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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______TO_______
COMMISSION FILE NO. 001-13609
SAGA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1167173
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
11190 Sunrise Valley Drive
Reston, Virginia 20191
----------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 860-5050
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of October 22, 1999, 28,613,799 shares of the Registrant's common stock
were outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
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<S> <C>
P A R T I
1. Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998................................................. 3
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998..................... 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998.......................... 6
Notes to Condensed Consolidated Financial Statements............... 7
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 12
3. Quantitative and Qualitative Disclosures about Market Risk........... 20
P A R T II
1. Legal Proceedings.................................................... 21
5. Other Information.................................................... 21
6. Exhibits and Reports on Form 8-K..................................... 21
</TABLE>
2
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Item 1. Financial Statements
SAGA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
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<S> <C> <C>
Assets (Unaudited)
Current:
Cash and cash equivalents $ 32,311 $ 60,298
Short-term investments........................................................ 15,000 10,600
Accounts receivable:
Invoiced and currently due.................................................. 43,907 50,110
Advanced billings on maintenance............................................ 7,476 11,899
Unbilled services........................................................... 2,504 8,771
Installment................................................................. 34,209 32,016
Other....................................................................... 1,970 1,231
Less: allowance for doubtful accounts....................................... (4,415) (5,042)
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Total accounts receivable............................................... 85,651 98,985
Current portion of deferred income taxes...................................... 5,366 5,392
Prepaid expenses.............................................................. 3,928 2,265
Other current assets.......................................................... 681 1,855
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Total current assets.................................................... 142,937 179,395
Installment accounts receivable, net of current portion........................... 35,977 30,248
Goodwill and other intangible assets, net of accumulated amortization............. 20,815 9,720
Cooperation agreement, net of accumulated amortization............................ 17,624 19,387
Property, equipment and leasehold improvements, net of accumulated depreciation
and amortization............................................................... 8,277 10,176
Deferred income taxes............................................................. 4,136 4,136
Other assets...................................................................... 703 703
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Total assets...................................................................... $ 230,469 $ 253,765
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(in thousands, except share data)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
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(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current:
Current portion of long-term obligations........................................... $ 417 $ 478
Accounts payable................................................................... 5,637 9,675
Accrued payroll and employee benefits.............................................. 7,553 12,181
Payable to Software AG............................................................. 6,283 10,884
Income taxes payable............................................................... 3,232 3,991
Other current liabilities.......................................................... 6,162 7,912
Current portion of deferred revenues, net of deferred royalties.................... 49,199 48,328
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Total current liabilities.................................................... 78,483 93,449
Long-term obligations, net of current portion.......................................... 328 635
Deferred revenues, net of deferred royalties........................................... 28,894 31,773
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Total liabilities............................................................ 107,705 125,857
Stockholders' equity
Common stock ($0.01 par value, 75,000,000 shares authorized;
30,792,530 shares issued at September 30, 1999; and 30,516,946 shares
issued and outstanding at December 31, 1998) ..................................... 308 305
Additional paid-in capital......................................................... 98,043 95,474
Retained earnings.................................................................. 47,531 33,048
Accumulated other comprehensive loss............................................... (722) (919)
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145,160 127,908
Less treasury stock, at cost (1,865,500 shares at September 30, 1999 and no
shares at December 31, 1998)................................................. (22,396) --
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Total stockholders' equity................................................... 122,764 127,908
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Total liabilities and stockholders' equity................................... $ 230,469 $ 253,765
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1999 and 1998
(in thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Software license fees...................................... $ 15,569 $ 21,810 $ 45,921 $ 68,037
Maintenance fees........................................... 20,754 22,049 62,216 62,345
Professional services fees................................. 15,445 19,064 53,175 48,756
------------ ----------- ------------ -----------
Total revenues........................................... 51,768 62,923 161,312 179,138
------------ ----------- ------------ -----------
Cost of revenues:
Software license........................................... 3,479 5,531 10,631 16,256
Maintenance................................................ 6,692 7,773 20,647 21,869
Professional services...................................... 11,921 14,578 40,928 38,126
------------ ----------- ------------ -----------
Total cost of revenues................................... 22,092 27,882 72,206 76,251
------------ ----------- ------------ -----------
Gross profit................................................. 29,676 35,041 89,106 102,887
------------ ----------- ------------ -----------
Operating expenses:
Software product development............................... 2,592 1,572 7,316 3,473
Sales and marketing........................................ 11,894 10,731 31,945 35,728
Administrative and general................................. 10,039 12,368 30,091 35,694
------------ ----------- ------------ -----------
Total operating expenses................................. 24,525 24,671 69,352 74,895
------------ ----------- ------------ -----------
Income from operations....................................... 5,151 10,370 19,754 27,992
Other income and expense, net.............................. 1,343 966 3,990 2,825
------------ ----------- ------------ -----------
Income before income taxes................................... 6,494 11,336 23,744 30,817
Income tax provision....................................... 2,533 4,513 9,261 12,459
------------ ----------- ------------ -----------
Net income................................................... 3,961 6,823 14,483 18,358
Other comprehensive income (loss):
Foreign currency translation adjustments................... (61) (498) 197 (562)
------------ ----------- ------------ -----------
Comprehensive income......................................... $ 3,900 $ 6,325 $ 14,680 $ 17,796
============ =========== ============ ===========
Net income per common share:
Basic...................................................... $ 0.13 $ 0.23 $ 0.48 $ 0.62
Diluted.................................................... $ 0.13 $ 0.21 $ 0.46 $ 0.58
Shares used in computing net income per common share:
Basic...................................................... 29,714 30,111 30,304 29,800
Diluted.................................................... 30,893 32,074 31,459 31,849
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 14,483 $ 18,358
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 6,434 5,937
Loss on sales of property and equipment................................ 33 479
Net proceeds from sales of accounts receivable......................... --- 18,119
Write off of investment................................................ --- 848
Compensation expenses on options granted............................... 452 582
Deferred income taxes.................................................. 26
Changes in operating accounts.......................................... (10,431) (28,909)
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Net cash provided by operating activities...................... 10,997 15,414
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Cash flows from investing activities:
Additions to property, equipment and leasehold improvements............... (1,000) (2,472)
Proceeds from sales of property and equipment............................. --- 38
Purchase of short-term investments........................................ (13,000) ---
Sale of short-term investments............................................ 8,600 ---
Acquisition, net of cash received......................................... (12,088) ---
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Net cash used in investing activities.......................... (17,488) (2,434)
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Cash flows from financing activities:
Proceeds from stock options exercised..................................... 267 1,596
Expenses relating to initial public offering.............................. --- (373)
Proceeds from Employee Stock Purchase Plan................................ 1,071 ---
Payments made on capital leases........................................... (368) ---
Repurchase of common stock................................................ (22,396) ---
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Net cash provided by / (used) in financing activities.......... (21,426) 1,223
---------- -----------
Effect of exchange rate changes on cash and cash equivalents................ (70) ---
Net increase (decrease) in cash and cash equivalents........................ (27,987) 14,203
Cash and cash equivalents, beginning........................................ 60,298 50,429
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Cash and cash equivalents, ending........................................... $ 32,311 $ 64,632
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by management, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the SAGA SYSTEMS, Inc. (formerly known as Software AG Systems, Inc.)
Annual Report on Form 10-K for the year ended December 31, 1998.
In the opinion of management, the accompanying balance sheets and related
statements of operations and cash flows include all adjustments (consisting only
of normal recurring items) necessary for their fair presentation in conformity
with generally accepted accounting principles. The results for the three and
nine months ended September 30, 1999 are not necessarily indicative of the
results expected for the full year.
(2) Accounting Policies
Revenue Recognition
On January 1, 1998, SAGA SYSTEMS, Inc. and its subsidiaries (the "Company")
adopted Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"),
as amended by SOP 98-4 and SOP 98-9. SOP 97-2 focuses on when and in what
amounts revenue should be recognized for licensing, selling, leasing, or
otherwise marketing computer software. SOP 98-4 and SOP 98-9 defer certain
portions of SOP 97-2 until January 1, 2000. Management of the Company is
currently evaluating what impact, if any, SOP 97-2 will have on the Company's
revenue recognition policies once the portions of SOP 97-2, which have been
deferred become effective.
Software license revenues for an arrangement to deliver software that does
not require significant production, modification or customization of software
are recognized when there is an executed license agreement, the software and
authorization code, where applicable, have been delivered, the fee is fixed and
collectibility is probable.
Maintenance revenues, which include unspecified when-and-if deliverable
software upgrades, user documentation, and technical support for software
products, are deferred and recognized on a straight-line basis over the term of
the maintenance agreement, generally one year.
Customer training revenues and revenues from time and material type
professional consulting and custom application contracts are recognized as the
services are provided and the work is performed. Revenues from long-term fixed
price professional consulting and custom application contracts are accounted for
under the percentage of completion method. When estimates of costs, on long-term
fixed price contracts, indicate a loss, such a loss is provided for currently.
Sales of enterprise license agreements generally bundle a combination of
products, technical services and professional consulting services. In
accordance with SOP 97-2, these elements are unbundled for revenue recognition
purposes, and are accounted for based on the fair value of their component parts
using the criteria described above.
7
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Net Income per Common Share
The Company reports earnings per share under Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). In
accordance with SFAS No. 128 requirements, the Company presents basic and
diluted earnings per share. Basic earnings per share is based on income
available to common stockholders divided by the weighted average number of
common shares outstanding. Diluted earnings per share is based on income
available to common stockholders divided by the sum of the weighted average
number of common shares outstanding and all potential common shares that are
dilutive. The following information is a reconciliation of the amounts used in
these calculations:
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
--------------------------- --------------------------
1999 1998 1999 1998
------------ ---------- ----------- ---------
(In thousands, except for per share dollar amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net income...................................... $ 3,961 $ 6,823 $ 14,483 $ 18,358
============ ========== =========== =========
Denominator:
Basic weighted average shares outstanding....... 29,714 30,111 30,304 29,800
Effect of dilutive securities:
Stock options................................... 1,179 1,963 1,155 2,049
------------ ---------- ----------- ---------
Diluted weighted average shares outstanding..... 30,893 32,074 31,459 31,849
============ ========== =========== =========
Net income per common share:
Basic........................................... $ 0.13 $ 0.23 $ 0.48 $ 0.62
============ ========== =========== =========
Diluted......................................... $ 0.13 $ 0.21 $ 0.46 $ 0.58
============ ========== =========== =========
</TABLE>
(3) Treasury Stock
As previously disclosed in the Quarterly Report on Form 10-Q filed on
August 12, 1999, 200 shares of the Company's common stock, par value $0.01 per
share ("Common Stock"), were tendered at $8.00 per share pursuant to the issuer
tender offer which expired on May 25, 1999 (the "Offer").
In June 1999, the Company began acquiring shares of its Common Stock in
connection with a stock repurchase program announced in a Current Report on Form
8-K filed on June 14, 1999 ("Stock Repurchase Program"). At this time, the Stock
Repurchase Program authorized the Company to repurchase up to 2,000,000 shares
of its Common Stock from time to time on the open market starting on June 14,
1999 and to continue over an indefinite period. In a Current Report on Form 8-K
filed on September 30, 1999 and a press release dated September 29, 1999, the
Company announced that it would repurchase up to an additional 2,000,000 shares
of its Common Stock for an indefinite period. The Company has repurchased
1,519,300 shares of Common Stock during the three month period ended September
30, 1999 at an aggregate cost of approximately $18.4 million. Cumulatively, the
Company has repurchased 1,865,300 shares of Common Stock as of September 30,
1999 at an aggregate cost of approximately $22.4 million.
(4) Acquisition
Effective June 9, 1999, the Company acquired 100% of the issued and
outstanding stock of a privately-owned enterprise software development company
based in San Jose, California, Blue Lobster Software, Inc. ("Blue Lobster"), for
$12.0 million. The acquisition was funded through cash on hand. Blue Lobster has
a development team located in Rochester, New York, which has already been
employed toward further enhancement of the Company's enterprise integration
product suite, Sagavista(TM).
8
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
The acquisition was accounted for using the purchase method of accounting
and the operating results of the acquired business have been included in the
consolidated financial statements since the acquisition date. The purchase price
has been preliminarily allocated based on estimated fair values at the date of
acquisition, pending final determination of certain acquired balances. The
Company has allocated approximately $12.3 million to the fair value of certain
intellectual property rights, which is being amortized on a straight-line basis
over seven years.
The Blue Lobster acquisition was not determined to be significant to the
operations or financial position of the Company; accordingly, the pro forma
financial information has not been presented.
(5) Research and Development Expenditures
Research and development expenditures are charged to operations as
incurred. SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" ("SFAS No. 86"), requires certain costs to
be capitalized once the product has reached technological feasibility and prior
to general availability. In connection with the Company's new enterprise
integration ("EI") product suite, Sagavista, the costs incurred between
technological feasibility, as defined by SFAS No. 86, and when it became
available for general release on September 29, 1999, were not material to the
Company's results of operations or financial condition. Therefore, these
expenditures were not capitalized but were expensed as incurred.
(6) Cooperation Agreement
On March 31, 1997, the Company entered into an exclusive, perpetual license
agreement (the "Original Cooperation Agreement") with its former German parent
company, Software AG ("SAG"). On September 30, 1999, the Company amended and
restated the Original Cooperation Agreement, the amended agreement being
referred to hereinafter as the "Cooperation Agreement." As amended, the
Cooperation Agreement will allow, among other things, the Company and SAG to
expand their respective distribution channels. The Cooperation Agreement removes
certain distribution exclusivity provisions, which were part of the Original
Cooperation Agreement, allowing both companies to sell new products in
geographic territories that were previously designated to the other.
As previously disclosed in documents filed with the Securities and Exchange
Commission by the Company, including the Annual Report on Form 10-K filed on
March 30, 1999, the Original Cooperation Agreement, among other things (i)
provided the Company the exclusive and perpetual right to license and service in
North America, South America, Japan and Israel (collectively, the "Territory")
both existing and future products developed or acquired by SAG and (ii) provided
SAG the exclusive and perpetual right to license and service outside the
Territory both existing and future products developed or acquired by the
Company.
Following the amendment of the Cooperation Agreement, the Company has
retained, with the exception of the Company's Construct product, the exclusive
right to license and service on a worldwide basis the products that it develops
or acquires. Additionally, the Company retained the exclusive and perpetual
right to license and service the core SAG product lines, including Adabas,
Natural and the existing, core Entire family products, but exclusive of EntireX,
to current Company customers in the United States, Canada and Mexico ("North
America"). The Company also retained the exclusive right to license and service
EntireX in North America, except under certain circumstances, to current Company
customers through June 2000, and a non-exclusive right to license and service
EntireX in North America after June 2000. In addition, excluding North America,
the Company retained the exclusive and perpetual right to license and service
all current and future SAG products within the Territory.
The Company has non-exclusive and perpetual rights under the Cooperation
Agreement, as amended, to license and service the SAG products Bolero and Tamino
as well as SAG's future database and software development tools, if any, to
current Company customers in North America. The Company also has non-exclusive
9
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
rights to license and service certain new SAG products other than the core SAG
products, the EntireX, Bolero and Tamino products and future database and
software development tools to current Company customers in North America,
however, this right terminates on December 31, 2005 although it may continue
thereafter if certain circumstances exist. In addition, the Company has the
non-exclusive and perpetual right to license and service the core SAG product
lines, including Adabas, Natural and the existing, core products in the Entire
family, including EntireX, to new Company customers in North America.
The Company shall have no rights, however, to license or service new SAG
products to new SAGA customers in North America.
As noted above, under the Cooperation Agreement, as amended, SAG has the
non-exclusive, perpetual right to license the Company's Construct products
outside of the Territory. SAG has no right to license any other Company product
anywhere else in the world.
Each of the Company and SAG had to pay the other 24% of the net revenues
derived from licenses granted under the Original Cooperation Agreement. This 24%
royalty rate was fixed for 20 years. Except under certain circumstances, the
Company's minimum annual royalty payment to SAG under the Original Cooperation
Agreement through the year 2000 was required to equal at least $21 million.
Under the Cooperation Agreement, as amended, each of the Company and SAG
must pay the other 24% of the net revenues derived from the distribution of the
other party's products and the provision of maintenance within the Territory, in
the case of the Company, and outside of the Territory, in the case of SAG. This
royalty rate shall be effective through the year 2017 and thereafter unless the
parties agree otherwise. Additional payments may be made by the Company if the
Company grants certain discounts.
Except under certain circumstances, the Company's minimum annual royalty
payment to SAG under the Cooperation Agreement, as amended, must equal at least
$21.0 million for year 1999, $23.0 million for each of years 2000, 2001 and
2002, $21.0 million for year 2003, $20.0 million for year 2004 and $17.0 million
for year 2005.
At September 30, 1999, the carrying value of the Cooperation Agreement, net
of accumulated amortization, was $17.6 million. Management does not believe the
amendments to the Original Cooperation Agreement impaired the carrying value of
the Cooperation Agreement.
(7) Class Action Lawsuit
The Company, certain of its directors and executive officers and the
Company's principal stockholder have been named as defendants in purported class
action lawsuits, which have been consolidated, and an amended complaint was
filed on July 19, 1999. In general, the lawsuits claim, among other things, that
the Company's accounting policies artificially inflated revenues and earnings
and that defendants caused or permitted the Company to issue a series of
materially false and misleading public statements about the Company's operations
and financial results while, at the same time, selling the Company's Common
Stock at artificially inflated prices while in possession of material non-public
information. On August 18, 1999, the Company filed a motion to dismiss the
shareholders class action lawsuits. The motion to dismiss was denied on October
1, 1999. This shareholder class action is in the discovery process. As of
November 11, 1999, the class has not been certified. It is not possible at this
time to predict the outcome of the litigation or the amount or nature of any
loss. The Company believes that the allegations in the lawsuits are without
merit and intends to vigorously defend the charges. However, there are no
assurances that the resolution of the lawsuits may not materially adversely
affect the Company's financial condition or results of operations.
10
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SAGA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(8) Subsequent Event
On October 15, 1999, the Company entered into a three-year revolving credit
loan agreement ("Revolving Credit Agreement"), which provides an unsecured
revolving credit loan for borrowing in the aggregate principal amount of up to
$25.0 million. The funds available under the Revolving Credit Agreement may be
used for general corporate purposes including future potential acquisitions, if
any, but excluding stock repurchase programs. The commitments made under the
Revolving Credit Agreement expire November 1, 2002. The Company has agreed to
pay commitment fees of 0.125% per annum on the unused commitment amount on a
quarterly basis.
Under the Revolving Credit Agreement, financial covenants include minimum
current ratio, maximum cash flow leverage ratio and no net losses for any two
consecutive quarters, or at any fiscal year end. The Revolving Credit Agreement
also contains other customary limitations and events of defaults, and the
failure to comply with such limitations, or occurrence of any events of default,
would prevent any further borrowings and would generally require the repayment
of any outstanding borrowings under the Revolving Credit Agreement.
Interest on borrowings under the Revolving Credit Agreement would be
determined, at the Company's option, by either (a) a Eurodollar rate option or
(b) a base rate option. The Eurodollar rate option is a LIBO rate plus an
applicable margin. The base rate option is lender's prime rate plus an
applicable margin. Applicable margin can vary according to the Company's cash
flow leverage ratio. The Company had no outstanding balance under the Revolving
Credit Agreement as of November 11, 1999.
11
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
On September 29, 1999, the Company launched its new EI product suite,
Sagavista. Sagavista is a business-centric EI solution that integrates operating
systems and hardware platforms within an enterprise. Sagavista solves complex
integration problems with an architecture that links ERP, packaged, custom, and
legacy enterprise applications with little or no custom coding.
As previously discussed in Note (6) of the Notes to the Condensed Consolidated
Financial Statements, the Company amended the Original Cooperation Agreement
that it had with SAG since the recapitalization of the Company in March 1997.
The Cooperation Agreement, as amended, removes certain distribution exclusivity
provisions, allowing both companies to sell new products in key geographic
territories that were previously designated to the other. As a result, the
Company plans to market and distribute Sagavista worldwide. In addition, the
minimum annual royalty guarantee of $21.0 million to SAG until year 2000, which
was required under the Original Cooperation Agreement, has been amended and
extended through year 2005. Under the Cooperation Agreement, as amended, except
under certain circumstances, the Company's minimum annual royalty payment to SAG
must equal $21.0 million for calendar year 1999, $23.0 million for each of the
calendar years 2000, 2001 and 2002, $21.0 million for calendar year 2003, $20.0
million for calendar year 2004 and $17.0 million for calendar year 2005. For the
nine months ended September 30, 1999, the Company paid approximately $23.9
million in royalties to SAG. At September 30, 1999, the carrying value of the
Cooperation Agreement, net of accumulated amortization, was $17.6 million.
Management does not believe the amendments to the Original Cooperation Agreement
impaired the carrying value of the Cooperation Agreement.
Nine months ended September 30, 1999 and 1998
Revenues
Total Revenues. The Company's revenues are primarily derived from license fees
for the use of software products, fees for maintenance related to those products
and fees for professional services. The Company's total revenues were $161.3
million and $179.1 million for the nine months ended September 30, 1999 and
1998, respectively, representing a decrease of 10%. This decrease in total
revenues was primarily due to a decrease in software license fees as described
below.
Software License Fees. The Company's software license fees are derived
primarily from the licensing of the Company's enterprise systems and enterprise
integration products. Enterprise systems products include Adabas, a high-
performance data management system, and Natural, a 4GL programming language.
Enterprise integration products include EntireX, a family of integration
products; iXpress, a web enablement and deployment platform; and Sagavista, a
business-centric solution product suite. Software license fees decreased 33% to
$45.9 million for the nine months ended September 30, 1999 compared to $68.0
million from the same period in 1998. The decline in the software license fees
in the first nine months of 1999 compared to the same period in 1998 was
attributable to two large orders aggregating approximately $12.3 million during
the first nine months of 1998. There were no comparably large orders for the
first nine months of 1999. Excluding these large orders from 1998, the software
license fees would have decreased $9.8 million or 18% compared to 1998.
Management believes that the decrease in software license fees is attributable
to customers' decisions to postpone new orders until such customers address
their own internal year 2000 concerns. Management expects this trend to
continue in the fourth quarter of 1999. This decrease in software license fees
was somewhat offset by three Sagavista sales totaling approximately $468,000 in
the third quarter of 1999.
Maintenance Fees. The Company's maintenance fees are derived primarily from
providing technical support services to customers who have licensed the
Company's enterprise systems and enterprise integration products. Maintenance
is available in various levels of support and priced as a percentage of the
software license fees. The
12
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most commonly contracted level is priced at 18% of the applicable license fee at
the time of renewal. Software customers are not required to renew their
maintenance agreements and renewals may occur only if the customer continues to
use the licensed products. Maintenance fees decreased slightly to $62.2 million
for the nine months ended September 30, 1999 compared to $62.3 million for the
same period in 1998.
Professional Services Fees. The Company's professional services fees are
derived primarily from services provided with the implementation and deployment
of the Company's enterprise systems and enterprise integration products and
through educational services. The Company's professional services offerings
include consulting, software integration, system implementation, large project
management and year 2000 analysis and remediation. The services are delivered
on either a time and material basis or a fixed price basis. Professional
services fees were $53.2 million and $48.8 million for the nine months ended
September 30, 1999 and 1998, respectively, representing an increase of 9%. This
increase was primarily attributable to an increase in revenues from the
traditional core professional services offerings, such as application
development and engineering consulting services. This increase in traditional
core professional services offerings was negatively affected by a decrease in
revenue from the year 2000 professional services area. For the nine months ended
September 30, 1999, year 2000 professional services revenues decreased to $15.9
million from $17.9 million for the same period in 1998. Management anticipates
this decreasing trend in the year 2000 professional services business to
continue for the remainder of 1999 and that year 2000 professional service
revenues will be non-existent thereafter.
Cost of Revenues
Software License. Software license costs consist primarily of royalties paid
to third parties. Software license costs were $10.6 million and $16.3 million
for the nine months ended September 30, 1999 and 1998, respectively,
representing 23% and 24% of software license fees for each respective period.
The decrease in dollar amount was primarily due to a decrease in license
revenue. The decrease in the percentage was primarily due to a shift in the mix
of products sold from the third party owned products to the company owned
products. Third party products have royalty rates that generally vary from 24%
to 40% of gross software license fees and there are no royalty expenses on sales
of company owned products.
Maintenance. Maintenance costs consist of royalties paid to third parties, the
costs of providing customer support and the distribution costs of new releases.
Maintenance costs were $20.6 million and $21.9 million for the nine months ended
September 30, 1999 and 1998, respectively, representing 33% and 35% of
maintenance fees for each respective period. Decreases in both the dollar
amount and the percentage were primarily attributable to improved utilization
and efficiency of existing support personnel.
Professional Services. Professional services costs consist of labor and
related overhead costs for the people performing the services. Such costs
include costs for project management, quality control and project review.
Professional services costs were $40.9 million and $38.1 million for the nine
months ended September 30, 1999 and 1998, respectively, representing 77% and 78%
of professional services fees for each respective period. The increase in
dollar amount was primarily due to an increase in professional services revenue.
The improvement in margin was primarily attributable to improved utilization of
resources. As the year 2000 professional services business is expected to
decrease for the remainder of the year, the transitioning of year 2000 resources
is expected to continue through the end of this year and continue into the year
2000.
Operating Expenses
Software Product Development. Software product development expenses include
all labor and overhead costs related to the development of software products
owned by the Company. Software product development costs were $7.3 million and
$3.5 million for the nine months ended September 30, 1999 and 1998,
respectively. This increase was primarily due to expenses incurred in the
development of Sagavista, the Company's new EI product suite. Sagavista became
available for general release on September 29, 1999. The production costs
related to Sagavista incurred between technological feasibility, as defined by
SFAS No. 86, and general release were not material to the Company's results of
operations and financial condition. Therefore, these expenditures were expensed
as incurred.
13
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Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions, marketing programs, public relations,
trade shows, seminars, advertising and related communications and associated
overhead costs. Sales and marketing expenses were $31.9 million and $35.7
million for the nine months ended September 30, 1999 and 1998, respectively,
each representing 20% of total revenues for each respective reporting period.
The decrease in dollar amount was attributable to a decrease in sales
commissions as a result of a decrease in the software license fees revenue in
1999 compared to 1998. The decrease in sales and marketing expenses was also
attributable to the fact that the sales and marketing expenses in 1998 included
costs relating to several new marketing programs and events, including a major
trade show and symposiums. Similar costs were incurred in 1999 but not to the
magnitude of those incurred in 1998. The Company anticipates that sales and
marketing expenses will increase in the fourth quarter of 1999 in connection
with ongoing marketing support for Sagavista.
Administrative and General. Administrative and general expenses include
employee salaries and benefits for administration, executive, finance, legal,
human resources, data center, distribution and internal systems personnel and
associated overhead costs, as well as bad debt, accounting and legal expenses.
Administrative and general expenses were $30.1 million and $35.7 million for the
nine months ended September 30, 1999 and 1998, respectively, representing 19%
and 20% of total revenues for each respective nine month period. This decrease
was attributable, in part, to a reduction in company-wide bonus expenses, which
was based on the Company's financial performance. The decrease in
administrative and general expenses was also attributable, in part, to a
reduction in bad debt reserve as a result of a lower accounts receivable balance
as of September 30, 1999.
Other
Other Income and Expense, Net. Other income and expense, net, consists
primarily of interest earned on cash, cash equivalents, short-term investments,
long-term customer contracts carried by the Company and miscellaneous income,
offset by miscellaneous expenses. Other income and expense, net, was $4.0
million and $2.8 million for the nine months ended September 30, 1999 and 1998,
respectively. This increase was primarily attributable to the increase in
interest income as average cash, cash equivalents and short-term investments
balances increased to $64.2 million in 1999 from $55.1 million in 1998.
Income Tax Provision. The income tax provision was $9.3 million and $12.5
million for the nine months ended September 30, 1999 and 1998, respectively,
resulting in effective tax rates of 39.0% and 40.4%, respectively.
Three months ended September 30, 1999 and 1998
Revenues
Total Revenues. The Company's total revenues were $51.8 million and $62.9
million for the three months ended September 30, 1999 and 1998, respectively,
representing a decrease of 18%. This decrease in total revenues was primarily
due to decreases in software license fees and professional services fees as
described below.
Software License Fees. Software license fees decreased 29% to $15.6 million
for the three months ended September 30, 1999 compared to $21.8 million from the
comparable period in 1998. This decrease is attributable to a decrease in the
average software license fees per contract of approximately 21% in this quarter
compared to the same period in 1998. Management believes that the decrease in
software license fees was also attributable, in part, to customers' decisions to
postpone new orders until such customers address their own internal year 2000
concerns. Management expects this trend to continue in the fourth quarter of
1999.
Maintenance Fees. Maintenance fees decreased slightly by 6% to $20.8 million
for the third quarter of 1999 from $22.0 million for the same period in 1998.
The decrease was primarily due to the retirement of certain products in the
fourth quarter of 1998.
Professional Services Fees. Professional services fees were $15.4 million and
$19.1 million for the three months ended September 30, 1999 and 1998,
respectively, representing a decrease of 19%. This decrease was
14
<PAGE>
primarily due to a decrease in the year 2000 related services revenue. Year 2000
related services revenues have been declining since the fourth quarter of 1998
and represented approximately 20% of the total professional services revenue in
the third quarter of 1999. Management anticipates this decreasing trend to
continue for the remainder of 1999 and that year 2000 professional service
revenues will be non-existent thereafter.
Cost of Revenues
Software License. Software license costs were $3.5 million and $5.5 million
for the three months ended September 30, 1999 and 1998, respectively,
representing 22% and 25% of software license fees for each respective period.
The decrease in dollar amount was primarily due to a decrease in sales volume.
The decrease in the percentage was primarily due to a shift in the mix of
products sold from the third party owned products to company owned products.
Third party products have royalty rates that generally vary from 24% to 40% of
gross software license fees and there are no royalty expenses on sales of
company owned products.
Maintenance. Maintenance costs were $6.7 million and $7.8 million for the
three months ended September 30, 1999 and 1998, respectively, representing 32%
and 35% of maintenance fees for each respective period. The decrease in dollar
amount was primarily due to the decrease in sales volume. The increase in the
margins was primarily attributable to improved utilization and efficiency of the
existing support personnel.
Professional Services. Professional services costs were $11.9 million and
$14.6 million for the three months ended September 30, 1999 and 1998,
respectively, representing 77% and 76% of professional services fees for each
respective period. The decrease in dollar amount was primarily due to a
decrease in professional service fees revenues. The slight decrease in margin
was primarily due to costs incurred relating to the transition of resources from
the year 2000 service offerings into enterprise integration related service
offerings in the third quarter of 1999.
Operating Expenses
Software Product Development. Software product development costs were $2.6
million and $1.6 million for the three months ended September 30, 1999 and 1998,
respectively. This increase was primarily due to expenses incurred in the
development of Sagavista, the Company's new EI product suite. Sagavista became
available for general release on September 29, 1999. The production costs
related to Sagavista incurred between technological feasibility, as defined by
SFAS No. 86, and general release were not material to the Company's operating
results and financial condition. Therefore, these expenditures were expensed as
incurred.
Sales and Marketing. Sales and marketing expenses were $11.9 million and $10.7
million for the three months ended September 30, 1999 and 1998, respectively,
representing 23% and 17% of total revenues for each respective three-month
period. The increase in marketing expenses is mainly due to expenses incurred
for the launch of Sagavista, offset by a decrease in commission expenses as a
result of decreased sales volume in the current period compared to same period
last year.
Administrative and General. Administrative and general expenses were $10.0
million and $12.4 million for the three months ended September 30, 1999 and
1998, respectively, representing 19% and 20% of total revenues for each
respective period. This decrease was primarily due to a reduction in company-
wide bonus expenses, which was based on the Company's financial performance.
Other
Other Income and Expense, Net. Other income and expense, net, was $1.3
million and $1.0 million for the three months ended September 30, 1999 and 1998,
respectively.
Income Tax Provision. The income tax provision was $2.5 million and $4.5
million for the three months ended September 30, 1999 and 1998, respectively,
resulting in effective tax rates of 39.0% and 39.8%, respectively.
15
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations principally through cash flow from
operating activities. Net cash provided by operating activities was $11.0
million and $15.4 million for the nine months ended September 30, 1999 and 1998,
respectively, primarily from net income from each respective period and the net
proceeds from sales of accounts receivables in the amount of $18.1 million in
1998.
Investing activities used net cash of $17.5 million and $2.4 million for the
nine months ended September 30, 1999 and 1998, respectively, primarily to fund
the acquisition of Blue Lobster in June 1999 (See Note 4 of the Notes to
Condensed Consolidated Financial Statements), to purchase short-term investments
in 1999 and to fund capital expenditures for each respective period.
Financing activities used net cash of $21.4 million for the nine months ended
September 30, 1999, primarily for the repurchase of Common Stock. For the nine
months ended September 30, 1998, financing activities provided net cash of $1.2
million primarily from the proceeds from stock options exercised.
The Company had $47.3 million and $70.9 million in cash, cash equivalents and
short-term investments as of September 30, 1999 and December 31, 1998,
respectively. The decrease in cash, cash equivalents and short-term investments
was primarily the result of the Company's use of cash to fund the acquisition of
Blue Lobster for $12.0 million in June 1999 and the Company's repurchase,
pursuant to the Stock Repurchase Program, of 1,865,300 shares of Common Stock as
of September 30, 1999 for approximately $22.4 million (see Note 3 of the Notes
to Condensed Consolidated Financial Statements).
The Company currently has relationships with two third parties whereby the
Company may sell long term receivable contracts in which control over and the
economic interest in the contract is transferred to the buyer. As of September
30, 1999 and December 31, 1998, the Company remained contingently liable under
the recourse provisions associated with the sales made prior to 1998 in the
amount of $10.6 million and $24.7 million, respectively. The Company's accounts
receivable days sales outstanding at September 30, 1999 and December 31, 1998
was 78 and 64, respectively.
The Company's international distributors report and pay in U.S. dollars. In
addition, royalties reported and paid by the Company to SAG under the
Cooperation Agreement are in U.S. dollars. The Company terminated a distributor
relationship in Mexico and instead commenced operations through a subsidiary in
1996, which has represented approximately 2% of total revenues since that time.
Revenues from the Company's Canadian subsidiary has represented approximately 7%
of total revenues since its acquisition in September 1997. The Company,
therefore, has not to date engaged in foreign currency hedging transactions.
The Company may enter into hedging transactions in the future.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
If certain conditions are met, a derivative may be designated as a hedge. As
stated previously, the Company does not currently enter into any derivative or
hedging transactions. If the Company enters into any of these transactions in
the future, the adoption of SFAS No. 133 may impact the accounting for those
transactions.
The Company traditionally leases all major equipment, and has no investment in
inventory or facilities other than leasehold improvements.
16
<PAGE>
As fully described in Note 8 of the Notes to Condensed Consolidated Financial
Statements, on October 15, 1999, the Company entered into the Revolving Credit
Agreement, which provides an unsecured revolving credit loan in the aggregate
principal amount of up to $25.0 million. The funds under the credit agreement
may be used for general corporate purposes including future potential
acquisitions, if any, but excluding the Stock Repurchase Program. The
commitments made under the Revolving Credit Agreement expire November 1, 2002.
The Company has agreed to pay commitment fees of 0.125% per annum on the unused
commitment amount on a quarterly basis. As of November 11, 1999, the Company had
no outstanding balance under the Revolving Credit Agreement.
The Company believes that its existing cash balances, short-term investments,
funds generated from operations, funds available under the Revolving Credit
Agreement and funds received from the sale of receivables, if any, will be
sufficient to finance the Company's operations for at least the next twelve
months. Although operating activities may provide cash in certain periods, to
the extent the Company grows in the future, its operating and investing
activities may use such cash. There can be no assurances that any necessary
additional financing will be available to the Company on commercially reasonable
terms. The Company had no other material capital commitments or planned
expenditures as of September 30, 1999.
Year 2000 Compliance
The year 2000 poses certain issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates. The
year 2000 is also a leap year, which may also lead to incorrect calculations,
functions, or system failure. The problem exists for many kinds of software,
including software for mainframes, PCs, and embedded systems. The Company is
aware of and is addressing issues associated with the programming code existing
in computer systems as the year 2000 approaches.
Substantially all of the Company's revenues have been derived from the
licensing and servicing of products developed or acquired by SAG. Under the
terms of both the Original Cooperation Agreements and the Cooperation Agreement,
as amended, SAG is contractually required to ensure that its products are year
2000 compliant, as defined in the Original Cooperation Agreement, in accordance
with a specified timetable. SAG has provided the Company with written
assurances that the SAG-developed products that the Company is selling are year
2000 compliant. Both SAG and the Company are actively cooperating to verify the
year 2000 compliance of these products through the exchange of information
relative to the year 2000 test plans and results for these products. There can
be no assurance, however, that compliant products will be delivered by SAG in a
timely manner. In addition, there can be no assurances that the year 2000
compliant products delivered by SAG will not contain undetected errors or
defects associated with year 2000 date functions that may result in material
costs to the Company. Some commentators have stated that a significant amount
of litigation will arise out of year 2000 compliance issues, and the Company is
aware of a growing number of lawsuits against other software vendors. Because
of the unprecedented nature of such litigation, it is uncertain to what extent
the Company may be affected by it.
All other third party products sold by the Company, which are not developed or
acquired by SAG, are expected to be year 2000 compliant by the end of 1999. The
Company has sought written assurances from its principal third party vendors
that their products are or will be year 2000 compliant. To date, the Company
has received no indication from these vendors that their products will not be
year 2000 compliant, therefore, the year 2000 risks associated with these
products are not currently anticipated to have a material effect on the
Company's business, financial condition or results of operations. For the nine
months ended September 30, 1999, total product revenues from the sale of other
third party products, excluding products developed or acquired by SAG, were
approximately $1.0 million, which represents approximately 1% of total revenues
for that period. There can be no assurance, however, that year 2000 compliant
products will be delivered by third parties in a timely manner.
The Company's plans call for all products developed or acquired by the Company
that are in general release, as such term is defined by the Company, and which
will be supported with maintenance in the year 2000, to be year 2000 compliant.
The Company considers a product to be "year 2000 compliant" when the product in
question is capable of accurately processing, providing and receiving data from,
into and between the twentieth and twenty-
17
<PAGE>
first centuries, and will correctly create, store, process and output
information related to or including dates on or after January 1, 2000, provided
that the product in question is used in accordance with any applicable
documentation and, provided further that all other products, including hardware
and software, used in combination with the product in question properly exchange
date data with such product.
With respect to its internal information technology systems (including
facilities such as voice and data communications, and building management and
security systems), the Company has established an internal readiness program
which when completed is intended to minimize any potential issues that may arise
from the year 2000 date problem. The program includes the following major
components: (i) a complete analysis, assessment and remediation of all internal
software applications, (ii) a complete inventory of all computer hardware,
communication equipment and third party software used by the Company in support
of its internal operations, (iii) a formal request to all third party suppliers
identified above requesting them to ensure that the products that the Company is
using are or will be year 2000 compliant, and (iv) the upgrade of all
significant hardware and software to year 2000 compliant versions where needed.
The Company substantially completed its year 2000 readiness program for all
hardware systems and its internal software applications as of December 31,1998
and the Company is continuing to test and re-implement back into production its
systems and internal applications in 1999.
Although the Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's systems are vulnerable to those third parties' failure to remediate
their own year 2000 issues, there is no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and that
any such failure to timely convert will not have an adverse effect on the
Company's systems. The Company does not believe that the cost associated with a
third party's failure to timely convert its systems will have a material effect
on the Company's results of operations or financial condition but because of the
unprecedented nature of the year 2000 problem, it is not certain to what extent
the Company may ultimately be affected by any such failure by a third party.
Although the Company believes that its products are or will be year 2000
compliant, there can be no assurance that its customers' applications or
databases will be year 2000 compliant. The use by customers of non-compliant
applications and databases could cause failure of the customer's system or
systems. The Company has provided year 2000 remediation and second opinion
services in order to assist customers in correcting year 2000 coding or
integration errors or to provide independent validation that remediation work
that customers or others have performed was accurate, under standard services
agreements with limits placed on liability and in some instances, the execution
of performance bonds. Cumulative year 2000 related services revenues through
September 30, 1999 were approximately $40.9 million. A certain amount of
inaccuracy is inherent in all remediation and validation work. As a result, the
Company cannot guarantee that errors resulting from the year 2000 related
services performed for customers will not materially adversely impact the
Company's business, financial condition or results of operations. The Company
does not believe that potential liability from these services will materially
impact the Company's financial condition or results of operations, but because
of the unprecedented nature of the year 2000 problem, it is not certain to what
extent the Company may ultimately be impacted by any such liability.
To date, the costs associated with preparing the Company's products and
internal information technology systems to be year 2000 compliant have not been
material to the Company's business, financial condition or results of operations
and the Company does not expect these costs to materially impact the Company's
business, financial condition or results of operations in the future. As of
September 30, 1999, the Company incurred approximately $520,000 of costs
associated with preparing the Company's products and internal information
technology systems to be year 2000 compliant and the remaining costs are to be
approximately $100,000. These costs are expensed as incurred. There can be no
assurances, however, that the Company will not experience delay in, or increased
cost associated with, the implementation of such changes, and the Company's
inability to implement such changes could have an adverse effect on future
results of operations. In addition, there can be no assurance that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems, which are composed of third party software, third party
hardware that contains embedded software and the Company's own software
products. The most reasonably likely worst case scenarios would include: (i)
corruption of data contained in the Company's internal information systems, (ii)
hardware failures, and (iii) the failure of infrastructure services provided by
18
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government agencies and other third parties (e.g., electricity, all emergency
services, phone service, water transport, Internet services, etc.).
The Company is continuing to prepare its contingency planning, which will
include among other things, manual "work-arounds" for mission critical software
and hardware failures (including systems supporting the Company's Customer
Support organization, as well as substitution of systems, if necessary). The
Company's year 2000 contingency planning around mission critical systems was
substantially completed as of June 30, 1999. During the second half of the
year, the Company has continued and expects that it will continue to address
year 2000 contingency planning around certain non-mission critical systems on a
department-by-department basis. This additional year 2000 contingency planning,
which will have areas of overlap with certain ongoing disaster recovery
initiatives that the Company has underway, will specifically address issues
concerning how individual departments will function in the event that the
Company experiences failures with regard to certain automated support systems.
19
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
Most of the Company's short-term investments are in commercial paper with
interest rates tied to the Federal Funds rate. Although the Federal Fund rate
floats, the Company does not believe there is material market risk exposure with
respect to its short-term investments or other financial instruments that would
require disclosure under this item.
Safe Harbor Provision for Forward-Looking Statements
The statements contained in this report and in documents incorporating this
report by reference include forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to, (1) references to
the Company's business, financial condition, results of operations, products,
competition and markets in which the Company competes, (2) statements preceded
by, followed by or that include the words "may," "will," "could," "should,"
"believe," "expect," "future," "potential," "anticipate," "intend," "plan,"
"estimate" or "continue" or the negative or other variations thereof, and (3)
other statements regarding matters that are not historical facts, and are based
on the Company's current knowledge, beliefs, expectations and specific
assumptions with respect to future business decisions. Accordingly, the
statements are subject to significant risks, contingencies and uncertainties
that could cause actual operating results, performance or business prospects to
differ materially from those expressed in, or implied by, these statements.
These risks, contingencies and uncertainties include, but are not limited to;
significant quarterly and other fluctuations in revenues and results of
operations; reliance on SAG for development and timely delivery of products;
reliance on acquisitions and the timely development, production, marketing and
delivery of new products and services; demand for year 2000 products and
services; year 2000 related failures, emergencies and other issues; risks
associated with conducting a professional services business; reliance on the
mainframe computing environment or the enterprise application integration market
and demand for the Company's products; changes in the Company's product and
service mix and product and service pricing; interoperability of the Company's
products with leading software application products; risks of protecting
intellectual property rights and litigation; dependence on third-party
technology; risks associated with international sales, distributors and
operations; dependence on government contracts; control of the company by
affiliates; the Company's ability to implement its acquisition strategy,
successfully integrate any acquired products, services and businesses, adjust to
changes in technology, customer preferences, enhanced competition and new
competitors in software and professional services markets, maintain and enhance
its relationships with vendors, and attract and retain key employees; and other
risks detailed from time to time in the Company's Securities and Exchange
Commission reports.
20
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PART II
Item 1. Legal Proceedings
On August 18, 1999, the Company filed a motion to dismiss the shareholder
class action lawsuits previously disclosed in the Quarterly Reports on Form 10-Q
filed on May 12, 1999 and August 12, 1999. The motion to dismiss was denied on
October 1, 1999. This shareholder class action is in the discovery process. As
of November 11, 1999, the class has not been certified. It is not possible at
this time to predict the outcome of the litigation or the amount or nature of
any loss. The Company believes that the allegations in the lawsuit are without
merit and intends to vigorously defend the charges. However, there are no
assurances that the resolution of the lawsuit may not materially adversely
affect the Company's financial condition or results of operations.
Item 5. Other Information
Effective October 7, 1999, Dr. Erwin Koenigs resigned from the Board of SAGA
SYSTEMS, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Cooperation Agreement among SAGA SYSTEMS, Inc.,
SAGA SOFTWARE, Inc. and Software AG (dated as of September 30, 1999).
10.2 Revolving Credit Loan Agreement between SAGA SOFTWARE, Inc. and The
Chase Manhattan Bank (dated as of October 15, 1999).
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on September 30, 1999
announcing that the Company extended its open market stock repurchase program
for an indefinite period to repurchase up to an additional two million shares of
the Company's Common Stock.
21
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SAGA SYSTEMS, Inc.
Date: November 12, 1999 By: /s/ Harry K. McCreery
---------------------
Harry K. McCreery
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
22
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EXHIBIT 10.1
AMENDED AND RESTATED COOPERATION AGREEMENT
------------------------------------------
This Amended and Restated Cooperation Agreement (the "Agreement") is
---------
made this 30/th/ day of September, 1999 (the "Effective Date") by and between
--------------
Software AG ("SAG"), a German corporation, with its principal place of business
---
in Darmstadt, Germany, SAGA SOFTWARE, Inc. ("SAGA"), a Virginia corporation,
----
with its principal place of business in Reston, Virginia, USA, and SAGA SYSTEMS,
Inc. ("SAGSI"), a Delaware corporation with its principal place of
-----
business in Reston, Virginia, USA. SAGSI is made a party to this Agreement
solely for purposes of Sections 11.3, 11.4 and 14.9 hereof.
WHEREAS, SAG and SAGA are parties to that certain Cooperation Agreement
dated March 31, 1997 (the "Original Effective Date"), as amended by
-----------------------
that certain Amendment to Cooperation Agreement between SAG and SAGA dated
October 23, 1997 (the "Original Agreement");
------------------
WHEREAS, the parties desire to modify their relationship by replacing the
Original Agreement in its entirety with this Agreement, effective upon execution
hereof; and
WHEREAS, the parties wish to expand their respective distribution channels,
permitting each company to focus on differing enterprise market segments;
NOW THEREFORE, in consideration of the mutual promises contained herein,
the Original Agreement is hereby amended and restated in its entirety to read as
follows:
1. Definitions
-----------
1.1. "Additional SAG Products" means any Product, technology,
-----------------------
service, or software program SAG or any of its Affiliates may at any time
possess and offer for sale, lease or licensing or otherwise provide to third
parties, directly or indirectly, excluding (1) the Core SAG Products, (2) the
Entire-X Product, (3) the Bolero Product, (4) the Tamino Product, and (5) Future
SAG DBMS and Software Development Tools.
1.2. "Affiliate," with respect to a party, means any corporation or
---------
other entity or person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such party.
1.3. "Bolero Product" means SAG's Bolero Product, and any Derivatives
--------------
thereof.
1.4. "Change of Control" means a change of control of a party where,
-----------------
after the date hereof, any person, together with its Affiliates (i) becomes,
directly or indirectly, whether by merger, consolidation, purchase or any other
form of acquisition or transfer, the beneficial owner
<PAGE>
of 50% or more of the combined voting power of such party's then outstanding
securities or other equity interests, (ii) otherwise acquires, directly or
indirectly, the power to direct, or cause the direction of, the management and
policies of such party, whether through the ownership of securities or other
interests, by contract or otherwise, or (iii) acquires all or substantially all
of the assets of such party.
1.5. "Construct Product" means SAGA's Construct Product and any
-----------------
Derivatives thereof.
1.6. "Core SAG Products" means all of the SAG Products listed on
------------------
Exhibit B to the Original Agreement, any SAG Products licensed to a customer by
- ---------
SAGA under the Original Agreement at any time prior to the Effective Date,
together with all Derivatives of any of the foregoing, including SAG's Entire
family of products, but excluding the Bolero Product, the Tamino Product, the
Entire-X Product, the Additional SAG Products and the Future SAG DBMS and
Software Development Tools.
1.7. "Derivative," with respect to any SAG Product or any SAGA Product
----------
(as applicable in either case, the "Original Product"), means any Product,
----------------
technology, service, or software program, whether or not marketed under a
different name, re-packaged or bundled with other Products or services, that SAG
or any of its Affiliates (with respect to the SAG Products) or that SAGA or any
of its Affiliates (with respect to SAGA Products), as applicable, may at any
time possess and offer for sale, lease or licensing or otherwise make available
to any third party, directly or indirectly, which is a revision, correction,
patch, adaptation (including versions of a Product intended for different
hardware or software platforms), extension, continuation, release, new version,
translation or any other work that would constitute a "derivative work" of such
Original Product under applicable law.
1.8. "Distributing Party" means, with respect to a SAG Product or SAGA
------------------
Product, SAGA or SAG, respectively, which is not the Originating Party, but
instead acquires rights with respect to the SAG Product or SAGA Product pursuant
to this Agreement.
1.9. "Distribution Charge" means either (i) an amount paid by a party
-------------------
to a third party for obtaining from an End User an order for Licensed Products
or Maintenance, which order is placed directly to such party, or (ii) the amount
retained by a Distributor for the distribution of Licensed Products or the
enrollment of End Users for Maintenance, which amount is determined by deducting
from the applicable Amounts Invoiced (as defined in Section 6.2.1) any amounts
payable to the party that appointed the Distributor.
1.10. "Distributor" means any distributor (including, but not limited
-----------
to, a value-added reseller, subdistributor, Affiliate, consultant, or systems
integrator) directly or indirectly appointed by SAG or SAGA to distribute
Licensed Products.
1.11. "End User" means a person or entity that has the right to use a
--------
Licensed Product pursuant to an End User Agreement with SAG, SAGA or a
Distributor.
2
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1.12. "End User Agreement" means an agreement between SAG, SAGA or a
------------------
Distributor and an End User, pursuant to which the End User receives the right
to use a Licensed Product and/or Maintenance.
1.13. "Exclusivity Period" means the period beginning on the Effective
------------------
Date and ending on December 31, 2005.
1.14. "Existing SAGA Customers" means those persons or entities that
-----------------------
have an existing license for use of a SAG Product, as listed on Schedule 1
----------
hereto, together with all Affiliates of such persons or entities and any
successors, assignees or acquirors of all or any substantial part of the
businesses of any of the foregoing. Existing SAGA Customers will include
entities that become Affiliates of an Existing SAGA Customer as a result of a
merger, acquisition, or similar transaction during the Exclusivity Period, but
will not include any entity that becomes an Affiliate of an Existing SAGA
Customer after expiration of the Exclusivity Period.
1.15. "Entire-X Product" means SAG's Entire-X Product and any
----------------
Derivative thereof.
1.16. "First Level Support" means any technical support given by SAG or
-------------------
SAGA in response to an End User's request for Maintenance, which technical
support does not reasonably require access to or use of the Source Code for the
relevant Licensed Products.
1.17. "Future SAG DBMS and Software Development Tools" means any DBMS
----------------------------------------------
or Software Development Tool that SAG or any of its Affiliates may at any time
possess and offer for sale, lease or licensing or otherwise provide to third
parties, directly or indirectly, excluding (1) the Core SAG Products, (2) the
Entire-X Product, (3) the Bolero Product, and (4) the Tamino Product. "DBMS"
means software that controls the organization, storage, retrieval, security, and
integrity of information or data in a database. DBMS software accepts requests
from the application and instructs the operating system to transfer the
appropriate data. "Software Development Tool" means a development product for
building software applications including add-on modules for a comprehensive
development environment including database access interfaces, automatic code
generation tools and a data dictionary.
1.18. "Licensed Product" means, with respect to either party in its
----------------
capacity as an Originating Party, the Products as to which such Originating
Party has granted license rights to the Distributing Party pursuant to this
Agreement.
1.19. "Maintenance" means the provision of reasonable and customary
-----------
maintenance and technical support services for Licensed Products to End Users,
as practiced by the parties prior to the Effective Date, or as subsequently
agreed by the parties, including, but not limited to, supplying telephone
support, new versions and releases, and periodic fixes and error corrections.
1.20. "Non-U.S. Territory" means all the Territory that is not U.S.
------------------
Territory.
3
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1.21. "Object Code" means the executable computer code related to a
-----------
Product produced by processing (e.g., compiling, assembling or interpreting) the
Source Code.
1.22. "OEM Partner" means a company that licenses products or
-----------
technology to be incorporated in its delivered products or solutions for resale
through its sales channels. To be an OEM Partner, the company must add value by
requiring the Originating Party to make substantial adjustments or revisions to
the Source Code of the product or technology before selling it.
1.23. "Originating Party" means, with respect to a SAG Product or SAGA
-----------------
Product, SAG or SAGA, respectively, which developed the SAG Product or SAGA
Product or otherwise caused the SAG Product or SAGA Product to be brought within
the scope of this Agreement.
1.24. "Product" means either a SAG Product or a SAGA Product, as the
-------
case might be and as defined in Section 1.25 and Section 1.26 below. Product in
the sense of this Agreement shall only mean computer software as software
written and designed for general purposes. Application Products, being computer
software written and designed to solve a specific End User problem, shall
explicitly not be Products in the sense of this Agreement and thus not be
covered by the Agreement.
1.25. "SAG Product" means any presently existing or future computer
-----------
software, including, but not limited to, computer programs, parts thereof,
documentation therefor and related materials, (i) that a SAG Entity develops or
has developed for it, whether through employees or independent contractors and
whether alone or with others, (ii) in which a SAG Entity owns or acquires
proprietary or license rights (other than under this Agreement), (iii) announced
as a product of a SAG Entity (other than by virtue of its being licensed by SAGA
under this Agreement), (iv) distributed or offered for distribution by a SAG
Entity (other than by virtue of its being licensed by SAGA under this
Agreement), or (v) which a SAG Entity has the right to distribute within the
Territory, at any time during the term of this Agreement; provided that computer
software that is or becomes a SAG Product solely because it is a Third Party
Product shall remain a SAG Product only for so long as SAG has the right to
grant SAGA rights hereunder with respect to such computer software. For purposes
of this Agreement, SAG computer software programs intended for use on different
platforms shall be deemed separate SAG Products. The SAG Products shall include,
but not be limited to, the products listed in Exhibit B to the Original
---------
Agreement and any Derivatives of those products.
1.26. "SAGA Product" means any presently existing or future computer
------------
software, including, but not limited to, computer programs, parts thereof,
documentation therefor and related materials, (i) that a SAGA Entity develops or
has developed for it, whether through employees or independent contractors and
whether alone or with others, (ii) in which a SAGA Entity owns or acquires
proprietary or license rights (other than under this Agreement), (iii) announced
as a product of a SAGA Entity (other than by virtue of its being licensed by SAG
under this Agreement), (iv) distributed or offered for distribution by a SAGA
Entity (other than by virtue of its being licensed by SAG under this Agreement),
or (v) which a SAGA Entity has the right to distribute outside the Territory, at
any time during the term of this Agreement; provided that computer software that
is or becomes a SAGA Product solely because it is a Third
4
<PAGE>
Party Product shall remain a SAGA Product only for so long as SAGA has the right
to grant SAG rights hereunder with respect to such computer software. For
purposes of this Agreement, SAGA computer software programs intended for use on
different platforms shall be deemed separate SAGA Products. The SAGA Products
shall include, but not be limited to, the products listed in Exhibit C to the
---------
Original Agreement and any Derivatives of those products.
1.27. "SAG Entity" means SAG, a successor to SAG, or any Affiliate of
----------
SAG or any successor to any such Affiliate.
1.28. "SAGA Entity" means SAGA, a successor to SAGA, or any Affiliate
-----------
of SAGA or any successor to any such Affiliate.
1.29. "Second Level Support" means any technical support given by SAG
--------------------
or SAGA in response to an End User's request for Maintenance, which technical
support reasonably requires access to or use of the Source Code for the relevant
Licensed Products, but which is not Third Level Support.
1.30. "Source Code" means the human readable computer programming
-----------
language code related to a Product.
1.31. "Tamino Product" means SAG's Tamino Product and any Derivatives
--------------
thereof.
1.32. "Technical Materials" means all of the Source Code, Object Code,
-------------------
user documentation and training materials for a Licensed Product, and any other
technical documentation prepared by or available to the Originating Party, or
any Affiliate of or successor to the Originating Party, in the normal course of
its operations related to the relevant Licensed Product, including, but not
limited to, flow diagrams, program design documents, programmer work papers,
descriptions of data structures, programming conventions and standards.
1.33. "Territory" means (i) the geographical area within the western
---------
hemisphere that is contained within the boundaries of 30 degrees W longitude
through 170 degrees W longitude, excluding Greenland, (ii) the additional
countries of Japan and Israel, and (iii) any additional islands in the Pacific
that have installations funded by the U.S. government.
1.34. "Third Level Support" means any technical support given by SAG or
-------------------
SAGA in response to an End User's request for Maintenance, which technical
support reasonably requires the involvement of the research and development
staff of the Originating Party.
1.35. "Third Party Product" means a Product developed by or for a third
-------------------
party other than a party's Affiliate that qualifies as a Product solely by
virtue of a limited license or distributorship granted to a SAG Entity or SAGA
Entity, whether on an exclusive or nonexclusive basis.
1.36. "U.S. Territory" means all fifty of the United States of America,
--------------
Canada and Mexico.
5
<PAGE>
2. Rights Granted with Respect to Products
---------------------------------------
2.1. SAG hereby grants to SAGA a perpetual, irrevocable, exclusive
license under all of SAG's patents, copyrights, trade secrets and other
proprietary and license rights to (i) reproduce, distribute, perform, display,
transmit and otherwise use all SAG Products within the Non-U.S. Territory, (ii)
adapt SAG Products in Object Code form only, within the Non-U.S. Territory,
(iii) provide Maintenance for SAG Products to End Users within the Non-U.S.
Territory, and (iv) authorize others to do the same.
2.2. SAG hereby grants to SAGA a perpetual, irrevocable, non-exclusive
license under all of SAG's patents, copyrights, trade secrets and other
proprietary and license rights to (i) reproduce, distribute, perform, display,
transmit and otherwise use all Core SAG Products and the Entire-X Product within
the U.S. Territory, (ii) adapt Core SAG Products and the Entire-X Product in
Object Code form only, within the U.S. Territory, (iii) provide Maintenance for
Core SAG Products and the Entire-X Product to End Users within the U.S.
Territory, and (iv) authorize others to do the same.
2.3. SAG hereby grants to SAGA a perpetual, irrevocable, exclusive
license under all of SAG's patents, copyrights, trade secrets and other
proprietary and license rights to (i) reproduce, distribute, perform, display,
transmit and otherwise use the Core SAG Products to or for Existing SAGA
Customers within the U.S. Territory, (ii) adapt Core SAG Products in Object Code
form only, for Existing SAGA Customers within the U.S. Territory, (iii) provide
Maintenance for Core SAG Products to Existing SAGA Customers within the U.S.
Territory, and (iv) authorize others to do the same.
2.4. SAG hereby grants to SAGA an irrevocable, exclusive license under
all of SAG's patents, copyrights, trade secrets and other proprietary and
license rights to (i) reproduce, distribute, perform, display, transmit and
otherwise use the Entire-X Product to or for Existing SAGA Customers within the
U.S. Territory, (ii) adapt the Entire-X Product in Object Code form only, for
Existing SAGA Customers within the U.S. Territory, (iii) provide Maintenance for
the Entire-X Product to Existing SAGA Customers within the U.S. Territory, and
(iv) authorize others to do the same. The exclusive license granted under this
Section 2.4 will terminate on the first to occur of (A) June 30, 2000 or (B) the
thirtieth (30/th/) day following the last day of the calendar quarter in which
SAGA pays SAG royalties less than $750,000 (but such termination will not affect
SAGA's non-exclusive license rights with respect to the Entire-X Product under
Section 2.2).
2.5. SAG hereby grants to SAGA an irrevocable, perpetual, non-
exclusive license under all of SAG's patents, copyrights, trade secrets and
other proprietary and license rights to (i) reproduce, distribute, perform,
display, transmit and otherwise use the Bolero Product, the Tamino Product and
Future SAG DBMS and Software Development Tools to or for
6
<PAGE>
Existing SAGA Customers within the U.S. Territory, (ii) adapt the Bolero
Product, the Tamino Product and Future SAG DBMS and Software Development Tools
in Object Code form only, for Existing SAGA Customers within the U.S. Territory,
(iii) provide Maintenance for the Bolero Product, the Tamino Product and Future
SAG DBMS and Software Development Tools to Existing SAGA Customers within the
U.S. Territory, and (iv) authorize others to do the same.
2.6. SAG hereby grants to SAGA an irrevocable, non-exclusive license
under all of SAG's patents, copyrights, trade secrets and other proprietary and
license rights to (i) reproduce, distribute, perform, display, transmit and
otherwise use the Additional SAG Products to or for Existing SAGA Customers
within the U.S. Territory, (ii) adapt the Additional SAG Products, in Object
Code form only, for Existing SAGA Customers within the U.S. Territory, (iii)
provide Maintenance for the Additional SAG Products to Existing SAGA Customers
within the U.S. Territory, and (iv) authorize others to do the same. SAGA's non-
exclusive license with respect to an Additional SAG Product under this Section
2.6 will terminate upon expiration of the Exclusivity Period, except that (1)
the license rights granted under this Section 2.6 with respect to that product
will survive expiration of the Exclusivity Period and will continue for so long
as SAGA's annual net revenues with respect to such product (including both
license and Maintenance revenues) represent at least 15% of the aggregate annual
worldwide net revenue earned by SAG (excluding any amounts payable by SAGA to
SAG under this Agreement) and SAGA with respect to such product (including both
license and Maintenance revenues), and (2) with respect to any copies of an
Additional SAG Product distributed by SAGA pursuant to this Section 2.6 (the
"Installed Copies"), SAGA will have an irrevocable, perpetual, non-exclusive
license under all of SAG's patents, copyrights, trade secrets and other
proprietary and license rights to (A) adapt the Installed Copies, in Object Code
form only, (B) provide Maintenance for the Installed Copies, and (C) authorize
others to do the same.
2.7. At any time that SAGA has an exclusive right to market and
license any class or type of SAG Product (as applicable at any time, an
Exclusive SAG Product") to any customer or type or class of customer (as
- ---------------------
applicable at any time, an "Exclusive Customer") within any geographic area (as
------------------
applicable at any time, an "Exclusive Territory"), SAG may not, (nor may it
-------------------
authorize any third party to) directly or indirectly sell, license, market,
distribute, or otherwise provide to such Exclusive Customers within such
Exclusive Territory any such Exclusive SAG Product or any Derivative thereof, or
any components, technologies, processes or elements contained within any such
Exclusive SAG Product, whether independently or embedded in other Products or
materials. SAG expressly retains all rights not granted to SAGA under this
Agreement with respect to the SAG Products, both within and outside of the
Territory.
2.8. SAGA hereby grants to SAG a perpetual, irrevocable, non-exclusive
license under all of SAGA's patents, copyrights, trade secrets and other
proprietary and license rights to (i) reproduce, distribute, perform, display,
transmit and otherwise use the Construct Product outside the Territory, (ii)
adapt the Construct Product in Object Code form only, outside the Territory,
(iii) provide Maintenance for the Construct Product to End Users outside the
Territory, and (iv) authorize others to do the same. SAGA expressly retains all
rights not granted to SAG under this Agreement with respect to the SAGA
Products, both within and outside of the Territory; it being understood and
agreed that SAGA is not granting SAG any rights with respect
7
<PAGE>
to SagaVista or products acquired from Blue Lobster and Derivatives thereof,
anywhere in the world.
2.9. When SAG or its Affiliate acquires from a third party a license
of distributorship with respect to computer software that thereby becomes an
Additional SAG Product or Future SAG DBMS or Software Development Tool, then,
notwithstanding the other provisions of this Agreement, SAGA's rights hereunder
with respect to such Additional SAG Product or Future SAG DBMS or Software
Development Tool shall be subject to the terms of the agreement between SAG or
its Affiliate and a third party pursuant to which the Additional SAG Product or
Future SAG DBMS or Software Development Tool becomes subject to this Agreement.
SAG shall permit SAGA to have the full rights contemplated by Sections 2.1 and
2.5 or 2.6, as the case may be. SAGA shall have the rights granted in Sections
2.1 and 2.5 or 2.6, as the case may be, and have the obligations arising under
this Agreement, with respect to such Additional SAG Product or Future SAG DBMS
or Software Development Tool to the maximum extent consistent with SAG's or its
Affiliate's agreements with the third party. Thus, for example, and not as a
limitation, if SAG is a nonexclusive distributor of such Additional SAG Product,
SAGA shall, to the maximum extent consistent with the agreement appointing SAG
as a distributor, have a subdistributorship in the relevant geographic area. In
any such case, SAG shall inform SAGA of its rights and obligations as a
sublicensee or subdistributor under the agreements between SAG or its Affiliate
and the third party, and SAGA shall comply with such obligations.
2.10. A Distributing Party shall distribute, and cause its Distributors
to distribute, the Licensed Products only pursuant to written End User
Agreements that contain provisions protecting the intellectual property rights
of the Originating Party that conform to local law and reasonable and customary
business practice.
2.11. A Distributing Party shall distribute, and cause its Distributors
to distribute, Licensed Products in Object Code form only, except to the extent
that the Originating Party distributes, or otherwise permits the distribution
of, the Source Code for a Licensed Product to third parties.
2.12. Each party, in its capacity as Distributing Party, may, effective
upon the giving of written notice to the Originating Party, relinquish and
terminate (a) its exclusive rights with respect to any Licensed Products as to
which it has exclusive rights, in which case such exclusive rights shall
terminate and non-exclusive rights shall continue, or (b) its non-exclusive
rights with respect to any Licensed Products, in which case all such license
rights to such Licensed Products shall terminate.
3. Cooperation and Technical Assistance
------------------------------------
3.1. Each party, in its capacity as an Originating Party, shall
provide the Distributing Party prompt, full and unfettered access to Technical
Materials in its possession with respect to its Licensed Products, including
copies of the complete Source Code and Object Code for such Licensed Products, a
reasonable number of copies of any user documentation for such Licensed
Products, and significant existing Technical Materials relating to such Licensed
8
<PAGE>
Products, except that in the case of a Third Party Product, such items only
shall be provided to the extent legally permitted under any applicable agreement
between the Originating Party and the third party proprietor of the Third Party
Product. Thereafter, an Originating Party shall provide such Technical Materials
relating to a Product to the Distributing Party when requested by the
Distributing Party or when such Originating Party determines that doing so would
materially enhance the Distributing Party's ability to develop, market,
distribute or provide Maintenance, except that in the case of a Third Party
Product, such Technical Materials only shall be provided to the extent legally
permitted under any applicable agreement between the Originating Party and the
third party proprietor of the Third Party Product. The Originating Party shall
make such materials available initially, when a Licensed Product initially
becomes available, and from time to time thereafter at the Distributing Party's
request.
3.2. Each party, in its capacity as an Originating Party, hereby
grants the Distributing Party a license (co-extensive and co-terminous with such
Distributing Party's license rights to the applicable Licensed Product) under
all of the licensor's patents, copyrights, trade secrets and other proprietary
rights to (i) reproduce, distribute, perform, display, transmit and otherwise
use the Technical Materials applicable to such Licensed Products (in any case,
the "Licensed Technical Materials"), (ii) adapt the Licensed Technical
----------------------------
Materials other than the Source Code for Licensed Products, and (iii) authorize
others to do the same to the extent that doing so is reasonably required in the
performance of their work on behalf of the Distributing Party. A Distributing
Party may use the Licensed Technical Materials only for lawful purposes and to
the extent of its license rights to the applicable Licensed Product for the
purpose of developing markets for such Licensed Product and Maintenance. Such
use may include, but is not limited to, development of new interfaces and add-on
Licensed Products; adding ports to other platforms; and making performance
improvements. Each party shall maintain the confidentiality of Licensed
Technical Materials of the other party as provided in Article 10. Each party
shall take reasonable and customary measures to assure that its employees,
agents, independent contractors and Distributors appropriately protect Licensed
Technical Materials of the other party, which in no event shall be less rigorous
than the measures that such first party takes to protect its own similar
Technical Materials.
3.3. To provide accountability for Licensed Technical Materials that
either party deems particularly sensitive, but without affecting the parties'
rights and obligations with respect to such Licensed Technical Materials, (i) a
party providing Licensed Technical Materials to the other party may require the
other party to sign a receipt therefor in the form of Exhibit D, and (ii) a
---------
party receiving Licensed Technical Materials from the other party may require
the other party to sign a transmittal therefor in the form of Exhibit E.
---------
3.4. Each Distributing Party shall provide First Level Support and
Second Level Support for all Licensed Products installed or distributed by it.
Each Distributing Party shall be deemed to have a non-exclusive license to use
the Source Code and Technical Materials, in its possession on the Effective Date
to provide such First Level Support and Second Level Support to its customers as
of the Effective Date. Each Originating Party shall provide Third Level Support
for its Licensed Products anywhere in the world. The parties shall use their
best efforts to coordinate the provision of Third Level Support as described in
the "Escalation Management Process Description" on Exhibit F, and as they have
---------
done prior to the Effective
9
<PAGE>
Date or otherwise agree. Each Originating Party will maintain a program to
assist and support the Distributing Party in providing Maintenance for the
Originating Party's Licensed Products in the geographic area where the
Distributing Party has a license to such Licensed Products, including the
provision of upgrades, patches, new versions, technical support and technical
documentation. Each Originating Party shall ensure that such program is at least
favorable to the Distributing Party as any other support program the Originating
Party may provide to other distributors, OEMs, VARs or resellers for the
applicable Licensed Programs.
3.5. Each Originating Party shall provide to the Distributing Party
under the terms of this Agreement "Year 2000 Compliant" versions of the SAG
Products (in the case of SAG) or of the Construct Product (in the case of SAGA)
or of the Licensed Products, as applicable, that have been or will be supported
with Maintenance at any time during the period commencing January 1, 1999 and
ending December 31, 2000. For the purpose of this Section 3.5, a "Year 2000
Compliant" product is capable of accurately processing, providing and receiving
data from, into and between the twentieth and the twenty-first centuries, and
will correctly create, store, process and output information related to or
including dates on or after January 1, 2000, provided that the product in
question is used in accordance with any applicable documentation and provided
further that all other products, including hardware and software, used in
combination with the product in question properly exchange date data with such
product.
4. Marketing of Licensed Products
------------------------------
4.1. SAG hereby relinquishes and releases any claim it may have to any
trademark or trade name, together with any related goodwill, associated with a
SAGA Product that SAGA has announced or is marketing or advertising as of the
Effective Date. SAGA hereby relinquishes and releases any claim it may have to
any trademark or trade name, together with any related goodwill, associated with
a SAG Product that SAG has announced or is marketing or advertising as of the
Effective Date. Each party will execute such assignments and similar documents
as may be necessary to transfer any trademark registration in a manner
consistent with the foregoing.
4.2. Each party, in its capacity as an Originating Party, grants the
Distributing Party a license (co-extensive and co-terminous with such
Distributing Party's license rights to the applicable Licensed Product) to use
the Originating Party's trademarks and trade names associated with their
applicable Licensed Products.
4.3. SAG agrees and acknowledges that it will not use, create, acquire
or at any time own within the Territory an Affiliate with, the name "Software AG
Americas," "Software AG North America" or any other name confusingly similar to
any name formerly used by SAGA or SAGSI. SAG will have the right to use the
trademark "Software AG" within the Territory in a manner that avoids confusion
with SAGA. In the event of any such confusion, the parties will cooperate in
order to eliminate promptly that confusion.
4.4. Unless the parties agree otherwise in writing, each party shall
structure its agreements appointing Distributors and otherwise conduct its
business so that (i) for each End User license for a Licensed Product granted by
a Distributor, a license fee is paid by the End
10
<PAGE>
User to the Distributor and an amount is paid by the Distributor to the
party that has appointed the Distributor, (ii) license fees and other amounts
payable are fairly allocated to Licensed Products and there is no other unfair
discrimination between SAG Products and SAGA Products.
4.5. Each party's use of trademarks specifically associated with
specific Licensed Products of the other party (a "Product Mark"; for example,
the "Construct" mark, in the case of SAGA, and the "Tamino", "Bolero", "Entire-
X" marks, in the case of SAG), in connection with the respective Licensed
Products shall be (i) consistent with the high quality image of the parties so
as to enhance the respective Product Mark and the goodwill relating thereto, and
(ii) generally as used prior to the Effective Date or otherwise agreed. Each
party shall identify a Product Mark as a trademark, including, but not limited
to, through appropriate use of the symbols "(TM)" and "(R)" or other means
appropriate under applicable law. Each party acknowledges the ownership and
validity of the Product Marks of the other party and shall do nothing
inconsistent with such validity and ownership. All uses of the Product Marks
shall inure to the benefit of the owner of the respective Product Mark. Each
party shall, and shall require its Distributors to, employ appropriate quality
control standards and cooperate with the Originating Party's efforts to verify
that it does so.
4.6. Each party may from time to time develop advertising or other
promotional materials relating to Licensed Products (collectively, "Advertising
-----------
Materials"). If so, it shall provide the other party a copy in printed and
- ---------
electronic format of any Advertising Materials that it distributes. Each party
hereby grants the other party a perpetual, irrevocable license under all of such
party's copyrights to (i) reproduce, adapt, distribute, perform, display,
transmit and otherwise use such Advertising Materials, and (ii) authorize others
to do the same. A party distributing Advertising Materials in a particular
jurisdiction shall be solely responsible for the contents of such materials and
for compliance with requirements of local law in their distribution.
5. User Documentation and Other End User Materials
-----------------------------------------------
5.1. Each Originating Party promptly shall provide the Distributing
Party a copy in printed and electronic format of its standard user documentation
or other materials for each Licensed Product.
5.2. Each Originating Party shall make available for purchase by the
Distributing Party additional copies of its standard user documentation or other
materials for its Licensed Products as well as any available Advertising
Materials and available software media and "PC-Kits." All such materials shall
be provided F.O.B. place of shipment, at production cost, excluding freight,
insurance, import duties, sales tax, VAT and other taxes, in accordance with
price lists provided by each party to the other from time to time.
6. Payments
--------
11
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6.1. As consideration for the execution and delivery of this
Agreement, each party hereby releases and covenants not to sue the other party
for any breach of the Original Agreement that could be alleged by that party
based upon facts or circumstances known to the party prior to the Effective
Date.
6.2.
6.2.1. From the Effective Date through December 31, 2017, and
thereafter unless the parties agree otherwise in writing, (i) SAGA shall
pay SAG twenty-four percent (24%) of SAGA's "Net Revenues" (as defined
below) from the distribution of SAG Products and the provision of
Maintenance for SAG Products within the Territory, and (ii) SAG shall pay
SAGA twenty-four percent (24%) of SAG's Net Revenues from the distribution
of SAGA Products and the provision of Maintenance for SAGA Product outside
the Territory.
For the purpose of this Section 6.2, "Net Revenues" shall be computed as
follows:
Net Revenues = Amounts Invoiced
- External Distribution Charges
- Third Party Obligations
- Japan Adjustment
Where:
"Amounts Invoiced" are the gross amounts invoiced by a party or one of its
Distributors (and any additional amounts not invoiced but recognized as
revenue in accordance with the relevant entity's revenue recognition
policies) for the distribution of Licensed Products of the other party and
the provision of Maintenance for such Licensed Products to End Users (less
applicable interest income and all sales, use, VAT and other taxes), and
other revenues, such as amounts recovered by a party for infringement of
proprietary rights licensed to that party hereunder (less attorneys' fees and
other expenses incurred to recover such amounts).
"External Distribution Charges" are Distribution Charges for the distribution
of Licensed Products of the other Party or the enrollment of End Users for
Maintenance for such Licensed Products that are payable to or retained by a
third party that is not an Affiliate of a party.
"Third Party Obligations" are amounts due to a third party other than an
Affiliate of a party pursuant to an agreement for the acquisition, or for the
right to distribute the relevant Licensed Product. (The Originating Party
shall notify the Distributing Party when there are Third Party Obligations
for a Licensed Product, and the Distributing Party promptly shall remit such
amounts to the Originating Party for disbursement to the third party.)
"Japan Adjustment" equals 76% of the aggregate amounts owed or payable to a
party with respect to the distribution of Adabas C on Unix, Windows/NT and
VAX platforms, and the provision of Maintenance therefor, in Japan prior to
October 1, 2006. This adjustment is
12
<PAGE>
only applicable to the computation of Net Revenues owed by SAGA to SAG.
6.2.2. If SAGA facilitates an agreement with an OEM Partner for any
SAG Product within the Territory, SAG will pay SAGA 24% of SAG's revenues
from such agreement with respect to distribution of SAG Products and
provision of Maintenance for SAG Products within the Territory. If SAG
facilitates an agreement with an OEM Partner for the Construct Product
outside the Territory, SAGA will pay SAG 24% of SAGA's revenues from such
agreement with respect to distribution of the Construct Product and
provision of Maintenance for the Construct Product outside the Territory.
The provisions of this Section 6.2.2 are not intended to grant any rights
to either party to enter into any OEM Partner arrangements within or
outside of the Territory, nor are they intended to restrict any rights
otherwise granted or retained by either party with respect to the SAG
Products and SAGA Products, respectively, under Article 2 of this
Agreement. This Section 6.2.2 merely provides for the allocation of revenue
between SAG and SAGA with respect to an agreement with an OEM Partner that
may be entered into, consistent with the respective rights and obligations
of the parties under Article 2.
6.2.3. If during any year SAGA grants a higher discount for any
Additional SAG Products, Future SAG DBMS or Software Development Tools, the
Bolero Product or the Tamino Product than the average discount for the Core
SAG Products during that year, then SAGA shall pay to SAG royalties for the
Additional SAG Product, Future SAG DBMS or Software Development Tool, the
Bolero Product or the Tamino Product, calculated on the basis of the
average discount granted for the Core SAG Products in such year.
6.3. Each Distributing Party shall report to the Originating Party
all its relevant Amounts Invoiced, External Distribution Charges and Third Party
Obligations in detail within sixty (60) days after the end of the month in which
they occur, which report shall be substantially in the form that SAGA has
provided to SAG prior to the Effective Date. Within sixty days following the end
of each year, SAGA will furnish SAG with a report showing the average discounts
granted by SAGA for the Core SAG Products, Additional SAG Products, Future SAG
DBMS or Software Development Tools, the Bolero Product and the Tamino Product
during that year. Based upon each such report, the Originating Party may invoice
the Distributing Party for the applicable payment under Section 6.2.
6.4. From time to time, a Distributing Party may fail to collect
from an End User or Distributor amounts for which payments have been made under
Section 6.2, including, but not limited to, as a result of product problems,
warranty claims, bad debt or the cancellation or termination of an End User
Agreement (it being understood that amounts collected from an End User or
Distributor and then credited back to the End User or Distributor, such as when
an End User "trades in" a Licensed Product to obtain a different Licensed
Product, are not amounts that the Distributing Party has failed to collect from
the End User or Distributor). If such failure continues for one hundred and
twenty (120) days after such amounts accrue as Amounts Invoiced, the amounts
payable under this Agreement shall be adjusted to reflect such failure, and the
Distributing Party shall receive an appropriate credit for any Amounts Invoiced
with respect to which payment has not been received by the Distributing Party.
If the Distributing Party
13
<PAGE>
thereafter receives a payment for which it has received such a credit, such
payment shall be treated as Amounts Invoiced in the month in which payment is
received.
6.5. For the calendar years 1999 through and including 2005, SAGA
shall pay to SAG a minimum annual aggregate payment under this Agreement as
specified below:
<TABLE>
<CAPTION>
For each calendar year indicated below: The minimum royalty amount is:
- ---------------------------------------------------------------------------------
<S> <C>
1999 $ 21,000,000
- ---------------------------------------------------------------------------------
2000 $ 23,000,000
- ---------------------------------------------------------------------------------
2001 $ 23,000,000
- ---------------------------------------------------------------------------------
2002 $ 23,000,000
- ---------------------------------------------------------------------------------
2003 $ 21,000,000
- ---------------------------------------------------------------------------------
2004 $ 20,000,000
- ---------------------------------------------------------------------------------
2005 $ 17,000,000
- ---------------------------------------------------------------------------------
</TABLE>
provided that if SAG's Worldwide Revenues in any calendar year during the
Exclusivity Period are less than SAG's published 1998 Worldwide Revenues, then
such minimum annual aggregate payment shall be reduced proportionately for that
year and each subsequent year through the end of the Exclusivity Period. For
purposes of this Section 6.5, "Worldwide Revenues" for any year shall consist of
revenues derived during such year by SAG from the distribution of SAG Products
and Maintenance for SAG Products and shall be determined on a basis consistent
with past practice, except that such revenues shall be calculated based on the
currency exchange rates utilized to determine SAG's published 1998 Worldwide
Revenues. Should the amounts payable to SAG under Section 6.2 for any year be
less than the minimum annual aggregate payment under this Section 6.5 for such
year, SAG may invoice SAGA for the difference when SAG invoices SAGA for the
payment under Section 6.2 for December of such year.
6.6. All payments due to either party under this Agreement shall be
due thirty (30) days after the date of the applicable invoice, or if such due
date is a Saturday, Sunday or legal holiday observed by either party, the first
business day thereafter.
6.7. If any payment due hereunder is received after the date when
due, such payment will accrue interest at a rate equal to the currency-related
FIBOR rate available on the due date, plus three percent (3%).
7. Records, Reports and Audits
---------------------------
7.1. Each party shall prepare and maintain complete and accurate
books and records documenting its distribution of Licensed Products and
provision of Maintenance pursuant to this Agreement and its receipt of all fees
and other revenues related thereto. Each party shall maintain such books and
records for a minimum of three (3) years from the date of distribution of
Licensed Products or provision of Maintenance therefor, respectively.
14
<PAGE>
7.2. During the term of this Agreement and for one (1) year
thereafter, each party shall have the right, one time during each calendar year,
at its expense and upon reasonable notice, to examine or have examined by its
authorized representative, the other party's books and records relating to the
immediately preceding calendar year in order to determine or verify performance
under this Agreement, the amounts due hereunder and the accuracy of any reports
furnished hereunder.
8. Warranties and Limitation of Liability
--------------------------------------
8.1. Each party represents and warrants that it has the right to
enter into this Agreement and to grant the other party the rights granted
herein.
8.2. Each party, in its capacity as an Originating Party,
represents and warrants that its Licensed Products will conform with the related
Licensed Product documentation it provides. An Originating Party's sole
obligation with respect to any Licensed Product or documentation errors will be
to use its best efforts to correct, at its expense, any error about which it
receives written notice. The warranty and obligations of this Section 8.2 are
contingent upon proper use of a Licensed Product and shall not apply to the
extent that any failure is caused by (i) modification of a Licensed Product by
the other party or by any third party without prior written approval or (ii) use
of a Licensed Product in a hardware or software environment other than the
environment in which the Licensed Product is intended to be used, as described
in the Licensed Product's documentation at the time of such use.
8.3. Each Originating Party represents and warrants that its
Licensed Products do not contain any virus, Trojan horse, worm, or other
software designed to permit unauthorized access to, or improperly to modify,
delete, damage, deactivate or disable, any software, hardware, or data.
8.4. THE FOREGOING EXPRESS WARRANTIES ARE IN LIEU OF ANY AND ALL
OTHER WARRANTIES. EACH ORIGINATING PARTY, WITH RESPECT TO ITS LICENSED PRODUCTS,
DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.5. No party hereto shall be liable in any event for any damages
incurred by the other party or by any other person or entity as a result of any
misuse of any of the Licensed Products, even if such first party had been
advised of the possibility of such damages. The parties shall not be liable for
any consequential, special, or incidental damages, lost profits, or for any
claim or demand against them by any other person or entity, except as provided
in Article 9 with respect to claims for indemnification thereunder.
9. Indemnities
-----------
9.1. Subject to Section 9.4, the Originating Party shall defend,
indemnify and hold harmless the Distributing Party, its Affiliates and their
respective employees, agents,
15
<PAGE>
independent contractors, Distributors and End Users from and against any claims,
losses, damages, liabilities and costs, including, but not limited to,
reasonable attorneys' fees ("Claims") relating to or resulting from infringement
------
of any third party's patent, copyright or other proprietary rights by the
Originating Party's Products or the distribution or use thereof, except to the
extent that a Claim is based on modification of a Licensed Product without
authorization of the Originating Party. In the event an infringement is found,
the Originating Party shall use its best efforts promptly to obtain a license
for the continued distribution and use of the affected Licensed Products,
replace the affected Licensed Products with substantially equivalent
noninfringing Licensed Products or modify the affected Licensed Products so that
they are noninfringing.
9.2. Subject to Section 9.4, the Distributing Party shall defend,
indemnify and hold harmless the Originating Party, its Affiliates and their
respective employees and agents from and against any Claims relating to or
resulting from modification of the Originating Party's Product by the
Distributing Party.
9.3. Subject to Section 9.4, each party shall defend, indemnify and
hold harmless the other party, its Affiliates and their respective employees and
agents from and against any Claims relating to or resulting from (i) the
indemnitor's breach of this Agreement or an End User Agreement or (ii) the
negligence of the indemnitor, its Affiliates and their respective employees and
agents, including, but not limited to, Claims relating to or resulting from
inadequate installation of Licensed Products and inadequate Maintenance.
9.4. Each of the foregoing indemnities is subject to the following
conditions:
9.4.1. An indemnified person or entity promptly shall notify the
indemnifying party in writing of any Claim (provided that the failure of an
indemnified person or entity to provide prompt notice shall not relieve the
indemnifying party of its obligations under this Article 9, except to the
extent that the indemnifying party is actually prejudiced by such failure);
9.4.2. The indemnifying party shall have the right, if it so chooses,
to control and direct, at its expense and through counsel of its choosing,
the investigation and defense of any third party Claim, but may compromise
or settle the same only with the consent of the indemnified person or
entity, which consent shall not be unreasonably withheld. The indemnified
person or entity shall cooperate fully with the indemnifying party in the
defense of any such Claim.
9.5. Upon receipt of a notice of a Claim for indemnification, the
indemnifying party shall promptly pay to the indemnified person or entity the
amount of such Claim in accordance with and subject to the provisions of this
Article 9, provided, however, that no such payment shall be due during any
period in which the indemnifying party is contesting in good faith either its
obligation to make such indemnification or the amount of the Claim that is
payable.
10. Confidentiality
---------------
16
<PAGE>
10.1. For the purpose of this Article 10, the term "Confidential
------------
Information" means any information used in or relating to the business of one
- -----------
party or its Affiliates (collectively, the "Disclosing Party"), including, but
----------------
not limited to, the Disclosing Party's product plans, Technical Materials and
financial and customer information, that the Disclosing Party maintains in
confidence, and all tangible embodiments of such information, that is received
by the other party or its Affiliates (the "Receiving Party"), or to which the
---------------
Receiving Party has access, in any form; provided that "Confidential
------------
Information" does not include any information that the Receiving Party can
- -----------
demonstrate (i) is or becomes publicly known through no fault of the Receiving
Party; (ii) is developed independently by the Receiving Party; or (iii) is
rightfully obtained by the Receiving Party from a third party not obligated to
preserve its confidentiality who did not receive the material or information
directly or indirectly from the Disclosing Party.
10.2. A Receiving Party shall not use the Disclosing Party's
Confidential Information for any purpose other than in accordance with this
Agreement and shall not disclose Confidential Information to any person or
entity other than its employees and agents, and its independent contractors and
Distributors, which persons and entities have a need to know such Confidential
Information and each of which is subject to a nondisclosure obligation
comparable in scope to this Article 10.
10.3. Notwithstanding Section 10.2, a Receiving Party may disclose
Confidential Information to the extent required by a court or other governmental
authority, provided that (i) the Receiving Party gives the Disclosing Party
reasonable notice of the disclosure, (ii) the Receiving Party uses reasonable
efforts to resist disclosing the Confidential Information, and (iii) upon
request of the Disclosing Party, the Receiving Party cooperates with the
Disclosing Party to obtain a protective order or otherwise limit the disclosure.
10.4. The parties acknowledge that either party's breach of Section
10.2 would cause the other party irreparable injury for which it would not have
an adequate remedy at law. In the event of a breach, the non-breaching party
shall be entitled to injunctive relief in addition to any other remedies it may
have at law or in equity, without having to prove any actual damages sustained.
11. Certain Additional Matters
--------------------------
11.1. Except as prohibited by this Agreement, this Agreement is not
intended to restrict either party's right to engage in any business activity,
pursue investments in or acquisitions of companies, in whole or in part, in any
territory in the world.
11.2. During the term of this Agreement, before either party, in its
capacity as an Originating Party, or its Affiliates may assign, grant any
exclusive license with respect to, or otherwise transfer (each such act a
"Transfer"), proprietary rights with respect to one of its Licensed Products,
--------
within the geographic area in which the Distributing Party has a license to such
Licensed Products, the Distributing Party shall be offered the following rights
with respect to such Licensed Product:
17
<PAGE>
11.2.1. The Originating Party shall first deliver a written notice to
the Distributing Party stating (i) that the Originating Party desires to
make a Transfer of such proprietary rights, (ii) the nature of the proposed
Transfer and (iii) the price and other material terms of the proposed
Transfer. Such notice shall be accompanied by a certificate of the
Originating Party certifying that it has received from a third party a bona
fide offer to acquire such proprietary rights at such price and on such
terms as are set forth in the notice and shall identify such third party.
11.2.2. Within thirty (30) days after receipt of a notice as
described in Paragraph 11.2.1, the Distributing Party may elect, by
delivering to the Originating Party a written notice of its election, to
acquire the proprietary rights with respect to the Licensed Product on the
same terms and conditions specified in such notice. In the event that the
Distribution Party does so, the parties shall consummate the Transfer
within ninety (90) days after the date that the other party receives the
notice described in Paragraph 11.2.1.
11.2.3. To the extent the Distributing Party does not exercise its
rights under Paragraph 11.2.2 within the time period specified therein, the
Originating Party may Transfer such proprietary rights to the third party
specified in the notice described in Paragraph 11.2.1 at such price and on
such terms as are set forth in such notice, provided that (i) such Transfer
is consummated within one hundred twenty (120) days of the date of delivery
of such notice and (ii) prior to the Transfer, such third party agrees in
writing, in a form satisfactory to the Distributing Party and as a
condition of the Transfer, that such third party shall assume all of the
obligations of the Originating Party under this Agreement relevant to the
proprietary rights transferred and the Licensed Products embodying such
proprietary rights, and that such proprietary rights shall be subject to
the rights of the Distributing Party under this Agreement.
11.3. Unless the parties agree otherwise in writing, if any of SAG, SAGA
or SAGSI is subject to a Change of Control, the parties shall cooperate to
identify and document all of the then existing Licensed Products of SAG (in the
case of a Change of Control of SAG) or of SAGA (in the case of Change of Control
of either SAGA or SAGSI)as of the date of the Change of Control, including
Licensed Products at all stages of development, whether or not announced to the
public as available for distribution. Unless the parties agree otherwise in
writing, the party that is the subject of the Change of Control shall not
consummate the Change of Control or permit the Change of Control to be
consummated unless the successor of such party following the Change of Control
has agreed in writing (i) to be bound by all of the terms of this Agreement
relevant to such existing Licensed Products to the same extent as the party that
is the subject of the Change of Control, (ii) that all of the terms of this
Agreement relevant to such existing Licensed Products shall apply to future
Licensed Products of such successor derived in any material respect from such
Licensed Products, and (iii) that SAG, in the case of a Change of Control of
SAGA or SAGSI, and SAGA and SAGSI, in the case of a Change of Control of SAG,
are intended third party beneficiaries of such agreements required by clauses
(i) and (ii).
11.4. If SAGA or SAGSI is subject to a Change of Control, SAG will have
the right to sell any or all of its shares held in SAGSI to the person who
caused the Change of
18
<PAGE>
Control (the "Successor") at a price equal to the highest price at which
Successor purchased SAGSI shares in the transaction resulting in the Change of
Control.
11.5. In addition to the parties' rights and obligations under
Sections 11.2 and 12.2, during the term of this Agreement, before SAG decides to
stop further enhancement or support of Adabas C for the Unix, Windows/NT or VAX
platforms, SAG shall notify SAGA in writing of the extent to which SAG is
considering doing so. Within thirty (30) days after receipt of such a notice
(the "Election Period"), SAGA may elect, by delivering to SAG a written notice
of its election, to continue such enhancement and support to the extent that SAG
is considering stopping it. If SAGA makes such an election, then the parties
promptly shall negotiate in good faith an arrangement whereby (i) the Licensed
Products for which SAG is considering stopping further enhancement or support
shall become SAGA Products for all purposes under this Agreement at no charge to
SAGA, and (ii) after the parties' agreement to such an arrangement, SAGA shall
bear the costs of ongoing enhancement and Third Level Support of such Licensed
Products. The parties shall structure such an arrangement so that it does not
constitute "SAG decid[ing] to stop further enhancement and support" of such
Licensed Products within the meaning of paragraph 4 of the letter dated October
2, 1996 from Peter Schnell to Yoshioki Ishii. SAG shall not decide to stop
further enhancement or support of Adabas C for the Unix, Windows/NT or VAX
platforms unless such Election Period has expired without such an election by
SAGA.
11.6. For a period of two (2) years following the Effective Date,
neither party nor any of its Affiliates, subcontractors, agents or sublicensees
shall, directly or indirectly, solicit, hire or induce the termination from
employment with the other party of any person who was employed by the other
party or any Affiliate of such party or induce such person to accept employment
other than with the other party or an Affiliate of such party, except for the
employees designated as "Designated Employees" as provided in the Administrative
Services Agreement between SAG and SAGA, as identified on Schedule 2.
----------
12. Term, Termination and Remedies
------------------------------
12.1. This Agreement shall be perpetual from the Effective Date
unless terminated by the written agreement of the parties. Notwithstanding
either party's breach of this Agreement, this Agreement shall not be terminable
other than by the written agreement of the parties. In the event of a breach,
the non-breaching party shall be entitled to money damages, specific performance
or other remedies available at law or in equity, but not to termination or
rescission of this Agreement.
12.2. In the event that either party (the "Non-performing Party")
--------------------
(i) fails materially to fulfill itsobligation under Section 3.4 to provide Third
LevelSupport for its LicensedProducts to End Users of either party, and fails to
remedy that breach within thirty (30) days after receiving written notice of
such breach from the other party or (ii) becomes insolvent or enters into
bankruptcy, liquidation, dissolution or proceedings of a similar nature, then
the other party (the "Performing Party") may elect in writing to assume
----------------
responsibility for providing Third Level Support to all or any of its End Users
of all or any of the Non-performing Party's Licensed Products. To the extent
that the Performing Party makes such an election, it thereafter
19
<PAGE>
shall be excused from making any payment under Section 6.2 for the provision of
Maintenance for those Licensed Products to those End Users and for any
additional distributions of those Licensed Products and provision of Maintenance
therefor; the Non-performing Party thereafter shall be excused from any
obligations hereunder that are expressly assumed by the Performing Party.
Notwithstanding any assumption by the Performing Party of any responsibilities
hereunder, the Non-performing Party shall remain liable for any breach by it of
this Agreement. In the event that the Performing Party elects to assume
responsibility for providing Third Level Support with respect to any Licensed
Product of the Non-performing Party, the licenses granted by the Non-performing
Party to the Performing Party under Article 2 and Section 3.2 shall
automatically be expanded to include a perpetual, irrevocable (except by written
agreement of the parties), exclusive (except as provided in Article 2) license
to adapt such Licensed Product in Source Code form, including, but not limited
to, by developing modifications and enhancements to such Licensed Product.
13. Notices
-------
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, by
facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to SAG:
Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: President and CEO
Facsimile: 49-6151-921868
with a copy to:
Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: General Counsel
Facsimile: 49-6151-921600
20
<PAGE>
If to SAGA:
SAGA SOFTWARE, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: President and CEO
Facsimile: 703-391-6504
with a copy to:
SAGA SOFTWARE, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: General Counsel
Facsimile: 703-391-6980
All such deliveries shall be deemed effective when received by the person
entitled to such receipt or when delivery has been attempted but refused by such
person. Any party may change the person or address to which such deliveries
shall be made with respect to such party by delivering notice thereof to the
other party hereto in accordance with this Article 13.
14. Miscellaneous
-------------
14.1. This Agreement is confidential, and neither party shall
disclose it without the prior written consent of the other party to any third
party, other than its attorneys, consultants, accountants, auditors and others
to whom a party has a bona fide business reason for disclosing the Agreement;
provided that each party may disclose this Agreement as may be required by law
or to enforce the provisions hereof.
14.2. To the extent that either party has copyright or other
proprietary rights with respect to a Product identified in Exhibit B or C as
being a Product of the other party, such first party hereby irrevocably assigns
to such other party its entire right, title and interest in and to such
proprietary rights.
14.3. Each party shall take such actions, and sign such documents,
as reasonably may be requested by the other party to obtain, confirm, maintain
or enforce the rights granted in this Agreement.
14.4. A party receiving an exclusive license hereunder shall have
the exclusive right to enforce any proprietary rights so licensed, either within
the Territory (in the case of SAGA) or outside the Territory (in the case of
SAG). If reasonably required to do so, the licensee may join the licensor as a
plaintiff.
14.5. The parties shall use the English language in exchanging all
documents and other information exchanged between them.
21
<PAGE>
14.6. The provisions of this Agreement are severable, and the
unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.
14.7. The rights and remedies provided in this Agreement are, to the
extent permitted by law, cumulative and not exclusive of any other right or
remedy now or hereafter available at law or in equity. Neither asserting a right
nor employing a remedy shall preclude the concurrent assertion of any other
right or employment of any other remedy, nor shall the failure to assert, or the
delay in asserting, any right or remedy constitute a waiver of that right or
remedy.
14.8. The rights of the parties under this Agreement are unique, and
the failure of a party to perform its obligations hereunder would irreparably
harm the other party. Accordingly, the parties shall, in addition to such other
remedies as may be available at law or in equity, have the right to enforce
their rights hereunder by actions for specific performance to the extent
permitted by law.
14.9. Except as specifically provided in this Agreement, no party
may assign any of its rights or delegate its obligations hereunder without the
written consent of the other party; provided that (1) a party may assign all of
its rights and delegate all of its obligations under this Agreement to an
Affiliate of that party without the consent of the other party, but such
assignment will not relieve the assigning party of any of its financial
obligations hereunder (and, in the case of an assignment by SAGA to an
Affiliate, SAGSI will guarantee the financial obligations of the assignor
hereunder) and (2) in the event of a Change of Control of a party, such party
may assign all of its rights and delegate all of its obligations under this
Agreement to the successor of such party following the Change of Control, if
such successor agrees in a writing in which the other party is expressly
identified as an intended third party beneficiary to assume all of the
obligations of such party under this Agreement. Any purported assignment or
delegation in violation of this Section 14.9 shall be void. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives.
14.10. This Agreement may be modified or amended only by written
agreement of the parties.
14.11. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of Virginia
applicable to agreements made and entirely to be performed within such
jurisdiction. The party bringing any action under this Agreement shall only be
entitled to choose the federal or state courts in the Commonwealth of Virginia
as the venue for such action, and each party consents to the jurisdiction of the
court chosen in such manner for such action.
22
<PAGE>
14.12. This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
14.13. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all previous
agreements, written or oral, with respect to the subject matter hereof.
14.14. Each party will consult with the other party concerning their
respective initial press releases concerning the execution and contents of this
Agreement, and the parties will use good faith efforts to reach agreement
concerning such press releases.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
Software AG
By: /s/ Dr. Erwin Koenigs
---------------------------------------
Dr. Erwin Koenigs
Chairman of the Board
and
By: /s/ Volker Dawedeit
---------------------------------------
Volker Dawedeit
Board Member
SAGA SOFTWARE, Inc.
By: /s/ Daniel Gillis
----------------------------------------
Daniel Gillis
President and Chief
Executive Officer
SAGA SYSTEMS, Inc.
By: /s/ Daniel Gillis
----------------------------------------
Daniel Gillis
President and Chief
Executive Officer
[SAGA SYSTEMS, Inc. is made a party to this Agreement solely for
purposes of Sections 11.3, 11.4 and 14.9 hereof.]
24
<PAGE>
REVOLVING CREDIT LOAN AGREEMENT
executed by and between
SAGA SOFTWARE, INC.,
as the Borrower
and
THE CHASE MANHATTAN BANK,
as the Lender
[LOGO]
Dated: October 15, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE AND RECITALS................................................. 1
ARTICLE I
DEFINITIONS; RULES OF
---------------------
INTERPRETATION AND CONSTRUCTION; AND ACCOUNTING
-----------------------------------------------
Section 1.01 Definitions........................................... 2
Section 1.02 Rules of Interpretation and Construction.............. 20
Section 1.03 Accounting Principles................................. 21
ARTICLE II
AMOUNT AND TERMS OF THE REVOLVING CREDIT FACILITY
-------------------------------------------------
Section 2.01 Revolving Credit Facility............................. 22
Section 2.02 Interest on the Revolving Credit Facility............. 24
Section 2.03 Fees.................................................. 27
Section 2.04 Voluntary Prepayments................................. 27
Section 2.05 Payments.............................................. 28
Section 2.06 Special Provision Governing Eurodollar Rate Loans..... 29
Section 2.07 Increased Capital..................................... 33
Section 2.08 Authorized Officers of the Borrower................... 33
Section 2.09 Taxes................................................. 33
ARTICLE III
CONDITIONS TO THE REVOLVING CREDIT LOANS
----------------------------------------
Section 3.01 Conditions Precedent to the Effectiveness
of this Loan Agreement................................. 35
Section 3.02 Conditions Precedent to All Revolving Credit Loans..... 37
</TABLE>
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
<TABLE>
<S> <C>
Section 4.01 Representations and Warranties on the Closing Date..... 38
Section 4.02 Subsequent Funding Representations and Warranties...... 46
ARTICLE V
REPORTING COVENANTS
-------------------
Section 5.01 Statement of Accounting................................ 47
Section 5.02 Reporting and Information Requirements................. 47
Section 5.03 Environmental Notices.................................. 52
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
Section 6.01 Corporate Existence, etc............................... 53
Section 6.02 Corporate Powers, etc.................................. 53
Section 6.03 Compliance with Laws, etc.............................. 53
Section 6.04 Payment of Taxes and Claims............................ 53
Section 6.05 Maintenance of Properties; Insurance................... 54
Section 6.06 Inspection of Property; Books and Records; Discussion.. 54
Section 6.07 Litigation, Claims, etc................................ 54
Section 6.08 Labor Disputes......................................... 55
Section 6.09 Maintenance of Licenses, Permits, etc.................. 55
Section 6.10 Use of Proceeds........................................ 55
Section 6.11 Continuation of or Change in Business.................. 55
Section 6.12 Additional Guarantors; Additional Pledge of Stock
Agreements............................................. 55
Section 6.13 Year 2000.............................................. 56
Section 6.14 Year 2000 Compliance................................... 56
ARTICLE VII
NEGATIVE COVENANTS
------------------
Section 7.01 Consolidated Debt...................................... 57
Section 7.02 Sale of Assets; Additional Liens....................... 57
Section 7.03 Loans, Advances and Investments........................ 58
Section 7.04 Transactions with Shareholders, Subsidiaries and
Affiliates............................................. 59
Section 7.05 Restriction on Fundamental Changes; Mergers and
Acquisitions........................................... 59
Section 7.06 ERISA.................................................. 59
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.07 Amendment of Corporate Documents....................... 60
Section 7.08 Margin Regulations..................................... 61
Section 7.09 Cancellation of Consolidated Debt; Prepayment.......... 61
Section 7.10 Environmental Liabilities.............................. 61
Section 7.11 Fiscal Year............................................ 61
Section 7.12 Guaranties............................................. 61
Section 7.13 No Negative Pledges to Other Persons................... 62
Section 7.14 No Borrowing Under the CBL Credit Facility............. 62
ARTICLE VIII
FINANCIAL COVENANTS
-------------------
Section 8.01 Minimum Consolidated Current Ratio..................... 63
Section 8.02 Maximum Consolidated Cash Flow Leverage Ratio.......... 63
Section 8.03 No Net Consolidated Loss............................... 63
ARTICLE IX
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
--------------------------------------
Section 9.01 Events of Default...................................... 64
Section 9.02 Rights and Remedies.................................... 65
Section 9.03 Application of Proceeds................................ 66
Section 9.04 No Notices............................................. 66
Section 9.05 Agreement to Pay Attorneys' Fees and Expenses.......... 67
Section 9.06 No Additional Waiver Implied by One Waiver............. 67
Section 9.07 Failure to Exercise Rights............................. 67
Section 9.08 Waiver of Jury Trial................................... 67
Section 9.09 Remedies Cumulative.................................... 67
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01 Expenses............................................... 69
Section 10.02 Indemnity.............................................. 69
Section 10.03 Amendments and Waivers................................. 70
Section 10.04 Independence of Covenants.............................. 70
Section 10.05 Notices................................................ 70
Section 10.06 Survival of Warranties and Agreements.................. 70
Section 10.07 Marshaling; Payments Set Aside......................... 71
Section 10.08 Severability........................................... 71
</TABLE>
iii
<PAGE>
REVOLVING CREDIT LOAN AGREEMENT
-------------------------------
THIS REVOLVING CREDIT LOAN AGREEMENT (hereinafter as it may be from time to
time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as this "Loan Agreement"), is made this 15th day of October, 1999,
by and between
SAGA SOFTWARE, INC., a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia, having its
principal office located at 11190 Sunrise Valley Drive, Reston, Virginia 20191
(hereinafter referred to as the "Borrower"),
AND
THE CHASE MANHATTAN BANK, a state banking institution duly organized and
validly existing under the laws of the State of New York, having an office
located at One Riverfront Plaza, 2/nd/ Floor, Newark, New Jersey 07102
(hereinafter referred to as the "Lender").
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower has requested that the Lender make available to the
Borrower an unsecured recourse revolving credit loan in the aggregate principal
amount of up to Twenty-Five Million and 00/100 ($25,000,000.00) Dollars for the
general corporate purposes of the Borrower, including the financing of Permitted
Acquisitions but expressly excluding the Stock Repurchase Program (hereinafter
---------
referred to as the "Revolving Credit Facility"); and
WHEREAS, the Lender has agreed to make the Revolving Credit Facility
available to the Borrower, subject to the terms, conditions and provisions
hereinafter set forth; and
NOW, THEREFORE, in consideration of these premises and the mutual
representations, covenants and agreements of the Borrower and the Lender, each
party, binding itself and its respective successors and/or assigns, does hereby
promise, covenant and agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION AND
CONSTRUCTION; AND ACCOUNTING
----------------------------
Section 1.01 Definitions. The following terms, as used in this Loan
-----------
Agreement, shall have the following meanings, unless the context expressly
indicates and requires otherwise:
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Rate Loan
------------------
for any Eurodollar Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next highest 1/16 of 1%) equal to (i) the LIBO Rate for
such Eurodollar Interest Period multiplied by (ii) the Statutory Reserve Rate.
---------- --
"Affiliate" shall mean, with respect to a specified Person, another Person
---------
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with the Person specified. For the
purposes of the preceding sentence, "controls" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise, and in any case shall include direct or indirect
ownership (beneficially or of record) of, or direct or indirect power to vote,
more than fifty percent (50%) of the outstanding shares of any class of capital
stock of such Person (or in the case of a Person that is not a corporation, more
than fifty percent (50%) of any class of equity interest).
"Agreement of Guaranty" shall mean that certain Agreement of Guaranty, of
---------------------
even date hereof, executed by the Guarantors in favor of the Lender, pursuant to
which the Guarantors have agreed to unconditionally guaranty, on a joint and
--------------
several basis, the full, prompt and complete payment and performance of all of
- -------------
the Borrower's liabilities, duties, covenants and obligations under this Loan
Agreement, the Revolving Credit Loan Note and the other Loan Documents. The
term "Agreement of Guaranty" shall also be deemed to mean and refer to any and
all amendments, modifications, extensions, renewals, refinancings and/or
supplements to said Agreement of Guaranty made and/or entered into subsequent to
the Closing Date, including, without limitation, all amendments which are
consummated for the purposes of adding any new and/or additional Persons as
guarantors, all as provided for in Section 6.12 of this Loan Agreement.
------------
"Applicable Margin" shall have the meaning ascribed and assigned to such
-----------------
term in Section 2.02(i)(b) of this Loan Agreement.
------------------
"Authorized Officer" shall mean those officers of the Borrower, whose
------------------
signatures and incumbency shall have been certified to the Lender pursuant to an
Officer's Certificate delivered to the Lender on the Closing Date or any other
form of resolution or certification delivered to and approved by the Lender
after the Closing Date.
"Bankruptcy Code" shall mean a collective reference to any and all of the
---------------
following, as they may be applicable in the given context: (i) with respect to
Persons located, chartered,
2
<PAGE>
formed or otherwise domiciled in the Unites States, Title 11 of the United
States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as amended and/or
modified from time to time, or any successor statute thereto; (ii) with respect
to Persons located, chartered, formed or otherwise domiciled in Canada, the
Bankruptcy and Insolvency Act (Canada) as amended from time to time, or any
successor statute; and (iii) with respect to any Persons located, chartered,
formed or otherwise domiciled elsewhere, the Laws of the applicable country.
"Base Rate" or "Base Lending Rate" shall mean the fluctuating interest
--------- -----------------
rate per annum publicly announced by the Lender from time to time as its Prime
Rate, which interest rate may not necessarily be the rate actually charged by
the Lender to its most creditworthy customers.
"Base Rate Loan" or "Base Rate Loans" shall mean all Revolving Credit
-------------- ---------------
Loans outstanding which bear interest at a rate determined by a reference to the
Base Rate or to the Base Lending Rate.
"Benefit Plan" shall mean a defined benefit plan as defined in Section 3
------------
(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower, any of the Guarantors, their respective Subsidiaries and/or Affiliates
or an ERISA Affiliate is, or within the immediately preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.
"Big Five Accounting Firm" shall mean any of Arthur Andersen & Co., KPMG
-------------------------
Peat Marwick, Ernst & Young LLP, Deloitte & Touche and Pricewaterhouse Coopers
or any of their respective successors.
"Borrower" shall have the meaning ascribed and assigned to such term as set
--------
forth in the preamble of this Loan Agreement.
"Borrowing" shall mean a borrowing consisting of a Revolving Credit Loan
---------
or Revolving Credit Loans made by the Lender to the Borrower on the same day.
"Business Day" shall mean (i) for all purposes other than as covered by
------------
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
- -----------
legal holiday under the laws of the State of New York, the State of New Jersey
and/or the Commonwealth of Virginia, or is a day upon which banking institutions
located in New York City, New York are required or authorized by law or other
Governmental Action to remain closed and (ii) with respect to all notices,
determinations, fundings and payments in connection with a Eurodollar Rate Loan,
any day which is a Business Day as described and defined in clause (i) above,
----------
and which is also a day for trading by and between banks in the London interbank
eurodollar market.
"CBL Credit Facility" shall mean a collective reference to (i) that
-------------------
certain credit facility which may be entered into by and between Saga Systems
and Credit Bancorp Limited pursuant to the terms of which Saga Systems expects
to earn a 3% to 4% "dividend" on its treasury stock and (ii) any substitute,
successor and/or similar type of facility.
"Capitalized Lease" and "Capitalized Leases" shall mean at any time any
----------------- ------------------
lease which is, or is required under Generally Accepted Accounting Principles to
be, capitalized on the balance sheet of the lessee at such time.
3
<PAGE>
"Capitalized Lease Obligations" of any Person, shall mean all obligations
-----------------------------
of such Person to pay rent or other amounts under any lease (or similar
arrangement conveying the right to use) for real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as Capitalized Leases, in accordance with Generally Accepted
Accounting Principles, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with Generally Accepted
Accounting Principles.
"Cash and Cash Equivalents" shall mean all (i) cash and cash equivalents
-------------------------
and (ii) any of the following: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by an
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year after the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one (1) year after the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from any two (2) of Standard & Poor's Corporation,
Moody's Investors Service, Inc., Duff and Phelps or Fitch Investors (or, if at
any time no two of the foregoing shall be rating such obligations, then from
such other nationally recognized rating services as may be acceptable to the
Lender) and not listed for possible down-grade in Credit Watch published by
Standard & Poor's Corporation; (c) commercial paper of a corporation having a
net worth of not less than $500,000,000.00, other than commercial paper issued
by the Borrower, any of the Guarantors, their respective Subsidiaries and/or
Affiliates, maturing no more than ninety (90) days after the date of creation
thereof and, at the time of acquisition, having a rating of at least A-2 or P-2
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.;
(d) domestic certificates of deposit or domestic time deposits or repurchase
agreements maturing within one (1) year after the date of acquisition thereof
issued by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having combined capital
and surplus of not less than $1,000,000,000.00, which commercial bank has a
rating of at least A-2 or P-2 from either Standard & Poor's Corporation or
Moody's Investors Service, Inc.; (e) any funds deposited or invested by the
Borrower, any of the Guarantors, their respective Subsidiaries and/or
Affiliates, in accounts maintained with the Lender; (f) money market funds
having assets in excess of $2,000,000,000.00; and (g) any and all instruments,
securities and/or other investments permitted by the investment policy of the
Borrower, the Guarantors, their Subsidiaries and Affiliates, as adopted and
approved by the board of directors and/or the chief financial officer of Saga
Systems as more fully described and set forth on Schedule 1.01-A, as it may be
---------------
from time to time amended and/or modified.
"CERCLIS" shall mean the Comprehensive Environmental Response,
-------
Compensation and Liability Information System List, as the same may be amended
from time to time.
"Claim" or "Claims" shall mean any claim or demand, by any Person, of
----- ------
whatsoever kind or nature for any alleged Liabilities and Costs, whether based
in contract, tort, implied or express warranty, strict liability, criminal or
civil statute, permit, ordinance or regulation, common law or otherwise.
"Closing Date" shall mean the date upon which this Loan Agreement is
------------
executed by the
4
<PAGE>
Lender and the Borrower and the conditions set forth in Section 3.01 of this
------------
Loan Agreement have been completed and fulfilled to the satisfaction of the
Lender in its sole and absolute discretion.
"Code" means the Internal Revenue Code of 1986, as amended, any successor
----
statute of similar import, and regulations thereunder, in each case as in effect
from time to time. References to sections of the Code shall be construed also
to refer to any successor sections.
"Commitment" shall mean, at any particular time during the term of the
----------
Revolving Credit Facility, the principal amount of the Revolving Credit Facility
which the Lender has committed to make available to the Borrower, as said
principal amount may be permanently reduced by the Borrower pursuant to Section
-------
2.01(v) of this Loan Agreement. As of the Closing Date, the initial amount of
- -------
the Commitment is $25,000,000.00.
"Consolidated Cash Flow Leverage Ratio" shall mean with respect to the
-------------------------------------
Borrower, the Guarantors, their respective Subsidiaries and Affiliates, on a
consolidated basis, as of any date of determination thereof, the ratio of (i)
Consolidated Funded Debt, as of such date of determination, -to- (ii) for the
period of four (4) consecutive Fiscal Quarters immediately preceding said date
of determination taken together as one accounting period, Consolidated EBITDA
for the same period, calculated in accordance with Generally Accepted Accounting
Principles.
"Consolidated Current Assets" shall mean, as at any date of determination,
---------------------------
all assets which, in accordance with Generally Accepted Accounting Principles,
would be classified on a consolidated balance sheet of the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates as current assets.
"Consolidated Current Liabilities" shall mean, as at any date of
--------------------------------
determination, all liabilities which, in accordance with Generally Accepted
Accounting Principles, would be classified on a consolidated balance sheet of
the Borrower, the Guarantors, their respective Subsidiaries and Affiliates as
current liabilities.
"Consolidated Debt" shall mean, with respect to the Borrower, the
-----------------
Guarantors, their respective Subsidiaries and/or Affiliates, the aggregate sum
of the following items as such items may appear on a consolidated balance sheet
of the Borrower, the Guarantors, their respective Subsidiaries and Affiliates:
(i) the unpaid principal balance of all indebtedness or liability for money
borrowed or owed by the Borrower, the Guarantors, their respective Subsidiaries
and Affiliates from time to time (including any renewals, extensions and
refundings thereof), whether or not the indebtedness was heretofore or hereafter
created, issued, incurred, assumed or guarantied, as determined in accordance
with Generally Accepted Accounting Principles; (ii) the unpaid principal balance
of all indebtedness or liability for the deferred purchase price of property or
services incurred (including trade obligations); (iii) all obligations as lessee
under leases which have been or should be, in accordance with Generally Accepted
Accounting Principles, recorded as Capitalized Lease Obligations, (iv) all
current Obligations in respect of any unfunded vested benefits under any Plan
covered by Title IV of ERISA; (v) all obligations, contingent or otherwise
relative to the face amount of all letters of credit issued for the Borrower's,
the Guarantors', their respective Subsidiaries' and/or Affiliates' account,
whether or not drawn; (vi) all obligations arising
5
<PAGE>
under bankers' acceptance facilities issued for the account of the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates; (vii) all
guarantees, endorsements and other contingent obligations to purchase, to
provide funds for payments, to supply funds to invest in the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates or otherwise to
assure a creditor against loss; and (viii) all obligations secured by any
mortgage, lien, pledge, or security interest or other charge or encumbrance on
property, whether or not the obligations have been assumed.
"Consolidated EBITDA" shall mean with respect to the Borrower, the
-------------------
Guarantors, their respective Subsidiaries and Affiliates, as of any date of
determination thereof, for the period of four (4) consecutive Fiscal Quarters
immediately preceding said date of determination taken together as one
accounting period, the amount equal to the sum of (i) Consolidated Net Income
for such test period, plus (ii) all gross interest expense on Consolidated Debt
----
of the Borrower, the Guarantors, their respective Subsidiaries and Affiliates,
for such test period, plus (iii) all charges against income of the Borrower, the
----
Guarantors, their respective Subsidiaries and Affiliates for foreign, federal,
state and local taxes for such test period, plus (iv) all depreciation expense
----
for such test period, plus (v) all amortization expense for such test period,
----
all as determined in accordance with Generally Accepted Accounting Principles.
"Consolidated Funded Debt" shall mean, as of any date of determination
------------------------
thereof, all items which in accordance with Generally Accepted Accounting
Principles would be Consolidated Debt exclusive of (i) those items described in
------------
clause (iv), (v) and (vii) of the definition of Consolidated Debt and (ii) trade
- --------------------------
obligations.
"Consolidated Net Income" shall mean with respect to the Borrower, the
-----------------------
Guarantors, their respective Subsidiaries and Affiliates, as of any date of
determination thereof, an amount equal to all amounts which, in accordance with
Generally Accepted Accounting Principles, would be included under net income on
a consolidated income statement of the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates for such test period.
"Contractual Obligation" shall mean with respect to any Person, any
----------------------
provision of any Securities issued by said Person or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement or
instrument to which said Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject
(including, without limitation, any restrictive covenant affecting said Person
or any of its properties).
6
<PAGE>
"Corporate Guarantors" shall mean a collective reference to (i) SAGA
--------------------
SYSTEMS, Inc., a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having its principal office
located at 11190 Sunrise Valley Drive, Reston, Virginia 20191 (hereinafter
referred to as "Saga Systems"); (ii) SAGA SOFTWARE International, Inc., a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, having its principal office located at 11190 Sunrise
Valley Drive, Reston, Virginia 20191; (iii) SAGA SOFTWARE Technologies, Inc., a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, having its principal office located at 103 Foulk Road,
Suite 205-12, Wilmington, Delaware 19803; (iv) BLUE LOBSTER SOFTWARE, Inc., a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, having its principal office located at 11190 Sunrise
Valley Drive, Reston, Virginia 20191 (hereinafter referred to as "Blue
Lobster"); (v) SOFTWARE AG PROFESSIONAL SERVICES, Inc., a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, having its principal office located at 11190 Sunrise
Valley Drive, Reston, Virginia 20191; (vi) any new or additional (a) domestic
Subsidiaries and/or Affiliates of the Borrower or any of the Guarantors or (b)
foreign Subsidiaries and/or Affiliates of the Borrower or any of the Guarantors
which are not "controlled foreign corporations" (as such term is defined in
Section 957 of the Code), all whether existing now or in the future, made a
guarantor pursuant to Section 6.12 hereof.
------------
"Customary Permitted Liens" shall mean
-------------------------
(i) Liens (other than Environmental Liens and any Lien imposed under
ERISA) for taxes, assessments or charges of any Governmental Authority or claims
not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with Generally Accepted Accounting
Principles;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than any Lien
imposed under ERISA) imposed by Law, including, without limitation, Liens in
favor of any Governmental Authority securing progress payments made under
government contracts created in the ordinary course of business and for amounts
not yet due or which are being contested in good faith by appropriate
proceedings which are sufficient to prevent imminent foreclosure of such Liens,
are promptly instituted and diligently conducted and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with Generally Accepted Accounting Principles;
(iii) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including, without limitation,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts, statutory obligations and
other similar obligations or arising as a result of progress payments or
deposits under government contracts (including foreign government contracts);
(iv) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the
7
<PAGE>
use of real property or impairing the use thereof;
(v) Liens arising out of and with respect to customer deposits made
in the ordinary course of the Borrower's, any Guarantor's, their respective
Subsidiaries' and/or Affiliates' respective businesses;
(vi) Liens arising as a result of the filing of any financing
statement under any applicable state uniform commercial code or other comparable
Law of any jurisdiction covering consigned or leased goods which do not
constitute assets of the Borrower, any of the Guarantors or any of their
respective Subsidiaries and/or Affiliates and which Lien is not intended as
security; and
(vii) extensions, renewals or replacements of any Lien referred to in
clauses (i) through (vi) above, provided that, in the case of clauses (i)
- ------------------------ -----------
through (vi) above, (a) the principal amount of the obligation secured thereby
- ------------
is not increased and (b) any such extension, renewal or replacement is limited
to the property originally encumbered thereby;
provided, however, to the extent that the amount of obligations of the Borrower,
- -------- -------
such Guarantor, such Subsidiary or such Affiliate arising from Claims being
contested in good faith secured by such Liens in clauses (i) and (ii) above
--------------------
exceeds $1,000,000.00 in the aggregate, the Borrower, such Guarantor, such
Subsidiary or such Affiliate shall have set aside full cash reserves in an
amount equal to twenty-five percent (25%) of the amount of such obligations.
"Default Rate" shall mean a rate of interest equal to two hundred basis
------------
points (2.0%) above the applicable nondefault interest rate(s) then in effect
with respect to any outstanding Revolving Credit Loan or Revolving Credit Loans.
"DOL" shall mean the United States Department of Labor and any successor
---
department or agency thereto.
"Dollar", "Dollars" and the symbol "$" shall mean lawful money of the
------ ------- -
United States of America.
"Environment" shall mean all air, surface water, water, vapor,
-----------
groundwater, drinking water supply or land, including land surface or
subsurface, and includes all fish, wildlife, biota and all other natural
resources.
"Environmental Approval" and "Environmental Approvals" shall mean any
---------------------- -----------------------
Governmental Action pursuant to or required under any Environmental Law.
"Environmental Claim" shall mean, with respect to any Person, any action,
-------------------
suit, proceeding, investigation, notice, claim, complaint or demand, made by any
other Person (including but not limited to, any Governmental Authority,
citizens' group or present or former employee of such first Person) alleging,
asserting or claiming any actual or potential (i) violation of any Environmental
Law, (ii) liability under any Environmental Law or (iii) liability for
investigatory costs, cleanup costs, governmental response costs, damages to the
Environment, property damages, personal injuries, fines or penalties arising out
of, based on or resulting from the presence, or release into the Environment, of
any Environmental Concern Materials at any location, whether or not owned by
8
<PAGE>
such Person; provided, however, in no event shall any voluntary action,
-------- ------- ---------
proceeding or investigation made or brought by the Borrower, the Guarantors,
their respective Subsidiaries and/or Affiliates from time to time in connection
with their own activities or inactivities be included in this definition.
"Environmental Cleanup Site" shall mean any location whether located in the
--------------------------
United States or elsewhere which is listed or proposed for listing on the
National Priorities List, on CERCLIS or on any similar state list of sites
requiring investigation or cleanup, or which is the subject of any pending or
threatened action, suit, proceeding or investigation related to or arising from
any alleged violation of any Environmental Law.
"Environmental Concern Materials" shall mean (i) any flammable substance,
-------------------------------
explosive, radioactive material, hazardous material, hazardous waste, toxic
substance, solid waste, pollution, contaminate or any related material, raw
material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in any Environmental Law), (ii)
any toxic chemical or other substance from or related to industrial, commercial
or institutional activities, (iii) asbestos, gasoline, diesel fuel, motor oil,
waste and used oil, heating oil and other petroleum products or compounds,
polychlorinated biphenyls, radon gas and urea-formaldehyde and (iv) all other
substances or waste of any nature regulated pursuant to any Environmental Law.
"Environmental Law" and "Environmental Laws" shall mean any Law, whether
----------------- ------------------
now existing or subsequently enacted or amended, relating to (i) pollution or
protection of the Environment, (ii) exposure of Persons, including but not
limited to employees, to Environmental Concern Materials, (iii) protection of
the public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern Materials or (iv)
regulation of the manufacture, generation, use or introduction into commerce of
Environmental Concern Materials including their manufacture, formulation,
packaging, labeling, distribution, treatment, transportation, handling, storage
or disposal. Without limitation, "Environmental Law" shall include (a) any
Environmental Approval and the terms and conditions thereof, (b) any and all
federal, state or local Laws including, without limitation, the following
statutes: the Clean Air Act (42 U.S.C. 7401 et seq.); the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. (S)9601
et seq.); the Federal Water Pollution Control Act (33 U.S.C. (S)1251 et seq.);
the Hazardous Material Transportation Act (49 U.S.C. (S)1801 et seq.); the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et seq.);
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. (S)6901 et seq.)
(including the Hazardous and Solid Waste Amendments of 1984), the Toxic
Substance Control Act (15 U.S.C. (S) 2601 et seq.); the Federal Occupational
Safety & Health Act of 1970 (29 U.S.C. (S)651 et seq.) (including (S)3101 of the
Omnibus Reconciliation Act of 1990), and the regulations promulgated thereunder
and all as amended from time to time; and (c) any common law doctrine
(including, without limitation, injunctive relief and tort, such as negligence,
nuisance, trespass and strict liability) that may impose obligations or
liabilities for personal injury or property damage due to, or threatened as a
result of, the presence of or exposure to Environmental Concern Materials.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i)
9
<PAGE>
any liability under any Environmental Laws or (ii) damages arising from, or
costs incurred by such Governmental Authority in response to, a Release or
threatened Release of any Environmental Concern Materials into the Environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute of similar import, together
with the regulations promulgated thereunder by the United States Treasury
Department, the DOL and/or the PBGC.
"ERISA Affiliate" shall mean each trade or business (whether or not
---------------
incorporated) which together with any of the Borrower and/or the Guarantors, is
treated as a "single employer" under Section 414(b) and (c) of the Code or,
solely for purposes of Section 302 of ERISA and Section 412 of the Code, is
treated as a "single employer" under Section 414 of the Code.
"Eurodollar Affiliate" shall mean with respect to the Lender, the
--------------------
Affiliate of the Lender, if any, set forth on Exhibit "A" attached hereto and
----------
made a part hereof.
"Eurodollar Interest Payment Date" shall mean, with respect to any
--------------------------------
Eurodollar Rate Loan, the last day of each Eurodollar Interest Period applicable
to such Loan.
"Eurodollar Interest Period" shall mean one or more periods of time during
--------------------------
which the Borrower may select, convert to or continue a Eurodollar Rate Loan,
such funding period with respect to the Revolving Credit Facility, to be either
a one (1), two (2) or three (3) month period(s), subject to availability, all as
more fully subject to the provisions of Section 2.06 of this Loan Agreement.
------------
"Eurodollar Interest Rate Determination Date" shall mean the date on which
-------------------------------------------
the Lender determines the Adjusted LIBO Rate applicable to (i) a Borrowing or
(ii) the continuation or conversion of Eurodollar Rate Loans. The Eurodollar
Interest Rate Determination Date shall be the second Business Day prior to the
first day of the Eurodollar Interest Period applicable to such Borrowing,
continuation or conversion.
"Eurodollar Portion" of any Revolving Credit Loans shall mean at any time
------------------
the portion, including the whole, of such Revolving Credit Loans bearing
interest at any time under the Adjusted LIBO Rate.
"Eurodollar Rate Loan" or "Eurodollar Rate Loans" shall mean those
-------------------- ---------------------
Revolving Credit Loans outstanding which bear interest at a rate determined by
reference to the Adjusted LIBO Rate, as provided for in Sections 2.02(i) and
----------------
2.06 of this Loan Agreement.
- ----
"Eurodollar Rate Option" shall mean one of the interest rates available to
----------------------
the Borrower as provided for and described in Section 2.02(i)(a)(1) of this Loan
---------------------
Agreement.
"Eurodollar Rate Taxes" shall have the meaning ascribed to such term in
---------------------
Section 2.06(vii)(a) of this Loan Agreement.
- --------------------
"Event of Default" or "Events of Default" shall mean any of the events of
---------------- -----------------
default as
10
<PAGE>
defined and described in Section 9.01 of this Loan Agreement.
------------
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
----
successor thereto.
"Facility Fee" shall mean that certain facility fee in the amount of
------------
$62,500.00 paid by the Borrower to the Lender as of the Closing Date.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
---------------------
Reserve System or any governmental authority succeeding to its functions.
"Fiscal Quarter" shall mean the following three month periods of each
--------------
Fiscal Year:
January 1 - March 31
April 1 - June 30
July 1 - September 30
October 1 - December 31
"Fiscal Year" shall mean that period commencing on January 1 and ending on
-----------
December 31 of the next succeeding year or such other period as the Borrower
and/or the Guarantors may designate and the Lender may approve in writing.
"Funding Date" shall mean, with respect to any Revolving Credit Loan, the
------------
date of the funding of such Revolving Credit Loan by the Lender.
"Funding Segment" shall mean with respect to an Eurodollar Rate Loan, the
---------------
entire principal amount of such Eurodollar Portion to which at the time in
question there is applicable a particular Eurodollar Interest Period beginning
on a particular day and ending on a particular day. (By definition, each such
Eurodollar Portion is at all times composed of an integral number of discrete
Funding Segments and the sum of the principal amounts of all Funding Segments of
any such Eurodollar Portion at any time equals the principal amount of such
Eurodollar Portion at such time.)
"Generally Accepted Accounting Principles" shall mean generally accepted
----------------------------------------
accounting principles, consistently applied, in the United States of America, as
in effect from time to time, as developed, modified and set forth in the
opinions and pronouncements of the Accounting Principles Board, the American
Institute of Certified Public Accountants and the Financial Accounting Standards
Board, or in such other statements by such other Person as may be in general use
by significant segments of the accounting profession, which are applicable to
the circumstances as of the date of determination, subject to the terms of
Section 1.03 of this Loan Agreement.
- ------------
"Governmental Action" or "Governmental Approvals" shall mean any approval,
------------------- ----------------------
order, consent, authorization, certificate, license, permit or validation of, or
exemption or other action by, or filing, recording or registration with or
notice to, any Governmental Authority.
"Governmental Authority" shall mean the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, or any agency,
authority, bureau, central
11
<PAGE>
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Guarantors" shall mean a collective reference to (i) the Corporate
----------
Guarantors and (ii) the Limited Liability Company Guarantor.
"Indemnified Matters" shall have the meaning ascribed and assigned to such
-------------------
term in Section 10.02 hereof.
-------------
"Indemnified Party" and "Indemnified Parties" shall mean the Lender and
----------------- -------------------
the directors, officers, trustees, employees, agents, attorneys and controlling
shareholders of the Lender.
"Independent Certified Public Accountant" shall mean KPMG Peat Marwick and
---------------------------------------
any other independent certified public accounting firm selected by the Borrower
which accounting firm is satisfactory to the Lender including, without
limitation, any one of the Big Five Accounting Firms.
"IRS" shall mean the Internal Revenue Service and any Person succeeding to
---
the functions thereof.
"Law" or "Laws" shall mean any law (including common law), constitution,
--- ----
statute, treaty, convention, regulation, rule, ordinance, code, order,
injunction, writ, decree or award of any Governmental Authority.
"Lender" shall have the meaning ascribed and assigned to such term as set
------
forth in the preamble hereof.
"Liabilities and Costs" shall mean all liabilities, obligations,
---------------------
responsibilities, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including, without limitation, attorneys',
experts' and consulting fees and costs of investigation and feasibility
studies), fines, penalties and monetary sanctions, interest, direct or indirect,
known or unknown, absolute or contingent, past, present or future.
"LIBO Rate" shall mean, with respect to any Eurodollar Rate Loan for any
---------
Eurodollar Interest Period, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such service, or any
successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as
determined by the Lender from time to time for purposes of providing quotations
of interest rates applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, three (3) Business Days prior to the
commencement of such Eurodollar Interest Period, as the rate for dollar deposits
with a maturity comparable to such Eurodollar Interest Period. In the event
that such rate is not available at such time for any reason, then the "LIBO
----
Rate" with respect to such Eurodollar Rate Loan for such Eurodollar Interest
- ----
Period shall be the rate rounded upwards, if necessary, to the next highest 1/16
of 1% at which a dollar deposit of $5,000,000.00 and for a maturity comparable
to such Eurodollar Interest Period is offered by the principal London office of
the Lender in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, three (3) Business Days prior to the
commencement of
12
<PAGE>
such Eurodollar Interest Period.
"Lien" and "Liens" shall mean with respect to any asset, any mortgage,
---- -----
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other) or preference, priority, security
interest or other security agreement of any kind or nature whatsoever (including
any conditional sale or other title retention agreement, any financing lease
involving substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
"Limited Liability Company Guarantor" shall mean a reference to SAGA
-----------------------------------
SOFTWARE Atlantic, L.L.C., a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Delaware, having
its principal office located at P.O. Box HM 38, Hamilton, HMFX Bermuda.
"Loan Account" shall have the meaning ascribed and assigned to such term
------------
in Section 2.05(iv) hereof.
----------------
"Loan Agreement" shall have the meaning ascribed and assigned to such term
--------------
as set forth in the preamble of this Loan Agreement.
"Loan Documents" shall mean any and all agreements, documents,
--------------
certificates and instruments executed by the Borrower, any of the Guarantors
and/or any other Person and delivered by them to the Lender pursuant to and in
connection with the Revolving Credit Facility, including, without limitation,
this Loan Agreement, the Revolving Credit Loan Note, the Pledge of Stock
Agreements and the Agreement of Guaranty, in each case as amended, modified,
extended, restated, refinanced and/or supplemented from time to time in
accordance with the provisions hereof or thereof.
"Margin Stock" shall have the meaning ascribed and assigned to such term
------------
in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect upon (i)
-----------------------
the business, assets, condition (financial or otherwise), performance,
properties or operations of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates taken as a whole, (ii) the ability of the Borrower
and/or any of the Guarantors to perform their respective obligations and duties
under the Loan Documents or (iii) the rights of or benefits available to the
Lender under the Loan Documents. The phrase "has a Material Adverse Effect" or
"will result in a Material Adverse Effect" or words substantially similar
thereto shall in all cases be intended to mean "has resulted, or will or could
reasonably be anticipated to result, in a Material Adverse Effect", and the
phrase "has no (or does not have a) Material Adverse Effect" or "will not result
in a Material Adverse Effect" or words substantially similar thereto shall in
all cases be intended to mean "does not or will not or could not reasonably be
anticipated to result in a Material Adverse Effect".
"Multiemployer Plan" shall mean an employee benefit plan defined in
------------------
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by the Borrower, the Guarantors or an ERISA
Affiliate.
13
<PAGE>
"Notice of Borrowing" shall mean, with respect to a proposed Borrowing
-------------------
pursuant to Section 2.01(ii) hereof, a notice substantially in the form of
----------------
Exhibit "B" attached hereto and made a part thereof.
- -----------
"Notice of Conversion/Continuation" shall mean, with respect to a proposed
---------------------------------
conversion or continuation of a Revolving Credit Loan pursuant to Section
-------
2.02(iii) hereof, a notice in the form of Exhibit "C" attached hereto and made a
- --------- ----------
part hereof.
"Obligations" shall mean all present and future Consolidated Debt and
-----------
other liabilities of the Borrower, the Guarantors, their respective Subsidiaries
and Affiliates due and owing to the Lender, or any Person entitled to
indemnification pursuant to Section 10.02 hereof, or any of their respective
-------------
successors, transferees or assigns, of every type and description, whether or
not evidenced by any note, guaranty or other instrument, arising under or in
connection with this Loan Agreement or any other Loan Document, whether or not
for the payment of money, whether direct or indirect (including those acquired
by assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired. The term includes, without limitation,
all interest, charges, expenses, fees, attorneys' fees and disbursements and any
other sum chargeable to the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates under this Loan Agreement or any other Loan
Document.
"Officer's Certificate" shall mean a certificate from the Borrower
---------------------
executed by any of the Authorized Officers of the Borrower, including, without
limitation, the president, any vice-president or the chief financial officer, in
the form of Exhibit "D" attached hereto and made a part hereof.
----------
"Operating Lease" or "Operating Leases" shall mean, as applied to any
--------------- ----------------
Person, any lease of any property (whether real, personal or any combination
thereof) by that Person as lessee which is not a Capitalized Lease.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any Person succeeding to any or all of its functions and
duties under ERISA.
"Pension Plan" shall mean any "employee pension benefit plan" within the
------------
meaning of Section 3(2) of ERISA (other than a Multiemployer Plan) covered by
Title IV of ERISA by reason of Section 4021 of ERISA, of which the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates or any ERISA
Affiliate are or have been within the preceding five years a "contributing
sponsor" within the meaning of Section 4001(a)(13) of ERISA, or which are or
have been within the preceding five (5) years maintained for employees of the
Borrowers, the Guarantors, their respective Subsidiaries, Affiliates or any
ERISA Affiliate.
"Permits" shall mean any permit, approval, authorization, license,
-------
variance, or permission required from a Governmental Authority under any
applicable Requirement of Law.
"Permitted Acquisition" or "Permitted Acquisitions" shall mean any merger,
--------------------- ----------------------
consolidation, joint venture, partnership or acquisition which complies with
each of the following conditions: (i) the target Person must be in the same line
of business as the Borrower and the Guarantors; (ii) all of the financial
covenants set forth in Article VIII of this Loan Agreement must
------------
14
<PAGE>
be complied with on both a projected and, with respect to the Borrower, the
Guarantors, their Subsidiaries and Affiliates, an historical pro forma basis and
no other Event of Default or Potential Event of Default shall exist at the time
of, or shall result or be caused by, such merger, consolidation, joint venture,
partnership or acquisition; (iii) the Borrower and/or one of the Guarantors must
be the surviving Person (or the surviving Person must execute the Agreement of
Guaranty or there must be pledged to the Lender no more than sixty-five percent
(65%) of the stock of such surviving Person); (iv) the Borrower shall have
submitted to the Lender, as soon as practicable but in any event prior to the
-----
execution of a letter of intent, contract, commitment letter or other similar
document having the effect of binding the Borrower and/or any of the Guarantors
to said merger, consolidation, joint venture, partnership or acquisition, pro-
forma financial statements for the Person resulting from such merger,
consolidation, joint venture, partnership or acquisition showing the projected
financial condition of said Person as of the last day of the then current Fiscal
Year and as of the last day of each and every subsequent Fiscal Year until the
Revolving Credit Facility is terminated; and (v) the Borrower shall furnish to
the Lender a certified statement of the Borrower executed by an Authorized
Officer of the Borrower (a) describing the financial, economic, structural and
other details of the proposed merger, consolidation, joint venture, partnership
or acquisition, all in detail reasonably satisfactory to the Lender and (b)
stating that said Authorized Officer has reviewed the terms of all of the
material documents to be executed and delivered by any Person in connection with
such merger, consolidation, joint venture, partnership or acquisition and has
made, or caused to be made under his supervision, a review in reasonable detail
of the transaction and of the condition, financial and otherwise, of the
Borrower, taken as a whole, on a projected and a historical pro forma basis and
no Event of Default or Potential Event of Default will result from such merger,
consolidation, joint venture, partnership or acquisition.
"Permitted Encumbrances" shall mean a collective reference to (i) any
----------------------
Customary Permitted Liens, (ii) any Liens created or contemplated by the Loan
Documents and (iii) any Liens existing on the Closing Date and described on
Schedule 1.01-B attached hereto and made a part hereto which Liens are
- ---------------
acceptable to the Lender in its sole and absolute discretion.
"Person" or "Persons" shall mean any natural person, employee, general or
------ -------
limited partnership, limited liability partnership, corporation (including a
business trust), limited liability company joint stock company, trust,
unincorporated association, joint venture, company, trust, bank or other
organization, whether or not a legal entity or any other non-governmental
entity, or any Governmental Authority.
"Plan" shall mean any employee benefit plan within the meaning of Section
----
3(3) of ERISA (other than a Multiemployer Plan) of which any of the Borrower,
the Guarantors or any ERISA Affiliate are, or within the preceding five years
were, an "employer" as that term is defined in Section 3(5) of ERISA.
"Pledge of Stock Agreements" shall mean a collective reference to (i) that
--------------------------
certain Pledge of Stock Agreement #1, dated of even date herewith, executed by
Saga Systems and the Borrower, as pledgors, pledging an aggregate of sixty-five
percent (65%) of the authorized, issued and outstanding voting capital stock of
(a) SAGA SYSTEMS (Canada) Holdings Ltd., a company organized under the laws of
Canada and (b) SAGA SOFTWARE S.A. de C.V., a company organized under the laws of
Mexico, as hereafter amended, modified, extended,
15
<PAGE>
renewed, refinanced and/or supplemented, (ii) that certain Pledge of Stock
Agreement #2, dated of even date herewith, executed by the Borrower, as pledgor,
pledging sixty-five percent (65%) of the authorized, issued and outstanding
voting capital stock of Software AG FSC, Inc., a company organized under the
laws of the United States Virgin Islands and (iii) any and all additional Pledge
of Stock Agreements, in form and substance satisfactory to the Lender in its
reasonable discretion, executed, made and/or entered into in connection with the
Revolving Credit Facility subsequent to the Closing Date, including, without
limitation, any and all such Pledge of Stock Agreements which are consummated
for the purposes of pledging no more than sixty-five percent (65%) of the
authorized, issued and outstanding stock of any foreign Subsidiary and/or
Affiliate of the Borrower or any of the Guarantors, all as provided for in
Section 6.12 of this Loan Agreement.
- ------------
"Potential Event of Default" shall mean an event, condition or situation
--------------------------
which with the giving of any required notice and/or the passage of any required
grace or cure periods, or any combination of the foregoing, would constitute an
Event of Default.
"Pricing Grid" shall mean the following matrix upon which interest rates
------------
described in Section 2.02 hereof are determined on the basis of the Borrower's,
------------
the Guarantors', their respective Subsidiaries' and Affiliates' Consolidated
Cash Flow Leverage Ratio:
(All Amounts Expressed in Basis Points)
<TABLE>
<CAPTION>
Consolidated Cash Applicable Applicable
Flow Leverage Adjusted LIBO Base Rate
Level Ratio Rate Margin* Margin*
- ---------------------------------------------------------------------
<S> <C> <C> <C>
I equal to or less than 1.0 75.0 0.0
II greater than 1.0
but less than or
equal to 1.5 100.0 0.0
III greater than 1.5
but less than or
equal to 1.75 125.0 25.0
IV greater than 1.75 ** **
</TABLE>
* Any adjustment to the interest rates as a result of a change to the
Consolidated Cash Flow Leverage Ratio shall take effect in accordance with the
terms, conditions and provisions of Section 2.02(i)(b) of this Loan Agreement.
------------------
** Notwithstanding any term, condition or provision of this Loan Agreement to
the contrary, in the event the Consolidated Cash Flow Leverage Ratio is greater
than 1.75, the interest rate for all Revolving Credit Loans shall be the Default
Rate.
"Prime Rate" or "Prime Lending Rate" shall mean the fluctuating interest
---------- ------------------
rate per annum publicly announced from time to time by the Lender as its prime
commercial lending rate in
16
<PAGE>
effect at its principal office presently located at 1 Chase Manhattan Plaza, New
York, New York 10081. Each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.
"Property" or "Properties" shall mean any real or personal property, plant,
-------- ----------
building, facility, structure, underground storage tank, equipment or unit, or
other asset owned, leased or operated by the Borrower, the Guarantors, their
respective Subsidiaries and/or Affiliates.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
----
(S)6901 et seq. and any successor statute, and regulations promulgated
thereunder.
"Regulation D" shall mean Regulation D of the Federal Reserve Board, or
------------
any successor statute or regulation thereto, as in effect from time to time.
"Regulation T" shall mean Regulation T of the Federal Reserve Board, or
------------
any successor statute or regulation thereto, as in effect from time to time.
"Regulation U" shall mean Regulation U of the Federal Reserve Board, or
------------
any successor statute or regulation thereto, as in effect from time to time.
"Regulation X" shall mean Regulation X of the Federal Reserve Board, or
------------
any successor statute or regulation thereto, as in effect from time to time.
"Release" shall mean release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor Environment or into or out of any Property, including the
movement of Environmental Concern Materials through or in the air, soil, surface
water, groundwater or Property.
"Remedial Action" shall mean actions required to (i) clean up, remove,
---------------
treat or in any other way address Environmental Concern Materials in the indoor
or outdoor environment; (ii) prevent the Release or threat of Release or
minimize the further Release of Environmental Concern Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Reportable Event" shall have the meaning ascribed to, such term in
----------------
Section 4043 of ERISA or regulations promulgated thereunder.
"Requirements of Law" shall mean, as to any Person, the charter and by-
-------------------
laws or other organization or governing documents of such Person, and any law,
rule or regulation, Permit, or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject, including, without limitation, the Securities Act, the Securities
Exchange Act, Regulations U and X, and any certificate of occupancy, zoning
ordinance, building, environmental or land use requirement or Permit or
occupational safety or health law, rule or regulation.
17
<PAGE>
"Restricted Junior Payments" shall mean (i) any dividend or other
--------------------------
distribution to any of the Shareholders of the Borrower, any of the Guarantors,
their respective Subsidiaries and/or Affiliates (whether direct or indirect and
whether in cash, property, Securities or otherwise) on account of any stock
ownership interest of the Borrower, any of the Guarantors, their respective
Subsidiaries and/or Affiliates now or hereafter outstanding, (ii) any
redemption, conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value (whether direct or indirect) or any
shares of any class of stock of the Borrower, any of the Guarantors, their
respective Subsidiaries and/or Affiliates now or hereafter outstanding, (iii)
any prepayment of principal of, premium, if any, or interest on, or fees in
respect of, redemption, conversion, exchange, purchase, retirement, defeasance,
sinking fund or similar payment with respect to any Consolidated Debt and (iv)
any prepayment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock of the
Borrower, any of the Guarantors, their respective Subsidiaries and/or Affiliates
now or hereafter outstanding.
"Revolving Credit Facility" shall have the meaning ascribed and assigned
-------------------------
to such term as set forth in the first recital of this Loan Agreement.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
--------------------- ----------------------
meaning ascribed and assigned to such term in Section 2.01(i) of this Loan
---------------
Agreement.
"Revolving Credit Loan Note" shall mean that certain Revolving Credit Loan
--------------------------
Note, in substantially the form attached hereto as Exhibit "E" with blanks
-----------
appropriately filled, dated of even date herewith executed by the Borrower, as
the maker, in favor of the Lender, as the payee,
18
<PAGE>
in a face amount equal to the Revolving Credit Facility, as hereafter amended,
modified, extended, renewed, refinanced and/or supplemented.
"Revolving Credit Termination Date" shall mean the earlier of (i) November
---------------------------------
__, 2002, (ii) the date of termination of the Revolving Credit Facility by the
Lender pursuant to Section 9.02 of this Loan Agreement or (iii) the date the
------------
Revolving Credit Facility is fully repaid and terminated by the Borrower.
"SEC" shall mean the United States Securities and Exchange Commission and
---
any successor department or agency thereto.
"Securities" shall mean any stock, shares, voting trust certificates,
----------
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participation in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing which can readily be bought and sold on any nationally recognized
securities exchange and would properly be classified as securities on the
consolidated balance sheet of the Borrower, the Guarantors and their respective
Subsidiaries and/or Affiliates in accordance with Generally Accepted Accounting
Principles.
"Securities Act" shall mean the Securities Act of 1933, as amended to the
--------------
date hereof and from time to time hereafter, and any successor statute.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
------------------------
as amended to the date hereof from time to time hereafter, and any successor
statute.
"Shareholder" or "Shareholders" shall mean any shareholder or shareholders
----------- ------------
of the Borrower, the Guarantors or any Subsidiary or Affiliate of the Borrower
or of any Guarantor.
"Single Employer Plan" shall mean any Plan which is not a Multiemployer
--------------------
Plan under Title IV of ERISA.
"Solvent" shall mean when used with respect to any Person, that at the time
-------
of determination:
(i) the fair value of its assets (at fair valuation) is in excess of
the total amount of its liabilities, including, without limitation, any and all
"contingent liabilities" (as such term is defined in Financial Accounting
Standards Board Statement 5);
(ii) it is then able to pay its debts as they mature; and
(iii) it has capital sufficient to carry on its business.
"Statutory Reserve Rate" shall mean a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate
-----
19
<PAGE>
of the maximum reserve percentages (including any marginal, special, emergency
or supplemental reserves) expressed as a decimal established by the Federal
Reserve Board to which the Lender is subject with respect to the Adjusted LIBO
Rate, for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Rate Loans
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to the Lender under such
Regulation D or any comparable regulation. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
"Stock Repurchase Program" shall mean a collective reference to (i) that
------------------------
certain stock repurchase program involving the repurchase of up to two million
shares of Saga Systems' common stock as detailed in that certain Form 8-K filed
with the SEC by Saga Systems and dated June 14, 1999 and (ii) any other similar
stock repurchase program entered into by Saga Systems in the future.
"Subsidiary" or "Subsidiaries" shall mean with respect to any Person at
---------- ------------
any date of determination (i) a corporation a majority of whose capital stock
with voting power, under ordinary circumstances, to elect a majority of
directors is at the time, directly or indirectly owned by said Person, (ii) any
other Person (other than a corporation) in which said Person, directly or
indirectly, at the date of determination thereof has at least majority ownership
interest and/or (iii) any entity whose net earnings (losses) or portions thereof
would be properly included and combined with the net earnings of said Person in
accordance with Generally Accepted Accounting Principles; provided, however,
-------- -------
that the term Subsidiary shall not include any entity that is not reflected on
the balance sheet of said Person due to inactivity and lack of material assets
and liabilities. For the purposes of this Loan Agreement, the defined term
"Subsidiary" or "Subsidiaries" when used with respect to any Person shall be
deemed to include any Subsidiary of any Subsidiary of such Person.
"Taxes" shall have the meaning ascribed and assigned to such term as set
-----
forth in Section 2.09(i)(b) of this Loan Agreement.
------------------
"Termination Event" shall mean (i) any Reportable Event with respect to
-----------------
any Benefit Plan described in Section 4043 of ERISA and the regulations issued
thereunder for which the notice requirements have not been waived by the PBGC,
(ii) the withdrawal of the Borrower, the Guarantors or an ERISA Affiliate from a
Benefit Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001 (a)(2) of ERISA, (iii) the occurrence of an obligation
arising under Section 4041 of ERISA of the Borrower, the Guarantors or an ERISA
Affiliate to provide affected parties with a written notice of an intent to
terminate a Benefit Plan in a distress termination described in Section 4041 (c)
of ERISA, (iv) the institution by the PBGC of proceedings to terminate any
Benefit Plan, (v) any event or condition which constitutes grounds under Section
4042 of ERISA for the appointment of a trustee to administer a Benefit Plan or
(vi) the partial or complete withdrawal of the Borrower, the Guarantors or any
ERISA Affiliate from a Multiemployer Plan.
"Year 2000 Compliant" means, with regard to any Person, that all software,
-------------------
embedded microchips and other processing capabilities utilized by, and material
to the business operations or
20
<PAGE>
financial condition of, such Person are able to interpret and manipulate data on
and involving all calendar dates correctly and without causing any abnormal
ending scenario, including in relation to dates in and after the year 2000.
"Year 2000 Problem" shall mean the risk that computer applications used by
------------------
or for the benefit of the Borrower, the Guarantors or any Subsidiary and/or
Affiliate of the Borrower or any of the Guarantors may be unable to recognize or
perform properly certain date sensitive functions involving certain dates prior
to and any date after December 31, 1999.
Section 1.02 Rules of Interpretation and Construction. In this Loan
----------------------------------------
Agreement unless the context otherwise clearly requires:
(i) Articles and Sections mentioned by number only are the
respective Articles and Sections of this Loan Agreement as so numbered;
(ii) Words importing a particular gender mean and include every
other gender, and words importing the singular number mean and include the
plural number and vice versa;
----------
(iii) Words importing persons mean and include firms, associations,
partnerships (including limited partnerships and limited liability
partnerships), societies, trusts, corporations, limited liability companies or
other legal entities, including public or governmental bodies and the Borrower's
and Guarantors' respective Subsidiaries and/or Affiliates, as well as natural
persons;
(iv) Any headings preceding the texts of the several Articles and
Sections of this Loan Agreement, and any table of contents or marginal notes
appended to copies hereof, shall be solely for convenience of reference and
shall not affect or control the meaning, construction or interpretation of this
Loan Agreement;
(v) If any clause, provision or section of this Loan Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any of the remaining
provisions thereof, unless not invalidating or rendering unenforceable the
remaining provisions shall be inequitable;
(vi) The terms "herein", "hereunder", "hereby", "hereto", "hereof"
and any similar terms as used in this Loan Agreement refer to this Loan
Agreement as a whole and not to any particular provision of this Loan Agreement;
the term "heretofore" means before the date of execution of this Loan Agreement;
and the term "hereafter" means on or after the date of execution of this Loan
Agreement;
(vii) This Loan Agreement and all matters relating hereto shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York; and
(viii) If any clause, provision or section of this Loan Agreement
shall be determined to be apparently contrary to or conflicting with any other
clause, provision or section of this Loan Agreement, then the clause, provision
or section containing the more specific provisions shall control and govern with
respect to such apparent conflict;
21
<PAGE>
(ix) References in this Loan Agreement to "determination" (and
similar terms) by the Lender include good faith and reasonable estimates by the
Lender (in the case of quantitative determinations) and good faith and
reasonable beliefs by the Lender (in the case of qualitative determinations);
and
(x) The word "and" when used from time to time herein shall mean
"or" or "and/or" if such meaning is expansive of the rights or interests of the
Lender in the given context.
Section 1.03 Accounting Principles. Except as otherwise provided for in
---------------------
this Loan Agreement, all computations and determinations as to accounting or
financial matters shall be made, and all financial statements to be delivered
pursuant to this Loan Agreement shall be prepared, in accordance with Generally
Accepted Accounting Principles (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such term by Generally Accepted Accounting Principles, as
established from time to time.
22
<PAGE>
ARTICLE II
AMOUNT AND TERMS FOR THE REVOLVING CREDIT FACILITY
--------------------------------------------------
Section 2.01 Revolving Credit Facility.
-------------------------
(i) Availability. (a) Subject to the terms, conditions and
------------
provisions set forth in this Loan Agreement and provided no Event of Default or
Potential Event of Default shall have occurred and be continuing, the Lender
hereby agrees to make available to the Borrower from time to time during the
period from the Closing Date up through and including the Business Day next
preceding the Revolving Credit Termination Date, revolving credit loans
(hereinafter each individually referred to as a "Revolving Credit Loan" and
collectively referred to as the "Revolving Credit Loans") in amounts which shall
not exceed, in the aggregate for all Revolving Credit Loans at any time
outstanding, the Commitment. The Revolving Credit Loans shall be evidenced by
the Revolving Credit Loan Note. The Lender is hereby authorized to record the
date and amount of each Revolving Credit Loan made by the Lender and the date
and amount of each payment or prepayment of principal thereof made by the
Borrower on the Schedule "1" annexed to and constituting a part of the Revolving
------------
Credit Loan Note, and any such recordation shall constitute prima facie evidence
of the accuracy of the information so recorded. If the outstanding amount of
the Revolving Credit Loans shall exceed the amount of the Revolving Credit
Facility at any time, such excess shall be immediately due and payable to the
Lender and subject to the terms, conditions and provisions of this Loan
Agreement.
(b) Revolving Credit Loans may be voluntarily prepaid pursuant to
Section 2.04 hereof and, subject to the provisions of this Loan Agreement, any
- ------------
amounts so prepaid may be reborrowed, up to the amount available under this
Section 2.01(i) at the time of such Borrowing, until the Business Day next
- ---------------
preceding the Revolving Credit Termination Date. The Lender's commitment to
make Revolving Credit Loans shall automatically expire, and each Revolving
Credit Loan then outstanding shall be repaid in full by the Borrower, no later
than the Revolving Credit Termination Date.
(ii) Notice of Borrowing. Whenever the Borrower desires to borrow
-------------------
under this Section 2.01, the Borrower shall deliver to the Lender a Notice of
------------
Borrowing no later than (a) 11:00 A.M. (New York City, New York time) on the
proposed Funding Date, in the case of a Borrowing as a Base Rate Loan, and (b)
11:00 A.M. (New York City, New York time) at least three (3) Business Days in
advance of the proposed Funding Date, in the case of a Borrowing as a Eurodollar
Rate Loan. The Notice of Borrowing shall specify (1) the Funding Date (which
shall be a Business Day) in respect of the Revolving Credit Loan, (2) the amount
of the proposed Borrowing which shall not be less than (A) $250,000.00, in the
case of a Borrowing as a Base Rate Loan, and (B) $500,000.00, in the case of a
Borrowing as a Eurodollar Rate Loan, (3) the intended use of the proceeds of
such Borrowing, (4) the applicable interest rate option as described in Section
-------
2.02(i) of this Loan Agreement and, if applicable, (5) the Eurodollar Interest
- -------
Period for such Revolving Credit Loan. In lieu of delivering the above-
described Notice of Borrowing, such Borrower may give the Lender telephonic
notice of any proposed Borrowing by the time required under this Section
-------
2.01(ii); provided, however, that such notice shall be confirmed in writing by
- -------- -------- -------
delivery to the Lender promptly (but in no event later than the Funding
23
<PAGE>
Date of the requested Revolving Credit Loan) of a Notice of Borrowing. Any
Notice of Borrowing (or telephonic notice in lieu thereof) pursuant to this
Section 2.01(ii) shall be irrevocable.
- ----------------
(iii) Making of Revolving Credit Loans. The Lender shall make the
--------------------------------
proceeds of such Revolving Credit Loan available to the Borrower in Newark, New
Jersey on such Funding Date by the end of business on such Funding Date and
shall disburse such funds in Dollars and in immediately available funds to an
account of the Borrower maintained with the Lender and thereafter to any
substitute account designated in writing by the Borrower in the Notice of
Borrowing.
(iv) Use of Proceeds of Revolving Credit Loans. The proceeds of the
-----------------------------------------
Revolving Credit Loans shall be used by the Borrower for financing the general
corporate purposes of the Borrower including the financing of Permitted
Acquisitions (but expressly excluding the financing of the Stock Repurchase
-------------------
Program).
(v) Reduction of Revolving Credit Facility; Revolving Credit
--------------------------------------------------------
Termination Date.
- ----------------
(a) The Borrower shall have the right, at any time and from
time to time, to terminate in whole or permanently reduce in part, the Revolving
Credit Facility in an amount up to the amount of the Commitment minus the
-----
aggregate principal amount of the Revolving Credit Loans then outstanding. Any
such prepayment may be made by the Borrower without premium or fee, except as
------
provided for in Section 2.04 of this Loan Agreement with respect to the
------------
prepayment of a Eurodollar Rate Loan. The Borrower shall give not less than
three (3) Business Days' prior express written notice to the Lender designating
the date (which shall be a Business Day) of such termination or reduction and
the amount of any partial reduction. Such termination or partial permanent
reduction of the Revolving Credit Facility and the Commitment shall be effective
on the date specified in the Borrower's notice. Any such partial permanent
reduction of the Revolving Credit Facility shall be in an aggregate minimum
principal amount of $1,000,000.00 and integral multiples of $500,000.00 in
excess of that amount.
(b) The Revolving Credit Facility shall automatically expire
without further action on the part of the Lender, and all then outstanding
Revolving Credit Loans shall be paid in full, on the Revolving Credit
Termination Date.
(vi) No Amortization of the Revolving Credit Facility. Prior to the
------------------------------------------------
Revolving Credit Termination Date, provided no Event of Default of Potential
Event of Default shall have occurred and be continuing, there shall be no
required scheduled principal amortization payments due and owing to the Lender
on the Revolving Credit Facility. The full and final payment of any and all
principal, unpaid accrued interest, fees, costs and expenses, if any, owing to
the Lender under the Revolving Credit Facility shall be made by the Borrower to
the Lender on the Revolving Credit Termination Date. The Lender hereby agrees
that no "annual clean-up" of the Revolving Credit Loan shall be required.
Section 2.02 Interest on the Revolving Credit Facility.
-----------------------------------------
(i) Rates of Interest. (a) All Revolving Credit Loans shall bear
-----------------
interest
24
<PAGE>
computed daily on the outstanding principal balance thereof from the Funding
Date thereof until repaid in full at one or more of the interest rate options
selected by the Borrower from between the two (2) interest rate options set
forth below. Subject to the provisions of this Loan Agreement, the Borrower may
select different options to apply simultaneously to different portions of the
Revolving Credit Loans and may select different Funding Segments to apply
simultaneously to different parts of the Eurodollar Portion of the Revolving
Credit Loans. Each selection of an interest rate option shall apply separately
and without overlap to the Revolving Credit Loans as a class. There shall be no
limit to the aggregate number of Funding Segments applicable to the Eurodollar
Portion of the Revolving Credit Loans at any time.
Interest Rate Options for Revolving Credit Loans:
------------------------------------------------
(1) Eurodollar Rate Option. A fluctuating rate per annum (fixed
----------------------
for each particular Eurodollar Interest Period only) for each day during a
----
Eurodollar Interest Period equal to (A) the Adjusted LIBO Rate plus (B) the
----
Applicable Margin for such day. The Lender shall give prompt notice to the
Borrower of the Adjusted LIBO Rate, determined or adjusted in accordance
with the provisions hereof, which determination or adjustment shall be
conclusive (absent manifest error) if made by the Lender in good faith.
The Adjusted LIBO Rate shall be calculated in accordance with the
Eurodollar Reserve Percentage, if the Lender is required to hold such
reserves; or
(2) Base Rate Option: A fluctuating rate per annum for each day
----------------
equal to (A) the Base Rate of the Lender, in effect from time to time (such
interest rate to change immediately upon any change in the Base Rate) plus
----
(B) the Applicable Margin for such day.
(b) The Applicable Margin for Eurodollar Rate Loans and Base
Rate Loans with respect to the Revolving Credit Loan Facility for any day shall
be the applicable amount (expressed in basis points) set forth in the Pricing
Grid (hereinafter referred to as the "Applicable Margin"). For purposes of this
Section 2.04(i)(b), the Consolidated Cash Flow Leverage Ratio shall be tested at
- ------------------
the end of the periods covered by the quarterly and annual consolidated
financial statements which are to be provided to the Agent pursuant to Section
-------
5.02 of the Loan Agreement. Any change in the Applicable Margin (both increases
- ----
and decreases therein) shall be effective on the first (1/st/) day of the Fiscal
Quarter following the Fiscal Quarter in which the Lender is entitled to receive
said submitted financial statements for a prior Fiscal Quarter all as provided
for in Article V hereof. For example, for financial statements covering the
---------
first Fiscal Quarter of any Fiscal Year, the effective date of any increase or
decrease in the Applicable Margin would be July 1/st/ of said calendar year. For
the period from the Closing Date up through and including the date upon which
the Lender receives the September 30, 1999 Compliance Certificate attached to
the Officer's Certificate set forth on Exhibit "D" attached hereto and made a
-----------
part hereof, the Applicable Margin for Base Rate Loans and Eurodollar Rate Loans
shall be the percentage described at Level I on the Pricing Grid. Thereafter,
the Applicable Margin for Base Rate Loans and Eurodollar Rate Loans shall be set
and established based upon the Consolidated Cash Flow Leverage Ratio tested in
accordance with the terms, conditions and provisions set forth in Section 8.02
------------
hereof.
(c) Notwithstanding subsections (a) and (b) above, interest in
-----------------------
respect
25
<PAGE>
of any Revolving Credit Loan shall not exceed the maximum rate permitted
by applicable Law.
(ii) Interest Payments. Subject to the terms, conditions and
-----------------
provisions of Section 2.02(iv) hereof, interest accrued on all Base Rate Loans
----------------
shall be payable by the Borrower in arrears (a) on the first Business Day of
each month during the term of this Loan Agreement, commencing on the first
Business Day of the first full month next following the making of each such Base
Rate Loan and (b) at maturity. Interest accrued on each Eurodollar Rate Loan
shall be payable by the Borrower in arrears (1) on each Eurodollar Interest
Payment Date applicable to such Eurodollar Rate Loan, (2) upon prepayment
thereof in full or in part and (3) at maturity.
(iii) Conversion or Continuation. (a) Subject to the terms,
--------------------------
conditions and provisions of Section 2.06 hereof, the Borrower shall have the
------------
option (1) to convert at any time all or any part of outstanding Revolving
Credit Loans which comprise part of the same Borrowing and which, in the
aggregate, equal $500,000.00 from Base Rate Loans to Eurodollar Rate Loans; (2)
to convert all or any part of outstanding Revolving Credit Loans from Eurodollar
Rate Loans to Base Rate Loans or (3) upon the expiration of any Eurodollar
Interest Period applicable to a Borrowing of Eurodollar Rate Loans, to continue
all or any portion of such Revolving Credit Loans equal to $500,000.00 as
Eurodollar Rate Loans of the same type, and the succeeding Eurodollar Interest
Period of such continued Revolving Credit Loans shall commence on the expiration
date of the Eurodollar Interest Period applicable thereto; provided, however,
-------- -------
that no outstanding Revolving Credit Loan may be continued as, or be converted
into, a Eurodollar Rate Loan when any Event of Default or Potential Event of
Default has occurred and is continuing.
(b) In the event the Borrower shall elect to convert or continue
a Revolving Credit Loan under this Section 2.02 (iii), the Borrower shall
------------------
deliver a Notice of Conversion/Continuation to the Lender no later than 11:00
a.m. (New York City, New York time) at least three (3) Business Days in advance
of the proposed conversion/continuation date in the case of a conversion to or a
continuation of a Eurodollar Rate Loan. A Notice of Conversion/Continuation
shall specify (1) the proposed conversion/continuation date (which shall be a
Business Day), (2) the amount of the Revolving Credit Loan to be
converted/continued, (3) the nature of the proposed conversion/continuation, and
(4) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan,
the requested Eurodollar Interest Period. In lieu of delivering the above-
described Notice of Conversion/Continuation, the Borrower may give the Lender
telephonic notice of any proposed conversion/continuation by the time required
under this Section 2.02(iii); provided, however, that such notice shall be
----------------- -------- -------
confirmed in writing by delivery to the Lender promptly (but in no event later
than the proposed conversion/continuation date) of a Notice of
Conversion/Continuation. In the event the Borrower shall fail to provide the
Lender with the requisite Notice of Conversion/Continuation for a continuation
of any Eurodollar Rate Loan within the time prescribed above, said Eurodollar
Rate Loan shall automatically continue as a Eurodollar Rate Loan for the same
Eurodollar Interest Period.
(c) Any Notice of Conversion/Continuation for conversion to, or
continuation of, a Revolving Credit Loan (or telephonic notice in lieu thereof)
shall be irrevocable and the Borrower shall be bound to convert or continue in
accordance therewith.
26
<PAGE>
(iv) Default Interest. Notwithstanding the rate of interest
----------------
specified in Section 2.02(i) hereof and the payment dates specified in Section
--------------- -------
2.02(ii) and Section 2.05(i) hereof, effective immediately upon the occurrence
- -------- ---------------
of any Event of Default and for as long thereafter as any such Event of Default
shall be continuing, the principal balance of all Revolving Credit Loans then
outstanding and any interest payments on the Revolving Credit Loans not paid
when due shall bear interest, to the extent permitted by applicable Law, payable
upon demand at the Default Rate. The Borrower hereby acknowledges that: (a) such
Default Rate is a material inducement to the Lender to make the Revolving Credit
Facility available to the Borrower; (b) the Lender would not have made the
Revolving Credit Facility available to the Borrower in the absence of the
agreement of the Borrower to pay such Default Rate; (c) such Default Rate
represents compensation for increased risk to the Lender that the Revolving
Credit Facility will not be repaid; and (d) such Default Rate is not a penalty
and represents a reasonable estimate of (1) the cost to the Lender in allocating
its resources (both personnel and financial) to the on-going review, monitoring,
administration and collection of the Revolving Credit Facility and (2)
compensation to the Lender for losses that are difficult to ascertain.
(v) Computation of Interest. Interest on all Revolving Credit Loans
-----------------------
shall be computed on the basis of the actual number of days elapsed in the
period during which interest accrues and a year of 360 days. In computing
interest on any Revolving Credit Loan, the date of the making of the Revolving
Credit Loan or the first day of a Eurodollar Interest Period, as the case may
be, shall be included and the date of payment or the expiration date of a
Eurodollar Interest Period, as the case may be, shall be excluded; provided,
--------
however, that if a Revolving Credit Loan is repaid on the same day on which it
- -------
is made, one day's interest shall be paid on that Revolving Credit Loan.
(vi) Changes: Legal Restrictions. Except as provided in Section
--------------------------- -------
2.06(iv) hereof with respect to certain determinations on Eurodollar Interest
- --------
Rate Determination Dates, in the event that after the date hereof (a) the
adoption of or any change in any law, treaty, rule, regulation, guideline or
determination of a court or Governmental Authority or any change in the
interpretation or application thereof by a court or Governmental Authority or
(b) compliance by the Lender with any request or directive (whether or not
having the force of law and whether or not the failure to comply therewith would
be unlawful) from any central bank or other Governmental Authority or quasi-
governmental authority:
(1) does or may impose, modify, or hold applicable, in the
determination of a Lender, any reserve, special deposit, compulsory loan, FDIC
insurance, capital allocation or similar requirement against assets held by, or
deposits or other liabilities in or for the account of, advances or loans by,
commitments made, or other credit extended by, or any other acquisition of funds
by, the Lender or any applicable lending office or Eurodollar Affiliate of the
Lender (except, with respect to a Eurodollar Rate Loan, to the extent that the
Statutory Reserve Rate requirements are reflected in the definition of "Adjusted
LIBO Rate"); or
(2) does or is reasonably likely to impose on the Lender any
other condition materially more burdensome in nature, extent or consequence than
those in existence as of the Closing Date;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or
27
<PAGE>
maintaining the Revolving Credit Loans, then, in any such case, the Borrower
shall promptly pay to the Lender, upon demand, such amount or amounts (based
upon an allocation thereof by the Lender to the financing transactions
contemplated by this Loan Agreement and effected by this Section 2.02(vi) as may
---------------
be necessary to compensate the Lender for any such additional cost incurred or
reduced amount received. The Lender shall deliver to the Borrower a written
statement of the costs or reductions claimed and the basis therefore, and the
allocation made by the Lender of such costs and reductions shall be conclusive,
absent manifest error, if made in good faith. If the Lender subsequently
recovers any amount previously paid by the Borrower pursuant to this Section
-------
2.02(vi), the Lender shall, within thirty (30) days after receipt of such refund
- --------
and to the extent permitted by applicable Law, pay to the Borrower the amount of
any such recovery.
Section 2.03 Fees.
----
(i) Facility Fee. The Borrower shall have paid to the Lender the
------------
Facility Fee, in full, as of the Closing Date.
(ii) Commitment Fee. The Borrower shall pay to the Lender a
--------------
commitment fee, from and after the Closing Date until the Obligations are paid
in full and the Revolving Credit Facility is terminated, equal to (a) one-eighth
of one percent (0.125%) per annum multiplied by (b) the positive difference
---------- --
between (1) the average daily amount of the Commitment minus (2) the aggregate
-----
average daily amount of all Revolving Credit Loans outstanding under the
Revolving Credit Facility from time to time. All such commitment fees payable
under this Section 2.03(ii) shall be calculated and payable quarterly in arrears
----------------
on the last Business Day in each Fiscal Quarter beginning after the Closing
Date.
(iii) Late Charge Fee. In the event that any payment (other than a
---------------
payment of principal and/or interest) required to be made by the Borrower under
the Revolving Credit Loan Note or under this Loan Agreement shall not be
received by the Lender within ten (10) days of when due, the Lender may charge,
and if so charged, the Borrower shall pay, a late charge of ($0.05) for each
dollar ($1.00) of each delinquent payment for the purpose of defraying the
expense incident to the handling of such delinquent payment. In no event shall
said late charge fee be less than ten dollars ($10.00).
(iv) Payment of Fees. The fees described in this Section 2.03
--------------- ------------
represent compensation for services rendered and to be rendered separate and
apart from the lending of money or the provision of credit, and the obligation
of the Borrower to pay each fee described herein shall be in addition to, and
not in lieu of, the obligation of the Borrower to pay interest, other fees and
expenses otherwise described in this Loan Agreement. Fees shall be payable when
due at the office of the Lender in Newark, New Jersey in immediately available
funds. All fees shall be non-refundable when paid. All fees and expenses
specified or referred to in this Loan Agreement due and owing to the Lender,
including, without limitation, those referred to in this Section 2.03 and in
------------
Section 10.01 hereof, shall bear interest, if not paid when due, at the Default
- -------------
Rate (but not to exceed the maximum rate permitted by applicable Law), and shall
constitute Obligations. All fees described in this Section 2.03 which are
------------
expressed as a per annum charge shall be calculated on the basis of the actual
number of days elapsed in a 360-day year.
28
<PAGE>
Section 2.04 Voluntary Prepayments.
---------------------
(i) Eurodollar Rate Loans. The Borrower may, at any time and from
---------------------
time to time, upon the giving of at least three (3) Business Days' prior express
written notice to the Lender, voluntarily prepay any Eurodollar Rate Loan in
whole or in part, in an aggregate minimum amount of $500,000.00, subject to the
following: (a) any principal prepayment of a Eurodollar Rate Loan shall be
accompanied by the payment of all unpaid accrued interest due and owing on said
Eurodollar Rate Loan and (b) the Borrower shall pay to the Lender all amounts
described in Section 2.06(vi) of this Loan Agreement. Such notice shall (1)
----------------
specify the prepayment date (which shall be a Business Day), (2) specify the
principal amount being prepaid, (3) be irrevocable and (4) commit the Borrower
to prepay said Eurodollar Rate Loan in full on the date and in the amount stated
therein.
(ii) Base Rate Loans. The Borrower may, at any time and from time to
---------------
time, upon the giving of at least one (1) Business Day's prior express written
notice to the Lender, voluntarily prepay any Base Rate Loan in whole or in part,
in an aggregate minimum amount of $250,000.00, without premium or fee; provided,
--------
however, any principal prepayment of a Base Rate Loan shall be accompanied by
- -------
the payment of all unpaid accrued interest due and owing on said Base Rate Loan.
(iii) Prepayments in Full. Notwithstanding any term, condition or
-------------------
provision of this Section 2.04 to the contrary, in the event that any
------------
prepayments of any Revolving Credit Loans are made in connection with the
termination of this Loan Agreement, such prepayments shall be made only upon
three (3) Business Days' prior express written notice to the Lender.
Section 2.05 Payments.
--------
(i) Manner and Time of Payment. All payments of principal, interest
--------------------------
and fees hereunder payable to the Lender, including, without limitation, all
payments in connection with Revolving Credit Loans, shall be made without
condition or reservation or right, in Dollars and in immediately available
funds, delivered to the Lender not later than 2:00 p.m. (New York City, New York
time) on the date due, to such account of the Lender in Newark, New Jersey, as
the Lender may designate. Funds received by the Lender after that time and date
shall be deemed to have been paid on the next succeeding Business Day. The
Lender shall send a monthly and/or quarterly invoice, as applicable, to the
Borrower reflecting the accrued interest due and owing and all fees due and
owing hereunder. The Borrower hereby agrees that on the Business Day that any
payment of principal, interest and fees are due, the Borrower shall initiate the
transfer of such payment to the Lender; provided, however, if the Borrower shall
-------- -------
fail to initiate such payment no later than the date on which any such payment
is due and owing to the Lender, the Lender shall, and is hereby authorized by
the Borrower to, automatically charge a demand deposit account of the Borrower,
which account shall be maintained with the Lender at all times throughout the
term of the Revolving Credit Facility. The Borrower's authorization of the
Lender to charge such account having sufficient funds on deposit shall
constitute payment of the amount so authorized notwithstanding the Lender's
failure to charge said account. Any failure or delay by the Lender in
submitting invoices for interest and fee payments shall not discharge or relieve
the Borrower of the obligation to make such payments into the demand deposit
account or
29
<PAGE>
to initiate any such transfer of payment.
(ii) Apportionment of Payments. So long as there does not exist an
-------------------------
Event of Default, all payments of principal and interest in respect of
outstanding Revolving Credit Loans, all payments of the fees described herein
and all payments in respect of any other Obligation shall be allocated by the
Lender as it may be entitled thereto as provided herein. After the occurrence
and during the continuance of an Event of Default, the Lender shall, after
providing notice to the Borrower that payments and proceeds shall be so applied,
apply all payments remitted to the Lender and all amounts received by the
Lender, subject to the provisions of this Loan Agreement, (a) first, to pay
Obligations in respect of any fees, expense reimbursements or indemnities then
due and owing to the Lender from the Borrower; (b) second, to pay interest due
in respect of Revolving Credit Loans and to pay (or to the extent such
Obligations are contingent, prepay or provide cash collateral in respect of);
(c) third, to pay or prepay principal of Revolving Credit Loans in the inverse
order of maturity and (d) fourth, to the ratable payment of all other
Obligations.
(iii) Payments on Non-Business Days. Whenever any payment to be made
-----------------------------
by the Borrower hereunder shall be stated to be due on a day which is not a
Business Day, payments shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder and of any of the fees specified in Section 2.03 hereof, as
------------
the case may be.
(iv) Lender's Accounting. The Lender shall maintain a loan account
-------------------
(hereinafter referred to as the "Loan Account") on its books in which shall be
recorded (a) the principal amount of Revolving Credit Loans owing to the Lender
from time to time; (b) all other appropriate debits and credits as provided in
this Loan Agreement, including, without limitation, all interest, fees,
expenses, charges and other Obligations; and (c) all payments of Obligations
made by the Borrower or for the Borrower's account. All entries in the Loan
Account shall be made in accordance with the Lender's customary accounting
practices as in effect from time to time. The Lender will render a statement of
the Loan Account upon the request of the Borrower. Each and every such
statement shall be deemed final, binding and conclusive upon the Borrower in all
respects as to all matters reflected therein (absent manifest error), unless the
Borrower, within fifteen (15) days after the date such statement is rendered,
delivers to the Lender written notice of any objection which the Borrower may
have to any such statement. In that event, only those items expressly objected
to in such notice shall be deemed to be disputed by the Borrower.
Notwithstanding the foregoing, the Lender's entries in the Loan Account
evidencing Revolving Credit Loans and other financial accommodations made from
time to time shall be final, binding and conclusive upon the Borrower (absent
manifest error) as to the existence and amount of the Obligations recorded in
the Loan Account. The Lender, in its discretion, may charge any or all
interest, fees and expenses incurred by the Borrower hereunder to the Loan
Account.
Section 2.06 Special Provisions Governing Eurodollar Rate Loans.
--------------------------------------------------
Notwithstanding other provisions of this Loan Agreement to the contrary, if any,
the following provisions shall govern with respect to Eurodollar Rate Loans as
to the matters described below:
(i) Amount of Eurodollar Rate Loans. Each Eurodollar Rate Loan shall
-------------------------------
be for a minimum amount of $500,000.00.
30
<PAGE>
(ii) Determination of Eurodollar Interest Period. By giving notice as
-------------------------------------------
set forth in Sections 2.01(ii) and 2.02(iii) hereof (with respect to a
-------------------------------
conversion into or a continuation of Eurodollar Rate Loans), the Borrower shall
have the option, subject to the other terms, conditions and provisions of this
Section 2.06, to specify the Eurodollar Interest Period to apply to the
- ------------
Borrowing of Eurodollar Rate Loans described in such notice, subject to
availability. The determination of Eurodollar Interest Periods shall be subject
to the following provisions:
(a) In the case of immediately successive Eurodollar Interest
Periods applicable to a Borrowing of Eurodollar Rate Loans, each successive
Eurodollar Interest Period shall commence on the day on which the next preceding
Eurodollar Interest Period expires;
(b) If any Eurodollar Interest Period would otherwise expire on
a day which is not a Business Day, the Eurodollar Interest Period shall be
extended to expire on the next succeeding Business Day; provided, however, that
-------- -------
if any such Eurodollar Interest Period applicable to a Borrowing of Eurodollar
Rate Loans would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in that month, then
that Eurodollar Interest Period shall expire on the immediately preceding
Business Day;
(c) The Borrower may not select a Eurodollar Interest Period for
any Revolving Credit Loan which terminates later than the Revolving Credit
Termination Date;
(d) The Borrower may not select a Eurodollar Interest Period
with respect to any portion of principal of a Eurodollar Rate Loan which extends
beyond a date on which the Borrower is required to make a scheduled payment of
any portion of principal, it being understood and agreed that any Eurodollar
Rate Loan whose Eurodollar Interest Period ends less than one month prior to
such required principal payment date shall be deemed converted to a Base Rate
Loan as of the last day of such Eurodollar Interest Period for purposes of
determining whether any portion of principal of any Eurodollar Rate Loan is
required in order to make a mandatory payment of principal;
(e) There shall be no limit to the number of Eurodollar Interest
Periods under this Loan Agreement in effect at any one time under the Revolving
Credit Facility; and
(f) If any Eurodollar Interest Period commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Eurodollar Interest Period)
then said Eurodollar Interest Period shall end on the last Business Day of the
last calendar month of such Eurodollar Interest Period.
(iii) Determination of Interest Rate. As soon as practicable after
------------------------------
11:00 a.m. (New York City, New York time) on any Eurodollar Interest Rate
Determination Date, the Lender shall determine (which determination shall,
absent manifest error, be presumptively correct) the interest rate which shall
apply to the Eurodollar Rate Loans for which an interest rate is then being
determined for the applicable Eurodollar Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to the
Borrower.
31
<PAGE>
(iv) Interest Rate Unascertainable, Inadequate or Unfair. If, with
---------------------------------------------------
respect to any Eurodollar Interest Period, the Lender determines that (a)
deposits in Dollars (in the applicable amounts) are not being offered in the
relevant market for such Eurodollar Interest Period, (b) adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate, (c) a contingency
has occurred which materially and adversely affects the London interbank
Eurodollar market or (d) the effective cost to the Lender of funding a proposed
Funding Segment of the Eurodollar Portion from a corresponding source of funds
shall exceed the Eurodollar Rate, applicable to such Funding Segment, the Lender
shall forthwith give notice thereof to the Borrower, whereupon until the Lender
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, (1) the right of the Borrower to elect to have Revolving Credit
Loans bear interest based upon the Adjusted LIBO Rate shall be suspended and (2)
each outstanding Eurodollar Rate Loan shall be converted into a Base Rate Loan
on the last day of the then current Eurodollar Interest Period therefor,
notwithstanding any prior election by the Borrower to the contrary.
(v) Illegality. (a) In the event that on any date the Lender shall
----------
have determined (which determination shall, absent manifest error, be final and
conclusive and binding upon all parties) that the making or continuation of any
Eurodollar Rate Loan has become unlawful by compliance by the Lender in good
faith with any Law, of any Governmental Authority (whether or not having the
force of Law and whether or not failure to comply therewith would be unlawful),
then, and in any such event, the Lender shall promptly give notice (by telephone
promptly confirmed in writing) to the Borrower.
(b) Upon the giving of the notice referred to in Section
-------
2.06(v)(a) hereof, (1) the Borrower's right to request of the Lender and the
- ----------
Lender's obligation to make Eurodollar Rate Loans shall be immediately
suspended, and the Lender shall make a Revolving Credit Loan, as part of any
requested Borrowing of Eurodollar Rate Loans, as a Base Rate Loan, which Base
Rate Loan shall, for all purposes, be considered a part of such Borrowing and
(2) if the affected Revolving Credit Loans are then outstanding, the Borrower
shall immediately (or, if permitted by applicable Law, no later than the date
permitted thereby, upon at least one (1) Business Day's written notice to the
Lender) convert each such Revolving Credit Loan into a Base Rate Loan.
(c) In the event that the Lender determines at any time
following its giving of the notice referred to in Section 2.06(iv) and Section
---------------- -------
2.06(v)(a) hereof that the Lender may lawfully make Eurodollar Rate Loans of the
- ----------
type referred to in such notice, the Lender shall promptly give notice (by
telephone confirmed in writing) to the Borrower of that determination, whereupon
the Borrower's right to request of the Lender, and the Lender's obligation to
make, Eurodollar Rate Loans shall be restored.
(vi) Compensation. In addition to such amounts as are required to be
------------
paid by the Borrower pursuant to Sections 2.02(iv), 2.02(vi), 2.03, 2.04(i),
-------------------------------------------
2.06(vii), 2.07 and 2.09 hereof, the Borrower shall compensate the Lender, upon
- --------------- ----
demand, for all losses, expenses and liabilities (including, without limitation,
any loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds required by the Lender to fund or maintain the Lender's
Eurodollar Rate Loans) which losses, expenses and liabilities the Lender may
sustain (a) if for any reason a Borrowing, conversion or continuation of
Eurodollar Rate Loans does not
32
<PAGE>
occur on a date specified therefor in a Notice of Borrowing or a Notice of
Conversion/Continuation or in a telephonic request for borrowing or
conversion/continuation or a successive Eurodollar Interest Period does not
commence after notice therefor is given pursuant to Section 2.02(iii) hereof,
-----------------
(b) if any prepayment of an Eurodollar Rate Loan (including, without limitation,
any prepayment pursuant to Section 2.04 hereof) occurs for any reason on a date
------------
which is not the last day of the applicable Eurodollar Interest Period, (c) as a
consequence of any required conversion of a Eurodollar Rate Loan to a Base Rate
Loan as a result of any of the events indicated in Section 2.06(v) or (d) as a
---------------
consequence of any other failure by the Borrower to repay Eurodollar Rate Loans
when required by the terms of this Loan Agreement. The Lender shall deliver to
the Borrower a written statement as to such losses, expenses and liabilities
which statement shall be conclusive as to such amounts in the absence of
manifest error.
(vii) Eurodollar Rate Taxes. The Borrower hereby agrees that:
---------------------
(a) the Borrower shall pay, prior to the date on which
penalties attach thereto, all present and future income, stamp and other taxes,
levies, or costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of a Revolving Credit Loan solely as a result of the interest
rate being determined by reference to the Adjusted LIBO Rate or the provisions
of this Loan Agreement relating to the Adjusted LIBO Rate or the recording,
registration, notarization or other formalization of any thereof or any payments
of principal, interest or other amounts made on or in respect of a Revolving
Credit Loan made to the Borrower when the interest rate is determined by
reference to the Adjusted LIBO Rate (all such taxes, levies, costs and charges
being hereinafter collectively called "Eurodollar Rate Taxes"); provided,
--------
however, that Eurodollar Rate Taxes shall not include net income or franchise
- -------
taxes imposed by any jurisdiction. The Borrower shall also pay such additional
amounts equal to increases in net income or franchise taxes attributable to
payments made by the Borrower pursuant to this clause (a). Promptly after the
----------
date on which payment of any such Eurodollar Rate Tax is due pursuant to
applicable law, the Borrower will, at the request of the Lender, furnish to the
Lender evidence, in form and substance satisfactory to the Lender, that the
Borrower has met its obligation under this Section 2.06(vii); and
-----------------
(b) the Borrower will indemnify the Lender against, and
reimburse the Lender on demand for, any Eurodollar Rate Taxes paid by the Lender
in respect of a Revolving Credit Loan made to the Borrower, as determined by the
Lender in its sole discretion. The Lender shall provide the Borrower with (1)
appropriate receipts for any payments or reimbursements made by the Borrower
pursuant to this clause (b) and (2) such information as may reasonably be
----------
required to indicate the basis for such Eurodollar Rate Taxes; provided,
however, that if the Lender subsequently recovers, or receives a net tax benefit
with respect to, any amount of Eurodollar Rate Taxes previously paid by the
Borrower pursuant to this Section 2.06(vii)(b), the Lender shall, within thirty
--------------------
(30) days after receipt of such refund, and to the extent permitted by
applicable law, pay to the Borrower the amount of any such recovery or permanent
net tax benefit.
(viii) Booking of Eurodollar Rate Loans. The Lender may make, carry
--------------------------------
or transfer Eurodollar Rate Loans at, to, or for the account of, any of its
branch offices, agencies or the office of an Affiliate of the Lender; provided,
--------
however, the Lender shall not be entitled to receive any greater amount under
- -------
Section 2.02(vi) or Section 2.06(vii) hereof as a result of the
- ---------------- -----------------
33
<PAGE>
transfer of any such Revolving Credit Loan than the Lender would be entitled to
immediately prior thereto unless (a) such transfer occurred at a time when
circumstances giving rise to the claim for such greater amount did not exist and
were not reasonably foreseeable in the view of the Lender and (b) such claim
would have arisen even if such transfer had not occurred.
(ix) Affiliates Not Obligated. No Eurodollar Affiliate or other
------------------------
Affiliate of the Lender shall be deemed a party to this Loan Agreement or shall
have any rights, liability or obligation under this Loan Agreement.
Section 2.07 Increased Capital. If either (i) the introduction of or any
-----------------
change in or in the interpretation of any Law or regulation or (ii) compliance
by the Lender with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) affects or would affect
the amount of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and the Lender determines that the amount of
such capital is increased by or based upon the existence of the Lender's
commitment to make Revolving Credit Loans and other commitments of this type,
then, upon demand by the Lender, the Borrower shall immediately pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender in the light of such circumstances, to the
extent that the Lender determines such increase in capital to be allocable to
the existence of the Lender's commitment to fund the Revolving Credit Facility.
A certificate as to such amounts submitted to the Borrower by the Lender, shall,
in the absence of manifest error, be conclusive and binding for all purposes.
The Lender shall make written demand on the Borrower for such additional amounts
no later than one hundred eighty (180) days after the Lender receives actual
notice or obtains actual knowledge of the promulgation of any law, rule,
regulation or interpretation, or occurrence of any other event, giving rise to a
claim by the Lender against the Borrower for any such additional amounts
pursuant to this Section 2.07. The Lender shall furnish the Borrower with a
------------
description of the reason for any such increased capital requirement. In the
event that the Lender fails to make such written demand on the Borrower within
such time period, then the Borrower shall have no obligation to pay any such
additional amount with respect to claims accruing prior to the one hundred
eightieth (180/th/) day preceding the date on which such written demand is made.
Section 2.08. Authorized Officers of the Borrower. The Borrower shall
-----------------------------------
notify the Lender in writing of the names of the officers and employees
authorized to request Revolving Credit Loans and shall provide the Lender with a
specimen signature of each such Authorized Officer. The Lender shall be
entitled to rely conclusively on such officer's or employee's authority to
request such Revolving Credit Loans until the Lender receives written notice to
the contrary. The Lender shall have no duty to verify the authenticity of the
signature on any written Notice of Borrowing or Notice of
Conversion/Continuation and, with respect to an oral request for such a
Revolving Credit Loan, the Lender shall have no duty to verify the identity of
any Person representing himself as one of the officers or employees authorized
to make such request on behalf of the Borrower. The Lender shall not incur any
liability to the Borrower in acting upon any telephonic notice referred to above
which the Lender believes in good faith to have been given by a duly Authorized
Officer or other Person authorized to borrow on behalf of the Borrower or for
otherwise acting in good faith under this Section 2.08.
------------
34
<PAGE>
Section 2.09 Taxes.
-----
(i) Payments Net of Taxes. All payments made by the Borrower under
---------------------
this Loan Agreement or any other Loan Document shall be made free and clear of,
and without reduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, and all liabilities with respect
thereto, excluding
(a) in the case of the Lender, income or franchise taxes imposed
on the Lender by the jurisdiction under the laws of which the Lender is
organized or any political subdivision or taxing authority thereof or therein or
as a result of a connection between the Lender and any jurisdiction and the
transactions contemplated hereby; and
(b) in the case of the Lender, income or franchise taxes imposed
by any jurisdiction in which the Lender's lending offices which make or book
Revolving Credit Loans, are located or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
deductions, charges or withholdings being hereinafter called "Taxes"). If any
Taxes are required to be withheld or deducted from any amounts payable to the
Lender under this Loan Agreement or any other Loan Document, the Borrower shall
pay the relevant amount of such Taxes and the amounts so payable to the Lender
shall be increased to the extent necessary to yield to the Lender (after payment
of all Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Loan Agreement and the other Loan Documents.
Whenever any Taxes are paid by the Borrower with respect to payments made in
connection with this Loan Agreement or any other Loan Document, as promptly as
possible thereafter, the Borrower shall send to the Lender for its own account a
certified copy of an original official receipt received by the Borrower showing
payment thereof.
(ii) Indemnity. The Borrower hereby indemnifies the Lender for the
---------
full amount of all Taxes attributable to payments by or on behalf of the
Borrower hereunder or under any of the other Loan Documents, any Taxes paid by
the Lender any present or future claims, liabilities or losses with respect to
or resulting from any omission to pay or delay in paying any Taxes (including
any incremental Taxes, interest or penalties that may become payable by the
Lender as a result of any failure to pay such Taxes), whether or not such Taxes
were correctly or legally asserted. Such indemnification shall be made within
thirty (30) days from the date the Lender makes written demand therefor.
35
<PAGE>
ARTICLE III
CONDITIONS TO THE REVOLVING CREDIT LOANS
----------------------------------------
Section 3.01 Conditions Precedent to the Effectiveness of this Loan
------------------------------------------------------
Agreement. This Loan Agreement shall become effective on the Closing Date when
- ---------
the following conditions precedent have been satisfied (unless waived by the
Lender or unless the deadline for delivery has been extended by the Lender):
(i) Certain Documents. The Lender shall have received on or before
-----------------
the Closing Date all of the following, all of which, except as otherwise
specifically described below, shall be in form and substance satisfactory to the
Lender:
(a) this Loan Agreement, together with all Exhibits and
Schedules attached hereto completed in full;
(b) a Notice of Borrowing pursuant to Section 2.01 hereof dated
------------
the Closing Date and executed by the Borrower;
(c) the Revolving Credit Loan Note;
(d) the Pledge of Stock Agreements;
(e) the Agreement of Guaranty;
(h) the opinions of counsel to the Borrower and the Guarantors
substantially in the form of Exhibit "F" attached hereto;
-----------
(i) a certificate of the Secretary or Assistant Secretary of the
Borrower dated the Closing Date certifying (1) the names and true signatures of
the incumbent officers of the Borrower authorized to sign this Loan Agreement
and all other Loan Documents executed by the Borrower in connection with the
Revolving Credit Facility, (2) the By-Laws of the Borrower as in effect on the
date of such certification and (3) the resolutions of the Borrower's Board of
Directors approving and authorizing the execution, delivery and performance of
this Loan Agreement and all of the other Loan Documents;
(j) the Certificate of Incorporation of the Borrower, as
amended, modified or supplemented to the Closing Date, shall be certified to be
true, correct and complete by the applicable Secretary of State or other
appropriate Governmental Authority as of a recent date prior to the Closing
Date;
(k) Good Standing Certificate(s) or other appropriate
documentation certified by the appropriate Secretary of State or other
appropriate Governmental Authority relating to the Borrower for each of the
states or countries in which the Borrower is qualified to conduct its business;
(l) a certificate of the Chief Financial Officer of the Borrower
36
<PAGE>
certifying that such financial information (including any annual or quarterly
financial statements of the Borrower) as the Lender may reasonably request are
true and accurate;
(m) a contemporaneous search of real property, tax, judgment
and litigation dockets and records and other appropriate registers shall have
revealed no filings or recordings in effect with respect to the Borrower and the
Guarantors, except such filings or recordings as are reasonably acceptable to
the Lender, and the Lender shall have received a copy of the search reports
received as a result of the search; and
(n) such additional documentation as the Lender may reasonably
require, as indicated on the Lender's "Closing Document Checklist For Unsecured
Revolving Credit Loan" of even date herewith, and, where required to be signed
by the Borrower, the Guarantors, the Lender and/or other Persons, said
documents, agreements and certificates shall have been duly executed, witnessed,
sealed, attested and/or notarized, as appropriate.
(ii) Fees and Expenses Paid. The Borrower shall have paid to the
----------------------
Lender, for its own account, all fees and expenses due and payable under this
Loan Agreement on or before the Closing Date.
(iii) Representations and Warranties. All of the representations and
------------------------------
warranties of the Borrower contained in subsections (i) through (xxx) of Section
----------------------------- -------
4.01 hereof and in any other Loan Document (other than for changes permitted or
- ----
contemplated by this Loan Agreement) shall be true and correct in all material
respects on and as of the Closing Date as though made on and as of that date
(except any such representations and warranties stated to be given on a specific
date other than the Closing Date).
(iv) No Default. No Event of Default or Potential Event of Default
----------
hereunder or under the other Loan Documents shall have occurred and be
continuing on the Closing Date.
(v) No Injunction. No Requirements of Law shall prohibit, and no
-------------
order, judgment or decree of any Governmental Authority shall and, except as set
forth on Schedule 4.01(vii) hereto, no litigation shall be pending or threatened
------------------
which in the judgment of the Lender would, enjoin, prohibit restrain, impose or
result in the imposition of any material adverse condition upon the consummation
of the transactions contemplated hereby.
(vi) Consents. The Borrower shall have received all consents and
--------
authorizations required pursuant to any material Contractual Obligation with any
other Person and shall have obtained all consents and authorizations of, and
effected all notices to and filings with, any Governmental Authority, in each
case, as may be necessary to allow them lawfully to execute, deliver and
perform, in all material respects, their respective obligations under this Loan
Agreement and the other Loan Documents.
37
<PAGE>
(vii) No Material Adverse Change. No adverse change deemed material
--------------------------
by the Lender, in its reasonable opinion, shall have occurred since the date of
the most recent annual audited financial report of the Borrower and the
Guarantors delivered to the Lender through the Closing Date, as to the condition
(financial or otherwise), operations, performance or properties of the Borrower,
the Guarantors, their respective Subsidiaries and Affiliates, individually or
taken as a whole.
Section 3.02. Conditions Precedent to All Revolving Credit Loans. The
--------------------------------------------------
obligation of the Lender to make any Revolving Credit Loan requested to be made
by it on any Funding Date is subject to the following conditions precedent as of
such date:
(i) Notice of Borrowing. With respect to a request for a Revolving
-------------------
Credit Loan, the Lender shall have received in accordance with the provisions of
Section 2.01(ii) hereof, on or before any Funding Date, an original Notice of
- ----------------
Borrowing duly executed by an Authorized Officer of the Borrower.
(ii) Additional Matters. As of the Funding Date for any Revolving
------------------
Credit Loan:
(a) Representations and Warranties. All of the representations
------------------------------
and warranties of the Borrower contained in subsections (i) through (xxx) of
-----------------------------
Section 4.01 hereof and in any other Loan Document (other than representations
- ------------
and warranties which expressly speak only of a different date and other than
for changes permitted or contemplated by this Loan Agreement) shall be true and
correct in all material respects;
(b) No Default. No Event of Default or Potential Event of
----------
Default shall have occurred and be continuing or would result from the making
of the requested Revolving Credit Loan;
(c) No Injunction. No law or regulations shall prohibit, and no
-------------
order, judgment or decree of any Governmental Authority shall, and, except as
set forth on Schedule 4.01(vii) hereto, no litigation shall be pending or
------------------
threatened which in the reasonable judgment of the Lender would, enjoin,
prohibit, restrain, impose or result in the imposition of any material adverse
condition upon the Lender from making the Revolving Credit Loan requested to be
made on the Funding Date; and
(d) No Material Adverse Effect. No Material Adverse Effect
--------------------------
shall have occurred after the Closing Date.
Each submission by the Borrower to the Lender of a Notice of Borrowing
with respect to a Revolving Credit Loan and the acceptance by the Borrower of
the proceeds of each such Revolving Credit Loan made hereunder shall constitute
a representation and warranty by the Borrower as of the Funding Date in respect
of such Revolving Credit Loan that all the conditions contained in this Section
-------
3.02 have been satisfied.
- ----
38
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.01 Representations and Warranties on the Closing Date. In order
--------------------------------------------------
to induce the Lender to enter into this Loan Agreement, the Borrower hereby
represents and warrants to the Lender that the following statements are true,
correct and complete on and as of the Closing Date:
(i) Organization; Corporate Powers. The Borrower (a) is a
------------------------------
corporation duly organized, validly existing and in good standing under the Laws
of the Commonwealth of Virginia, (2) is duly qualified to conduct business as a
foreign corporation and in good standing under the Laws of each jurisdiction in
which it owns or leases real property or in which the nature of its business
requires it to be so qualified except where the failure to so qualify would not
have a Material Adverse Effect and (3) has all requisite power and authority to
own, operate and encumber its property and assets and to conduct its business as
presently conducted and as proposed to be conducted in connection with and
following the consummation of the actions contemplated by the Loan Documents.
(ii) Authority. (a) The Borrower has the requisite corporate power
---------
and authority (1) to execute, deliver and perform each of the Loan Documents
executed by it, or to be executed by it and (2) to file the Loan Documents filed
by it, or to be filed by it, with any appropriate Governmental Authority.
(b) The execution, delivery and performance (or filing, as the
case may be) of each of the Loan Documents to which the Borrower is a party and
the consummation of the transactions contemplated thereby, have been duly
authorized by the Board of Directors of the Borrower and no further corporate
proceedings on the part of the Borrower are necessary to consummate such
transactions.
(c) Each of the Loan Documents to which the Borrower is a party
has been duly executed and delivered (or filed, as the case may be) by the
Borrower and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms.
(iii) Subsidiaries and Affiliates. As of the Closing Date, all of
---------------------------
the Subsidiaries and Affiliates of the Borrower and the Guarantors are listed on
Schedule 4.01(iii) attached hereto and made a part hereof and are properly
- ------------------
identified thereon as to whether each is an operating company in the Borrower's,
the Guarantors', their respective Subsidiaries' and Affiliates' consolidated
businesses and there are no other Subsidiaries and/or Affiliates of the Borrower
or any of the Guarantors. Except for SAGA SOFTWARE (Canada), Inc., a company
organized under the laws of Canada, those Subsidiaries and Affiliates of the
Borrower and Saga Systems which have either (a) executed the Agreement of
Guaranty or (b) have had pledged no more than sixty five percent (65%) of their
authorized, issued and outstanding stock to the Lender pursuant to any of the
Pledge of Stock Agreements are the only operating companies represented by the
consolidated financial statements of Saga Systems.
(iv) No Conflict. The execution and delivery by the Borrower and the
-----------
39
<PAGE>
Guarantors of each Loan Document to which they are party and the performance of
each of the transactions contemplated thereby do not and will not (a) constitute
a tortious interference with any Contractual Obligation of the Borrower or of
any of the Guarantors or (b) conflict with or violate the Borrower's or the
Guarantors' respective Certificate of Incorporation, By-Laws, Operating
Agreement or Certificate of Formation, as applicable, or (c) conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under any Requirement of Law or, subject to clause (a) above,
----------
Contractual Obligation of the Borrower or of any of the Guarantors or require
termination of any Contractual Obligation, the consequences of which conflict or
default or termination would have or is reasonably likely to result in a
Material Adverse Effect or (d) result in or require the creation or imposition
of any Lien whatsoever upon any of the Properties or assets of the Borrower or
any of the Guarantors (other than Liens permitted pursuant to Section 7.01(ii)
----------------
hereof) or (e) require any approval of the stockholders of the Borrower or of
the Guarantors.
(v) Governmental Consents. The execution, delivery and performance
---------------------
of each Loan Document (and the transactions contemplated thereby) do not and
will not require any registration with, consent or approval of, or notice to,
or other action to, with or by any Governmental Authority, except filings,
consents or notices which have been, or will in due course, be made, obtained
or given other than as otherwise obtained.
(vi) Governmental Regulation. Neither the Borrower, any of the
-----------------------
Guarantors nor any of their respective Subsidiaries and/or Affiliates is subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940 or any other Law such that the
Borrower's, any Guarantor's, any such Subsidiary's or Affiliate's ability to
incur indebtedness is limited or its ability to consummate the transactions
contemplated hereby is materially impaired.
(vii) Litigation; Adverse Effects. (a) Except as set forth in
---------------------------
Schedule 4.01(vii) attached hereto, there is no action, suit, proceeding,
- ------------------
governmental investigation or arbitration, at law or in equity, or before or by
any Governmental Authority, pending, or, to the knowledge of the Borrower,
threatened against the Borrower, any of the Guarantors or any of their
respective Subsidiaries or Affiliates or any Property of the Borrower, any of
the Guarantors or any of their respective Subsidiaries or Affiliates which is
reasonably likely to (1) result in any Material Adverse Effect, (2) materially
and adversely affect the ability of the Borrower, any of the Guarantors or any
of their respective Subsidiaries or Affiliates to perform their respective
obligations under the Law, any Contractual Obligation and/or the Loan Documents
or (3) materially and adversely affect the ability of the Borrower and/or the
Guarantors to pay and/or perform their respective Obligations or the Lender's
ability to enforce such Obligations.
(b) Neither the Borrower, any of the Guarantors nor any of their
respective Subsidiaries or Affiliates is (1) in violation of any applicable Law
which violation has or is reasonably likely to have a Material Adverse Effect or
(2) subject to or in default with respect to any final judgment, writ,
injunction, decree, rule or regulation of any court or Governmental Authority
which has or is reasonably likely to have a Material Adverse Effect. There is
no action, suit, proceeding or investigation pending or, to the best knowledge
of the Borrower, threatened against or affecting the Borrower, any of the
Guarantors or any of their respective Subsidiaries or Affiliates challenging the
validity or the enforceability of any of the
40
<PAGE>
Loan Documents.
(vii) No Material Adverse Change. Since the date of the most recent
--------------------------
financial statements delivered by the Borrower, the Guarantors and their
respective Subsidiaries and Affiliates to the Lender, no material adverse change
in, the condition (financial or otherwise), operations or performance of the
Borrower, any of the Guarantors or any of their respective Subsidiaries or
Affiliates or the ability of the Borrower or any of the Guarantors to perform
their respective Obligations under the Loan Documents and the transactions
contemplated thereby has occurred.
(viii) Payment of Taxes. All returns and reports of the Borrower,
----------------
the Guarantors and their respective Subsidiaries and Affiliates required to be
filed, have been timely filed (or appropriate extensions of time for the filing
of same have been timely requested), and all taxes, assessments, fees and other
governmental charges thereupon and upon their respective Properties, assets,
income and franchises which are shown on such returns as being due and payable,
have been paid when due and payable. The Borrower has no knowledge of any
proposed tax assessment against the Borrower, any of the Guarantors or any of
their respective Subsidiaries or Affiliates that is reasonably likely to result
in a Material Adverse Effect.
(ix) Material Adverse Agreements. The Borrower, the Guarantors and
---------------------------
their respective Subsidiaries and Affiliates are not a party to or subject to
any Contractual Obligation or other restriction contained in their respective
Certificates of Incorporation, By-Laws, Operating Agreements, Certificates of
Formation or similar governing corporate documents which is reasonably likely to
have a Material Adverse Effect.
(x) Performance. Neither the Borrower, any of the Guarantors nor
-----------
any of their respective Subsidiaries or Affiliates is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to them and no
condition exists which, with the giving of notice or the lapse of time or
both, would constitute a default under such Contractual Obligation in, each
case, except where the consequences, direct or indirect, of such default or
defaults, if any, would not have or are not reasonably likely to result in a
Material Adverse Effect.
(xi) Accurate and Complete Disclosure. The representations and
--------------------------------
warranties of the Borrower or any other Person contained in the Loan Documents,
and all certificates and other documents delivered to the Lender, in connection
herewith and therewith, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
41
<PAGE>
(xii) Securities Activities. Neither the Borrower, any of the
---------------------
Guarantors nor any of their respective Subsidiaries or Affiliates are engaged
principally in the business of extending credit for the purpose of purchasing or
carrying any Margin Stock.
(xiii) Requirements of Law. Neither the Borrower, any of the
-------------------
Guarantors, nor any of their respective Subsidiaries or Affiliates have actual
knowledge of any non-compliance with respect to all Requirements of Law
applicable to the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates and their respective businesses which non-compliance could reasonably
be expected to result in a Material Adverse Effect.
(xiv) Patents, Trademarks, Permits, Etc. Each of the Borrower, the
----------------------------------
Guarantors, their respective Subsidiaries and Affiliates owns, is licensed or
otherwise has the lawful right to use, or has all permits and other governmental
approvals, patents, trademarks, trade names, copyrights, technology, know-how
and processes used in or necessary for the conduct of its respective business as
currently conducted which are material to its respective condition (financial or
otherwise), operations and performance, taken as a whole. The use of such
permits and other governmental approvals, patents, trademarks, trade names,
copyrights, technology, know how and processes by the Borrower, the Guarantors,
their respective Subsidiaries and Affiliates does not infringe on the rights of
any Person, subject to such claims and infringements and does not, in the
aggregate, give rise to any liability on the part of the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates which has or is
reasonably likely to result in a Material Adverse Effect.
(xv) Environmental Matters. Except as disclosed in Schedule 4.01(xv)
--------------------- -----------------
attached hereto and except where the failure to comply with the provisions of
clauses (a) through (k) below does not result in a Material Adverse Effect: (a)
- -----------------------
the operations of the Borrower, the Guarantors, their respective Subsidiaries
and Affiliates comply in all substantial respects with all applicable
environmental, health and safety Requirements of Law; (b) the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates have obtained all
material environmental, health and safety Permits necessary for their respective
operations, and all such Permits are in good standing, and the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates are in material
compliance with all terms and conditions of such Permits; (c) the Borrower's,
the Guarantors', their respective Subsidiaries' and Affiliates' present
Properties and operations, and the Borrower's, the Guarantors', their respective
Subsidiaries' and Affiliates' past Properties and operations, are not the
subject of any written order from or agreement with any Governmental Authority
or private party or any judicial or administrative proceeding or investigations
respecting any environmental, health or safety Requirements of Law, and are not
the subject of any Remedial Action or other Liabilities and Costs arising from
the Release or threatened Release of an Environmental Concern Material into the
Environment; (d) the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates have not filed any written notice under any Requirement of Law
indicating past or present treatment, storage or disposal of an Environmental
Concern Material in violation of any Environmental Law; (e) the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates have not filed any
written notice under any applicable Requirement of Law reporting a Release of an
Environmental Concern Material into the Environment in violation of any
Environmental Law; (f) there is not now, nor, to the Borrower's knowledge has
there ever been, on or in the Property of the Borrower, the Guarantors, their
respective Subsidiaries and/or Affiliates a violation of any Environmental Law
relating to: (1) any generation, treatment, recycling, storage or disposal of
any Environmental
42
<PAGE>
Concern Material, (2) any underground storage tanks or surface impoundments,
(3) any asbestos-containing material, or (4) any polychlorinated biphenyls
(PCB's) used in hydraulic oils, electrical transformers or other equipment;
(g) neither the Borrower, the Guarantors nor any of their respective
Subsidiaries and/or Affiliates have received any written notice or claim to the
effect that they are or may be liable to any Person as a result of the Release
or threatened Release of a Environmental Concern Material into the Environment,
or as a result of exposure to asbestos or to cotton dust, which may result in
any liability; (h) no Environmental Lien has attached to any Property of the
Borrower, the Guarantors, their respective Subsidiaries and/or Affiliates; (i)
neither the Borrower, the Guarantors nor any of their respective Subsidiaries
and Affiliates have entered into any negotiations or written agreements with any
Person (including, without limitation, the prior owner(s) of any Property owned
or leased by the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates) relating to any Remedial Action or environmentally related Claim;
(j) neither the Borrower, the Guarantors nor any of their respective
Subsidiaries and Affiliates have any material contingent liability in connection
with any Release or threatened Release of any Environmental Concern Material
into the Environment; and (k) none of the products that the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates manufactures,
distributes or sells, or, ever, to the Borrower's knowledge, has manufactured,
distributed or sold, contains an asbestos-containing material.
(xvi) ERISA. Neither the Borrower, any of the Guarantors, their
-----
respective Subsidiaries and Affiliates nor any ERISA Affiliate maintains or
contributes to any Plan other than a Plan listed on Schedule 4.01(xvi) attached
------------------
hereto. Except as otherwise provided on Schedule 4.01(xvi), each Plan which is
------------------
intended to be a qualified plan has been determined by the IRS to be qualified
under Section 401(a), and each trust related to any such Plan has been so
determined to be exempt from federal income tax under Section 501(a) of the Code
prior to its amendment by the Tax Reform Act of 1986, and such Plan and trust
are being operated in all material respects in compliance with and will be
timely amended in accordance with the Tax Reform Act of 1986 and the Omnibus
Budget Reconciliation Act of 1987 as interpreted by the regulations promulgated
thereunder. Except as otherwise provided on Schedule 4.01(xvi) attached hereto,
------------------
neither the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates nor any ERISA Affiliate maintains or contributes to any employee
welfare benefit plan within the meaning of Section 3(l) of ERISA which provides
lifetime benefits to retirees other than as may be required by the Combined
Omnibus Budget Reconciliation Act of 1985, as amended and interpreted by
regulations promulgated thereunder. The Borrower, the Guarantors, their
respective Subsidiaries and Affiliates and all ERISA Affiliates are in
compliance in all material respects with the responsibilities, obligations or
duties imposed on them by ERISA or regulations promulgated thereunder with
respect to all Plans. No material accumulated funding deficiency (as defined in
Section 302(a)(2) of ERISA and Section 412(a) of the Code) exists in respect to
any Benefit Plan. The Borrower, the Guarantors, their respective Subsidiaries
and Affiliates and any ERISA Affiliate and any fiduciary of any Plan (a) have
not engaged in a nonexempt "prohibited transaction" described in Section 406 of
ERISA or Section 4975 of the Code and (b) have not taken any action which would
constitute or result in a Termination Event with respect to any Plan such that
actions under (a) or (b) or both would result in a material obligation to pay
money. Neither the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates nor any ERISA Affiliate have incurred any material liability to the
PBGC which remains outstanding other than the liability to pay the PBGC
insurance premiums for the current year. Schedule B to the most recent annual
report filed with the IRS with respect to each Benefit Plan and furnished
43
<PAGE>
to the Lender is complete and accurate in all material respects. Except as
provided on Schedule 4.01(xvi) attached hereto, since the date of each such
------------------
Schedule B, there has been no material adverse change in the funding status or
financial condition of the Benefit Plan relating to such Schedule B which would
result in a Material Adverse Effect. Neither the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates nor any ERISA Affiliate have failed to
make a required installment under subsection (m) of Section 412 of the Code or
any other payment required under Section 412 of the Code on or before the due
date for such installment or other payment which would in the aggregate have a
Material Adverse Effect. Neither the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates nor any ERISA Affiliate are required to provide
security to a Plan under Section 401(a)(29) of the Code due to a Plan amendment
that results in an increase in current liability for the plan year. Neither the
Borrower, the Guarantors, their respective Subsidiaries and Affiliates nor any
ERISA Affiliate are now contributing or have ever contributed to or been
obligated to contribute to any Multiemployer Plan, and no employees or former
employees of the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates and or any ERISA Affiliate have been covered by any Multiemployer
Plan in respect of their employment by the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates and or any ERISA Affiliate, and,
accordingly, the representations and warranties in this subsection (xvi) do not
----------------
apply to Multiemployer Plans.
(xvii) Solvency. The Borrowers, the Guarantors, their respective
--------
Subsidiaries and Affiliates, taken as a whole, are Solvent after giving effect
to the transactions contemplated by (a) this Loan Agreement and the other Loan
Documents and (b) the payment and accrual of all costs payable on the Closing
Date with respect to any of the foregoing.
(xviii) Assets and Properties. Substantially all of the assets and
---------------------
properties owned by, leased to or used by the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates in their respective businesses (a) are in
good operating condition and repair, (ordinary wear and tear excepted), (b) are
free and clear of any known defects (except such defects as do not substantially
interfere with the continued use thereof in the conduct of normal operations)
and (c) are able to serve the function for which they are currently being used,
in each case where the failure of such asset to meet such requirements would not
have or is not reasonably likely to result in a Material Adverse Effect.
(xix) Joint Venture; Partnership. Except as set forth in Schedule
-------------------------- --------
4.01(xix) attached hereto, as of the Closing Date neither the Borrower, any of
- ---------
the Guarantors nor any of their respective Subsidiaries or Affiliates are
engaged in any joint venture or partnership with any other Person.
(xx) Insurance. The Borrower, the Guarantors, their respective
---------
Subsidiaries and Affiliates maintain with financially sound and reputable
insurers not related to or affiliated with the Borrowers, the Guarantors, their
respective Subsidiaries and Affiliates, insurance with respect to their
respective Properties and businesses, insured against such liabilities,
casualties and contingencies and in such types and amounts as is customary in
the case of corporations engaged in the same or a similar business or having
similar properties similarly situated. Schedule 6.05 attached hereto and made a
-------------
part hereof sets forth a list of all insurance currently maintained by or in
respect of the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates setting forth the identity of the insurance carrier, the type of
coverage, the amount of coverage and the deductible.
44
<PAGE>
There are no claims, actions, suits, proceedings against, arising under or
based upon any of such insurance policies except as set forth in Schedule 6.05
-------------
attached hereto and made a part hereof.
(xxi) Title to Property. The Borrower, the Guarantors, their
-----------------
respective Subsidiaries and Affiliates have good and marketable title in fee
simple to all Property owned or purported to be owned by them, including,
without limitation, all property reflected in the most recent audited
consolidated balance sheet referred to in Section 4.01(xxii) hereof or submitted
------------------
pursuant to Article V hereof, in each case free and clear of all Liens, other
---------
than Customary Permitted Liens.
(xxii) Audited Financial Statements. The Borrower has heretofore
----------------------------
furnished to the Lender a consolidated balance sheet of the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates dated as of December
31, 1998, and the related statements of income, cash flows and changes in
stockholders' equity for the Fiscal Year then ended, as examined and reported on
by the Independent Certified Public Accountant, who delivered an unqualified
opinion in respect thereof. Such financial statements (including the notes
thereto) present fairly the financial condition of the Borrower, the Guarantors,
their respective Subsidiaries and Affiliates as of the end of such Fiscal Year
and the results of its operations and its cash flows for the Fiscal Year then
ended, all in conformity with Generally Accepted Accounting Principles.
(xxiii) Interim Financial Information. The Borrower has heretofore
-----------------------------
furnished to the Lender an interim consolidated balance sheet of the Borrower,
the Guarantors, their respective Subsidiaries and Affiliates as of the end of
its second Fiscal Quarter of the Fiscal Year beginning January 1, 1999 and the
related statements of income, cash flows and changes in stockholders' equity for
the Fiscal Quarter then ended. Such financial statements present fairly the
financial condition of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates as of the end of such Fiscal Quarters and the
results of their operations and their cash flows for the fiscal periods then
ended, all in conformity with Generally Accepted Accounting Principles (except
to the extent set forth in the notes to said financial statements), subject to
normal and recurring year-end audit adjustments.
(xxiv) Absence of Undisclosed Liabilities. Neither the Borrower, any
----------------------------------
of the Guarantors nor any of their respective Subsidiaries or Affiliates has any
liability or obligation of any nature whatever (whether absolute, accrued,
contingent or otherwise, whether or not due), forward or long-term commitments
or unrealized or anticipated losses from unfavorable commitments, except (a) as
disclosed in the financial statements referred to in Sections 4.01 (xxii) and
--------------------
(xxiii) hereof, (b) matters that, individually or in the aggregate could not
- -------
result in a Material Adverse Effect and (c) Contractual Obligations incurred in
the ordinary course of the Borrower's, the Guarantors' or their respective
Subsidiaries' or Affiliates' respective businesses.
45
<PAGE>
(xxv) Margin Regulations. No part of the proceeds of the Revolving
------------------
Credit Facility will be used for the purpose of buying or carrying any Margin
Stock, as such term is used in Regulation U of the Federal Reserve Board, as
amended from time to time, or to extend credit to others for the purpose of
buying or carrying any Margin Stock. Neither the Borrower, any of the
Guarantors nor any of their respective Subsidiaries or Affiliates is engaged in
the business of extending credit to others for the purpose of buying or carrying
Margin Stock. The making of any Revolving Credit Loan and the use of proceeds
of any such Revolving Credit Loan will not violate or conflict with the
provisions of Regulation T, U or X of the Federal Reserve Board, as amended from
time to time.
(xxvi) Labor Matters. Except as set forth on Schedule 4.01(xxvi)
------------- -------------------
attached hereto and made a part hereof, neither the Borrower, any of the
Guarantors nor any of their respective Subsidiaries or Affiliates are a party to
any labor union or collective bargaining agreements. The Borrowers, the
Guarantors, their respective Subsidiaries and Affiliates are in compliance with
all applicable laws respecting employment and employment practices, including,
without limitation, laws, regulations, and judicial and administrative decisions
relating to wages, hours, conditions of work, collective bargaining, health and
safety, payment of social security, payroll, withholding and other taxes,
worker's compensation, insurance requirements, as well as requirements of ERISA
and the Consolidated Omnibus Budget Reconciliation Act, except to the extent
that noncompliance would not have a Material Adverse Effect. There is no (a)
unfair labor practice complaint pending or, to the best knowledge of the
Borrowers, threatened against the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates before the National Labor Relations Board, any court
or any other Governmental Authority nor any pending or, to the best knowledge of
the Borrower, threatened sexual harassment, or wrongful discharge claim, (b)
labor strike, dispute, slowdown, or stoppage pending or, to the best knowledge
of the Borrower, threatened against the , the Guarantors, their respective
Subsidiaries and Affiliates or (c) representation petition, respecting the
employees of the Borrowers, the Guarantors, their respective Subsidiaries and
Affiliates filed or threatened to be filed with the National Labor Relations
Board
(xxvii) Brokerage Commissions. No other Person is entitled to
---------------------
receive from the Borrower, the Guarantors, their respective Subsidiaries and/or
Affiliates any brokerage commission, finder's fee or similar fee or payment in
connection with the consummation of the transactions contemplated by this Loan
Agreement. No brokerage or other fee, commission or compensation is to be paid
by the Lender by reason of any act, alleged act or omission of the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates with respect to the
transactions contemplated hereby.
(xxviii) Year 2000 Problem. The Year 2000 Problem will not result in
-----------------
a Material Adverse Effect.
(xxix) Reprogramming of Computer Systems. Any reprogramming required
---------------------------------
to permit the proper functioning, in and following the year 2000, of the
Borrower's, the Guarantors', their respective Subsidiaries' and/or Affiliates'
(a) computer systems and (b) equipment containing embedded microchips (including
systems and equipment supplied by others or with which the Borrower's, the
Guarantors', their respective Subsidiaries' and/or Affiliates' systems
interface) will be completed prior to October 31, 1999. The testing of all such
systems and equipment, as so
46
<PAGE>
reprogrammed, will be completed by November 30, 1999. The cost to the Borrower,
the Guarantors, their respective Subsidiaries and Affiliates of such
reprogramming, as projected, will not result in an Event of Default or a
Material Adverse Effect. Except for such reprogramming referred to in the
preceding sentence (as may be necessary), the computer and management
information systems of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates are and, with upgrading and maintenance in the
ordinary course of business, will continue to be adequate for the conduct of its
business without Material Adverse Effect.
(xxx) Plan for Year 2000 Compliance. (a) The Borrower, the
-----------------------------
Guarantors, their respective Subsidiaries and Affiliates (1) have undertaken a
detailed review and assessment of all areas within its business and operations
that could be adversely affected by its failure to be Year 2000 Compliant on a
timely basis, (2) have developed on a timely basis, a detailed plan and timeline
for becoming Year 2000 Compliant on a timely basis and (3) have implemented that
plan in accordance with that timetable in all material respects. The Borrower,
the Guarantors, their respective Subsidiaries and Affiliates reasonably
anticipate that they will be Year 2000 Compliant on a timely basis.
(b) The Borrower, the Guarantors, their respective Subsidiaries and
Affiliates have completed or accomplished the following:
(1) Prepared a comprehensive, detailed assessment of the extent
to which the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates are not Year 2000 Compliant;
(2) Made detailed inquiry of all material suppliers, vendors
and customers of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates to ascertain whether such entities are aware of
the need to be Year 2000 Compliant and is taking all appropriate steps to
become Year 2000 Compliant on a timely basis; and
(3) Prepared a detailed project plan and timetable for ensuring
that the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates are Year 2000 Compliant on a timely basis.
Section 4.02. Subsequent Funding Representations and Warranties. In order
-------------------------------------------------
to induce the Lender to enter into this Loan Agreement and to make Revolving
Credit Loans, the Borrower hereby represents and warrants to the Lender that the
statements set forth in subsections (i) through (xxx) of Section 4.01 hereof
----------------------------- ------------
(except to the extent that such statements (i) are made expressly only as of the
Closing Date or (ii) other than for changes permitted or contemplated by this
Loan Agreement), are true, correct and complete in all material respects after
the Closing Date on and as of the Funding Date in respect of each Borrowing.
47
<PAGE>
ARTICLE V
REPORTING COVENANTS
-------------------
On and after the Closing Date and so long as the Borrower shall have any
Obligation hereunder, unless the Lender shall give its prior express written
consent to the effect otherwise, then:
Section 5.01 Statement of Accounting. The Borrower shall, and shall cause
-----------------------
each of the Guarantors, their respective Subsidiaries and Affiliates, as
applicable, (i) to make and to keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect their respective transactions
and dispositions of their respective assets and (ii) to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary (1) to permit
preparation of financial statements in conformity with Generally Accepted
Accounting Principles and any other accounting principles applicable thereto and
(2) to maintain accountability for assets and (c) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Section 5.02 Reporting and Information Requirements. The Borrower shall
--------------------------------------
deliver or cause to be delivered to the Lender the following financial
statements, data, reports and information, at the Borrower's own cost and
expense:
(i) Annual "Audited" Consolidated Financial Statements of the
---------------------------------------------------------
Borrower, the Guarantors and their respective Subsidiaries and Affiliates. (a)
- -------------------------------------------------------------------------
As soon as available, but in any event within ninety (90) days after the close
of each Fiscal Year of the Borrower, "audited" consolidated statements of
income, retained earnings and a statement of cash flows for the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates for such Fiscal Year
and a consolidated balance sheet of the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates as of the close of such Fiscal Year, and
notes to each, all as set forth in the Form 10-K filed by Saga Systems with the
SEC, setting forth in comparative form the corresponding figures for the
preceding Fiscal Year. Such financial statements shall be accompanied by an
opinion of the Independent Certified Public Accountant, which opinion shall be
signed by such Independent Certified Public Accountant. The opinion of the
Independent Certified Public Accountant shall be free of exceptions or
qualifications not acceptable to the Lender and, in any event, shall be free of
any exception or qualification which is of "going concern" or like nature or
which relates to a more limited scope of examination and shall be otherwise
acceptable to the Lender. Such opinion shall in any event contain a written
statement of the Independent Certified Public Accountant substantially to the
effect that (a) the Independent Certified Public Accountant examined the
financial statements in accordance with Generally Accepted Auditing Standards
and accordingly made such tests of accounting records and such other auditing
procedures as the Independent Certified Public Accountant considered necessary
under the circumstances and (b) in the opinion of the Independent Certified
Public Accountant such financial statements present fairly the financial
position and cash flows of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates as of the end of such Fiscal Year, and the results
of the Borrower's, the Guarantors', their respective Subsidiaries' and
Affiliates' operations and the changes in their financial position
48
<PAGE>
for such Fiscal Year, in conformity with Generally Accepted Accounting
Principles applied on a basis consistent with that of the preceding Fiscal Year.
(b) In addition to the delivery of the annual "audited"
consolidated financial statements to be delivered by the Borrower to the Lender
pursuant to Section 5.02(i)(a) above, the Borrower shall also deliver, or
------------------
cause to be delivered, to the Lender, at the same time, an "unaudited"
management prepared consolidating statement of income for the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates for such Fiscal Year,
all prepared and certified to the Lender by the Borrower's chief accounting
officer in his capacity as an Authorized Officer.
(ii) Quarterly "Unaudited" Consolidated Financial Statements of the
--------------------------------------------------------------
Borrower, the Guarantors, their respective Subsidiaries and Affiliates. (a) As
- ----------------------------------------------------------------------
soon as available, but in any event within forty-five (45) days after the close
of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower,
"unaudited" consolidated statements of income, retained earnings and a statement
of cash flows for the Borrower, the Guarantors, their respective Subsidiaries
and Affiliates for such Fiscal Quarter and for the period from the beginning of
such Fiscal Year to the end of such Fiscal Quarter, and an "unaudited"
consolidated balance sheet of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates as of the close of such Fiscal Quarter, all as set
forth in the Form 10-Q filed by Saga Systems with the SEC, setting forth in
comparative form the corresponding figures for the corresponding dates and
periods during the preceding Fiscal Year.
(b) All of the above-described financial statements shall be
certified by the chief accounting officer of the Borrower, in his capacity as an
Authorized Officer, as presenting fairly the financial position of the Borrower,
the Guarantors, their respective Subsidiaries and Affiliates as of the end of
such dates and fiscal periods and the results of their operations and the
changes in their financial position and cash flows for such fiscal periods, in
conformity with Generally Accepted Accounting Principles applied in a manner
consistent with that of the most recent audited financial statements furnished
to the Lender, subject to normal and recurring year-end audit adjustments.
(iii) Compliance Certificates. Together with each delivery of any
-----------------------
financial statement pursuant to Section 5.02(i) and Section 5.02(ii) above, an
------------------------------------
Officer's Certificate of the Borrower substantially in the form of Exhibit "D"
-----------
attached hereto, (a) stating that the officer signatory thereto in his capacity
as an Authorized Officer has reviewed the terms of this Loan Agreement and the
principal Loan Documents, and has made, or caused to be made under his
supervision, a review in reasonable detail of the transactions and condition of
the Borrower, taken as a whole, during the accounting period covered by such
financial statements, and that such review has not disclosed the existence
during or at the end of such accounting period, and that the signer does not
have knowledge of the existence as at the date of the Officer's Certificate, of
any condition or event which constitutes an Event of Default or Potential Event
of Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Borrower has taken,
are taking and propose to take with respect thereto and (b) demonstrating in
reasonable detail compliance, during and at the end of such accounting periods,
with the financial covenants contained in Article VIII of this Loan Agreement.
------------
49
<PAGE>
(iv) Annual Projections; Forecast Analysis. As soon as practicable,
-------------------------------------
but in any event within ninety (90) days after the close of each Fiscal Year of
the Borrower, an update to the projections previously delivered to the Lender
(in form and substance substantially similar thereto), as of the end of (a) the
next full Fiscal Year or (b) any other full Fiscal Year during the term of the
Revolving Credit Facility requested by the Lender.
(v) Accountants Audit Opinion Letter. Each set of financial
--------------------------------
statements delivered pursuant to Section 5.02(i) hereof shall be accompanied by
---------------
the annual audit opinion letter submitted with such financial statements by the
Independent Certified Public Accountant who certified such financial statements.
(vi) Other Reports and Information. Promptly upon their becoming
-----------------------------
available to the Borrower, a copy of (a) all reports, financial statements and
other information distributed generally by the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates to their respective stockholders,
members, bondholders or the financial community, (b) all accountants' management
letters pertaining to, all other reports submitted by accountants in connection
with any audit of, and all other material reports from outside accountants with
respect to, the Borrower, the Guarantors, their respective Subsidiaries and
Affiliates, if any, and (c) all reports submitted to Governmental Authorities
and/or with respect to Plans under ERISA, except as prepared in the normal
course of the Borrower's, any of the Guarantors', any Subsidiaries', and any
Affiliates' respective businesses and where no material adverse action with
respect thereto would result.
(vii) Further Information. The Borrower shall promptly furnish to
-------------------
the Lender any business, financial or other information concerning the Borrower,
the Guarantors, their respective Subsidiaries and Affiliates which the Lender
may reasonably request from time to time in a form acceptable to the Lender.
(viii) Notice of Event of Default. Promptly upon becoming aware of
--------------------------
any Event of Default or Potential Event of Default, the Borrower shall give the
Lender written notice thereof, together with a written statement of the
Authorized Officer of the Borrower setting forth the details thereof and any
action with respect thereto taken or contemplated to be taken by the Borrower.
(ix) Notice of Material Adverse Effect. Promptly upon becoming
---------------------------------
aware thereof, the Borrower shall give the Lender written notice about any
Material Adverse Effect, including, without limitation, any loss from casualty
or theft in excess of $1,000,000.00 whether or not insured, affecting any
property or assets of the Borrower, the Guarantors, their respective
Subsidiaries and Affiliates, setting forth the details thereof and any action
with respect thereto taken or contemplated to be taken by the Borrower, the
Guarantors, their respective Subsidiaries and Affiliates.
(x) Notice of Material Proceedings. Promptly upon becoming aware
------------------------------
thereof, the Borrower shall give the Lender written notice of the commencement,
existence or threat of any action, suit, proceeding, governmental investigation
or arbitration against or affecting the Borrower, the Guarantors, their
respective Subsidiaries and Affiliates, including without limitation,
litigation, arbitration or administration proceedings, which, if adversely
decided, would have a Material
50
<PAGE>
Adverse Effect on the business, assets, operations or financial condition of the
Borrower, the Guarantors, their respective Subsidiaries and Affiliates or on the
ability of the Borrower and/or any of the Guarantors to perform their respective
obligations under this Loan Agreement or under the other Loan Documents.
(xi) Notice of Pension-Related Events. The Borrower shall give the
--------------------------------
Lender the following:
(a) As soon as possible, and in any event within ten (10) days
after the Borrower, any of the Guarantors, any of their respective Subsidiaries
or Affiliates or an ERISA Affiliate knows or has reason to know that a
Termination Event has occurred, a written statement of the Authorized Officer of
the Borrower describing such Termination Event and the action, if any, which the
Borrower, the Guarantors, their respective Subsidiaries or Affiliates or such
ERISA Affiliate has taken, is taking or proposes to take with respect thereto,
and when known, any action taken or threatened by the IRS, the DOL or PBGC with
respect thereto;
(b) As soon as possible, and in any event within fifteen (15) days,
after the Borrower, any of the Guarantors, any of their respective Subsidiaries
or Affiliates or an ERISA Affiliate knows or has reason to know that a non-
exempt prohibited transaction (as defined in Section 406 of ERISA and Section
4975 of the Code) has occurred, a statement of the Authorized Officer of the
Borrower describing such transaction;
(c) Within ten (10) days after the filing thereof with the DOL, IRS
or PBGC, copies of each annual report, filed with respect to each Benefit Plan;
(d) Within ten (10) days after the filing thereof with the IRS, a
copy of each funding waiver request filed with respect to any Benefit Plan and
all communications received by the Borrower, any of the Guarantors, any of their
respective Subsidiaries or Affiliates or an ERISA Affiliate with respect to such
request;
(e) Within thirty (30) days after the occurrence thereof, the first
to occur of an amendment of any existing Benefit Plan which will result in a
material increase in the benefits under such Benefit Plan or a notification of
any such increase, or the establishment of any new Plan or the commencement of
contributions to any Plan to which the Borrower, any of the Guarantors, any of
their respective Subsidiaries or Affiliates or an ERISA Affiliate was not
previously contributing in a material amount, the details and/or copies of such
amendment, notification or Plan;
51
<PAGE>
(f) Promptly upon, and in any event within fifteen (15) Business
Days after, receipt by the Borrower, any of the Guarantors, any of their
respective Subsidiaries or Affiliates or an ERISA Affiliate of the PBGC's
intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice;
(g) Promptly upon, and in any event within ten (10) Business Days
after, receipt by the Borrower, any of the Guarantors, any of their respective
Subsidiaries or Affiliates or an ERISA Affiliate of an unfavorable determination
letter from the IRS regarding the qualification of a Plan under Section 401(a)
of the Code, copies of such letter;
(h) Promptly upon, and in any event within fifteen (15) Business
Days after, receipt by the Borrower, any of the Guarantors, any of their
respective Subsidiaries or Affiliates or an ERISA Affiliate of a notice from a
Multiemployer Plan regarding the imposition of withdrawal liability, copies of
such notice; and
(i) Promptly upon, and in any event within fifteen (15) Business
Days after, the Borrower, any of the Guarantors, any of their respective
Subsidiaries or Affiliates or any ERISA Affiliate fails to make a required
installment under subsection (m) of Section 412 of the Code or any other payment
required under Section 412 of the Internal Revenue Code on or before the due
date for such installment or payment, a notification of such failure provided
that such installment payment is an amount which is material.
(xii) Notice of Other Material Defaults. Promptly upon becoming
---------------------------------
aware of any material default by the Borrower, any Guarantor, any Subsidiary
and/or Affiliate under any material Contractual Obligation to which the
Borrower, any Guarantor, any Subsidiary and/or Affiliate or by which the
Borrower, any Guarantor, any Subsidiary and/or Affiliate or any of their
respective Properties may be bound, the Borrower shall give the Lender written
notice thereof, together with a written statement of the Authorized Officer of
the Borrower in his capacity as an Authorized Officer setting forth the details
thereof and any action with respect thereto taken or contemplated to be taken by
the Borrower, such Guarantor, such Subsidiary and/or Affiliate.
(xvi) Notice of Material Claims. The Borrower shall promptly
-------------------------
notify the Lender of all written Claims, complaints, orders, citations or
notices, whether formal or informal, from a Governmental Authority or other
Person relating to any Law, including, without limitation, any Environmental Law
or health and safety law, which could reasonably be expected to have a Material
Adverse Effect. Such notices shall include, among other information, the name of
the party who filed the Claim, the potential amount of the Claim, if known, and
the nature of the Claim.
(xvii) Notice of Stock Repurchase Program. The Borrower shall
----------------------------------
promptly notify the Lender, in writing, of any proposed repurchase by Saga
Systems of the common stock of Saga Systems pursuant to any Stock Repurchase
Program on or prior to the date such Stock Repurchase Program takes effect if
such repurchase will cost Saga Systems $5,000,000.00 or more.
(xviii) Subsidiaries and/or Affiliates Formed or Acquired. The
-------------------------------------------------
Borrower shall promptly notify the Lender of, but in any event within thirty
(30) days following, the acquisition or formation of any Subsidiary or Affiliate
of the Borrower or of any Guarantor which is acquired or formed after the
Closing Date and whether such Subsidiary or Affiliate is an operating company in
52
<PAGE>
the Borrower's, the Guarantors', their respective Subsidiaries' and Affiliates'
consolidated businesses.
Section 5.03 Environmental Notices. The Borrower shall notify the Lender,
---------------------
in writing, promptly, and in any event within fifteen (15) days after obtaining
actual knowledge, of any: (i) notice or claim to the effect that the Borrower,
any of the Guarantors, any of their respective Subsidiaries or Affiliates
thereof is or may be liable to any Person as a result of the Release or
threatened Release of any Environmental Concern Material into the Environment;
(ii) notice that the Borrower, any of the Guarantors, any of their respective
Subsidiaries or Affiliates thereof is under investigation by any Governmental
Authority evaluating whether any Remedial Action is needed to respond to the
Release or threatened Release of any Environmental Concern Material into the
Environment; (iii) notice that any Property of the Borrower, any of the
Guarantors, any of their respective Subsidiaries or Affiliates thereof is
subject to an Environmental Lien which could reasonably be expected to have a
Material Adverse Effect; (iv) notice of violation to the Borrower, any of the
Guarantors, any of their respective Subsidiaries or Affiliates thereof or
awareness by the Borrower, any of the Guarantors, any of their respective
Subsidiaries or Affiliates thereof of a condition which might reasonably result
in a notice of violation of any environmental, health or safety Requirement of
Law, which could have a Material Adverse Effect; (v) commencement or threat of
any judicial or administrative proceeding alleging a material violation of any
environmental, health or safety Requirement of Law; (vi) new changes to any
existing environmental, health or safety Requirement of Law that could have a
Material Adverse Effect on the operations of the Borrower, any of the
Guarantors, any of their respective Subsidiaries or Affiliates thereof; or (vii)
any proposed acquisition of stock, assets, real estate, or leasing of property,
or any other action by the Borrower, any of the Guarantors, any of their
respective Subsidiaries or Affiliates thereof that could subject the Borrower,
any of the Guarantors, any of their respective Subsidiaries or Affiliates
thereof to environmental, health or safety Liabilities and Costs that could have
a Material Adverse Effect.
53
<PAGE>
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
The Borrower hereby covenants and agrees that, on and after the Closing
Date and until payment in full of all of the Obligations, unless the Lender
shall give its prior express written consent to the effect otherwise, then:
Section 6.01 Corporate Existence, etc. The Borrower, its Subsidiaries and
------------------------
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, do or cause to be done all things necessary (i) to maintain their
respective status as a corporation, limited liability company or other form of
legal entity, duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation, formation or
organization and (ii) to preserve and to keep in full force and effect their
respective rights and franchises unless the failure to maintain such rights and
franchises would not result in a Material Adverse Effect. The Borrower shall
promptly provide the Lender with a complete and up-to-date list of all
Subsidiaries and Affiliates of the Borrower and of each of the Guarantors.
Section 6.02 Corporate Powers, etc. The Borrower, its Subsidiaries and
---------------------
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, do or cause to be done all things necessary to qualify and remain
qualified to conduct business in each jurisdiction in which the nature of their
respective businesses or the ownership of their respective properties or both
requires them to be so qualified except where the failure to be so qualified
would not reasonably be expected to cause a Material Adverse Effect. The
Borrower, its Subsidiaries and Affiliates shall, and shall cause the Guarantors,
their Subsidiaries and Affiliates to, do or cause to be done all things
necessary to transact business in their own names and shall invoice all accounts
in their own name.
Section 6.03 Compliance with Laws, etc. The Borrower, its Subsidiaries and
-------------------------
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, (i) to comply with all Requirements of Law, and all restrictive
covenants affecting them or their respective businesses, properties, assets or
operations and (ii) to obtain as needed all Permits necessary for their
respective operations, and maintain such Permits in good standing, except to the
extent non-compliance with this Section 6.03 would not result in a Material
------------
Adverse Effect.
Section 6.04 Payment of Taxes and Claims. The Borrower, its Subsidiaries
---------------------------
and Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, pay or cause to be paid (i) all taxes, assessments and other
governmental charges imposed upon them or on any of their respective properties
or assets or in respect of any of their respective franchises, business, income
or property before any penalty or interest accrues thereon and (ii) all Claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums material in the aggregate to the Borrower, the Guarantors,
their respective Subsidiaries and Affiliates which have become due and payable
and which by Law have or may become a Lien (other than a Customary Permitted
Lien) upon their respective Properties, prior to time when any penalty or fine
shall be incurred with respect thereto; provided, however, that no such taxes,
-------- -------
assessments and governmental charges referred to in clause (i) above or Claims
----------
referred to in clause (ii) above need be paid if being contested in good faith
-----------
by appropriate proceedings
54
<PAGE>
promptly instituted and diligently conducted and if adequate reserves shall have
been set aside therefor in accordance with Generally Accepted Accounting
Principles.
Section 6.05 Maintenance of Properties; Insurance. The Borrower, its
------------------------------------
Subsidiaries and Affiliates shall, and shall cause the Guarantors, their
Subsidiaries and Affiliates to, maintain or cause to be maintained in good
repair, working order and condition, excepting ordinary wear and tear, all of
their respective Properties material to their respective operations and will
make or cause to be made all appropriate repairs, renewals and replacements
thereof, consistent with past practice. The Borrower, its Subsidiaries and
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, to maintain or cause to be maintained with financially sound and
reputable insurers reasonably acceptable to the Lender, the insurance policies
and programs listed on Schedule 6.05 attached hereto and made a part hereof or
-------------
substantially similar programs or policies and amounts or other programs,
policies and amounts acceptable to the Lender. Not later than thirty (30) days
later than the renewal, replacement, cancellation, termination or material
modification of any policy or program, the Borrower shall deliver or cause to be
delivered to the Lender a certificate of insurance setting forth for each such
policy or program: (i) the amount of such policy, (ii) the risks insured against
by such policy, (iii) the name of the insurer and each insured party under such
policy and (iv) the policy number of such policy.
Section 6.06 Inspection of Property; Books and Records; Disclosure.
-----------------------------------------------------
Except for information and records which the Borrower, any of the Guarantors,
any of their respective Subsidiaries and/or Affiliates may not under applicable
Law disseminate or disclose to the Lender, the Borrower, its Subsidiaries and
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, permit any authorized representative(s) designated by the Lender
to visit, to conduct a field audit or to otherwise inspect the Borrower's, any
of the Guarantor's or any of their respective Subsidiary's and/or Affiliate's
respective corporate records, including their financial and accounting records,
located at the Borrower's or Saga Systems' respective chief executive offices
and/or principal places of business, as such offices and places of business may
change from time to time, and to make copies and take extracts therefrom, and to
discuss the Borrower's, any of the Guarantor's, any of their respective
Subsidiary's and any Affiliate's affairs, finances and accounts with the
Lender's officers, employees, representatives or independent certified public
accountants, upon at least fifteen (15) days' notice from the Lender to the
Borrower, during normal business hours and on a date which is reasonably
mutually convenient for both the Lender and the Borrower; provided, however,
-------- -------
that if an Event of Default or Potential Event of Default shall have occurred
and be continuing, the Lender shall have the right to make any such visit, field
audit or other inspection at any time, on any date and without prior notice to
the Borrower. All information furnished to the Lender shall be received and
maintained by the Lender in strict confidence and in accordance with applicable
Law, and the Lender shall not disseminate said information to any Person, except
where required by and in accordance with applicable Law or where contemplated by
the Loan Documents. The Lender agrees that it shall not take any action or omit
to take any action which would cause or result in the violation of Law
(including without limitation, any export control law) by the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates. Each such
visitation and inspection by or on behalf of the Lender shall be at the
Borrower's own cost and expense. The Borrower, its Subsidiaries and Affiliates
shall, and shall cause the Guarantors, their Subsidiaries and Affiliates to,
keep proper books and records and accounting in accordance with sound and
accepted accounting practices, consistently applied and all Requirements of Law.
55
<PAGE>
Section 6.07 Litigation, Claims, etc., The Borrower shall provide the
------------------------
Lender with (i) a litigation status report, in a form satisfactory to the
Lender, with respect to any litigation described on Schedule 4.01(vii) attached
------------------
hereto and made a part hereof or any new litigation (whether at law or in
equity) which is asserted against the Borrower, any of the Guarantors or any of
their respective Subsidiaries and/or Affiliates involving money or property
valued in excess of $750,000.00 promptly after the close of each Fiscal Quarter;
(ii) notice of any suit at law or in equity or claim brought or asserted against
the Borrower, any of the Guarantors, their respective Subsidiaries and/or
Affiliates, promptly after learning thereof with respect to any suit or claim
involving money or property valued in excess of $300,000.00 or any such suits or
claims which in the aggregate involve money or property valued in excess of
-- --- ---------
$750,000.00; and (iii) prompt notice of any investigation or proceeding before
or by any Governmental Authority, the effect of which is reasonably likely to
result in a Material Adverse Effect.
Section 6.08 Labor Disputes. The Borrower shall notify the Agent in
--------------
writing, promptly, but in any event within two (2) Business Days after learning
thereof, of any material labor dispute to which the Borrower, any of the
Guarantors, their respective Subsidiaries and/or Affiliates may become a party,
any strikes or walkouts relating to any of their respective Properties and the
expiration of any labor contract to which they are a party or by which they are
bound.
Section 6.09 Maintenance of Licenses, Permits, etc., The Borrower, its
--------------------------------------
Subsidiaries and Affiliates shall, and shall cause the Guarantors, their
Subsidiaries and Affiliates to, (i) maintain in full force and effect all
licenses, permits, governmental approvals, franchises, authorizations or other
rights necessary for the operation of their respective businesses, except where
the failure to obtain any of the foregoing would not result in or is not
reasonably likely to result in a Material Adverse Effect and (ii) to notify the
Lender in writing, promptly after learning thereof, of the suspension,
cancellation, revocation or discontinuance of or of any pending or threatened
action or proceeding seeking to suspend, cancel, revoke or discontinue any
Permit where the result thereof could reasonably be expected to result in a
Material Adverse Effect.
Section 6.10 Use of Proceeds. The Borrower shall not use the proceeds of
---------------
any Revolving Credit Loans hereunder directly or indirectly for any unlawful
purpose, in any manner inconsistent with Section 2.01(iv) hereof, or
----------------
inconsistent with any other term, conditions or provision of any Loan Document.
Section 6.11 Continuation of or Change in Business. The Borrower, its
-------------------------------------
Subsidiaries and Affiliates shall, and shall cause the Guarantors, their
Subsidiaries and Affiliates to, continue to engage in their respective
businesses substantially as conducted and operated during the present and
preceding Fiscal Year, and the Borrower shall, and shall cause the Guarantors
to, not engage in any other business.
Section 6.12 Additional Guarantors; Additional Pledge of Stock Agreements.
------------------------------------------------------------
(i) The Borrower shall cause each domestic Subsidiary and/or Affiliate which is
an operating company, in which either the Borrower, Saga Systems or any of the
Guarantors is the owner (whether legal or beneficial and whether direct or
indirect) of greater than fifty percent (50%) or more of the authorized, issued
and outstanding common stock of said Subsidiary or Affiliate, or
56
<PAGE>
other form of ownership interest in the event any such Subsidiary or Affiliate
is not a corporation, which is acquired or formed after the Closing Date to
enter into and execute the Agreement of Guaranty, thereby becoming a Guarantor,
unless otherwise expressly waived in writing by the Lender.
(ii) The Borrower shall further execute or cause to be executed, a
Pledge of Stock Agreement, in form and substance satisfactory to the Lender in
its sole and absolute discretion, pledging no more than sixty-five percent (65%)
of the authorized, issued and outstanding stock of any foreign Subsidiary and/or
Affiliate which is an operating company and in which either the Borrower, Saga
Systems or any of the Guarantors is the owner (whether legal or beneficial and
whether direct or indirect) of greater than fifty percent (50%) or more of the
authorized, issued and outstanding common stock of said Subsidiary or Affiliate,
or other form of ownership interest in the event any such Subsidiary or
Affiliate is not a corporation, which is acquired or formed by either the
Borrower, Saga Systems or any of the Guarantors after the Closing Date, as
additional collateral security for the Revolving Credit Facility.
Section 6.13 Year 2000. The Borrower, the Guarantors, their respective
---------
Subsidiaries and Affiliates shall take all action necessary to assure that their
respective computer-based systems are able to effectively process data including
dates prior to, on, and after January 1, 2000 such that there will be no
Material Adverse Effect. At the request of the Lender, the Borrower shall
provide the Lender with assurance reasonably acceptable to the Lender of the
Borrower's, Guarantors', their Subsidiaries' and Affiliates' Year 2000
capability.
Section 6.14 Year 2000 Compliance. The Borrower, its Subsidiaries and
--------------------
Affiliates shall, and shall cause the Guarantors, their Subsidiaries and
Affiliates to, complete or accomplish, by the indicated dates, the following:
(i) By October 31, 1999, fix all code dates for, or replace with
Year 2000 Compliant technology, all adversely affected material computer
applications and embedded microchips, and commence testing thereof; and
(ii) By November 30, 1999, complete testing and installation of
all necessary software and embedded microchip technology such that the Borrower,
the Guarantors, their respective Subsidiaries and/or Affiliates are Year 2000
Compliant.
57
<PAGE>
ARTICLE VII
NEGATIVE COVENANTS
------------------
The Borrower hereby covenants and agrees that, on and after the Closing
Date and until payment in full of all of the Obligations, unless the Lender
shall give its prior express written consent to the effect otherwise, then:
Section 7.01 Consolidated Debt. The Borrower, its Subsidiaries and
-----------------
Affiliates shall not, and shall not permit the Guarantors, their Subsidiaries
and Affiliates to, create, incur, assume or otherwise become or remain directly
or indirectly liable with respect to, any Consolidated Debt, except for:
(i) the Obligations;
(ii) accounts payable owing to trade creditors arising from current
liabilities for goods and services purchased in the normal course of the
Borrower's, the Guarantors', their respective Subsidiaries' and/or Affiliates'
respective businesses;
(iii) the permitted existing Consolidated Debt as described on Schedule
--------
7.01(iii) attached hereto, and any extensions, renewals and refinancing thereof
- ---------
not exceeding the principal amount outstanding on the date of such extension,
renewal, or refinancing, provided that the terms are no less advantageous to the
-------- ----
Borrower, the Guarantors, their respective Subsidiaries and/or Affiliates than
the original obligation;
(iv) any Consolidated Debt in connection with purchase money liens
permitted by Section 7.02 hereof; and
------------
(v) additional Consolidated Funded Debt not to exceed Twenty-Five
Million and 00/100 ($25,000,000.00) Dollars; provided that no Event of Default
-------- ----
(a) shall have occurred and be continuing or (b) shall result from the
incurrence of any such Consolidated Funded Debt.
Section 7.02 Sales of Assets; Additional Liens.
---------------------------------
(i) Sales. The Borrower, its Subsidiaries and Affiliates shall not,
-----
and shall not permit the Guarantors, their Subsidiaries and Affiliates to, sell,
assign, transfer, lease, convey, abandon or otherwise dispose of, voluntarily or
involuntarily, any Properties, whether now owned or hereafter acquired, or any
income or profits therefrom, except:
(a) The Borrower, the Guarantors, their respective Subsidiaries
and/or Affiliates may sell inventory in the ordinary course of their respective
business;
(b) The Borrower, the Guarantors, their respective Subsidiaries
and/or Affiliates may dispose of Properties which are obsolete or no longer
useful in their respective businesses; provided that (1) such disposition shall
-------- ----
not result in a Material Adverse Effect and (2) the Borrower shall promptly
report any disposition of any such Properties to the Lender where, whether
singularly or in aggregate, proceeds are equal to or greater than $5,000,000.00;
58
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(c) The Borrower may transfer all of the assets of Blue
Lobster to the Borrower or any of the Guarantors;
(d) The Borrower may sell its accounts receivable without
recourse in the ordinary course of its business; provided, however, (1) no Event
-------- -------
of Default or Potential Event of Default shall have occurred and be continuing,
(2) such accounts receivable shall be sold on commercially reasonable terms in
arms' length transactions and (3) the Borrower shall have given the Lender
express written notice of such sale within thirty (30) days from the completion
of such sale; and
(e) The Borrower, any of the Guarantors and/or any Person
whose authorized, issued and outstanding stock has been pledged to the Lender
pursuant to any of the Pledge of Stock Agreements may transfer any of its
respective assets to the Borrower, any of the Guarantors and/or any Person whose
authorized, issued and outstanding stock has been pledged to the Lender pursuant
to any of the Pledge of Stock Agreements.
(f) Any Person (1) whose financial performance is represented
in the consolidated financial statements of Saga Systems and (2) which is not
the Borrower, a Guarantor or a Person whose authorized, issued and outstanding
stock has been pledged to the Lender pursuant to any of the Pledge of Stock
Agreements, may transfer any of its assets to any other Person whose financial
performance is represented in the consolidated financial statements of Saga
Systems.
(ii) Additional Liens. The Borrower, its Subsidiaries and
----------------
Affiliates shall not, and shall not permit the Guarantors, their Subsidiaries
and Affiliates to, directly or indirectly create, incur, assume or permit to
exist any Lien on or with respect to any of their respective Properties except:
(a) any interest or title of a lessor or secured by a
lessor's interest under any lease permitted by this Loan Agreement;
(b) Liens existing on the date of this Loan Agreement
securing the existing Consolidated Debt described on Schedule 7.01(iii) attached
------------------
hereto and made a part hereof (but said Liens may not be renewed, extended or
increased in principal amount);
(c) Customary Permitted Liens;
(d) Permitted Encumbrances listed on Schedule 1.01-B attached
---------------
hereto and made a part hereof; and
(e) purchase money Liens securing Consolidated Debt
(including the interest of a lessee under a Capitalized Lease) in the aggregate
amount outstanding at any one time not to exceed $500,000.00.
Section 7.03 Loans, Advances and Investments. The Borrower, its
-------------------------------
Subsidiaries and Affiliates shall not, and shall not permit the Guarantors,
their Subsidiaries and Affiliates to, (i)
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make or suffer to exist or remain outstanding, any loan or advance to any other
Person, or (ii) purchase, acquire or own (beneficially or of record) any stock,
--
bonds, notes or securities of, or any partnership interest (whether general or
limited) in, or any other interest in, any other Person, or (iii) make any
--
capital contribution to or other investment in any other Person or (iv) agree,
--
become or remain liable (contingent or otherwise) to do any of the foregoing,
except:
(a) Loans and investments existing on the date hereof and listed
in Schedule 7.03 attached hereto and extensions, renewals and refinancings
-------------
thereof on terms no less favorable than those existing immediately
prior to such extension, renewal or refinancing;
(b) Provided no Event of Default and no Potential Event of
Default presently exists and would not result from the making thereof, loans
from the Borrower, any of the Guarantors, their respective Subsidiaries and/or
Affiliates to the Borrower or any of the Guarantors;
(c) Provided no Event of Default and no Potential Event of
Default presently exists and would not result from the making thereof, loans or
advances not to exceed $1,500,000.00 in the aggregate at any time outstanding,
made to officers or other employees of the Borrower, the Guarantors, their
respective Subsidiaries and/or Affiliates;
(d) Investments in Cash or Cash Equivalents;
(e) Accounts receivable owing to the Borrower, the Guarantors,
their respective Subsidiaries and/or Affiliates arising from sales of inventory
under usual and customary terms in the ordinary course of business;
(f) Permitted Acquisitions; and
(g) Provided no Event of Default and no Potential Event of
Default presently exists and would not result from the making thereof, loans to
and investments in the Borrower, Saga Systems, any Guarantor or any Subsidiary
or Affiliate thereof whose financial performance is represented in the
consolidated financial statements of Saga Systems in accordance with Generally
Accepted Accounting Principles.
Section 7.04 Transactions with Shareholders, Subsidiaries and Affiliates.
-----------------------------------------------------------
The Borrower, its Subsidiaries and/or Affiliates shall not, and shall not permit
the Guarantors, their Subsidiaries and/or Affiliates to, enter into or permit to
exist, directly or indirectly, any transaction (including, without limitation,
the purchase, sale, lease or exchange of any Property or the rendering of any
service) with any Shareholder, Subsidiary and/or Affiliate, on terms that are
less favorable to the Borrower, any of the Guarantors, their respective
Subsidiaries and/or Affiliates than those that might be obtained in an arm's
length transaction at the time from unrelated Persons who are not such a
Shareholder, Subsidiary or Affiliate. Nothing contained in this Section 7.04
------------
shall prohibit any transaction expressly permitted by Section 7.03 hereof.
------------
Section 7.05 Restriction on Fundamental Changes.
----------------------------------
(i) Except for Permitted Acquisitions, the Borrower, its Subsidiaries
and/or Affiliates
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shall not, and shall not permit any of the Guarantors, their Subsidiaries and/or
Affiliates to, enter into any joint venture, merger, partnership, acquisition or
consolidation, or liquidate, windup or dissolve (or suffer any liquidation or
dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one
transaction or series of transactions, all or any substantial part of their
respective businesses, Properties or assets, whether now or hereafter acquired,
without the prior express written consent of the Lender, except as permitted by
------
Section 7.02(i) hereof.
- ---------------
(ii) Except for Permitted Acquisitions, the Borrower, its Subsidiaries
and/or Affiliates shall not, and shall not permit any of the Guarantors, their
Subsidiaries and/or Affiliates to, (a) acquire by purchase or otherwise all or
substantially all of the business property or assets of or stock or other
evidence of legal or beneficial ownership of, any Person or (b) unless the
Borrower, such Guarantor, such Subsidiary and/or Affiliate complies with Section
-------
6.12 of this Loan Agreement, create any Subsidiary or Affiliate.
- ----
(iii) Except for Permitted Acquisitions, the Borrower, its Subsidiaries
and/or Affiliates shall not, and shall not permit any of the Guarantors, their
Subsidiaries and/or Affiliates to, (a) change their respective corporate
structures; provided that such a change in corporate structure involving the
-------- ----
creation of a new Subsidiary or Affiliate shall be allowed if the Borrower, such
Guarantor, such Subsidiary and/or Affiliate complies with Section 6.12 of this
------------
Loan Agreement, or (b) materially alter the nature or character of their
respective businesses as conducted on the Closing Date.
Section 7.06 ERISA. The Borrower, its Subsidiaries and/or Affiliates
-----
shall not, and shall not permit any of the Guarantors, their Subsidiaries and/or
Affiliates or any ERISA Affiliate to, do any of the following to the extent that
such act or failure to act would result in the aggregate, after taking into
account any other such acts or failure to act, in a obligation to pay a sum of
money that is material to the businesses of the Borrower, any of the Guarantors,
their respective Subsidiaries and/or Affiliates:
(i) Engage, or permit an ERISA Affiliate to engage, in any
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Code for which a class exemption is not available or a private exemption has not
been obtained from the DOL;
(ii) Permit to exist any accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived;
(iii) Fail, or permit an ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Plan;
(iv) Terminate, or permit an ERISA Affiliate to terminate, any
Benefit Plan which would result in any liability of the Borrower, the
Guarantors, their respective Subsidiaries and/or Affiliates or any ERISA
Affiliate under Title IV of ERISA; or
(v) Fail, or permit any ERISA Affiliate to fail, to pay any
required installment under section (m) of Section 412 of the Code or any other
payment required under Section 412 of the Code on or before the due date for
such installment or other payment.
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<PAGE>
Section 7.07 Amendment of Corporate Documents. The Borrower, its
--------------------------------
Subsidiaries and/or Affiliates shall not, and shall not permit any of the
Guarantors, their respective Subsidiaries and/or Affiliates to, amend, modify or
supplement their respective Articles or Certificates of Incorporation, By-Laws,
Operating Agreements, Certificates of Formation, Memoranda and Articles of
Incorporation or other similar corporate organizational documents without
written notice to the Lender of any such amendments, modifications and/or
supplements which are material.
Section 7.08 Margin Regulations. The Borrower shall not permit any
------------------
portion of the proceeds of any Revolving Credit Loans extended to be used in any
manner which might cause the extension of credit or the application of such
proceeds to violate Regulation U or Regulation X or any other regulation of the
Federal Reserve Board or to violate the Securities Exchange Act or the
Securities Act, in each case as in effect on the date or dates of such
Borrowing, such use of proceeds, such creation or such issuance.
Section 7.09 Cancellation of Consolidated Debt; Prepayment. The Borrower,
---------------------------------------------
its Subsidiaries and/or Affiliates shall not, and shall not permit any of the
Guarantors, their Subsidiaries and/or Affiliates to, cancel any Claim or
Consolidated Debt, except for adequate consideration and in the ordinary course
of their respective businesses.
Section 7.10 Environmental Liabilities. The Borrower, its Subsidiaries
-------------------------
and/or Affiliates shall not, and shall not permit any of the Guarantors, their
Subsidiaries and/or Affiliates to, become subject to any Liabilities and Costs
which the Lender deems has or is likely to have a Material Adverse Effect
arising out of or related to (i) the Release or threatened Release at any
location of any Environmental Concern Material into the Environment, or any
Remedial Action in response thereto, or (ii) any violation of any Environmental,
health or safety Requirement of Law; provided, however, that this covenant shall
-------- -------
not be violated so long as (a) the Borrower, such Guarantor or such Subsidiary
or Affiliate shall have notified the Lender of the assertion of such liability
or required expenditures promptly upon receiving written notice of such
assertion, (b) the Borrower, such Guarantor or such Subsidiary or Affiliate
shall have continued to furnish the Lender with such information concerning such
asserted liability or required expenditure as the Lender shall have reasonably
requested, or as otherwise provided herein, (c) the Borrower, such Guarantor or
such Subsidiary or Affiliate shall be diligently pursuing indemnification for
such liability or required expenditures from any Person which has an obligation
to provide such indemnification, and (d) the imposition of such liability during
the pendency of the Borrower's, such Guarantor's or such Subsidiary's or
Affiliate's pursuit of indemnification will not materially impair the
Borrower's, such Guarantor's or such Subsidiary's or Affiliate's ability to
perform its respective financial obligations under this Loan Agreement.
Section 7.11 Fiscal Year. The Borrower, its Subsidiaries and/or
-----------
Affiliates shall not, and shall not permit any of the Guarantors, their
Subsidiaries and/or Affiliates to, change their respective Fiscal Year, without
providing express written notice of such change to the Lender.
Section 7.12 Guaranties. The Borrower, its Subsidiaries and/or Affiliates
----------
shall not, and shall not permit any of the Guarantors, their Subsidiaries and/or
Affiliates to, assume, guaranty, endorse or otherwise be or become directly or
contingently responsible or liable, for obligations
62
<PAGE>
or liabilities of any Person, except for:
(i) guaranties existing on the Closing Date as described on Schedule
--------
7.12(i) attached hereto and made a part hereof;
- -------
(ii) guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(iii) guaranties entered into in the ordinary course of the
Borrower's, the Guarantors', their respective Subsidiaries' and/or Affiliates'
respective businesses in the aggregate amount outstanding at any one time not to
exceed $1,000,000.00.
Section 7.13 No Negative Pledges to Other Person. The Borrower, its
-----------------------------------
Subsidiaries and/or Affiliates shall not, and shall not permit any of the
Guarantors, their Subsidiaries and/or Affiliates to, grant to another Person a
covenant commonly referred to as a "negative pledge" with respect to their
respective assets and/or Properties.
Section 7.14 No Borrowing Under the CBL Credit Facility. The Borrower,
------------------------------------------
its Subsidiaries and/or Affiliates shall not, and shall not permit any of the
Guarantors, their Subsidiaries and/or Affiliates to, borrow, incur debt or
otherwise become liable for any sums pursuant to, under or in connection with
the CBL Credit Facility.
63
<PAGE>
ARTICLE VIII
FINANCIAL COVENANTS
-------------------
The Borrower hereby covenants and agrees that, on and after the Closing Date
and until payment in full of all the Obligations unless the Lender shall give
its prior written consent to the effect otherwise, then:
Section 8.01 Minimum Consolidated Current Ratio. The Borrower, the
----------------------------------
Guarantors, their respective Subsidiaries and Affiliates shall maintain at all
times throughout the term of the Revolving Credit Facility (which covenant shall
be tested by reviewing the quarterly and annual financial statements which are
to be provided to the Lender pursuant to Section 5.02 of this Loan Agreement),
------------
on a consolidated basis, a ratio of Consolidated Current Assets -to-
Consolidated Current Liabilities of not less than 1.5 -to- 1.0.
-------------
Section 8.02 Maximum Consolidated Cash Flow Leverage Ratio. The Borrower,
---------------------------------------------
the Guarantors, their respective Subsidiaries and Affiliates shall maintain at
all times throughout the term of the Revolving Credit Facility (which covenant
shall be tested at the end of the periods covered by the quarterly and annual
financial statements which are to be provided to the Lender pursuant to Section
-------
5.02 of this Loan Agreement), on a consolidated basis, a Consolidated Cash Flow
- ----
Leverage Ratio equal to or less than 1.75 -to- 1.0.
---------------------
Section 8.03 No Net Consolidated Loss. The Borrower, the Guarantors,
------------------------
their respective Subsidiaries and Affiliates shall not permit a net loss to
occur from the operations of their consolidated businesses (i) for any two (2)
consecutive Fiscal Quarters and/or for any Fiscal Year or (ii) for any four
consecutive Fiscal Quarters taken together as one accounting period (which
covenant shall be tested at the end of the periods covered by the quarterly and
annual financial statements which are to be provided to the Lender pursuant to
Section 5.02 of this Loan Agreement).
- ------------
64
<PAGE>
ARTICLE IX
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
--------------------------------------
Section 9.01 Events of Default. The occurrence of any of the following
-----------------
events with the passing of any applicable notice and cure periods shall
constitute an "Event of Default" under this Loan Agreement (hereinafter each
referred to as an "Event of Default"):
(i) Any representation or warranty made by the Borrower or any of
the Guarantors or any other Person in any of the Loan Documents furnished in
connection with the Revolving Credit Facility, shall prove to have been false,
incorrect or misleading in any substantial and material respect on the date as
of which made;
(ii) The Borrower shall have failed to make any payment of any
installment of interest on the Revolving Credit Loan Note on its due date;
(iii) The Borrower shall have failed to make any payment of principal
on the Revolving Credit Loan Note on its due date;
(iv) The Borrower or any of the Guarantors shall have failed to duly
observe or perform any covenant, condition or agreement with respect to the
payment of moneys on their part which is to be observed or performed pursuant to
the terms of the Loan Documents, other than the payment of principal and
interest which shall be governed by clauses (ii) and (iii) above, and such
----------------------
default shall have remained uncured for a period of thirty (30) days;
(v) The Borrower and the Guarantors shall have failed to duly
observe any of the financial covenants set forth in Article VIII of this Loan
------------
Agreement as of any date of determination;
(vi) The Borrower or any of the Guarantors shall have failed to duly
observe or perform any covenant, condition or agreement on the part of the
Borrower or such Guarantors to be observed or performed pursuant to the terms of
the Loan Documents other than the payment of moneys which shall be governed by
clauses (ii), (iii) and (iv) above, and such default shall have remained uncured
- ----------------------------
for a period of thirty (30) days;
(vii) The Borrower or any of the Guarantors shall have applied for or
consented to the appointment of a custodian, receiver, or liquidated of all or a
substantial part of their respective assets; a custodian shall have been
appointed with or without consent of the Borrower and/or any of the Guarantors;
the Borrower and/or any of the Guarantors shall generally not be paying their
respective debts as they become due; the Borrower and/or any of the Guarantors
shall have made a general assignment for the benefit of their respective
creditors; the Borrower and/or any of the Guarantors shall have filed a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with their respective creditors, or shall have
taken advantage of any insolvency law, or shall have filed an answer admitting
the material allegations of a petition in bankruptcy, reorganization or
insolvency proceeding; a petition in bankruptcy shall have been filed against
the Borrower and/or any of the Guarantors and shall not have been dismissed for
a period of sixty (60) consecutive days, or an Order for Relief shall have
65
<PAGE>
been entered against the Borrower and/or any of the Guarantors under the
Bankruptcy Code; or an order, judgment or decree shall have been entered without
the application, approval or consent of the Borrower and/or any of the
Guarantors by any court of competent jurisdiction appointing a receiver,
trustee, custodian or liquidator of the Borrower and/or any of the Guarantors of
a substantial part of its assets and such order, judgment or decree shall have
continued unstayed and in effect for any period of sixty (60) consecutive days;
(viii) A writ of execution or attachment or any similar process shall
be issued or levied against all or any part of or interest in any of the
Properties of the Borrower and/or any of the Guarantors or any judgment
involving monetary damages shall be entered against the Borrower and/or any of
the Guarantors which shall become a lien on the Borrower's or any of said
Guarantor's Properties or any portion thereof or interest therein and such
execution, attachment or similar process is not released, bonded, satisfied,
vacated or stayed within thirty (30) days after its entry or levy, and said writ
of execution, attachment, levy or judgment shall involve monetary damages
aggregating more than $1,000,000.00;
(ix) Seizure or foreclosure of any of the Properties of the
Borrower and/or any of the Guarantors pursuant to process of law or by respect
of legal self-help, involving monetary damages aggregating more than
$1,000,000.00, unless said seizure or foreclosure is stayed or bonded within
thirty (30) days after the occurrence of same;
(x) The voluntary permanent closing of business or ceasing of
operations of the Borrower and/or any one or more of the Guarantors;
(xi) Default by the Borrower or any of the Guarantors in any of the
terms or conditions of any agreement (excluding the Loan Documents) covering the
payment of borrowed money whether from the Lender or from any other creditor;
(xii) The occurrence of a Material Adverse Effect; and
(xiii) The occurrence of a Reportable Event with respect to the
Borrower and/or any of the Guarantors.
Section 9.02 Rights and Remedies.
-------------------
(i) Acceleration. Upon the occurrence and during the continuance
------------
of any Event of Default described in the foregoing Section 9.01(vii) hereof, the
-----------------
Revolving Credit Facility shall automatically and immediately terminate and the
unpaid principal amount of any and all accrued interest and due fees on the
Revolving Credit Loans outstanding shall automatically become immediately due
and payable, with all additional interest from time to time accrued thereon and
without presentment, demand, or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and of acceleration), all
of which are hereby expressly waived by the Borrower, and the obligation of the
Lender to make any Revolving Credit Loans hereunder shall thereupon terminate.
Upon the occurrence and during the continuance of any other Event of Default
described in Section 9.01 above, the Lender may by written notice to the
------------
Borrower, (a) declare that the Revolving Credit Facility is terminated,
whereupon the obligation of the Lender
66
<PAGE>
to make any Revolving Credit Loans hereunder shall immediately terminate, and/or
(b) declare the unpaid principal amount of and any and all accrued and unpaid
interest on the Revolving Credit Loans to be, and the same shall thereupon be,
immediately due and payable with all additional interest from time to time
accrued thereon and without presentment, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and of acceleration), all of which are hereby expressly waived by the Borrower.
(ii) Rights Under Loan Documents. Upon the occurrence and during
---------------------------
the continuance of any Event of Default, the Lender may take any lawful action
against the Borrower and/or any of the Guarantors to collect the payments then
due and thereafter to become due under the Loan Documents, including, without
limitation, the Agreement of Guaranty and the Pledge of Stock Agreements.
(iii) Setoff. Upon the occurrence and during the continuance of any
------
Event of Default, without notice or other action (any such notice being
expressly waived by the Borrower) the Lender may setoff any money owed by the
Lender in any capacity to the Borrower or any Property of the Borrower in the
possession of the Lender against any of the monetary obligations of the Borrower
to the Lender under the Loan Documents, and the Lender shall be deemed to have
exercised such right of setoff and to have made a charge against any such money
or property immediately, even though the actual book entries may be made at some
time subsequent thereto.
Section 9.03 Application of Proceeds.
-----------------------
(i) All payments and proceeds received under Section 9.02 of this
------------
Loan Agreement shall be applied in the following order of priority:
(a) First, to the payment of all reasonable fees, costs and
expenses (including reasonable attorney's fees, costs and other expenses
including, without limitation, post-judgment attorney's fees, costs and other
expenses) incurred by the Lender and/or its agents or representatives in
connection with the realization of such payments or proceeds;
(b) Next, to the payment in full of all unpaid principal,
accrued interest and other sums, if any, due and owing under the Revolving
Credit Facility; and,
(c) Next, the balance, if any, or such payments, proceeds,
or amounts to the Borrower, or, if otherwise determined by a court of competent
jurisdiction, to whomever may be entitled thereto.
(ii) If the amount of the proceeds received in Section 9.03(i) above
---------------
shall be insufficient to satisfy in full the amounts referred to in clauses (a)
-----------
and (b) above, then the Borrower shall remain and be liable for any such
- -------
deficiency.
Section 9.04 No Notices. In order to entitle the Lender to exercise any
----------
remedy available to it under Section 9.02 of this Loan Agreement, it shall not
------------
be necessary for the Lender to give any notice, other than such notice as may be
required expressly in this Loan Agreement or by
67
<PAGE>
applicable law.
Section 9.05 Agreement to Pay Attorneys' Fees and Expenses. Upon the
---------------------------------------------
occurrence and during the continuance of an Event of Default, as a result of
which the Lender shall require and employ attorneys or incur other expenses for
the collection of payments due or to become due or the enforcement or
performance or observance of any obligation or agreement on the part of the
Borrower contained herein, the Borrower shall, on demand, pay to the Lender, the
reasonable fees of such attorneys, costs and such other expenses so incurred by
them including, without limitation, post-judgment attorney's fees, costs and
other expenses.
Section 9.06 No Additional Waiver Implied by One Waiver. In the event any
------------------------------------------
agreement contained in this Loan Agreement should be breached by any party and
thereafter waived by the other parties, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
Section 9.07 Failure to Exercise Rights. Nothing herein contained shall
--------------------------
impose upon the Lender any obligation to enforce any terms, covenants or
conditions contained in this Loan Agreement and the other Loan Documents.
Failure of the Lender, in any one or more instances, to insist upon strict
performance by the Borrower of any terms, covenants or conditions of this Loan
Agreement and the other Loan Documents, shall not be considered or taken as a
waiver or relinquishment by the Lender of its right to insist upon and to
enforce in the future, by injunction or other appropriate legal or equitable
remedy, strict compliance by the Borrower with all the terms, covenants and
conditions of this Loan Agreement and the other Loan Documents. The consent of
the Lender to any act or omission by the Borrower shall not be construed to be a
consent to any other or subsequent act or omission or to waive the requirement
for the Lender's consent to be obtained in any future or other instance.
Section 9.08 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY
--------------------
WAIVE ANY AND ALL RIGHTS THAT THEY MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF
THE UNITED STATES OF AMERICA OR ANY STATE, TO A TRIAL BY JURY OF ANY AND ALL
ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN
THE BORROWER, THE LENDER OR THEIR SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY
CONNECTED WITH THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. IT IS INTENDED
THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR
COUNTERCLAIMS IN ANY ACTION OR PROCEEDING. THE BORROWER AND THE LENDER
RECOGNIZE THAT ANY DISPUTE ARISING IN CONNECTION WITH THE REVOLVING CREDIT
FACILITY IS LIKELY TO BE COMPLEX AND CONSEQUENTLY THEY WISH TO STREAMLINE AND
MINIMIZE THE COST OF THE DISPUTE RESOLUTION PROCESS BY AGREEING TO WAIVE THEIR
RIGHTS TO A JURY TRIAL.
Section 9.09 Remedies Cumulative. No remedy herein conferred upon or
-------------------
reserved to the Lender is intended to be exclusive of any other remedy or
remedies; but each and every such remedy shall be cumulative, and shall be in
addition to every other remedy given hereunder, or now or hereafter existing at
law or in equity or by statute. No express or implied waiver by the
68
<PAGE>
Lender of any Event of Default hereunder shall in any way be, or construed to
be, a waiver of any future or subsequent Event of Default. No delay or omission
to exercise any right or power accruing upon any Event of Default continuing as
aforesaid, shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default, or acquiescence therein; and every such
right and power may be exercised from time to time and as often as may be deemed
expedient.
69
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01 Expenses.
--------
(i) Generally. The Borrower hereby covenants and agrees upon demand
---------
to pay, or reimburse the Lender for, all the Lender's reasonable external legal
costs and expenses (but not internal legal costs and expenses), including,
without limitation, post-judgment attorney's fees, costs and other expenses, and
all internal and external audit, appraisal, valuation and investigation expenses
and for all other reasonable out-of-pocket costs and expenses of every type and
nature (including, without limitation, the reasonable fees, expenses and
disbursements of Reed Smith Shaw & McClay LLP and any other external attorneys
retained by the Lender, auditors, accountants, appraisers, insurance and
environmental advisers, and other consultants) incurred by the Lender in
connection with (a) the administration of this Loan Agreement, the other Loan
Documents and the Revolving Credit Facility including consultation with
attorneys in connection therewith and in connection with the amendment, waiver
or consents required or requested hereunder and (b) the protection, collection
or enforcement of any of the Obligations.
(ii) After Default. The Borrower hereby further covenants and agrees
-------------
to pay, or reimburse the Lender for all reasonable out-of-pocket costs and
expenses, including, without limitation, reasonable external attorneys' fees and
disbursements, and costs of settlement incurred by the Lender after the
occurrence and during the continuance of an Event of Default (a) in enforcing
any Obligation or exercising or enforcing any other right or remedy available by
reason of such Event of Default, (b) in connection with any refinancing or
restructuring of the credit arrangements provided under this Loan Agreement in
the nature of a "work-out" or in any insolvency or bankruptcy proceeding, (c) in
commencing, defending or intervening in any litigation or in filing a petition,
complaint, answer, motion or other pleadings in any legal proceeding relating to
the Borrower and/or any of the Guarantors and related to or arising out of the
transactions contemplated thereby or by any of the Loan Documents or (d) in
taking any other action in or with respect to any suit or proceeding (whether in
bankruptcy or otherwise).
Section 10.02 Indemnity. The Borrower hereby further covenants and agrees
---------
to defend, protect, indemnify and hold harmless the Indemnified Parties from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for the Indemnified Parties in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Parties shall be designated a party thereto), imposed on, incurred
by, or asserted against the Indemnified Parties (whether direct, indirect or
consequential and whether based on any federal or state Laws or other statutory
regulations, including, without limitation, securities and commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise, including any liability and costs under federal, state or local
environmental, health or safety laws, regulations, or common law principles,
arising from or in connection with the past, present or future environmental
condition of the Property or the Release or threatened Release of any
Environmental Concern Material into the Environment from the Property) in any
manner relating to or arising out of this Loan Agreement or the other Loan
Documents, or any act, event or
70
<PAGE>
transaction related or attendant thereto, the making of and participation in the
Revolving Credit Facility and the management of such Revolving Credit Loans or
the use or intended use of the proceeds of the Revolving Credit Facility
hereunder (hereinafter collectively referred to as the "Indemnified Matters");
provided, however, that the Borrower shall not have any obligation to an
- -------- -------
Indemnified Party hereunder with respect to (a) matters for which such
Indemnified Party has been compensated pursuant to or for which an exemption is
provided in this Loan Agreement and (b) Indemnified Matters caused by or
resulting from the willful misconduct or gross negligence of that Indemnified
Party, as determined by a court of competent jurisdiction. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnified Parties.
Section 10.03 Amendments and Waivers. No amendment or modification of any
----------------------
provision of this Loan Agreement shall be effective without the written
agreement of the Lender and the Borrower, and no termination or waiver of any
provision of this Loan Agreement, or consent to any departure by the Borrower
therefrom, shall in any event be effective without the written concurrence of
the Lender, which the Lender shall have the right to grant or withhold at its
sole discretion.
Section 10.04 Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of an Event of Default or Potential Event of Default if
such action is taken or condition exists.
Section 10.05 Notices. Unless otherwise specifically provided therein,
-------
any notice or other communication herein required or permitted to be given shall
be in writing and may be personally served, or sent by confirmed telecopy
transmission, nationally recognized overnight courier service or United States
mail and shall be deemed to have been given when delivered in person or by said
courier service, or upon receipt of a confirmed telecopy transmission during
normal business hours or three (3) Business Days after deposit in the United
States mail (registered or certified, with postage prepaid and properly
addressed). Notices to the Lender pursuant to Article II hereof shall not be
----------
effective until received by the Lender. For the purposes hereof, the addresses
of the parties hereto (until notice of a change thereof is delivered as provided
in this Section 10.05) shall be as set forth below each party's name on the
--------------
signature pages hereof, or, as to each party, at such other address as may be
designated by such party in a written notice to the other party, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Loan Agreement and the other Loan Documents and the making and
repayment of the Loans hereunder. A failure to send the requisite copies does
not invalidate an otherwise properly sent notice to the Borrower and/or the
Lender.
71
<PAGE>
Section 10.06 Survival of Warranties and Agreements. Subject only to the
-------------------------------------
limitations on the liability of the Borrower for increased costs and other
charges detailed in Section 2.07 hereof, all agreements, representations and
------------
warranties made herein shall survive the execution and delivery of this Loan
Agreement and the other Loan Documents and the making and repayment of Revolving
Credit Loans hereunder.
Section 10.07 Marshaling; Payments Set Aside. The Lender shall not be
------------------------------
under any obligation to marshal any assets in favor of the Borrower, any of the
Guarantors or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Borrower and/or any of the Guarantors make a
payment or payments to the Lender, or the Lender enforces its rights and
remedies under the Loan Documents or exercises its right of setoff, and such
payment or payments or the proceeds of such enforcement or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied, and all Liens, right and remedies therefor (to the
extent permissible and practicable under the law and the circumstances), shall
be revived and continued in full force and effect as if such payment had not
been made or such enforcement or setoff and not occurred.
Section 10.08 Severability. In case any provision in or obligation under
------------
this Loan Agreement or the other Loan Documents shall be held to be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations under the Loan
Agreement or the other Loan Documents, shall not in any way be affected or
impaired thereby. The invalidating, illegality or unenforceability of a
particular provision in a particular jurisdiction shall not render such
provision invalid, illegal or unenforceable in any other jurisdiction.
Section 10.09 Governing Law. This Loan Agreement shall be governed by,
-------------
and shall be construed and enforced in accordance with, the laws of the State of
New York.
Section 10.10 Successors and Assigns. This Loan Agreement and the other
----------------------
Loan Documents shall be binding upon the parties hereto and their respective
successors and assigns. The Borrower's Obligations hereunder, may not be
assigned to any Person without the prior express written consent of the Lender.
The Lender may assign, transfer, sell, participate or convey all or any part of
the Revolving Credit Facility to any Person without the consent of the Borrower.
The Lender agrees to promptly notify the Borrower in writing of any sale or
participation by the Lender of all or any part of the Revolving Credit Facility.
Section 10.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO THIS LOAN AGREEMENT AND
THE REVOLVING CREDIT LOAN NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY
OF THIS LOAN AGREEMENT, THE BORROWER ACCEPTS, FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID
72
<PAGE>
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS LOAN AGREEMENT AND THE REVOLVING CREDIT LOAN
NOTE FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. THE BORROWER
IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW
YORK, NEW YORK 10019, AS ITS AGENT TO RECEIVE, ON ITS BEHALF, SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY SUCH PERSON TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS NOTICE
ADDRESS SPECIFIED ON THE SIGNATURE PAGES HEREOF, SUCH SERVICE TO BECOME
EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ANY OBJECTION (INCLUDING WITHOUT LIMITATION, ANY OBJECTION OF
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH THEY
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH
RESPECT TO THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION
SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
Section 10.12 Counterparts; Effectiveness; Inconsistencies. This Loan
--------------------------------------------
Agreement and any amendments, waivers, consents, or supplements may be executed
in counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. This Loan Agreement and each of the other Loan Documents shall
be construed to the extent reasonable to be consistent one with the other, but
to the extent that the terms and conditions of this Loan Agreement are actually
inconsistent with the terms and conditions of any other Loan Documents, this
Loan Agreement shall govern.
Section 10.13 Construction. The parties acknowledge that each party and
------------
its counsel have reviewed and revised this Loan Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Loan Agreement or any amendments or exhibits hereto.
Section 10.14 Entire Agreement. This Loan Agreement, taken together with
----------------
all of the other Loan Documents and all certificates and other documents
delivered by the Borrower or any other Person to the Lender, embody the entire
agreement and supersede all prior agreements, written and oral, relating to the
subject matter hereof
73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed and delivered by their proper and duly authorized corporate officers
as appropriate, and the Borrower has caused its corporate seal to be hereunto
affixed and attested pursuant to the resolution of its Board of Directors, all
on the day and year first hereinabove written.
[SEAL] SAGA SOFTWARE, INC.,
ATTEST: as the Borrower
/s/ Katherine E. Butler By: /s/ Harry K. McCreery
- ----------------------- ---------------------
Katherine E. Butler Harry K. McCreery
Secretary Vice President, Treasurer and
Chief Financial Officer
Notice Address:
11190 Sunrise Valley Drive
Reston, Virginia 20191
Attn: Harry K. McCreery
Vice President, Treasurer and
Chief Financial Officer
Telecopy No.: (703) 391-6504
With a copy to:
King & Spaulding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1763
Attn: George Lemuel Hewes, Esq.
Telecopy No.: (404) 572-5100
74
<PAGE>
THE CHASE MANHATTAN BANK,
as the Lender
By: /s/ Sandra B.V.W. Braun
-----------------------
Sandra B.V.W. Braun
Vice President
Notice Address:
The Chase Manhattan Bank
One Riverfront Plaza, 2d Floor
Newark, New Jersey 07102
Attn: Sandra B.V.W. Braun
Vice President
Telecopy No.: 973-353-6158
With a copy to:
Reed Smith Shaw & McClay LLP
136 Main Street, Suite 250
Princeton Forrestal Village
Princeton, New Jersey 08540
Attn: Daniel F. Peck, Jr., Esq.
Telecopy No.: 609-951-0824
75
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