
Initial Spin-Off Distribution, the "Spin-Off Distributions"), thereby effecting
the Spin-Off;
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WHEREAS, prior to the Spin-Off, the parties hereto desire that McHugh
issue to Alvey 215,523 shares of Class B Common Stock of McHugh, par
value $0.01 per share (the "McHugh Class B Common Stock") and 128,022
shares of Class C Non-Voting Common Stock of McHugh, par value $0.01 per
share (the "McHugh Class C Common Stock"), which will represent all of
the issued and then outstanding McHugh Class B Common Stock and McHugh
Class C Common Stock, and that Alvey subsequently distribute to Pinnacle
such shares of McHugh Class B Common Stock and McHugh Class C Common
Stock, whereafter Pinnacle will exchange substantially all of such
shares of McHugh Class B Common Stock and McHugh Class C Common Stock
with holders of Pinnacle Series A, Series B and Series C Preferred Stock
(collectively, the "Pinnacle Preferred Stock") pursuant to that certain
Preferred Stock Exchange Agreement to be entered into among Pinnacle and
the holders of the Pinnacle Preferred Stock (the "Preferred Stock
Exchange Agreement") (all such issuances and distributions to be
referred to collectively as the "Exchange Distribution" and,
collectively with the Spin-Off Distributions, the "Distributions");
WHEREAS, the Distributions may be effected only if consents are received on
terms satisfactory to Alvey in its sole discretion from the holders of record of
a majority in principal amount (the "Requisite Consents") of the outstanding
11 3/8% Senior Subordinated Notes due 2003 (the "Notes") of Alvey to certain
amendments (the "Proposed Amendments") to the indenture (the "Indenture")
between Alvey and The Bank of New York, as trustee (the "Trustee"), governing
the Notes and such amendments permitting the Distributions are effected by Alvey
and the Trustee executing and delivering a supplemental indenture setting forth
such amendments to the Indenture (the "First Supplemental Indenture");
WHEREAS, the parties intend that the Distributions be exempt from
registration pursuant to Section 5 of the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, the parties intend that the Distributions qualify under Section
355 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DISTRIBUTIONS
1.1 THE SPIN-OFF DISTRIBUTIONS. On or prior to the date on which the
Spin-Off Distributions are effected (the "Spin-Off Distribution Date"), McHugh
shall cancel the 100 shares of McHugh Common Stock issued to Alvey in connection
with the initial capitalization of McHugh and Alvey shall deliver to Pinnacle a
certificate for the remaining 749,693 shares of McHugh Common Stock held by
Alvey. Upon direction from Pinnacle as to the number of shares of common stock,
par value $0.01 per share, of Pinnacle (the "Pinnacle Common Stock"),
outstanding on the record date set by Pinnacle for the Subsequent Distribution
(the "Spin-Off Record Date"), McHugh shall deliver to Pinnacle, for the benefit
of holders of record of Pinnacle Common Stock on the Spin-Off Record Date, a
stock certificate representing, in the aggregate (and rounded down to
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<PAGE>
nearest whole share), a number of shares representing one (1) share of McHugh
Common Stock for each share of Pinnacle Common Stock outstanding on the
Record Date. Pinnacle shall distribute as promptly as practicable following
the Spin-Off Distribution Date to holders of record of Pinnacle Common Stock
on the Spin-Off Record Date one (1) share of McHugh Common Stock for each
share of Pinnacle Common Stock and cash in lieu of fractional shares, if any,
in the manner provided in Section 1.5 hereof. McHugh agrees to provide to
Pinnacle sufficient certificates in such denominations as Pinnacle may
request in order to effect the Subsequent Distribution.
1.2 ESTABLISHMENT OF AMOUNT OF MCHUGH'S INTERCOMPANY INDEBTEDNESS. The
amount of McHugh's intercompany indebtedness to Alvey at the end of business on
the day preceding the Spin-Off Distribution Date shall be deemed to be the
amount of McHugh's intercompany indebtedness to Alvey immediately prior to the
Spin-Off.
1.3 MCHUGH COMMON STOCK. All of the shares of McHugh Common Stock
distributed in the Spin-Off Distributions shall be fully paid, nonassessable and
free of preemptive rights. The shares of McHugh Common Stock received by
holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off shall be
subject to the transfer restrictions set forth herein and each certificate
representing shares of McHugh Common Stock distributed in the Subsequent
Spin-Off Distribution shall bear the legends set forth herein. Notwithstanding
any provision hereof, nothing shall prevent the imposition of additional
restrictions on the transfer of McHugh Common Stock, or the modification of the
restrictions on such transfer set forth herein, pursuant to the terms of the
Stockholders Agreement, dated October 27, 1998, by and among McHugh and the
stockholders named therein (the "Stockholders Agreement").
(a) TRANSFER RESTRICTIONS. No shares of McHugh Common Stock received
by holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off or any
interest therein shall be transferred by any direct or indirect sale,
assignment, mortgage, transfer, pledge, gift, hypothecation or other disposition
or transfer (each, a "Transfer"), except pursuant to any Transfer (i) to McHugh;
(ii) to existing McHugh stockholders; (iii) by gift, bequest or operation of the
laws of descent, provided that the shares of McHugh Common Stock in the hands of
the transferee remain subject to the same restrictions on Transfer as such
shares were subject when held by the transferor; (iv) to an entity unaffiliated
with McHugh pursuant to a merger, consolidation, stock-for-stock exchange or
similar transaction involving McHugh; (v) by a partnership to its partners,
provided that the shares of McHugh Common Stock in the hands of the transferee
remains subject to the same restrictions on transfer as such shares were subject
when held by the transferor; or (vi) that would be exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act if the transferor were the issuer
of the shares of McHugh Common Stock, provided that the transferee is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
and the shares of McHugh Common Stock in the hands of such transferee remain
subject to the same restrictions on transfer as such shares were subject when
held by the transferor, or a transfer pursuant to an effective registration
under the Securities Act simultaneously with a registration of the McHugh Common
Stock under Section 12 of the Securities Exchange Act of 1934, as amended.
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<PAGE>
(b) LEGENDS. Each certificate representing shares of McHugh Common
Stock distributed in the Subsequent Spin-Off Distribution shall bear the legends
set forth below.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFERS SET FORTH IN A DISTRIBUTION
AGREEMENT, DATED AS OF OCTOBER 27, 1998, BY AND AMONG PINNACLE
AUTOMATION, INC., ALVEY SYSTEMS, INC. AND McHUGH SOFTWARE
INTERNATIONAL, INC. (THE "COMPANY") AND A STOCKHOLDERS AGREEMENT,
DATED AS OF OCTOBER 27, 1998 (AS AMENDED, MODIFIED OR SUPPLEMENTED),
BY AND AMONG THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, COPIES OF
WHICH AGREEMENTS ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE
TERMS OF THE DISTRIBUTION AGREEMENT AND THE STOCKHOLDERS AGREEMENT."
1.4 DISTRIBUTION OF MCHUGH CLASS B COMMON STOCK AND MCHUGH CLASS C
COMMON STOCK. On or prior to the date on which the Exchange Distribution is
effected (the "Exchange Distribution Date" and, collectively with the Spin-Off
Distribution Date, the "Distribution Dates"), Alvey shall deliver to Pinnacle
certificates held by Alvey for (i) 215,523 shares of McHugh Class B Common Stock
and (ii) 128,022 shares of McHugh Class C Common Stock in order for Pinnacle to
effect the exchange of shares of McHugh Class B Common Stock and McHugh Class C
Common Stock for shares of Pinnacle Preferred Stock pursuant to the Preferred
Stock Exchange Agreement.
1.5 FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of McHugh Common Stock shall be issued as part of the Subsequent
Distribution and in lieu of receiving fractional shares, each holder of Pinnacle
Common Stock who would otherwise be entitled to receive a fractional share of
McHugh Common Stock pursuant to the Subsequent Distribution will receive cash
for such fractional shares.
1.6 PINNACLE AND ALVEY BOARD ACTION.
(a) This Agreement and other related agreements have been approved by
the Board of Directors of Pinnacle and Alvey, subject to the receipt by Alvey of
the Requisite Consents, the execution and delivery of the First Supplemental
Indenture by Alvey and the Trustee and the declaration of the Distributions by
the Board of Directors of Pinnacle and Alvey, and the consummation of the
transactions provided for herein shall only be effected after the Requisite
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<PAGE>
Consents have been received by Alvey, the First Supplemental Indenture has been
executed and delivered by Alvey and the Trustee and the Distributions have been
declared by the Board of Directors of Pinnacle and Alvey.
(b) The Board of Directors of Pinnacle and Alvey, in their sole
discretion, shall establish the Spin-Off Record Date and the Distribution Dates
and all appropriate procedures in connection with the Distributions.
1.7 FURTHER ASSURANCES. Each of the parties hereto promptly shall
execute such documents and other instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
to consummate the transactions contemplated hereby.
1.8 TAX MATTERS. The parties agree to treat the Distributions as
tax-free distributions pursuant to Section 355 of the Code and any state or
local counterparts. That certain Tax Sharing Agreement, dated the date
hereof, among Pinnacle, Alvey and McHugh (the "Tax Sharing Agreement"), sets
forth the rights and obligations of the parties with respect to taxes, and
contains representations and covenants of the parties to satisfy the
requirements of Section 355 of the Code. The indemnification obligations of
the parties with respect to taxes shall be governed exclusively by the Tax
Sharing Agreement.
1.9 CERTAIN MCHUGH SERVICES.
(a) ADS AGREEMENTS. Following consummation of the Spin-Off, for the
period during which White remains obligated to Automated Distribution Systems,
L.P. ("ADS") pursuant to (i) that certain System Procurement and Integration
Agreement, dated July 28, 1995, among Pinnacle, White and ADS as amended by
Amendment No. 1, dated August 22, 1995, and Amendment No. 2, dated December 1,
1997, (ii) that certain System Maintenance Agreement, dated October 24, 1997,
among Pinnacle, White and ADS and (iii) that certain Preferred Registration
Technology Escrow Agreement, dated as of October 24, 1997, among Data Securities
International, Inc., White and ADS, and including any and all renewal periods
under any of such Agreements (collectively, the "ADS Agreements"), and such that
White may timely and fully fulfill its obligations under the ADS Agreements,
McHugh agrees that it shall provide hardware and software services as requested
by ADS or White on the following payment terms: (i) through June 30, 1999,
McHugh shall continue to provide hardware and software support services to ADS
without compensation other than the compensation that McHugh has already
received to date from ADS; (ii) with respect to hardware support, after June
30, 1999, Pinnacle or Alvey shall reimburse, or shall cause White to reimburse,
McHugh for all reasonably incurred costs billed to McHugh by third-party vendors
in connection with hardware support services provided by McHugh in connection
with the ADS Agreements upon presentment by McHugh of sufficiently detailed
invoices for such third-party vendor services rendered; and (iii) with respect
to software support, for the period beginning July 1, 1999 and ending June
30, 2001, Pinnacle or Alvey shall pay, or shall cause White to pay, $50,000 to
McHugh per year, provided workman-like services are rendered by McHugh in
connection with the ADS Agreements, and, after June 30, 2001, in the event that
Pinnacle, Alvey or White shall request that McHugh render software support
services in connection with the ADS Agreements, Pinnacle or Alvey shall pay, or
shall cause White to pay, upon the rendering of workman-like services by McHugh
and presentment
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<PAGE>
by McHugh of sufficiently detailed invoices for such services, an amount
equal to McHugh's then current fully absorbed rate per hour for applicable
engineers multiplied by 200%.
(b) NATIONAL BEEF. Following consummation of the Spin-Off, McHugh agrees
that it will continue to provide software support to National Beef Packing
Company, L.P. ("NBP") in connection with the Systems and Maintenance Support
Agreement, dated November 1, 1997, between Alvey Systems, Inc. and NBP, as
amended to date (the "NBP Agreement"), such that Alvey may timely and fully
fulfill its obligations under the NBP Agreement through October 31, 2001. In
full and final settlement of any claim by McHugh for payment for services
rendered during the period beginning on the date hereof and ending
October 31, 2000, Alvey shall credit the amount of $50,000 against the balance
of intercompany indebtedness owed by McHugh to Alvey at the Effective Time of
the Spin-Off. In the event that Alvey requests that McHugh provide software
support services to NBP in connection with the NBP Agreement during the one-year
period beginning November 1, 2000 and ending October 31, 2001, Alvey shall pay
McHugh, on a time and material basis, at the rate of $150 per hour, not to
exceed $75,000 in the aggregate for such one-year period, upon the rendering of
workman-like services by McHugh and presentment by McHugh of sufficiently
detailed invoices for such services indicating the number of engineer hours
rendered.
1.10 WESELEY DISPUTE.
(a) Without modifying McHugh's indemnification obligations pursuant to
Section 3.2 hereof, if the Weseley Dispute (as defined in Section 7.08(b) of the
Amended and Restated Investment Agreement, dated October 2, 1998, by and among
McHugh and the other parties named therein and amending and restating the
Investment Agreement, dated as of July 24, 1998 (the "Amended and Restated
Investment Agreement")) results in a payment or payments (each, a "Weseley
Payment") by McHugh in excess of $3,400,000, Alvey hereby commits that it shall,
promptly upon receipt of each notice from McHugh that a Weseley Payment has been
made, pay to McHugh the amount set forth in such notice, which amount shall
equal (i) the aggregate amount of all Weseley Payments paid by McHugh as at the
date of such notice minus (ii) $3,400,000 minus (iii) the aggregate amount of
all payments previously made by Alvey pursuant to this Section 1.10; PROVIDED
that Alvey shall not be obligated to make payments to McHugh in the aggregate in
excess of $4,000,000.
(b) Alvey's obligation to make such payments shall cease, and McHugh
shall be obligated to reimburse Alvey for such payments, plus accrued interest
from the date of each such payment at a rate equal to the most recent prime rate
announced by The Chase Manhattan Bank plus 1.00 percent per annum compounded
semi-annually, upon the earlier of (i) the Repurchase Date (as defined in the
Certificate of Incorporation of McHugh (the "Certificate of Incorporation") that
is an exhibit to the Amended and Restated Investment Agreement) or (ii) the
closing date of any Qualified IPO (as defined in the Certificate of
Incorporation).
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ARTICLE II
CONDITIONS PRECEDENT TO THE DISTRIBUTIONS
2.1 The obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver at
or prior to each of the Distribution Dates of all of the conditions set forth
below in this Section 2.1.
(a) REQUISITE CONSENTS. The Requisite Consents shall have been
received and the First Supplemental Indenture shall have been executed by Alvey
and the Trustee.
(b) THIRD-PARTY CONSENTS. All necessary third-party consents to the
Distributions shall have been obtained.
(c) CORPORATE AUTHORITY. The Boards of Directors of each of Pinnacle
and Alvey shall have formally approved the Exchange Distribution and the
Spin-Off Distributions, finding in connection with such approval that their
respective surpluses for purposes of Section 170 of the Delaware General
Corporation Law (the "DGCL") at the respective times of the Exchange
Distribution and the Spin-Off Distributions will be sufficient to permit the
Exchange Distribution and the Spin-Off Distributions under Section 170 of the
DGCL.
(d) NO LEGAL RESTRAINT. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Exchange Distribution or the Spin-Off Distributions shall be pending.
(e) THIRD-PARTY INVESTMENT IN MCHUGH. The Amended and Restated
Investment Agreement shall have been executed and delivered by the parties
thereto.
(f) AMENDED ALVEY CREDIT AGREEMENT. The existing credit agreement
among Alvey and the lending institutions party thereto shall have been amended
to permit the Distributions.
(g) TAX SHARING AGREEMENT. The Tax Sharing Agreement shall have been
executed and delivered by the parties thereto.
(h) PINNACLE PREFERRED STOCK EXCHANGE AGREEMENT. The Preferred Stock
Exchange Agreement shall have been executed and delivered by the parties
thereto.
(i) PERFORMANCE OF THE PARTIES. Each of the provisions of this
Agreement required to be performed or complied with on or prior to the Exchange
Distribution Date or on or prior to the Spin-Off Distribution Date shall have
been timely performed or complied with by the party owing performance or
compliance.
2.2 ADEQUATE FINANCING FOR SPIN-OFF OFFER. Pinnacle and Alvey shall
not consummate the transactions contemplated by this Agreement unless Alvey,
immediately prior to the Spin-Off, shall have cash on hand and cash available
under its Revolving Credit Facility (as defined in Alvey's Consent Solicitation
Statement, as amended and supplemented, delivered to holders of the Notes
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soliciting consents to the Proposed Amendments (the "Consent Solicitation
Statement")) that, taken together with cash to be received by Alvey from
McHugh in connection with the Spin-Off, would be sufficient to fund the
Spin-Off Offer (as defined in the Consent Solicitation Statement).
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY PINNACLE AND ALVEY. Pinnacle and Alvey shall
indemnify, defend and hold harmless, jointly and severally, McHugh and each of
its subsidiaries and their respective successors-in-interest and each of their
respective affiliates, stockholders, directors, officers, employees, attorneys,
agents, representatives and beneficiaries (the "McHugh Indemnified Parties")
against any and all losses, claims, damages, liabilities, judgments, costs and
expenses, including legal fees and expenses ("Losses"), joint or several,
suffered or incurred by any such party (other than any Loss relating to tax
matters, for which any indemnification shall be as set forth in the Tax Sharing
Agreement) that arise out of (i) any and all lawsuits, actions, proceedings,
inquiries or investigations commenced against Pinnacle, Alvey, McHugh or any of
their respective subsidiaries or other McHugh Indemnified Parties in connection
with the Spin-Off or the Distributions contemplated by this Agreement or the
Recapitalization (as defined herein) (collectively, "Distribution Actions"),
(ii) the assets, business, operations, debts or liabilities of any activity of
Pinnacle and Alvey other than the McHugh Business or any and all lawsuits,
actions, proceedings, inquiries or investigations related to any activity of
Pinnacle or Alvey other than the McHugh Business, whether incurred prior to,
concurrently with or after the Spin-Off Distribution Date, (iii) any and all
lawsuits, actions or proceedings that arise out of any untrue statement or
alleged untrue statement of a material fact contained in the Consent
Solicitation Statement, the Information Statement regarding McHugh delivered by
Pinnacle to the holders of Pinnacle Common Stock in connection with the
Subsequent Spin-Off Distribution, the Information Statement, as amended or
supplemented, regarding the Exchange Distribution delivered by Pinnacle to the
holders of Series A, Series B and Series C Pinnacle Preferred Stock, any
document incorporated by reference therein or any amendment or supplement to any
of the foregoing or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (iv) any and all other
lawsuits, actions or proceedings that arise out of the Distribution Actions and
(v) any and all lawsuits, actions or proceedings to enforce this indemnity. For
purposes of this Agreement, the term "Recapitalization" shall have the meaning
ascribed to it in the Preferred Stock Exchange Agreement.
3.2 INDEMNIFICATION BY MCHUGH. McHugh shall indemnify, defend and
hold harmless Pinnacle and Alvey and each of their subsidiaries and their
respective successors-in-interest, and each of their respective affiliates,
stockholders, directors, officers, employees, attorneys, agents,
representatives and beneficiaries (the "Pinnacle Indemnified Parties")
against any Losses, joint or several, suffered or incurred by any such party
(other than any Loss relating to tax matters, for which any indemnification
shall be as set forth in the Tax Sharing Agreement) that arise out of (i) the
assets, business, operations, debts or liabilities of the McHugh Business or
any and all lawsuits, actions, proceedings, inquiries or investigations
related to the McHugh Business, whether incurred prior to, concurrently with
or after the Spin-Off Distribution Date, including, but not limited to, the
dispute
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involving Mitchell J. Weseley and those certain guarantees by Alvey (and
Pinnacle, as noted) of the obligations of each of McHugh and its wholly owned
subsidiary, Weseley Software Development Corp. ("Weseley"), under leases of
real property occupied by McHugh and/or Weseley at the date of this Agreement
at: 20700 Swenson Drive, Suite 400, Waukesha, WI 53186 (guaranteed by McHugh
and Pinnacle); 1000 Bridgeport Avenue, Shelton, CT 06484; and 5520 Dillard
Drive, Suite 200, Cary, NC 27511, and under Master Lease No. 155056 of
computer equipment from Computer Sales International, Inc., dated as of July
13, 1998 and (ii) any and all lawsuits, actions or proceedings to enforce
this indemnity.
3.3 NOTIFICATION OF CLAIMS. For the purpose of this Article III, the
term "Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party pursuant to this Article III, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Article III. Whenever any claim shall arise for
indemnification under this Article III, including any claim related to a
Distribution Action, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of such claim and, when known, the facts
constituting the basis for such claim (in reasonable detail). Failure by the
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder except to the extent that such
failure materially prejudices the Indemnifying Party.
3.4 INDEMNIFICATION PROCEDURES.
(a) For all claims other than Distribution Actions:
(i) After the notice required by Section 3.3 is received by the
Indemnifying Party, if the Indemnifying Party undertakes to defend any such
claim, then the Indemnifying Party shall be entitled, if it so elects, to take
control of the defense and investigation with respect to such claim and to
employ and engage attorneys of its own choice to handle and defend the same, at
the Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnified Party of such election, which notice acknowledges the Indemnifying
Party's obligation to provide indemnification hereunder. The Indemnifying Party
shall not settle any third-party claim that is the subject of indemnification
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided, however, that the Indemnifying Party may settle
a claim without the Indemnified Party's consent if such settlement (x) makes no
admission or acknowledgment of liability or culpability with respect to the
Indemnified Party, (y) includes a complete release of the Indemnified Party and
(z) does not require the Indemnified Party to make any payment or forego or take
any action. The Indemnified Party may, at its own cost, participate in any
investigation, trial and defense of such lawsuit, action or proceeding
controlled by the Indemnifying Party and any appeal arising therefrom. If there
are one or more legal defenses available to the Indemnified Party that conflict
with those available to the Indemnifying Party, the Indemnified Party shall have
the right, at the expense of the Indemnifying Party, to assume the defense of
the lawsuit, action or proceeding; PROVIDED, HOWEVER, that the Indemnified Party
may not settle such lawsuit, action or proceeding without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
(ii) If, after receipt of a claim notice pursuant to Section 3.3,
the Indemnifying Party does not undertake to defend any such claim, the
Indemnified Party may, at the Indemnifying
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Party's expense, but shall have no obligation to, contest any lawsuit, action
or proceeding with respect to such claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party
(including, without limitation, the settlement thereof without the consent of
the Indemnifying Party).
(iii) At any time after the commencement of defense of any
lawsuit, action or proceeding, the Indemnifying Party may request the
Indemnified Party to agree in writing to the abandonment of such contest or to
the payment or compromise by the Indemnifying Party of such claim, whereupon
such action shall be taken unless the Indemnified Party determines that the
contest should be continued and so notifies the Indemnifying Party in writing
within 15 days of such request from the Indemnifying Party. If the Indemnified
Party determines that the contest should be continued, the Indemnifying Party
shall be liable hereunder only to the extent of the lesser of (y) the amount
which the other party(ies) to the contested claim had agreed to accept in
payment or compromise as of the time the Indemnifying Party made its request
therefor to the Indemnified Party or (z) such amount for which the Indemnifying
Party may be liable with respect to such claim by reason of the provisions
hereof.
(b) Pinnacle and Alvey shall have responsibility to defend against any
Distribution Actions, PROVIDED, HOWEVER, that (i) if Pinnacle and Alvey shall
elect not to assume the defense of such Actions or (ii) if McHugh reasonably
determines that there may be a conflict between the positions of Pinnacle and
Alvey, on the one hand, and of McHugh, on the other hand, in defending such
claim or action, then separate counsel shall be entitled to participate in and
conduct the defense, and Pinnacle and Alvey shall be liable for any legal or
other expenses reasonably incurred by McHugh in connection with the defense.
Pinnacle and Alvey shall not be liable for any settlement of any action, suit,
claim or proceeding effected without its written consent; PROVIDED, HOWEVER,
that Pinnacle shall not unreasonably withhold, delay or condition its consent.
Pinnacle and Alvey further agree that they will not, without McHugh's prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof in any pending or threatened action, suit, claim or
proceeding in respect of which indemnification may be sought hereunder (whether
or not McHugh is an actual or potential party to such action, suit, claim or
proceeding) unless such settlement or compromise includes an unconditional
release of McHugh from all liability arising out of such action, suit, claim or
proceeding..
(c) With respect to all claims, including any Distribution Actions, the
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and defense of
any lawsuit, action or proceeding with respect to such claim and any appeal
arising therefrom (including the filing in the Indemnified Party's name of
appropriate cross claims and counterclaims).
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3.5 INDEMNIFICATION OF INSURED LOSS.
(a) The amount of any Loss for which indemnification is provided under
this Article III shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies covering such Loss. It is the
express intention of the parties hereto that no transaction contemplated by this
Agreement eliminate or reduce insurance coverage available to any party hereto
with respect to a Loss.
(b) If the Indemnified Party makes any payment under this Article III
in respect of any Loss, the Indemnifying Party shall be subrogated, to the
extent of such payment, to the rights of the Indemnified Party against any
insurer or third party with respect to such Loss. The Indemnified Party shall
execute any required documents or instruments, serve as a named plaintiff or
take any other similar steps necessary to effectuate such subrogation.
3.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify and hold
harmless a party hereto shall survive with respect to any claim until any
applicable statute of limitations with respect to such claim expires; PROVIDED
that prior to the expiration of the applicable statute of limitations period the
Indemnified Party shall have delivered a claim notice in accordance with
Section 3.3 hereof to the Indemnifying Person.
ARTICLE IV
ARBITRATION
4.1 IN GENERAL. Any controversy, dispute or disagreement between the
parties hereto arising out of or relating to this Agreement, which controversy,
dispute or disagreement is not settled in writing within 30 days after the date
on which a party subject to this Agreement gives written notice to the other
party(ies) that a controversy, dispute or disagreement exists, shall be
submitted to binding arbitration pursuant to this Article IV, which shall
constitute the exclusive remedy for the settlement of any controversy, dispute
or disagreement between the parties concerning this Agreement, including whether
such controversy, dispute or disagreement is subject to arbitration pursuant to
this Article IV.
4.2 SELECTION OF ARBITRATORS. Within 45 days after the date on which a
party hereto gives written notice to the other party(ies) that a controversy,
dispute or disagreement exists arising out of or relating to this Agreement, the
parties agree to each select one arbitrator to hear and decide such matters.
The two arbitrators so chosen shall then select a third arbitrator. Each of the
arbitrators chosen shall be impartial and independent of all parties to this
Agreement and shall be a retired judge or lawyer experienced in corporate law
matters. If either of the parties fails to select an arbitrator within 20 days
after the end of such 45-day period, or if the arbitrators chosen fail to select
a third arbitrator within such 20 days, then any party may in writing request
the judge of the United States District Court for the Southern District of New
York senior in term of service to appoint the arbitrator or arbitrators.
4.3 CONDUCT OF PROCEEDINGS. Each arbitration hearing shall be held at
a place in New York City, New York acceptable to a majority of the arbitrators.
The arbitration shall be conducted
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in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the
terms of this Section. The decision of a majority of the arbitrators shall
be reduced to writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be entered and
execution had in any court of competent jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. The charges and expenses of the arbitrators and all costs of
arbitration shall be paid by the non-prevailing party as determined by a
majority of the arbitrators. The arbitration shall commence within 10 days
after the arbitrators are selected. In fulfilling their duties with respect
to determining the amount of any loss or claim, the arbitrators may consider
such matters as, in the opinion of the arbitrators, are necessary or helpful
to make a proper determination. The arbitrators may consult with and engage
disinterested third parties to advise the arbitrators. If any of the
arbitrators selected hereunder should die, resign or be unable to perform his
or her duties hereunder, the remaining arbitrators or such senior judge (or
such judge's successor) shall select a replacement arbitrator. The procedure
set forth herein for selecting the arbitrators shall be followed from time to
time as necessary.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement, together with the Preferred
Stock Exchange Agreement, the Tax Sharing Agreement and the Stockholders
Agreement, constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
5.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
5.3 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
5.4 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Pinnacle or Alvey:
c/o Pinnacle Automation, Inc.
9301 Olive Boulevard
St. Louis, Missouri 63132
Telecopy: (314) 995-2274
Attention: Mr. Stephen J. O'Neill, President and Chief Executive
Officer
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if to McHugh:
McHugh Software International, Inc.
20700 Swenson Drive, Suite 400
Waukesha, Wisconsin 53186
Telecopy: (414) 317-2645
Attention: Mr. Ritch J. Durheim, President and Chief Executive
Officer
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed
effective on the first business day at the place of which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
5.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except as
provided in Article III, Article IV, Section 5.7 and Section 5.8 (which are
intended to be for the benefit of the persons provided for therein, and may be
enforced by such persons).
5.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
5.7 PERSONAL LIABILITY. This Agreement shall not create or be deemed
to create or permit any personal liability or obligation on the part of any
direct or indirect stockholder of any party hereto or any officer, director,
employee, agent, representative or investor of any party hereto.
5.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
5.9 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
5.10 LEGAL FEES; COSTS. Subject to Section 4.3 hereof, if any party
hereto institutes any action or proceeding, whether before a court or
arbitrator, to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the non-prevailing party reasonable
attorneys' fees and costs and any other costs incurred in such action or
proceeding, whether or not such action or proceeding is prosecuted to judgment.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
PINNACLE AUTOMATION, INC.
By: /s/Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill
President and Chief Executive Officer
ALVEY SYSTEMS, INC.
By: /s/Stephen J. O'Neill
--------------------------------------
Stephen J. O'Neill
President and Chief Executive Officer
MCHUGH SOFTWARE INTERNATIONAL, INC.
By: /s/Kevin C. Shanahan
-------------------------------------
Kevin C. Shanahan
Vice President - Finance and Treasurer
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EXHIBIT 10.4
TAX SHARING AGREEMENT
This Tax Sharing Agreement (this "Agreement"), dated as of October 27,
1998, is made by and among Pinnacle Automation, Inc. (together with its
successors and assigns, "Pinnacle"), a Delaware corporation, Alvey Systems, Inc.
("Alvey"), a Delaware corporation and wholly owned subsidiary of Pinnacle, and
McHugh Software International, Inc. ("McHugh"), a Delaware corporation and
wholly owned subsidiary of Alvey, and their respective successors in interest.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Article I.
RECITALS
WHEREAS, Pinnacle is the common parent of an affiliated group of domestic
corporations that include Alvey and McHugh;
WHEREAS, Alvey and its wholly-owned subsidiaries other than the McHugh
Companies provide automated materials handling systems for manufacturing plants,
distribution centers and warehouses and related services (the "Alvey Business");
WHEREAS, McHugh and its subsidiaries develop, market, implement and support
software solutions for warehouse and transportation management (the "McHugh
Business");
WHEREAS, Pinnacle, Alvey and McHugh have entered into a Distribution
Agreement, dated as of even date herewith, pursuant to which Alvey will
distribute all of the issued and outstanding shares of capital stock of McHugh
to Pinnacle, and Pinnacle will subsequently distribute such shares of capital
stock of McHugh to its stockholders, as more fully described in such
Distribution Agreement (the "Spin-Off");
WHEREAS, Pinnacle, Alvey and McHugh intend that for federal income tax
purposes the Spin-Off qualify as a tax-free distribution under Section 355 of
the Code;
WHEREAS, following the Spin-Off, McHugh will become the common parent of an
affiliated group of corporations;
WHEREAS, the parties desire to set forth their agreement relating to their
respective obligations, responsibilities, rights and entitlements with respect
to (1) Taxes paid or payable by either of them, (2) Tax Returns to be filed by
either of them, and (3) certain representations and covenants relating to
actions of the parties following the Disaffiliation Date.
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (the meanings to be equally applicable to the singular and the plural
forms of the terms defined).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
"Disaffiliation Date" means the date upon which McHugh ceases to be a
member of the Pinnacle Affiliated Group as determined in accordance with
Treasury Regulations Section 1.1502-76(b).
"Final Determination" means the final resolution of liability for any Tax
for a taxable period, including any related interest or penalties, (i) by IRS
Form 870-AD (or any successor form thereto), on the date of acceptance by or on
behalf of the Commissioner of the IRS, or by a comparable agreement form under
the laws of any state, local or foreign government or the rules or regulations
of any state, local or foreign taxing authority, except that a Form 870-AD or
comparable form that reserves the right of the taxpayer to file a claim for
refund or the right of the taxing authority to assert a further deficiency shall
not constitute a Final Determination with respect to the item or items so
reserved, (ii) by a decision, judgment, decree, or other order by a court of
competent jurisdiction that has become final and unappealable, (iii) by a
closing agreement or accepted offer in compromise under section 7121 or 7122 of
the Code, or a comparable agreement under the laws of any state, local or
foreign government or the rules or regulations of any state, local or foreign
taxing authority, (iv) by any allowance of a refund or credit in respect of an
overpayment of Tax, including any related interest or penalties, but only after
the expiration of all periods during which such refund may be recovered
(including by way of offset) by the jurisdiction imposing the Tax (including a
refund or credit allowed as a result of the filing of an amended return), or (v)
by any other final disposition, including by reason of the expiration of the
applicable statute of limitations. In addition to the foregoing, any event
(e.g., the filing of an IRS Form 870 or a partial settlement) that is agreed by
the parties in writing to be a Final Determination shall also be treated as a
Final Determination.
"Income Taxes" means Taxes based on or measured by net income, including,
but not limited to, franchise or similar Taxes for which a consolidated, unitary
or combined Tax Return is required or permitted.
"IRS" means the Internal Revenue Service.
"McHugh Affiliated Group" means the affiliated group of corporations
(within the meaning of Section 1504(a) of the Code) of which McHugh will be the
common parent immediately after the Spin-Off.
"McHugh Class A Common" means the newly created class of McHugh Class A
common stock.
"McHugh Class B Common" means the newly created class of McHugh Class B
common stock.
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"McHugh Class C Common" means the newly created class of McHugh Class C
common stock.
"McHugh Companies" means, for any taxable period, McHugh and the
subsidiaries of McHugh that are includable in the McHugh Affiliated Group.
"Pinnacle Affiliated Group" means the affiliated group of corporations
(within the meaning of Section 1504(a) of the Code) of which Pinnacle is the
common parent.
"Pinnacle Companies" means, for any taxable period, Pinnacle and the
Pinnacle subsidiaries that are includable in the Pinnacle Affiliated Group,
excluding all McHugh Companies.
"Tax" or "Taxes" means all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, tribal (including Indian or native American), state,
federation or other body, and without limiting the generality of the foregoing
shall include income, sales, use, ad valorem, gross receipts, value added,
franchise, transfer, recording, withholding, payroll, employment, excise,
occupation, premium or property taxes, together with any related interest,
penalties and additions to tax, or additional amounts imposed by any taxing
authority (domestic or foreign).
"Tax Benefit" means any item of loss, deduction, tax credit or any similar
item that generally has the effect of reducing the relevant Tax liability.
"Tax Detriment" means any item of income, gain, recapture of credits or any
similar item that generally has the effect of increasing the relevant Tax
liability.
"Tax Item" means any Tax Benefit or Tax Detriment.
"Tax Return" means any return, filing, questionnaire, report, form or other
document, including amended returns or claims for refund filed or required to be
filed for any period with any taxing authority (whether domestic or foreign) in
connection with any Taxes (whether or not a payment is required to be made with
respect to the filing), including any forms required to obtain an exemption from
any Tax.
II. FILING OF RETURNS AND PAYMENT OF TAXES
2.01 FEDERAL INCOME TAXES.
For all Tax periods, Pinnacle shall accurately prepare and timely file all
consolidated federal Income Tax Returns that are required to be filed for the
Pinnacle Affiliated Group and shall pay all Taxes shown as due thereon.
2.02 STATE, LOCAL AND FOREIGN INCOME TAXES.
(a) For all Tax periods ending on or before the Disaffiliation Date,
Pinnacle shall accurately prepare and timely file all combined, consolidated or
unitary state, local or foreign Income Tax Returns that include a Pinnacle
Company and shall pay all Taxes shown as due thereon.
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(b) For all Tax periods that include but do not end on the
Disaffiliation Date ("Straddle Periods"), Pinnacle shall accurately prepare and
timely file all combined, consolidated or unitary state, local or foreign Income
Tax Returns that include a Pinnacle Company. The liability to pay the Taxes
shown as due thereon shall be (i) allocated to Pinnacle to the extent such Tax
liability is attributable to any of the Pinnacle Companies, and (ii) allocated
to McHugh to the extent such Tax liability is attributable to any of the McHugh
Companies. Pinnacle shall pay such Taxes shown as due thereon, and McHugh shall
reimburse Pinnacle for its share of such Taxes upon receipt of demand for
reimbursement accompanied by reasonable explanation of the calculation of the
share of such Tax liability attributable to McHugh.
(c) All other Income Tax Returns required to be filed by any Pinnacle
Company or any McHugh Company (including any combined, consolidated or unitary
state, local or foreign Income Tax Returns that are filed solely for the McHugh
Companies), as the case may be, for any period shall be filed by, and the Taxes
shown as due thereon shall be paid by, the applicable McHugh Company or Pinnacle
Company with respect to which such Income Tax Return is required to be filed.
2.03 TAXES OTHER THAN INCOME TAXES.
McHugh shall accurately prepare and timely file all Tax Returns with
respect to Taxes other than Income Taxes required to be filed by any of the
McHugh Companies for all Tax periods and shall pay all Taxes shown as due
thereon. Pinnacle shall accurately prepare and timely file all Tax Returns with
respect to Taxes other than Income Taxes required to be filed by any other
Pinnacle Company and shall pay all Taxes shown as due thereon.
2.04 PRIOR PRACTICE.
All Tax Returns shall be prepared in accordance with applicable law and
consistently with prior practice.
III. SUBSEQUENT ADJUSTMENTS OF INCOME TAX LIABILITY
3.01 PINNACLE LIABILITY AND REFUNDS.
Except as set forth in Article V, Pinnacle shall pay and shall indemnify
and hold harmless the McHugh Companies from and against (i) any Tax liability
resulting from any Final Determination that adjusts any Tax Item of any member
or former member of the Pinnacle Affiliated Group for any Tax period that ends
on or before the Disaffiliation Date, including any Tax allocated to the portion
of any Straddle Period that ends on the Disaffiliation Date, (ii) any Tax
liability attributable to any Pinnacle Company and (iii) any expenses incurred
by any McHugh Company in connection therewith, including reasonable accounting
and attorneys' fees. Pinnacle shall be entitled to the benefit of all refunds
of Taxes resulting from any Final Determination that adjusts any Tax Item of any
member or former member of the Pinnacle Affiliated Group for any Tax period that
ends on or before the Disaffiliation Date.
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3.02 ALLOCATION OF LIABILITY FOR STRADDLE PERIODS.
In the case of any Straddle Period, the Tax allocable to the portion of
such Straddle Period ending on and including the Disaffiliation Date shall (i)
in the case of any Taxes other than gross receipts, sales or use taxes and Taxes
based upon or related to income, be deemed to be the amount of such Tax for the
entire Tax period multiplied by a fraction, the numerator of which is the number
of calendar days in the portion of such Straddle period ending on and including
the Disaffiliation Date and the denominator of which is the number of days in
the entire Straddle Period, and (ii) in the case of any Tax based upon or
related to income and gross receipts, sales or use taxes, be deemed equal to the
amount that would be payable if the relevant Tax period ended on and included
the Disaffiliation Date. The portion of any credits relating to a Straddle
Period shall be determined as though the relevant period ended on and included
the Disaffiliation Date.
IV. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.01 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PINNACLE.
Pinnacle represents that it has no plan or intention to:
(a) Amend its charter in any manner or adopt a plan of recapitalization
or similar plan that would change or modify, directly or indirectly, the rights
of the holders of the common stock or preferred stock of Pinnacle;
(b) Issue any class of stock to any person or group of persons such
that for purposes of Section 355(e) of the Code (x) the aggregate combined
voting power of the holders of such stock equals or exceeds 50% of the total
voting power of the outstanding capital stock of Pinnacle or (y) the aggregate
fair market value of such stock equals or exceeds 50% of the fair market value
of the capital stock of Pinnacle;
(c) Enter into a transaction, or to the extent it has the right to
prohibit, permit a transaction to occur, as a result of which any person, other
than Pinnacle, would acquire shares of Pinnacle capital stock from any holder of
shares of Pinnacle capital stock;
(d) Acquire, or permit any subsidiary of Pinnacle to acquire, any
outstanding shares of Pinnacle capital stock that has an aggregate fair market
value of more than $5 million;
(e) Cause or permit Alvey to adopt a plan of liquidation or
dissolution, or to discontinue any material portion of the Alvey Business;
(f) Liquidate, sell or dispose of any shares of capital stock of Alvey;
or
(g) Adopt a plan of liquidation or dissolution.
4.02 REPRESENTATIONS, WARRANTIES AND COVENANTS OF ALVEY.
Alvey represents that it has no plan or intention to:
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(a) Acquire, or permit any subsidiary to acquire, any outstanding
shares of Pinnacle or Alvey capital stock; or
(b) Adopt a plan of liquidation or dissolution, or discontinue any
material portion of the Alvey Business.
4.03 REPRESENTATIONS, WARRANTIES AND COVENANTS OF MCHUGH.
McHugh represents that it has no plan or intention to:
(a) Amend its charter in any manner or adopt a plan of recapitalization
or similar plan that would change or modify, directly or indirectly, the rights
of the holders of the outstanding common stock of McHugh, the McHugh Class A
Common, the McHugh Class B Common or the McHugh Class C Common;
(b) Issue any class of stock to any person or group of persons such
that for purposes of Section 355(e) of the Code (x) the aggregate combined
voting power of such stock and the McHugh Class A Common equals or exceeds 50%
of the total voting power of the outstanding capital stock of McHugh or (y) the
aggregate fair market value of such stock and the McHugh Class A Common equals
or exceeds 50% of the fair market value of the capital stock of McHugh;
(c) Enter into a transaction, or to the extent it has the right to
prohibit, permit a transaction to occur, as a result of which any person, other
than McHugh, would acquire shares of McHugh capital stock from any holder of
shares of McHugh capital stock;
(d) Acquire, or permit any subsidiary of McHugh to acquire, any
outstanding shares of McHugh capital stock that has a fair market value of more
than $5 million;
(e) Liquidate, dispose of or otherwise discontinue any material portion
of the McHugh Business; or
(f) Adopt a plan of liquidation or dissolution.
V. TAXES ATTRIBUTABLE TO SPIN-OFF
5.01 PINNACLE LIABILITY.
Each of Pinnacle, Alvey and McHugh hereby agrees that it will take any
action required or reasonable to qualify the Spin-Off, and will not take or
cause to be taken any action that would disqualify the Spin-Off, as a tax free
distribution under Section 355 of the Code. Notwithstanding any provision of
this Agreement to the contrary, and except as specifically provided in Section
5.02, Pinnacle shall pay and shall indemnify and hold harmless the McHugh
Companies from and against any Taxes resulting from the Spin-Off.
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5.02 MCHUGH LIABILITY.
Notwithstanding Section 5.01 hereof, McHugh shall be liable for, and shall
indemnify Pinnacle against, the Taxes described in Section 5.01, to the extent
the incurrence of the Tax in question resulted from (i) any actions taken after
the Disaffiliation Date by McHugh or any of its stockholders that would be
contrary to the requirements of Section 355 of the Code or (ii) any failure by
McHugh or any of its stockholders to take any actions after the Disaffiliation
Date that would be contrary to the requirements of Section 355 of the Code.
VI. ADMINISTRATIVE PROVISIONS
6.01 CONTESTS.
A party entitled to be indemnified under this Agreement (the
"Indemnified Party") shall provide the indemnifying party (the "Indemnifying
Party") with written notice of any claim or of the commencement of any
proceeding against the Indemnified Party that may result in any
indemnification hereunder, and shall provide the Indemnifying Party with
notice of and an opportunity to attend any meeting with taxing authorities
regarding the claim or proceeding. The Indemnified Party shall not (unless
otherwise required by a proper notice of assessment of levy) pay, settle,
compromise or concede any portion of the claim or issue relating thereto
without the written consent of the Indemnifying Party and shall, at the
Indemnifying Party's sole cost (including any reasonable out-of-pocket costs
incurred by the Indemnified Party), take such action as the Indemnifying
Party may reasonably request (including the filing of a petition, amended
return or claim for refund) in contesting the claim. The Indemnifying Party
shall, if so requested, provide an opinion of independent Tax counsel or
independent accounting firm that there exists a reasonable basis for the
contest. The Indemnified Party shall assign to the Indemnifying Party any
claim for refund or any portion of the claim that shall have been paid. If
in the course of a contest, a compromise is offered with respect to
offsetting or partially offsetting issues, the parties agree to negotiate in
good faith to share the benefits and burdens of the compromise.
6.02 COOPERATION.
Pinnacle and McHugh agree to furnish or cause to be furnished to each
other, at no cost and upon request, as promptly as practicable, such information
and assistance (including access to books and records) as is reasonably
necessary for preparation of any return, claim for refund or audit and the
prosecution or defense of any claim, suit or proceeding relating to Taxes.
Neither the Pinnacle Companies nor the McHugh Companies shall, without the
consent of the other party (which shall not be unreasonably withheld) settle or
compromise any Tax claim or dispute with a Taxing authority if the effect of
such settlement or compromise would be a material increase in the Tax Liability
of the other group.
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VII. MISCELLANEOUS
7.01 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior written and oral
and all contemporaneous oral agreements and understandings with respect to the
subject matter hereof.
7.02 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware regardless of the laws that might otherwise govern
under principles of conflicts of laws applicable thereto.
7.03 DESCRIPTIVE HEADINGS.
The descriptive headings herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
7.04 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person, by telecopy or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
if to Pinnacle or Alvey:
c/o Pinnacle Automation, Inc.
9301 Olive Boulevard
St. Louis, Missouri 63132
Telecopy: (314) 995-2274
Attention: Mr. Stephen J. O'Neill
President and Chief Executive Officer
if to McHugh:
McHugh Software International, Inc.
20700 Swenson Drive, Suite 400
Waukesha, Wisconsin 53186
Telecopy: (414) 317-2645
Attention: Mr. Ritch J. Durheim
President and Chief Executive Officer
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed
effective on the first business day at the place of which such notice or
communication is
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received following the day on which such notice or communication was sent.
Any notice or communication sent by registered or certified mail shall be
deemed effective on the fifth business day at the place from which such
notice or communication was mailed following the day in which such notice or
communication was mailed.
7.05 COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
agreement.
7.06 PERSONAL LIABILITY.
This Agreement shall not create or be deemed to create or permit any
personal liability or obligation on the part of any direct or indirect
stockholder of any party hereto or any officer, director, employee, agent,
representative or investor of any party hereto.
7.07 BINDING EFFECT; ASSIGNMENT.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective legal representatives and successors. This
Agreement may not be assigned by any party hereto.
7.08 AMENDMENT.
This Agreement may not be amended except by an instrument in writing signed
on behalf of all the parties.
7.09 LEGAL FEES; COSTS.
If any party hereto institutes any action or proceeding, whether before a
court or arbitrator, to enforce any provision of this Agreement, the prevailing
party therein shall be entitled to receive from the non-prevailing party
reasonable attorneys' fees and costs and any other costs incurred in such action
or proceeding, whether or not such action or proceeding is prosecuted to
judgment.
7.10 RESOLUTION OF DISPUTES.
Any disputes between the parties concerning the calculation of amounts or
similar accounting matters shall be resolved by a nationally recognized public
accounting firm selected by the parties, whose fees and expenses shall be shared
equally by Pinnacle and McHugh.
7.11 TERM.
This agreement shall commence on the date of execution indicated on page
one hereof and shall continue in effect until the expiration of the applicable
statute of limitations.
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7.12 SEVERABILITY.
If any term, provision or restriction of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and restrictions shall remain in full force and effect and
shall not be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions and restrictions without including any invalid, void
or unenforceable provisions.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
PINNACLE AUTOMATION, INC.
By: /s/Stephen J. O'Neill
------------------------------------
Stephen J. O'Neill
President and Chief Executive Officer
ALVEY SYSTEMS, INC.
By: /s/Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill
President and Chief Executive Officer
MCHUGH SOFTWARE INTERNATIONAL, INC.
By: /s/Kevin C. Shanahan
--------------------------------------
Kevin C. Shanahan
Vice President - Finance and Treasurer
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE
PINNACLE AUTOMATION AND ALVEY SYSTEMS ANNOUNCE
COMPLETION OF McHUGH SPIN-OFF
ST. LOUIS, OCTOBER 30, 1998 Pinnacle Automation, Inc., parent company of
Alvey Systems, Inc. and a leading provider of materials flow and information
flow technology, announced the spin-off of Alvey's wholly-owned subsidiary
McHugh Software International, Inc. The companies announced that private equity
firm Advent International, along with GE Capital, purchased a significant
minority equity position in McHugh, establishing McHugh as an independent
company with its own board of directors, shareholders and capital structure.
McHugh is the industry's leading provider of logistics execution systems
for transportation, warehousing and labor management.
"The completion of the spin-off creates two separate, but stronger,
independent companies," said Stephen J. O'Neill, Pinnacle president and chief
executive officer. "This separation will provide the management and capital
structure necessary for McHugh to realize its full potential, and allow Pinnacle
to focus its resources and efforts on its systems business."
Pinnacle will continue to deliver integrated materials and information flow
systems, and has agreed with McHugh to implement McHugh's software into
Pinnacle's comprehensive supply chain management solutions.
As a result of this transaction, Pinnacle emerges as a financially stronger
company: long-term debt decreased by $30 million; $18.6 million of preferred
stock was redeemed; and annual interest expense decreased by approximately $3
million. Pinnacle's improved capital structure provides the basis to support the
company's continued growth.
Pinnacle Automation, Inc. is a leading provider of materials flow and
information flow capabilities, providing customers with solutions to meet all
their supply chain needs. The five companies comprising Pinnacle produce
equipment and related software and controls that enable manufacturers,
distributors and retailers to operate their manufacturing plants, distribution
centers and warehouses more efficiently.
# # #
For further information contact:
Sarah Holahan at (314) 290-2047
