SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
SYSTEM SOFTWARE ASSOCIATES, INC.
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(Name of Issuer)
Common Stock, Par Value $.0033 Per Share
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(Title of Class of Securities)
87183910
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(CUSIP Number)
Steven M. Woghin, Esq.
Senior Vice President and General Counsel
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788
(516) 342-5224
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 8, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a Statement on Schedule
13G to report the acquisition which is the subject of this Schedule 13D,
and is filing this Schedule because of Rule 13d-1(b)(3) or (4), check
the following box [ ]
<PAGE> 2
CUSIP No. 87183910 13D
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Computer Associates International, Inc. 13-2857434
2 Check the Appropriate Box if a Member of a Group (a) [ ]
(See Instructions) (b) [ ]
3 SEC Use Only
4 Sources of Funds (See Instructions)
WC
5 Check Box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
Number of 7 Sole Voting Power
Shares 3,603,603
Beneficially 8 Shared Voting Power
Owned by 0
Each 9 Sole Dispositive Power
Reporting 3,603,603
Person With 10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
3,603,603
12 Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
7.8%
14 Type of Reporting Person (See Instructions)
CO
<PAGE> 3
Item 1. Security and Issuer.
The class of equity securities to which this Statement
relates is the Common Stock, par value $.0033 per share (the Common
Stock), of System Software Associates, Inc., a Delaware corporation (the
Issuer), with its principal executive offices located at 500 West
Madison, Chicago, Illinois 60661.
Item 2. Identity and Background.
(a)-(c), (f) This Statement is filed by Computer Associates
International, Inc., a Delaware corporation (Computer Associates).
Computer Associates is engaged in the design, development, marketing and
support of standardized computer software products for use with a broad
range of desktop, midrange and mainframe computers from many different
hardware manufacturers. The principal executive offices of Computer
Associates are located at One Computer Associates Plaza, Islandia, New
York 11788.
The name, business address and present principal occupation
or employment of each director and executive officer of Computer
Associates and the name, principal business and address of any
corporation or other organization in which such employment is conducted
is set forth below. Each such person is a citizen of the United States
of America, except for Willem F.P. de Vogel who is a citizen of The
Netherlands. Unless otherwise indicated below, the business address of
each such person is c/o Computer Associates International, Inc., One
Computer Associates Plaza, Islandia, New York 11788.
Russel M. Artzt is a director and Executive Vice President-
Research and Development of Computer Associates.
Willem F.P. de Vogel, a director of Computer Associates, is
the President of Three Cities Research, Inc., a private investment
management firm. The business address of Mr. de Vogel is c/o Three
Cities Research, Inc., 135 East 57th Street, New York , New York 10022.
Irving Goldstein, a director of Computer Associates, is the
Director General and Chief Executive Officer of INTELSAT, an
international satellite telecommunications company. The business
address of Mr. Goldstein is c/o INTELSAT, 3400 International Drive,
N.W., Washington, D.C. 20008.
Richard A. Grasso, a director of Computer Associates, is the
Chairman and Chief Executive Officer of the New York Stock Exchange, a
national securities exchange. The business address of Mr. Grasso is c/o
New York Stock Exchange, 11 Wall Street, New York, New York 10005.
Shirley Strum Kenny, a director of Computer Associates, is
the President of the State University of New York at Stony Brook, a New
York State-run university. The business address of Ms. Kenny is
President s Office, State University of New York at Stony Brook, Stony
Brook, New York 11794.
Sanjay Kumar is a director and President and Chief Operating
Officer of Computer Associates.
Charles B. Wang is a director and Chief Executive Officer and
Chairman of the Board of Computer Associates.
<PAGE> 4
Michael A. McElroy is a Vice President-Legal and Secretary of
Computer Associates.
Charles P. McWade is a Senior Vice President-Finance of
Computer Associates.
Peter A. Schwartz is a Senior Vice President-Finance and
Chief Financial Officer of Computer Associates.
Ira H. Zar is a Senior Vice President and Treasurer of
Computer Associates.
(d) and (e) Neither Computer Associates nor, to the
knowledge of Computer Associates, any of the other persons specified in
Item 2 above has during the last five years (i) been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
On March 27, 1997, pursuant to the Note Purchase Agreement
between the Issuer and Computer Associates, a copy of which is attached
as Exhibit 1 to this Statement (the Note Purchase Agreement), the
Issuer issued and delivered to Computer Associates, and Computer
Associates purchased, in a private placement Issuer s Floating Rate
Convertible Note Due 2000 in the principal amount of $12 million. A
copy of the Floating Rate Convertible Note Due 2000 is attached as
Exhibit 2 to this Statement (the Convertible Note). Computer Associates
paid the $12 million purchase price for the Convertible Note using
working capital available to it. The principal amount of the
Convertible Note, in whole or in part, may be converted into shares of
Common Stock at a per share conversion price of $3.33. Such conversion
price is subject to adjustment as set forth in the Convertible Note.
The information set forth in this Item 3 is qualified in its
entirety by reference to the Note Purchase Agreement and the Convertible
Note, each of which is incorporated herein by reference.
Item 4. Purpose of Transaction.
Computer Associates purchased the Convertible Note on March
27, 1997 for investment purposes. Computer Associates will continue to
evaluate its investment in the Issuer on the basis of various factors,
including the Issuer s business, financial condition, results of
operations and prospects, general economic and industry conditions, the
securities markets in general and those for the Issuer s securities in
particular, Computer Associates own financial condition, other
investment opportunities and other future developments. Based upon such
evaluation, Computer Associates will take such actions in the future as
Computer Associates may deem appropriate in light of the circumstances
existing from time to time. Depending on market and other factors,
Computer Associates may determine to dispose of all or a portion of the
Convertible Note or the shares of Common Stock issuable upon conversion
of the Convertible Note (the Conversion Shares) or to enter into option
or other transactions (including, without limitation, hedging
transactions) with third parties with respect to the Common Stock.
<PAGE> 5
Except as set forth in this Item 4, Computer Associates has
no plans or proposals with respect to any of the actions specified in
clauses (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) As of the close of business on September 17, 1997,
Computer Associates beneficially owned 3,603,603 shares of Common Stock,
all of which are issuable upon conversion of the Convertible Note.
Assuming full conversion of the Convertible Note, such 3,603,603 shares
represent approximately 7.8% of the outstanding shares of Common Stock
(computed on the basis of 42,652,000 shares of Common Stock outstanding
as of July 31, 1997 as specified in Amendment No. 3, filed on September
3, 1997, to the Issuer s Registration on Form S-3 (Registration No. 333-
31271) (the Registration Statement) relating to the Issuer s public
offering of Convertible Subordinated Notes Due 2002 (the Public Note
Offering) plus 3,603,603 shares issuable upon conversion of the
Convertible Note).
Computer Associates acquired beneficial ownership of the
3,603,603 Conversion Shares pursuant to the Letter Agreement dated
September 9, 1997 between the Issuer and Computer Associates, a copy of
which is attached as Exhibit 3 to this Statement (the Letter Agreement)
and is incorporated herein by reference. The Letter Agreement provides,
among other things, that the Convertible Note may be converted into
shares of Common Stock, at the option of Computer Associates, beginning
45 days after the effective date of the Registration Statement.
According to the Company, the Registration Statement was declared
effective by the Securities and Exchange Commission (the Commission) on
September 8, 1997 (the Public Offering Date).
To the knowledge of Computer Associates, none of Computer
Associates directors, executive officers, affiliates or associates
beneficially owns any equity securities, or rights to acquire any equity
securities, of the Issuer.
(b) Computer Associates has the sole power to vote or to
direct the vote, and to dispose or to direct the disposition of, the
3,603,603 Conversion Shares.
(c) On July 15, 1997, in a privately negotiated transaction,
Computer Associates purchased from RBC Dominion Securities Corporation
as agent for Royal Bank of Canada (together, RBC), at a price of $1.00
per option, 1,200,000 options to sell one share of Common Stock per
option to RBC at a price per share of $7.800726 (collectively, the Put
Options). Simultaneously with the purchase of the Put Options, in a
privately negotiated transaction, RBC purchased from Computer
Associates, at a price of $1.00 per option, 1,200,000 options to
purchase one share of Common Stock per option from Computer Associates
at a price per share of $9.827355 (collectively, the Call Options and,
together with the Put Options, the SSA Options). The SSA Options are
deemed to be automatically exercised on the expiration date of July 15,
1999 and, except in certain limited circumstances, may not be exercised
prior to such expiration date. Unless Computer Associates elects to
settle the SSA Options using shares of Common Stock, the SSA Options
will be settled by a net cash payment from Computer Associates to RBC or
from RBC to Computer Associates depending upon the arithmetic average of
the closing prices of the Common Stock on July 13, 1999, July 14, 1999
and July 15, 1999.
(d) No other person has the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of,
any of the 3,603,603 Conversion Shares
(e) Not applicable.
<PAGE> 6
Item 6. Contracts, Arrangements, Understandings or Relationships
with respect to Securities of the Issuer.
On March 27, 1997, pursuant to the Note Purchase Agreement,
the Issuer issued and delivered to Computer Associates, and Computer
Associates purchased, in a private placement the Convertible Note for
$12 million. The principal amount of the Convertible Note, in whole or
in part, may be converted into shares of Common Stock at a per share
conversion price of $3.33, subject to adjustment as set forth in the
Convertible Note. The Convertible Note was convertible into shares of
Common Stock at the option of (i) Computer Associates, at any time after
March 27, 1998 or any time prior to such date following either the
Issuer s issuance of a redemption notice to redeem the Convertible Note
or the occurrence and continuance of an event of default under the
Convertible Note or (ii) the Issuer, if the closing price of the Common
Stock is equal to or in excess of $20.00 per share for any 20 trading
days in any 30 trading day period. The Note Purchase Agreement and the
Convertible Note also contain, among other things, certain covenants and
representations and warranties of the Issuer, registration rights with
respect to the Conversion Shares, transfer restrictions on the
Convertible Note and the Conversion Shares, and anti-dilution
provisions.
On September 8, 1997, in connection with the Public Note
Offering, Computer Associates executed a Letter to Hambrecht & Quist,
LLC and Lazard Freres & Co., LLC, a copy of which is attached as Exhibit
4 to this Statement (the Lock-up Letter), pursuant to which Computer
Associates agreed that it will not (i) offer, sell, pledge or otherwise
contract to sell, grant or sell any option or other contract to
purchase, purchase or otherwise acquire any option or other contract to
sell or otherwise dispose of or transfer any Conversion Shares, (ii)
enter into hedging transactions with respect to any Conversion Shares or
(iii) enter into any swap or any other agreement or transaction that
transfers the economic consequences of ownership of any Conversion
Shares. Such restrictions became effective on the Public Offering Date
and will remain in effect until 45 days after the Public Offering Date
with respect to 1,200,000 Conversion Shares and 90 days after the Public
Offering Date with respect to the other 2,403,603 Conversion Shares.
On September 9, 1997, in connection with the execution of the
Lock-up Letter, the Issuer and Computer Associates entered into the
Letter Agreement, pursuant to which, among other things, the Issuer
agreed to file with the Commission within five business days after the
Public Offering Date a registration statement covering all of the
Conversion Shares, and to use its best efforts to have such registration
statement declared effective by the Commission within 45 days after the
Public Offering Date. In addition, pursuant to the Letter Agreement,
Computer Associates and the Issuer agreed that the Issuer could not
exercise its right to redeem the Convertible Note until the later of the
effective date of the registration of the Conversion Shares or 90 days
after the Public Offering Date, and that the Convertible Note shall be
convertible into Conversion Shares, at the option of Computer
Associates, beginning 45 days after the Public Offering Date.
The information set forth above in this Item 6 is qualified
in its entirety by reference to the Note Purchase Agreement, the
Convertible Note, the Lock-up Letter and the Letter Agreement, each of
which is incorporated herein by reference.
On July 15, 1997, in a privately negotiated transaction,
Computer Associates purchased from RBC Dominion Securities Corporation
as agent for Royal Bank of Canada (together, RBC), at a price of $1.00
per option, 1,200,000 options to sell one share of Common Stock per
<PAGE> 7
option to RBC at a price per share of $7.800726 (collectively, the Put
Options). Simultaneously with the purchase of the Put Options, in a
privately negotiated transaction, RBC purchased from Computer
Associates, at a price of $1.00 per option, 1,200,000 options to
purchase one share of Common Stock per option from Computer Associates
at a price per share of $9.827355 (collectively, the Call Options and,
together with the Put Options, the SSA Options). The SSA Options are
deemed to be automatically exercised on the expiration date of July 15,
1999 and, except in certain limited circumstances, may not be exercised
prior to such expiration date. Unless Computer Associates elects to
settle the SSA Options using shares of Common Stock, the SSA Options
will be settled by a net cash payment from Computer Associates to RBC or
from RBC to Computer Associates depending upon the arithmetic average of
the closing prices of the Common Stock on July 13, 1999, July 14, 1999
and July 15, 1999.
Except as described in this Statement, to the knowledge of
Computer Associates, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons
named in Item 2 hereof and between such persons and any other person
with respect to any securities of the Issuer, including, but not limited
to, transfer or voting of any of such securities, finder s fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of
proxies.
Item 7. Material to be Filed as Exhibits.
Exhibit 1 Note Purchase Agreement, dated March 27, 1997, between the
Issuer and Computer Associates
Exhibit 2 $12,000,000 Floating Rate Convertible Note Due 2000 issued on
March 27, 1997 by the Issuer to Computer Associates
Exhibit 3 Letter Agreement dated September 9, 1997 between the Issuer
and Computer Associates
Exhibit 4 Letter dated September 8, 1997 from Computer Associates to
Hambrecht & Quist, LLC and Lazard Freres & Co., LLC
<PAGE> 8
SIGNATURES
After reasonable inquiry and to the best
of my knowledge and belief, the undersigned certifies that the
information set forth in this Statement is true, complete and correct.
Dated: September [18], 1997 COMPUTER ASSOCIATES
INTERNATIONAL, INC.
By:/s/ Peter Schwartz
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Name: Peter Schwartz
Title: Senior Vice President,
Chief Financial Officer
Exhibit 1
$12,000,000
FLOATING RATE CONVERTIBLE NOTES
Due 2000
NOTE PURCHASE AGREEMENT
dated
March 27, 1997
between
SYSTEM SOFTWARE ASSOCIATES, INC.
and
COMPUTER ASSOCIATES INTERNATIONAL, INC.
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. Issuance of Securities and Reservation of Reserved Shares 1
2. Purchase, Sale and Delivery 1
3. Representations and Warranties of the Corporation 1
(a) Organization 1
(b) Capital Stock; Indebtedness; Liens 2
(c) Authorization of Agreement 2
(d) Authorization of Notes 2
(e) Authorization of Shares 2
(f) Non-Contravention; No Required Consents 3
(g) Litigation 3
(h) Compliance; Governmental Authorizations 3
(i) Financial Statements 4
(j) Absence of Changes 4
(k) Taxes 4
(l) Intellectual Property 4
(m) Compliance with ERISA 5
(n) No Defaults 5
(o) SEC Reports 6
(p) Offering Exemption 6
(q) Use of Proceeds 6
(r) Investment Company 6
(s) Disclosure 6
(t) No Finders Fees 6
(u) Delaware Law; Rights Agreement 7
4. Representations and Warranties of the Purchaser 7
(a) Investment Purpose 7
(b) Restricted Securities 7
(c) Accredited Investor 7
5. Conditions of Obligations of the Purchaser 7
(a) Note 7
(b) Actions Authorized 7
(c) Consents 8
(d) Legal Opinion 8
(e) Representations and Warranties; Compliance; No Default 8
<PAGE>
6. Transfer of Securities 8
(a) Restriction on Transfer 8
(b) Restrictive Legend 8
(c) Notice of Transfer 9
(d) Removal of Legends, Etc 9
7. Registration of Registrable Stock 9
(a) Shelf Registration 9
(b) Preparation and Filing 10
(c) Designation of Underwriter 11
(d) Cooperation by Prospective Sellers 11
(e) Expenses 11
(f) Indemnification 12
8. Covenants 13
(a) Information 13
(b) Payment of Obligations 14
(c) Conduct of Business and Maintenance of Existence 14
(d) Compliance with Laws 15
(e) Inspection of Property, Books and Records 15
(f) Prohibited Transactions 15
9. Survival of Representations, Warranties and Agreements Etc. 15
10. Miscellaneous 15
(a) Entire Agreement 15
(b) Headings 15
(c) Notices 16
(d) Counterparts 16
(e) Amendments 16
(f) Assignment 17
(g) Expenses; Documentary Taxes; Indemnification 17
(h) CHOICE OF LAW 17
(i) CONSENT TO JURISDICTION. 18
(j) WAIVER OF JURY TRIAL 18
<PAGE>
EXHIBITS
Exhibit A - Form of Floating Rate Convertible Note Due 2000
Exhibit B - Form of Consent of Bank of America National Trust and
Savings Association and American National Bank and Trust
Company of Chicago
Exhibit C - Form of Consent of Principal Mutual Life Insurance Company
and Massachusetts Mutual Life Insurance Company
Exhibit D - Form of Opinion of Counsel to the Company
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 27, 1997 between
SYSTEM SOFTWARE ASSOCIATES, INC., a Delaware corporation (the
Company), and COMPUTER ASSOCIATES INTERNATIONAL, INC., a Delaware
corporation (the Purchaser).
The parties hereto agree as follows:
1. Issuance of Securities and Reservation of Reserved Shares. Subject
to the terms and conditions of this Agreement, the Company has
authorized the issuance of its Floating Rate Convertible Notes Due 2000
(the Notes) in substantially the form of Exhibit A hereto in the
aggregate principal amount of $12,000,000, and the Company has
authorized the reservation of a sufficient number of shares of Common
Stock, par value $.0033 per share (the Common Stock), including the
associated Rights (as defined below in Section 3(b)) of the Company to
provide for conversion of the Notes (such reserved shares being referred
to herein as the Reserved Shares).
2. Purchase, Sale and Delivery. On the basis of the representations,
warranties, covenants and agreements, but subject to the terms and
conditions, set forth in this Agreement, at the Closing (as defined
below), the Company agrees to sell and deliver to the Purchaser, and the
Purchaser agrees to purchase from the Company, one or more Notes in the
aggregate principal amount of $12,000,000 at 100% of the principal
amount (the Purchase Price). The Purchaser will designate to the
Company the number and denominations of Notes at least one business day
prior to the Closing. The closing (the Closing) for the consummation
of the transactions contemplated by this Agreement shall take place at
10:00 a.m., Eastern Standard Time, on March 27, 1996 at the offices of
Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New York
10019 or on such other date and location as the Purchaser and the
Company may mutually agree (such date of the Closing being herein
referred to as the Closing Date). The Purchase Price shall be
delivered to the Company in funds payable at Closing by wire transfer of
immediately available Federal funds (instructions for which will be
provided by the Company to the Purchaser), against receipt of the Notes.
3. Representations and Warranties of the Company. Except in the case of
any representation and warranty below, to the extent described under the
caption identifying such representation and warranty in the Company
Disclosure Letter dated the date of this Agreement and furnished by the
Company to the Purchaser on the date of this Agreement (the Company
Disclosure Letter), the Company represents and warrants, and agrees, as
follows:
a. Organization. The Company and each of the subsidiaries of the
Company, a list of which are set forth on Schedule 3(a) of the Company
Disclosure Letter (each a Subsidiary and, collectively, the
Subsidiaries), are corporations duly organized, validly existing and in
good standing under the laws of their respective jurisdictions of
incorporation, and are duly qualified and in good standing to do
business in each jurisdiction in which such qualification is necessary
because of the property owned or leased or because of the nature of
business conducted by it, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, operations, earnings, business or
prospects of the Company and its Subsidiaries, taken as a whole (a
Material Adverse Effect). The Company does not own, directly or
<PAGE> 2
indirectly, any equity interest in any corporation, partnership, joint
venture or other entity other than the Subsidiaries.
b. Capital Stock; Indebtedness; Liens..
i. The authorized capital stock of the Company as of the date
hereof consists of 60,000,000 shares of Common Stock and 100,000 shares
of Preferred Stock, par value $.0033 per share, of which 42,613,825
shares of Common Stock, including associated Rights (the Rights) issued
pursuant to the Rights Agreement, dated as of May 3, 1988, between the
Company and The First National Bank of Chicago, as Rights Agent (the
Rights Agreement), are validly issued and outstanding, fully paid and
non-assessable, with no personal liability attaching to the ownership
thereof, and no shares of Preferred Stock are issued or outstanding.
All outstanding shares of capital stock of the Company are duly
authorized and not subject to any pre-emptive rights. Except for such
42,613,825 shares of Common Stock, there are no other shares of capital
stock or other securities of the Company issued or outstanding.
ii. There are no options, warrants, contracts, commitments or
agreements to which the Company is a party or is bound relating to any
shares of capital stock or other securities of the Company, whether or
not outstanding. Other than the Purchaser pursuant to this Agreement,
no person has any right to cause the Company to effect the registration
under the Securities Act of 1933, as amended (the Securities Act), of
Common Stock or any other securities of the Company. There are no
voting trusts, voting agreements, proxies or other agreements or
instruments with respect to the voting of the Company s capital stock to
which the Company is a party or, to the best of the Company s knowledge,
among or between any persons other than the Company.
iii. Schedule 3(b)(iii) of the Company Disclosure Letter sets
forth a true and complete list of (1) all outstanding Indebtedness (as
defined in the Notes) of the Company and its Subsidiaries and (2) all
Liens (as defined in the Notes) (other than Liens arising by operation
of law that constitute Permitted Liens under the Notes) of the Company
and its Subsidiaries, in each case as of March 27, 1997.
c. Authorization of Agreement. The execution, delivery and
performance by the Company of this Agreement are within the Company s
corporate powers and have been duly authorized by all requisite
corporate action by the Company; and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and
binding obligation of the Company.
d. Authorization of Notes. The issuance, sale and delivery of the
Notes are within the Company s corporate powers and have been duly
authorized by all requisite corporate action of the Company, and when
issued, sold and delivered in accordance with the provisions of this
Agreement, the Notes will constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms.
e. Authorization of Shares. The Notes are convertible into Common
Stock in accordance with the terms of this Agreement and of the Notes.
The reservation, issuance and delivery of the Reserved Shares are within
the Company s corporate powers and have been duly authorized by all
requisite corporate action of the Company, and when issued and delivered
in accordance with the terms of this Agreement and the terms of the
<PAGE> 3
Notes, the Reserved Shares will be validly issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof, and not subject to preemptive or any other similar
rights of the shareholders of the Company or others. The stockholders
of the Company have no preemptive rights with respect to Notes, the
Reserved Shares or the Common Stock.
f. Non-Contravention; No Required Consents. The execution,
delivery and performance of this Agreement, the issuance, sale and
delivery of the Notes and the reservation, issuance and delivery of the
Reserved Shares, and compliance with the provisions hereof and thereof
by the Company will not (i) violate any provision of law, statute, rule
or regulation, or any ruling, writ, injunction, order, judgment, or
decree of any court, administrative agency or other governmental body
applicable to the Company, any of the Subsidiaries or any of their
properties or assets or (ii) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default (or give rise to any right
of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company under, the Company s or any
Subsidiary s articles of incorporation or bylaws, or (x) any note,
indenture, mortgage, lease, contract, agreement or instrument (1) to
which the Company is a party or by which it or any of its properties or
assets are bound or affected and (2) relating to any debt owed by, or
any capital stock issued by, the Company, (y) any other lease, contract,
agreement or other instrument to which the Company is a party or by
which any of its properties or assets are bound or affected or (z) any
note, indenture, mortgage, lease, agreement or other contract, agreement
or instrument to which any Subsidiary is a party or by which it or any
of its properties or assets are bound or affected. Except for the
filing of any notice subsequent to the Closing that may be required
under applicable Federal or state securities laws (which, if required,
shall be filed on a timely basis as may be so required), no consent,
approval or authorization of, or declaration to, or filing with, any
Person is required for the valid authorization, execution, delivery, and
performance by the Company of this Agreement or for the valid
authorization, issuance, sale and delivery of the Notes or for the valid
authorization, reservation, issuance and delivery of the Reserved
Shares. The term Person, as used herein, means an individual, a
corporation, a partnership, a limited liability company, a trust, an
unincorporated association or any other entity or organization,
including, without limitation, a government or political subdivision or
an agency, instrumentality or official thereof.
g. Litigation. Except as disclosed in the Reports (as defined
below), (i) there are no actions, suits, claims, investigations or legal
or administrative or arbitration proceedings pending or, to the
knowledge of the Company or any Subsidiary, threatened against or
affecting the Company or any Subsidiary, whether at law or in equity, or
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality which
individually or in the aggregate would, if adversely determined, have a
Material Adverse Effect, or which in any manner draws into question the
validity of this Agreement, the Notes or the Reserved Shares or the
transactions contemplated hereby or thereby; and (ii) there are no
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against or
affecting the Company or any Subsidiary, which individually or in the
aggregate, would have a Material Adverse Effect.
h. Compliance; Governmental Authorizations. Each of the Company
and each Subsidiary has complied, and is in compliance with, in all
respects with the Federal, state, local or foreign laws, ordinances,
regulations and orders (including environmental laws, ordinances,
regulations and orders) necessary for the conduct of its business,
<PAGE> 4
except where the failure to comply with any of the foregoing would not
have a Material Adverse Effect. Each of the Company and each Subsidiary
has all Federal, state and foreign governmental licenses and permits
necessary in the conduct of its business as presently being conducted
(including all those required by the United States Environmental
Protection Agency and similar state agencies), such licenses and permits
are in full force and effect, no violations are or have been recorded in
respect of any thereof and no proceeding is pending or, to the knowledge
of the Company or any Subsidiary, threatened to revoke or limit any
thereof, except where the failure to comply with any of the foregoing
would not have a Material Adverse Effect.
i. Financial Statements. The consolidated financial statements of
the Company and the Subsidiaries set forth in the (i) Company s Annual
Report on Form 10-K for the year ended October 31, 1996, reported on by
KPMG Peat Marwick, and (ii) Company s Quarterly Report on Form 10-Q for
the three months ended January 31, 1997, in each case fairly present the
consolidated financial position of the Company and the Subsidiaries as
of such date and the consolidated results of operation and cash flows
for such period then ended in conformity with generally accepted
accounting principles. KPMG Peat Marwick is the independent accountant
as defined under the Securities Act and the rules and regulations
promulgated thereunder.
j. Absence of Changes. Since October 31, 1996, the Company and
each Subsidiary has been operated in the ordinary course of business
consistent with past practice and there has not been (i) any material
adverse change in the condition (financial or otherwise), assets,
liabilities, operations, earnings, business or prospects of the Company
and its Subsidiaries, taken as a whole; or (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect to
any shares of Common Stock, or any direct or indirect redemption,
purchase or other acquisition of any such shares of Common Stock.
k. Taxes. The federal income tax returns of the Company or its
predecessors have never been examined by the Internal Revenue Service.
Neither the Company nor its predecessors has taken any reporting
positions for which they do not have a reasonable basis and the Company
does not anticipate any further material tax liability with respect to
the years for which returns have been filed prior to the date of this
Agreement. For purposes of this paragraph, the term Company shall
include each other corporation with which the Company files consolidated
or combined income tax returns or reports. The Company and each
Subsidiary have timely filed all United States federal income tax
returns and all other material tax returns (federal, state, local and
foreign) required to be filed by it, which returns are true and correct
in all material respects, and all taxes, assessments, fees and other
governmental charges thereupon and upon its properties, assets, income
and franchises which are due and payable prior to the date of this
Agreement, the failure of which to pay when due and payable has or is
likely to have a Material Adverse Effect, have been paid when due and
payable, or reserves have been provided for payment thereof to the
extent required under generally accepted accounting standards. The
Company does not know of any actual or proposed additional tax
assessments for any fiscal period against it or any of the Subsidiaries
which, singly or in the aggregate, would have a Material Adverse Effect
and the Company has established adequate reserves for such additional
tax assessments, if any.
l. Intellectual Property. The Company or a Subsidiary exclusively
or jointly owns, or is licensed to use, all patents, licenses,
copyrights, trademarks or trade names or other intellectual property
rights (Intellectual Property) which the Company believes are
<PAGE> 5
necessary, required or desirable for the conduct of the business of the
Company and the Subsidiaries as presently conducted or as presently
proposed to be conducted. There are no pending or threatened claims
against the Company or any Subsidiary alleging that the conduct of the
Company s or such Subsidiary s business (as now conducted or presently
purposed to be conducted) infringes or conflicts with or will infringe
or will conflict with the rights of others in any Intellectual Property.
To the knowledge of the Company, no third party is infringing any of the
Intellectual Property of the Company or any Subsidiary. To the
Company s knowledge, neither the Company nor any Subsidiary is making
unauthorized use of any confidential information or trade secrets of any
person, including without limitation, any former or present employees of
the Company or any Subsidiary.
M. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each
Plan. No member of the ERISA Group has (i) sought a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code
in respect of any Plan, (ii) failed to make any contribution or payment
to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a lien or the
posting of a bond or other security under ERISA or the Internal Revenue
Code or (iii) incurred any liability under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of ERISA. ERISA
means the Employee Retirement Income Security Act of 1974, as amended,
or any successor statute. ERISA Group means the Company and all members
of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with
the Company, are treated as a single employer under Section 414 of the
Internal Revenue Code. PBGC means the Pension Benefit Guaranty Company
or any entity succeeding to any or all of its functions under ERISA.
Benefit Arrangement means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to
by any member of the ERISA Group. Multiemployer Plan means at any time
an employee pension benefit plan within the meaning of Section 4001(a)
(3) of ERISA to which any member of the ERISA Group is then making or
accruing an obligation to make contributions or has within the preceding
five Plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five
year period. Plan means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code and either (i) is maintained, or contributed to,
by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such
time a member of the ERISA Group.
n. No Defaults. Neither the Company nor any Subsidiary is in
default (i) under its articles of incorporation or bylaws, or any
indenture, mortgage, lease, purchase or sales order, or any other
contract, agreement or instrument to which the Company or any Subsidiary
is a party or by which they or any of their properties are bound or
affected or (ii) with respect to any order, writ, injunction or decree
of any court or any Federal, state, municipal or other domestic or
foreign governmental department, commission, board, bureau, agency or
<PAGE> 6
instrumentality, which defaults individually or in the aggregate would
have a Material Adverse Effect. There exists no condition, event or act
which constitutes, or which after notice, lapse of time, or both, would
constitute, a default under any of the foregoing, which defaults
individually or in the aggregate would have a Material Adverse Effect.
o. SEC Reports. The Company has delivered to the Purchaser its (i)
Annual Report on Form 10-K for the year ended October 31, 1996 and (ii)
Quarterly Report on Form 10-Q for the three months ended January 31,
1997 (together, the Reports). The description of the business,
operations, properties and assets of the Company contained in the
Reports, as well as all other factual statements concerning the Company
contained therein, are true, correct and complete in all material
respects and do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
p. Offering Exemption. Neither the Company nor any of its agents
has offered or sold any Notes or Common Stock, or any similar security
or securities to, or solicited any offers to buy any of the foregoing
from, or otherwise approached or negotiated in respect thereof with, any
person or persons so as to require registration of the Notes or the
Reserved Shares under the Securities Act or qualification under the
Trust Indenture Act of 1939. The offering and sale of the Notes and the
issuance of the Reserved Shares upon conversion of the Notes are each
exempt from registration under the Securities Act pursuant to Section
4(2) of such Act.
q. Use of Proceeds. The proceeds received by the Company from the
sale of the Notes shall be used by the Company for general corporate
purposes. None of such proceeds will be used, directly or indirectly,
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying any margin stock within the meaning of Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System.
r. Investment Company. The Company is not an investment company or
an entity controlled by an investment company as such terms are defined
in the Investment Company Act of 1940, as amended.
s. Disclosure. No document, certificate, instrument or written
statement or information furnished or made available to the Purchaser by
or on behalf of the Company in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein not misleading. There is no fact peculiar to the
Company which materially adversely affects (without regard to general
market and economic conditions), or in the future may (so far as the
Company can now foresee), to the best knowledge of the Company,
materially adversely affect the business, operations, prospects,
condition, properties or assets of the Company which has not been set
forth in this Agreement or in the other documents, certificates,
instruments or written statements furnished to the Purchaser by or on
behalf of the Company pursuant hereto.
t. No Finders Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act
on behalf of the Company or any Subsidiary who might be entitled to any
fee or commission from the Company, any Subsidiary, the Purchaser or any
<PAGE> 7
of Purchaser s affiliates upon consummation of the transactions
contemplated by this Agreement or thereafter.
u. Delaware Law; Rights Agreement. The Board of Directors of the
Company has approved this Agreement and the issuance and delivery of the
Reserved Shares in accordance with the terms of this Agreement and the
terms of the Notes, and such approval is sufficient to render the
provisions of Section 203 of the Delaware General Corporation Law
inapplicable to this Agreement and the transactions contemplated hereby
and by the Notes. The Company has delivered to the Purchaser a complete
and correct copy of the Rights Agreement, including all amendments and
exhibits thereto. The Company has taken, and as soon as possible after
the date hereof (but in no event later than two business days after the
date hereof), the Rights Agent will take, all actions necessary or
appropriate to amend the Rights Agreement to ensure that the execution
of this Agreement and the issuance and delivery of the Reserved Shares
in accordance with the terms of this Agreement and the terms of the
Notes and the other transactions contemplated by this Agreement and the
Notes will not cause (i) the Purchaser or any of its affiliates to be
considered an Acquiring Person (as such term is defined in the Rights
Agreement), (ii) the occurrence of a Distribution Date or Stock
Acquisition Date (as such terms are defined in the Rights Agreement) or
(iii) the separation of the Rights from the underlying Shares, and will
not give the holders thereof the right to acquire securities of any
party hereto.
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is acquiring the Notes for
the Purchaser s own account, not as a nominee or agent, and the
Purchaser is acquiring the Notes for investment and not with a view to
the distribution thereof within the meaning of the Securities Act.
b. Restricted Securities.
i. The Purchaser understands that the Notes have not been
registered under the Securities Act; and that the Notes are restricted
securities within the meaning of Rule 144 under the Securities Act.
ii. The Purchaser understands that the Reserved Shares issuable
upon conversion will not be registered under the Securities Act (except
as otherwise provided in Section 6) and may only be sold or transferred
in compliance with the Securities Act.
c. Accredited Investor. Purchaser is an Accredited Investor (as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended).
5. Conditions of Obligations of the Purchaser. The obligations of the
Purchaser to perform under this Agreement are subject to the
satisfaction of the following conditions unless waived by the Purchaser:
a. Note. The Purchaser shall have received a duly executed Note or
Notes evidencing the principal amount of Notes purchased.
<PAGE> 8
b. Actions Authorized. All action necessary to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been
duly and validly taken by the Company, and the Company shall have full
power and right to consummate the transactions contemplated hereby. The
Company shall have furnished to the Purchaser such documents relating to
its corporate existence and authority (including, without limitation,
certified copies of the Company s Articles of Incorporation, Bylaws,
resolutions and minutes of meetings of the Board of Directors
authorizing the Agreement and good standing certificates from the
Secretaries of State of the states of Delaware and Illinois and such
other matters as the Purchaser or its counsel may reasonably request.
c. Consents. The Purchaser shall have received (i) a consent duly
executed by Bank of America National Trust and Savings Association and
American National Bank and Trust Company of Chicago in the form of
Exhibit B and (ii) a consent duly executed by Principal Mutual Life
Insurance Company and Massachusetts Mutual Life Insurance Company in the
form of Exhibit C.
d. Legal Opinion. The Purchaser shall have received an opinion
dated the Closing Date of Sachnoff & Weaver Ltd., counsel to the Company
in the form of Exhibit D.
e. Representations and Warranties; Compliance; No Default. The
representations and warranties of the Company in Section 3 shall be true
and correct in all respects on and as of the Closing Date; the Company
shall have complied with all obligations, covenants and conditions
required to be complied with by it pursuant to this Agreement on or
prior to the Closing; and the Purchaser shall have received a
certificate signed by the Company s President and Chief Executive
Officer to the foregoing effect. No Event of Default under the Notes
and no event or condition which, with the giving of notice or the lapse
of time or both, would, unless cured or waived, become such an Event of
Default, shall have occurred and be continuing.
6. Transfer of Notes.
a. Restriction on Transfer. The Notes shall not be transferable
except upon the conditions specified in this Section 6, which conditions
are intended to ensure compliance with the provisions of the Securities
Act in respect of the transfer of the Notes.
b. Restrictive Legend. Each Note shall (unless otherwise permitted
by the provisions of Section 6(d)) be stamped or otherwise imprinted
with legends in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939. THIS NOTE MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT. ADDITIONALLY, THE TRANSFER
OF THIS NOTE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6 OF
THE NOTE PURCHASE AGREEMENT PURSUANT TO WHICH THIS NOTE WAS
PURCHASED, AND NO TRANSFER OF THIS NOTE SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
<PAGE> 9
c. Notice of Transfer. Each holder of a Note (a Holder), by
acceptance thereof agrees, prior to any transfer of any Notes, to give
written notice to the Company of such Holder's intention to effect such
transfer and to comply in all other respects with the provisions of this
Section 6(c). Each such notice shall describe the manner and
circumstances of the proposed transfer and shall be accompanied by the
written opinion of counsel for such Holder, as to whether in the opinion
of such counsel such proposed transfer involves a transaction requiring
registration of such Notes under the Securities Act. If in the opinion
of such counsel the proposed transfer of the Notes may be effected
without registration under the Securities Act, the Holder shall
thereupon be entitled to transfer the Notes in accordance with the terms
of the notice delivered by it to the Company. Each certificate or other
instrument evidencing the securities issued upon the transfer of any
Notes (and each certificate or other instrument evidencing any
untransferred balance of such Notes) shall bear the legend set forth in
Section 6(b) unless in the opinion of such counsel registration of
future transfer is not required by the applicable provisions of the
Securities Act. The Notes shall not be transferred in denominations of
less than $1,000,000. Without the prior written consent of the Company,
the Notes may not be transferred by the Purchaser or any transferee to
any Person listed on Schedule 6(c) of the Company Disclosure Schedule
(the Prohibited Transferees); provided that, if an Event of Default has
occurred and is continuing, the Notes may be transferred to a Prohibited
Transferee in which case the Company would only be obligated to deliver
publicly available information to such Person pursuant to Section 8(a).
d. Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Section 6, the restrictions imposed by Section 6 upon
the transferability of any Notes shall cease and terminate when any such
Notes are sold or otherwise disposed of in accordance with the intended
method of disposition by the seller or sellers thereof contemplated by
Section 6 which does not require that the Notes transferred bear the
legend set forth in Section 6(b). Whenever the restrictions imposed by
Section 6 shall terminate as herein provided, the holder of any Notes as
to which such restrictions have terminated shall be entitled to receive
from the Company, without expense, one or more new certificates not
bearing the restrictive legend set forth in Section 6(b) and not
containing any other reference to the restrictions imposed by Section 6.
7. Registration of Registrable Stock.
a. Shelf Registration.
i. The Company shall (x) within 15 business days of delivery of
a written request to register Registrable Stock (as defined below) by
any holder of Registrable Stock, file with the Securities and Exchange
Commission (the SEC) a Shelf Registration Statement (as defined below)
relating to the offer and sale of the shares of Common Stock or other
securities issued or issuable upon conversion of the Notes (the
Registrable Stock) by the holders of Registrable Stock from time to time
in accordance with the methods of distribution elected by such holders
and set forth in such Shelf Registration Statement, and (y) use its best
efforts to cause such Shelf Registration Statement to be declared
effective under the Securities Act as promptly as practicable; provided
that the holders of Registrable Stock may not request the
<PAGE> 10
Company to file a Shelf Registration Statement unless and until (x) such
holders have the right at such time to convert the Notes into Common
Stock pursuant to Section 3(a)(x) of the Notes or (y) the Company has
exercised its right to cause the Notes to convert into Common Stock
pursuant to Section 3(a)(y) of the Notes. Register, registered and
registration each refer to a registration of Registrable Stock
effected by filing with the SEC a registration statement in compliance
with the Securities Act and the declaration or ordering by the SEC of
effectiveness of such registration statement. Shelf Registration
means a registration effected pursuant to this Section 7. Shelf
Registration Statement means a shelf registration statement of the
Company filed with the SEC pursuant to the provisions of this Section 7
which covers some or all of the Registrable Stock, as applicable, on an
appropriate form under Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, amendments and supplements to such
registration statement, including post-effective amendments, in each
case including the prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
ii. The Company shall use its best efforts (x) to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by the holders of
Registrable Stock for a period equal to the longer of (1) three years
and (2) the period any holder of Registrable Stock is subject to any
limitations on the resale thereof under Rule 144, and (y) after the
effectiveness of the Shelf Registration Statement, promptly upon the
request of any holder of Registrable Stock, to take any action necessary
to register the sale of any Registrable Stock of such holder and to
identify such holder as a selling securityholder.
b. Registration Procedures. In connection with any Shelf
Registration Statement, the Company shall:
i. prepare and file with the SEC a Shelf Registration Statement
with respect to the Registrable Stock and use its best efforts to cause
such Shelf Registration Statement to become and remain effective as
provided in this Agreement;
ii. prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such Shelf Registration
Statement effective and current and to comply with the provisions of the
Securities Act with respect to the disposition of all shares covered by
such Shelf Registration Statement, including such amendments and
supplements as may be necessary to reflect the intended method of
disposition from time to time of the prospective seller or sellers of
such Registrable Stock;
iii. furnish to each selling holder of Registrable Stock such
number of copies of a prospectus in conformity with the requirements of
the Securities Act, and such other documents, as such holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Stock owned by such holder;
iv. use its best efforts to register or qualify the shares of
Registrable Stock covered by such Shelf Registration Statement under
such other securities or blue sky or other applicable laws of such
jurisdiction within the United States as each prospective seller shall
reasonably request, to enable such seller to consummate the public sale
or other disposition in such jurisdictions of the shares of Registrable
Stock owned by such seller; and
<PAGE> 11
v. furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, of (i) an opinion of counsel for
the Company, dated the effective date of the Shelf Registration
Statement, and (ii) a comfort letter (or, in the case of any such Person
which does not satisfy the conditions for receipt of a comfort letter
specified in Statement on Auditing Standards No. 72, an agreed upon
procedures letter) signed by the independent auditors who have certified
the Company s financial statements included in the Shelf Registration
Statement, covering substantially the same matters with respect to the
Shelf Registration Statement (and the prospectus included therein) and
(in the case of the comfort or agreed upon procedures letter) with
respect to events subsequent to the date of the financial statements, as
are customarily covered (at the time of such registration) in opinions
of issuer s counsel and in comfort letters delivered to the underwriters
in underwritten public offerings of securities (with, in the case of an
agreed upon procedures letter, such modifications or deletions as may be
required under Statement on Auditing Standards No. 35).
c. Designation of Underwriter. In the case of any registration
effected pursuant to this Section 7, a majority in interest of the
holders of Registrable Stock shall have the right to designate the
managing underwriter in any underwritten offering.
d. Cooperation by Prospective Sellers.
i. Each prospective seller of Registrable Stock, and each
underwriter designated by each such seller, will furnish to the Company
such information as the Company may reasonably require from such seller
or underwriter in connection with the Shelf Registration Statement (and
the prospectus included therein). No holder of Registrable Stock may
participate in any offering unless such Holder completes and executes
all questionnaires, indemnities, underwriting agreements and other
documents required in connection with the offering.
ii. Failure of a prospective seller of Registrable Stock to
furnish the information and agreements described in this Agreement shall
not affect the obligations of the Company under this Agreement to
remaining sellers to furnish such information and agreements unless, in
the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the
legality of the registration or the underlying offering.
iii. The holders holding shares of Registrable Stock included in
the registration will not (until further notice by the Company) effect
sales thereof (or deliver a prospectus to any purchaser) after receipt
of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or
prospectus. In connection with any offering each Holder who is a
prospective seller, will not use any offering document, offering
circular or other offering materials with respect to the offer or sale
of Registrable Stock, other than the prospectuses provided by the
Company and any documents incorporated by reference therein.
e. Expenses. All expenses incurred in complying with this Section
7, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association
of Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws, printing expenses and fees and
disbursements of counsel for the Company and one counsel for the holders
of Registrable Stock, and of the independent certified public
<PAGE> 12
accountants shall be paid by the Company; provided, however, that all
underwriting discounts and selling commissions applicable to the
Registrable Stock covered by registrations effected pursuant to this
Section 7 shall not be borne by the Company but shall be borne by the
seller or sellers.
f. Indemnification.
i. In the event of any registration of any Registrable Stock
under the Securities Act pursuant to this Section 7 or registration or
qualification of any Registrable Stock pursuant to this Section 7, the
Company shall indemnify and hold harmless the seller of such shares,
each underwriter of such shares, if any, each broker or any other person
acting on behalf of such seller and each other person, if any, who
controls any of the foregoing persons, within the meaning of the
Securities Act, against any losses, claims, damages or liabilities,
joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of
a material fact contained in any registration statement under which such
Registrable Stock as registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or any document prepared or furnished
by the Company incident to the registration or qualification of any
Registrable Stock pursuant to this Section 7, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to
make the statements therein in light of the circumstances under which
they were made, not misleading, or any violation by the Company of the
Securities Act or state securities or blue sky laws applicable to the
Company and relating to action or inaction required of the Company in
connection with such registration or qualification under such state
securities or blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller and
each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable (i) in any such case to
the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the registration statement, the
preliminary prospectus or prospectus or in any amendment or supplement
thereof pursuant to this Section 7 in reliance upon and in conformity
with written information furnished to the Company through an instrument
duly executed by such seller or such underwriter specifically for use in
the preparation thereof and (ii) to any broker or other person acting on
behalf of such seller to the extent that any such loss, claim, damage or
liability arises out of or is based upon any representation or other
statement of such broker or other person that is not in conformity with
the preliminary prospectus or prospectus.
ii. Before Registrable Stock held by a prospective seller shall
be included in any registration pursuant to this Section 7, such
prospective seller and any underwriter acting on its behalf shall have
agreed to indemnify and hold harmless (in the same manner and to the
same extent as set forth in (i) above) the Company, each director of the
Company, each officer of the Company who shall sign such registration
statement and any person who controls the Company within the meaning of
the Securities Act, with respect to any untrue statement or omission
from such registration statement, any preliminary prospectus or
prospectus contained therein, or any amendment or supplement thereof, if
such untrue statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
<PAGE> 13
instrument duly executed by such seller or such underwriter, as the case
may be, specifically for use in the preparation of such registration
statement, preliminary prospectus, prospectus or amendment or
supplement; provided that the maximum amount of liability in respect of
such indemnification shall be limited, in the case of each prospective
seller of Registrable Stock, to an amount equal to the net proceeds
actually received by such prospective seller from the sale of
Registrable Stock effected pursuant to such registration.
iii. Notwithstanding the foregoing provisions of this Section 7,
if pursuant to an underwritten public offering of Common Stock, the
Company, the selling shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which
contains provisions covering indemnification among the parties thereto
in connection with such offering, the indemnification provisions of
Section 7(f) shall be deemed inoperative for purposes of such offering.
iv. Each party entitled to indemnification under this Section
7(f) (the indemnified party) shall give notice to the party required to
provide indemnification (the indemnifying party) promptly after such
indemnified party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the indemnifying party (at its
expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for the indemnifying party, who shall
conduct the defense of such claim or litigation, shall be reasonably
satisfactory to the indemnified party, and the indemnified party may
participate in such defense, but only at such indemnified party s
expense, and provided, further, that the omission by any indemnified
party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 7(f) except to
the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged solely as
a result of the failure to give notice. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent
of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified
party of a release from all liability in respect to such claim or
litigation.
8. Covenants. The Company agrees that:
a. Information. The Company shall deliver to each Holder:
i. (A) as soon as available and in any event within 5 days after
filing of each of the Company s Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K with the Commission, copies of each of such
reports; and (B) as soon as available and in any event within 10 days
after filing of each of the Company s Annual Reports on Form 10-K
including copies of the Company s Annual Report to Shareholders and
Proxy Statement with the Commission, copies of each of such reports;
ii. promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all information (other than as described in
clause (i)) so mailed;
iii. simultaneously with the delivery of each set of financial
statements referred to above, a certificate of the chief financial
officer or the chief accounting officer of the Company stating whether
any Event of Default, as defined in the Notes, or any condition or event
which, with the giving of notice or lapse of time or both would, unless
<PAGE> 14
cured or waived, become an Event of Default, exists on the date of such
certificate and, if any Event of Default or any such condition or event
then exists, setting forth the details thereof and the action which the
Company is taking or proposes to take with respect thereto;
iv. if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any reportable event (as defined
in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code,
a copy of such application; (v) gives notice of intent to terminate any
Plan under Section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (vi) gives notice of withdrawal from
any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth details as to such
occurrence and action, if any, which the Company or applicable member of
the ERISA Group is required or proposes to take; and
v. from time to time such additional information regarding the
financial position or business of the Company and its Subsidiaries as
any Holder may reasonably request (it being understood and agreed that
no Holder shall be entitled to request any confidential or proprietary
information of the Company and its Subsidiaries pursuant to this clause
(v)).
b. Payment of Obligations. The Company will pay and discharge, and
will cause each Subsidiary to pay and discharge, at or before maturity,
all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain,
and will cause each Subsidiary to maintain, in accordance with generally
accepted accounting principles, appropriate reserves for the accrual of
any of the same; provided that the Holders hereby waive any default
arising out of the Company s or any Subsidiary s failure to pay any
Indebtedness described on Exhibit C to Schedule 3(n) of the Company
Disclosure Letter, such waiver to be effective until the first to occur
of (i) any holder of such Indebtedness either accelerates such
Indebtedness or commences any enforcement action with respect thereto,
(ii) any holder of Senior Indebtedness (as defined in the Notes) ceases
to waive any default under such Senior Indebtedness arising out of such
failure to pay any Indebtedness described on Exhibit C and (iii) the
aggregate dollar amount of all such outstanding Indebtedness specified
on Exhibit C (other than fees, interest or penalties thereon) increases
above the level so specified.
c. Conduct of Business and Maintenance of Existence. The Company
will continue, and will cause each Subsidiary to continue, to engage in
business of the same general type as now conducted by the Company and
its Subsidiaries, and will preserve, renew and keep in full force and
<PAGE> 15
effect, and will cause each Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their
respective rights, privileges and franchises necessary or desirable in
the normal conduct of business, provided that nothing in this Section
8(c) shall prohibit (i) the merger of a Subsidiary into the Company or
the merger or consolidation of a Subsidiary with or into another Person
if the corporation surviving such consolidation or merger is a
Subsidiary and if, in each case, after giving effect thereto, no Event
of Default under the Notes and no event or condition which, with the
giving of notice or lapse of time or both, would, unless cured or
waived, become an Event of Default under the Notes, shall have occurred
and be continuing or (ii) the termination of the corporate existence of
any Subsidiary if the Company in good faith determines that such
termination is in the best interest of the Company and is not materially
disadvantageous to the Holders of the Notes.
d. Compliance with Laws. The Company will comply, and cause each
Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, environmental laws and ERISA
and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate
proceedings.
e. Inspection of Property, Books and Records. The Company will
keep, and will use its best efforts to cause each Subsidiary to keep,
proper books of record and account in which full, true and correct
entries shall be made of all dealings and transactions in relation to
its business and activities; and will permit, and will cause each
Subsidiary to permit, representatives of any Holder at such Holder s
expense to visit and inspect any of their respective properties, to
examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts
with their respective officers, employees and independent public
accountants, all at such reasonable times, upon reasonable notice and as
often as may reasonably be desired (it being understood and agreed that
no Holder shall be entitled to request any confidential or proprietary
information of the Company and its Subsidiaries pursuant to this
subsection (e)).
f. Prohibited Transactions. Neither the Company nor any agent
acting on its behalf will, directly or indirectly, sell or offer for
sale or dispose of, or attempt or offer to dispose of, any of the Notes,
Common Stock or any similar security of the Company to, or solicit any
offers to buy any thereof from, or otherwise approach or negotiate in
respect thereof with, any person or persons, so as to require
registration of the Notes or the Reserved Shares under the Securities
Act.
9. Survival of Representations, Warranties and Agreements Etc. All
representations and warranties hereunder shall survive the Closing. All
statements contained in any certificate or other instrument delivered by
the Company or pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement shall constitute
representations and warranties by the Company under this Agreement.
10. Miscellaneous.
a. Entire Agreement. This Agreement and the Schedules and Exhibits
hereto contain the entire agreement between the Company and the
Purchaser with respect to the transactions contemplated hereby and
<PAGE> 16
supersede all prior agreements or understandings among the parties with
respect thereto.
b. Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision
of this Agreement.
c. Notices. All notices or other communications provided for in
this Agreement shall be in writing and shall be sent by confirmed
telecopy (with an undertaking to provide a hard copy) or delivered by
hand or sent by overnight courier service prepaid to the address
specified below.
If to the Company:
System Software Associates, Inc.
500 W. Madison
32nd Floor
Chicago, Illinois 60661
Attention: Chief Executive Officer
Telecopy: 312-258-65604
with a copy to:
System Software Associates, Inc.
500 W. Madison
32nd Floor
Chicago, Illinois 60661
Attention: General Counsel
Telecopy: 312-474-7451
If to the Purchaser:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788
Attention: President
Telecopy: 516-342-4866
with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788
Attention: General Counsel
Telecopy: 516-342-4866
or to such other address as the party to whom notice is to be given may
have furnished to the other party in writing in accordance herewith.
d. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute
but one agreement.
<PAGE> 17
e. Amendments. This Agreement shall not be altered or otherwise
amended except pursuant to an instrument in writing signed by each of
(i) the Company, (ii) the Purchaser so long as it holds any of the Notes
or any of the Reserved Shares issued upon conversion thereof, and (iii)
the holders of 51% of the aggregate principal amount of the Notes (or,
if the Notes have been converted, the holders of 51% of the number of
the Reserved Shares issued upon such conversion).
f. Assignment. This Agreement shall not be assignable by either
party without the consent of the other party, except that it, or the
rights under this Agreement, in whole or in part, may be assigned by the
Purchaser to any party or parties who purchase the Note or Notes owned
by the Purchaser (or, if the Notes have been converted, to any party or
parties who purchase the Reserved Shares issued upon such conversion).
g. Expenses; Documentary Taxes; Indemnification.
(i) The Company shall pay (A) all out-of-pocket expenses of each
Holder, including fees and disbursements of counsel for such Holder, in
connection with the preparation of this Agreement, (B) all out-of-pocket
expenses of each Holder, including fees and disbursements of counsel for
such Holder, in connection with any waiver or consent under this
Agreement or under the Notes or any amendment of this Agreement or the
Notes or any default or alleged default under this Agreement or under
the Notes and (C) if an Event of Default, as defined in the Notes,
occurs, all out-of-pocket expenses incurred by each Holder, including
fees and disbursements of counsel, in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom. The Company shall indemnify each
Holder against any transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution
and delivery of this Agreement or the Notes.
(ii) The Company hereby indemnifies and holds each Holder and
its affiliates, shareholders, officers, directors, employees and agents
(collectively, the Indemnified Parties) harmless from and against any
and all actions, causes of action, suits, losses, costs, claims,
liabilities and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including
attorneys and other experts fees and disbursements (collectively, the
Indemnified Liabilities), incurred by the Indemnified Parties or any
of them as a result of, or arising out of, or relating to (A) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds from the sale of the Notes; or (B) the
entering into and performance of this Agreement and any other document
delivered in connection herewith by any of the Indemnified Parties.
An Indemnified Party shall be entitled to be represented by the counsel
of such Indemnified Party s choice in connection with the defense
(including any investigation) of any third party claim against or
involving such Indemnified Party for which indemnification is sought
under this Agreement and, on demand (and as incurred), the Company shall
pay, or reimburse such Indemnified Party for, the fees and expenses of
such counsel and all other expenses relating to such defense. This
indemnity shall survive repayment or transfer of the Notes, the
conversion of any Note into Reserved Shares or the transfer of any
Reserved Shares. The Company s obligation to any Indemnified Party
under this indemnity shall be without regard to fault on the part of the
Company with respect to the violation or condition which results in
liability of any Indemnified Party. If and to the extent that the
foregoing undertaking is determined to be unenforceable for any reason,
the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
<PAGE> 18
h. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
i. CONSENT TO JURISDICTION. EACH OF THE HOLDERS AND THE
CORPORATION HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY
NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE HOLDERS AND THE
CORPORATION IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE HOLDERS AND THE CORPORATION CONSENTS TO
THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE DELIVERY (BY
OVERNIGHT COURIER) TO IT AT ITS ADDRESS SPECIFIED IN SECTION 9(c) OF
THIS AGREEMENT (OR IN THE CASE OF A HOLDER OTHER THAN THE PURCHASER, TO
ITS ADDRESS AS IT APPEARS IN THE REGISTER MAINTAINED BY THE
CORPORATION). EACH OF THE HOLDERS AND THE CORPORATION FURTHER AGREES
THAT A FINAL JUDGMENT IN ANY SUCH PROCEEDING SHALL BE CONCLUSIVE AND
BINDING AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
j. WAIVER OF JURY TRIAL. THE CORPORATION AND EACH OF THE HOLDERS
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE> 19
IN WITNESS WHEREOF, this Note Purchase Agreement has been duly
executed by an officer of each of the parties hereto thereunto duly
authorized all on the date first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Roger E. Covey
------------------------------
Name: Roger E. Covey
Title: Chief Executive Officer
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By: /s/ Charles P. McWade
------------------------------
Name: Charles P. McWade
Title: Senior Vice President -
Finance
Exhibit 2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939. THIS NOTE MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT. ADDITIONALLY, THE TRANSFER OF THIS
NOTE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6 OF THE NOTE
PURCHASE AGREEMENT PURSUANT TO WHICH THIS NOTE WAS PURCHASED AND NO
TRANSFER OF THIS NOTE SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED.
Floating Rate Convertible Note Due 2000
March 27, 1997
SYSTEM SOFTWARE ASSOCIATES, INC., a Delaware corporation (the
Company), for value received, hereby promises to pay to the order of
Computer Associates International, Inc. or registered assigns, the sum
of the principal amount of
U.S. $12,000,000
on March 31, 2000 (or, if such day is not a business day (as defined in
Section 9 below), the next succeeding business day) (the Maturity
Date). The outstanding principal amount of this Note shall bear
interest from and including the date hereof (the Closing Date) to but
excluding the Maturity Date (or, if a Conversion Notice (as defined
below) has been delivered pursuant to Section 3(a), the Conversion Date
(as defined below)), for each Interest Period (as defined below)
applicable thereto, at a rate per annum (calculated on the basis of the
actual number of days elapsed over a year of 360 days) equal to the
Applicable Rate for such Interest Period. Applicable Rate means, for
any day during any Interest Period, (x) the Base Rate from time to time
in effect plus (y) 1.00%. Base Rate means, for any day, the higher of
(a) 0.50% per annum above the latest Federal Funds Rate, and (b) the
rate of interest in effect for such day as publicly announced from time
to time by Bank of America National Trust and Savings Association or its
successor, in San Francisco, California, as its reference rate.
Federal Funds Rate means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York
(including any such successor, H.15(519)) on the preceding Business
Day opposite the caption Federal Funds (Effective), or, if for any
relevant day such rate is not so published on any such preceding
business day, the rate for such day will be the arithmetic mean as
determined by the Holder of the rates for the last transaction in
overnight Federal funds arranged prior to 9:00 a.m. (New York City time)
on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Holder.
Interest shall be paid monthly in arrears on each Interest Payment
Date by wire transfer to the account of each holder of a Note (a Holder)
specified in writing to the Company. Interest Period means each period
beginning on and including an Interest Payment Date (or in
<PAGE> 2
the case of the first Interest Period, the Closing Date) and ending on
but excluding the immediately succeeding Interest Payment Date (or in
the case of the last Interest Payment Date, the Maturity Date (or, if a
Conversion Notice has been delivered pursuant to Section 3(a), the
Conversion Date)). Interest Payment Date means the last business day of
each calendar month commencing on April 30, 1997.
The outstanding principal amount of this Note (together with
accrued interest thereon) shall be payable to the Holder on the Maturity
Date in lawful money of the United States by wire transfer of
immediately available funds to such account as the Holder shall specify
in writing to the Company.
SECTION 1. The Notes. This Note is one of the Notes of the
Company which are being issued in the aggregate principal amount of
$12,000,000 and are designated as Floating Rate Convertible Notes Due
2000 (the Notes). This Note was issued pursuant to the terms of a Note
Purchase Agreement, dated as of March 27, 1997 (the Purchase Agreement),
between the Company and Computer Associates International, Inc. (the
Purchaser).
SECTION 2. Redemption. (a) Subject to Section 3, the Notes may
be redeemed at the option of the Company in whole (but not in part), at
any time prior to the earlier of (i) the Maturity Date or (ii) the
Company s receipt, or transmission, as the case may be, of a Conversion
Notice (as defined below). The redemption price (Redemption Price)
shall be equal to 100% percent of the principal amount, together with
accrued interest to the Redemption Date (as defined below).
(b) Notices to redeem the Notes shall be given to Holders in
writing mailed, by overnight courier, to each Holder at its address as
it appears in the register maintained by the Company, such mailing to be
not more than 60 days nor less than 30 days prior to the date fixed for
redemption. Neither the failure to give notice nor any defect in any
notice given to any particular Holder of a Note shall affect the
sufficiency of any notice with respect to other Notes. Notices to
redeem Notes shall specify the date fixed for redemption (the
Redemption Date), the Redemption Price, the place or places of
payment, that payment will be made upon presentation and surrender of
the Notes, that interest accrued to the date fixed for redemption will
be paid as specified in said notice, that on and after said date
interest thereon will cease to accrue.
(c) If notice of redemption has been given in the manner set
forth in this Section, upon presentation and surrender of each Note at
the place or places specified in such notice, such Note shall be paid
and redeemed by the Company by payment of the Redemption Price therefor
together with accrued interest thereon in lawful money of the United
States. Such payment shall be made to the Holder of such Note by wire
transfer of immediately available funds to such account as such Holder
shall specify in writing to the Company. If monies for the redemption
of the Notes shall have been available for redemption on the Redemption
Date, the Notes shall cease to bear interest, and the only right of the
Holders of such Notes shall be to receive payment of the Redemption
Price together with accrued interest to the Redemption Date.
SECTION 3. Conversion. (a) At the option of (x) the Holder, at
any time after the first anniversary of the Closing Date or any time
prior to such first anniversary following either the Company s issuance
of a notice to redeem the Notes pursuant to Section 2 or the occurrence
and continuance of an Event of Default (as defined below) or (y) the
Company, if the closing price of the Common Stock, par value $.0033 per
share (the Common Stock), of the Company, shall be equal to or in
<PAGE> 3
excess of $20.00 per share for any twenty Trading Days (as defined
below) in any thirty Trading Day period, the Notes, in whole or in part,
may be converted on the Conversion Date (as defined below) at the
principal amount thereof, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of
Common Stock, including the associated Rights (as defined in the Note
Purchase Agreement), at the Conversion Price (as defined below), in
effect at the time of conversion; provided that, for the Company to
exercise the right specified in clause (y) above, the Company must issue
a Conversion Notice (as defined below) within twenty business days of
the end of any such thirty Trading Day period. In the event that a Note
is called for redemption pursuant to Section 2, such conversion right in
respect of the Note shall expire at the close of business on the
Redemption Date, unless the Company fails to make the payment due upon
redemption. The price at which the number of shares of Common Stock to
be delivered shall be determined upon conversion shall be $3.33 per
share of Common Stock (the Conversion Price). The Conversion Price
shall be adjusted in certain instances as provided in paragraph (d) of
this Section 3.
(b) If either the Holder or the Company elects to convert the
Notes, the Holder or the Company, as the case may be, shall provide
written notice (the Conversion Notice) to the Company (at the Company s
address) or the Holders (to each Holder s address as it appears on the
register), as applicable, which states that such party elects to convert
such Note. In the event that the Company elects to convert the Notes,
the Conversion Notice shall include a certification by the Company that
each of the conditions set forth in Section 3(f) will be satisfied as of
the Conversion Date. In order to exchange the securities, the Holder
shall surrender the Notes, duly endorsed or assigned to the Company or
in blank. If the Holder elects to convert the Notes, upon notice to the
Company thereof, the Company shall use its best efforts to cause the
conditions set forth in Section 3(f)(ii) through (v) to be satisfied as
promptly as possible thereafter. Each conversion shall be deemed to
have been effected immediately prior to the close of business on the
date all of the conditions set forth in Section 3(f) have been satisfied
or waived by the Holder (the Conversion Date). If such day is not a
business day, and a day on which the principal national securities
exchange or market quotation system on which the Common Stock is then
listed or admitted for trading is open (a Trading Day), then such
conversion will be deemed to have been effected on the next succeeding
Trading Day. As promptly as practicable on or after the Conversion
Date, the Company shall issue and deliver the certificates representing
the number of full shares of Common Stock, including the associated
Rights, issuable upon conversion, together with payment in lieu of any
fraction of a share, as provided in Section 3(c).
(c) No fractional shares of Common Stock shall be issued upon
conversion of Notes. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion of any Note, the
Company shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction of the market price per share of
Common Stock at the close of business on the Conversion Date.
(d) The Conversion Price shall be subject to the following
adjustments:
(i) if, on any Conversion Date, 80% of the closing price on
the trading day immediately preceding the Conversion Date is less than
$3.33, then the Conversion Price shall be reduced to equal 80% of such
closing price;
(ii) in case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
<PAGE> 4
proportionately reduced, and, conversely, in case outstanding shares of
Common Stock shall each be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective;
(iii) in case the Company shall pay or make a dividend or
other distribution on any class of capital stock of the Company in
Common Stock, the Conversion Price in effect at the opening of business
on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination;
(iv) in case the Company shall issue rights or warrants to
all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Conversion Price, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such rights or warrants shall be
adjusted to such subscription or purchase price, such reduction to
become effective immediately after the opening of business on the day
following the date fixed for such determination;
(v) in case the Company shall issue Common Stock (other than
shares of Common Stock issued upon exercise of rights, options and
warrants outstanding as of the date hereof), or rights, options or
warrants convertible into, or exchangeable or exercisable for, Common
Stock to any third party, or shall reprice or adjust the conversion,
exchange or exercise price of rights, options or warrants outstanding as
of the date hereof, at or to a price per share of Common Stock less than
the Conversion Price, the Conversion Price in effect at the opening of
business on the day following the date of such issuance, repricing or
adjustment shall be adjusted to such issue, conversion, exchange or
exercise price or, in the case of a repricing or adjustment, such
conversion, exchange or exercise price as so adjusted, such reduction to
become effective immediately after the opening of business on the day
following the date of such issuance, repricing or adjustment, as the
case may be;
(vi) in case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding any rights
or warrants referred to in clause (iv) of this Section, any dividend or
distribution paid in cash out of the retained earnings of the Company
and any dividend or distribution referred to in clause (iii) of this
Section), the Conversion Price in effect at the opening of business on
the date fixed for the determination of stockholders entitled to receive
such distribution shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the Conversion Price on the
<PAGE> 5
date fixed for such determination less the then fair market value of the
portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be
such Conversion Price, such adjustment to become effective immediately
prior to the opening of business on the day following the date fixed for
such determination; and
(vii) the reclassification of Common Stock into securities
including other than Common Stock shall be deemed to involve (A) a
distribution of such securities other than Common Stock to all holders
of Common Stock (and the effective date of such reclassification shall
be deemed to be the date fixed for the determination of stockholders
entitled to receive such distribution and the date fixed for such
determination within the meaning of clause (vi) of this Section), and
(B) a subdivision or combination, as the case may be, of the number of
shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification
shall be deemed to be the day upon which such subdivision becomes
effective or the day upon which such combination becomes effective, as
the case may be, and the day upon which such subdivision or combination
becomes effective within the meaning of clause (ii) of this Section).
(e)Whenever the Conversion Price is adjusted pursuant to Section
3(d):
(i) the Company shall compute the adjusted Conversion Price
and shall prepare a certificate signed by the Company setting forth the
adjusted Conversion Price showing in reasonable detail the facts upon
which such adjustment is based; and
(ii) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall forthwith
be required, and as soon as practicable after it is required (together
with a copy of the certificate referred to in clause (i) above), such
notice shall be mailed by the Company to all Holders.
(f) The Company s right to convert the Notes shall be subject
to satisfaction of each of the following conditions:
(i) no Event of Default (as defined below) and no condition
or event which, with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default, shall have
occurred;
(ii) consummation of the conversion shall not result in a
violation of any law, regulation, judgment, injunction, order or decree
applicable to the Company or any Holder;
(iii) all Common Stock held by any Holder as of the
Conversion Date and to be held by such Holder as a result of the
conversion shall not, on the Conversion Date or thereafter, be subject
to any limitation or restriction on such Holder s ability or right to
hold, vote, transfer, dispose or take any other action with respect to
such Common Stock (other than any such limitation or restriction arising
as a result of the requirements of the Securities Act of 1933, as
amended, or as a result of agreements of such Holder with third
parties);
<PAGE> 6
(iv) all filings with, and all approvals, consents and
actions by any Person necessary to exempt any Reserved Shares (as
defined in the Purchase Agreement) issued upon conversion of the Notes
held by such Holder as of the Conversion Date and to be held by such
Holder as a result of the conversion and any such Holder with respect to
all such shares from, and to exclude such Reserved Shares from the
calculation of aggregate beneficial ownership of Common Stock of such
Holder for the purposes of, (x) the provisions of the Rights Agreement
(as defined in the Purchase Agreement) or from any similar agreement or
plan that the Company may have and (y) any applicable anti-takeover
statute or regulation, shall have been obtained and taken; and
(v) all filings with, and all approvals, consents and
actions by, any Person necessary to consummate the conversion
(including, without limitation, any approval required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended) shall have
been made and obtained.
The term Person shall mean an individual, a company, a partnership, a
limited liability company, a trust, an unincorporated association or any
other entity or organization, including, without limitation, a
government or political subdivision or an agency, instrumentality or
official thereof.
The conversion of the Notes by the Company pursuant to this Section 3
shall be deemed to be a representation and warranty by the Company that
all of the foregoing conditions are satisfied on and as of the
Conversion Date.
(g) Notwithstanding anything to the contrary set forth in the
Notes, unless and until the Company s stockholders have approved the
transactions contemplated by the Purchase Agreement and the Notes, the
Company shall not be obligated to issue more than 8,480,151 shares of
Common Stock (as adjusted to reflect stock dividends, stock splits,
recapitalization, reorganization, stock exchange or other combination)
(the Nasdaq Limit) upon conversion of the Notes. If, on any
Conversion Date, the Notes are converted into a number of shares of
Common Stock that is less than the number of shares that the Notes would
have been convertible into had the limitation on the issuance of shares
set forth in the immediately preceding sentence not been in effect, the
Company shall, on the Conversion Date, pay to the Holder by wire
transfer of immediately available funds an amount equal to the sum of
(x) the product of (1) the excess of (A) such number of shares that
would have been issued upon such conversion had such limitation not been
in effect over (B) such number of shares that were being issued upon
such conversion and (2) the closing price of the Common Stock on the
trading day immediately preceding the Conversion Date and (y) the Make-
Whole Amount; provided that the amount payable pursuant to this sentence
shall in no event exceed the maximum amount allowable under applicable
law. Make-Whole Amount means an amount equal to the excess of (x) the
amount of interest that would have been due on the outstanding principal
amount of the Notes from March 27, 1997 through and including the
Conversion Date had the Applicable Rate been equal to 21% over (y) the
amount of interest that was actually due on the outstanding principal
amount of the Notes for such period.
(h) At the next annual meeting of the Company s stockholders
following the Company s 1997 annual stockholders meeting, which the
Company shall cause to occur no later than May 31, 1998, the Company
shall use its best efforts to obtain the necessary approvals of its
stockholders of the transactions contemplated by the Purchase Agreement
and the Notes in order to satisfy the applicable rules of the Nasdaq
<PAGE> 7
National Market with respect to issuing more shares than the Nasdaq
Limit upon conversion of the Notes.
(i) The Company shall at all times reserve and keep available,
free from any pre-emptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of Notes, the
full number of shares of Common Stock then issuable upon the conversion
of all outstanding Notes (but in no event less than 8,480,151 shares).
(j) The Company will pay any and all transfer, documentary and
similar taxes or charges that may be payable in respect of the issue or
delivery of shares of Common Stock on conversion of Notes pursuant
hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that of the
Holder of the Note or Notes to be converted, and no such issue or
delivery shall be made unless and until the person requesting such issue
has paid to the Company the amount of any such tax, or has established
to the satisfaction of the Company that such tax has been paid.
(k) The Company covenants that all shares of Common Stock which
may be issued upon conversion of Notes will upon issue be fully paid and
nonassessable and, except as provided in Section 3(j), the Company will
pay all taxes, liens and charges with respect to the issue thereof.
(l) All Notes that have been converted shall be promptly
delivered to the Company to be canceled by the Company.
SECTION 4. Exchange or Replacement of Notes. (a) The Holder
of any Note, at such Holder s option may in person or by duly authorized
attorney surrender such Note for exchange, at the office or agency of
the Company maintained pursuant to Section 6(a) of this Note, and
receive in exchange therefor a new Note in the same principal amount as
the outstanding principal amount of the Note so surrendered and bearing
interest at the same annual rate as the Note so surrendered, each such
new Note to be dated as of the most recent Interest Payment Date on the
Note so surrendered and to be in such outstanding principal amount and
payable to such person or persons, or order, as such Holder may
designate in writing; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any new Note in a name other
than that of the Holder of the Note surrendered in exchange therefor;
provided, further, however, that the Company shall not be required to so
register the transfer unless the conditions for transfer in the Purchase
Agreement have been satisfied. The Holder shall give to the Company 10
days prior written notice of such Holder s intention to make such
exchange.
(b) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft or destruction, mutilation of any Note and (in case
of loss, theft or destruction) of indemnity satisfactory to it, and upon
surrender and cancellation of such Note, if mutilated, the Company will
execute and deliver in lieu of such Note a new Note of like tenor. Any
such new Note shall be dated as of the most recent Interest Payment Date
on the Note in lieu of which such new Note is executed and delivered.
The term outstanding when used in this Note with reference to the
Notes as of any particular time shall not include (i) any Note in lieu
of which a new Note has been executed and delivered by the Company in
accordance with the provisions of this Section and (ii) any Note held or
beneficially owned by the Company or any of its affiliates.
<PAGE> 8
SECTION 5. Amendments and Waivers. With the written consent
of the Holders of 51% of the aggregate outstanding principal amount of
the Notes at the time outstanding and the written consent of the
Purchaser so long as it holds any of the Notes, any covenant, agreement
or condition contained in the Notes may be waived (either generally or
in a particular instance and either retroactively or prospectively), or
such Holders, the Purchaser (so long as it holds any of the Notes) and
the Company may from time to time enter into agreements for the purpose
of amending any covenant, agreement or condition of the Notes or
changing in any manner the rights of the holders of the Notes or the
Company; provided, however, that:
(i) no such amendment or waiver shall change the Maturity Date
of this Note or reduce the rate or extend the time of payment of
interest hereon, or reduce the amount of the payment of interest hereon,
or reduce the amount of the principal hereof, or modify any of the
provisions of this Note with respect to the payment hereof, or change
the conditions to conversion set forth in Section 4(f), without in any
such case the consent of the Holder of this outstanding Note;
(ii) no such amendment or waiver with respect to the provisions
of Section 8 shall be effective without the consent of the holders of
Senior Indebtedness; and
(iii) no such waiver shall extend or affect any obligation not
expressly waived or impair any right consequent thereon.
Any such amendment or waiver shall be binding upon each future
Holder of this Note and upon the Company, whether or not such Note shall
have been marked to indicate such amendment or waiver, but any Note
issued thereafter shall bear a notation referring to any such amendment
or continuing waiver.
SECTION 6. Covenants.
(a) The Company shall maintain an office where notices,
presentations and demands to or upon the Company in respect of Notes,
including those relative to conversion of the Notes, may be given.
(b) The Company shall keep at such office a register at its
expense, which shall provide for the registration and transfer of Notes.
The Company and any agent of the Company may treat the person in whose
name any Note is registered as the Holder of such Note for the purpose
of receiving payment of the principal and interest on such Note and for
all other purposes, whether or not such Note be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
(c) The Company agrees that so long as any of the Notes are
outstanding, it shall not directly or indirectly (i) declare or pay any
dividend (other than a stock dividend) or make any distribution on its
capital stock or to the holders of its capital stock, (ii) purchase,
redeem or otherwise acquire or retire for value, or permit any of the
Subsidiaries to, directly or indirectly, purchase, redeem or otherwise
acquire or retire for value, any such capital stock (or options,
warrants or other rights to acquire such capital stock), (iii) except as
provided under this Note, redeem, repurchase, defease (including, but
not limited to, in-substance or legal defeasance) or otherwise acquire
or retire for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, Indebtedness of the Company
<PAGE> 9
which is pari passu or subordinate (whether pursuant to its terms or by
operation of law) in right of payment to the Notes and which is
scheduled to mature (after giving effect to any and all options to
extend the maturity thereof) on or after the maturity date of such Notes
(after giving effect to any and all options to extend the maturity
thereof).
(d) The Company agrees that as long as any of the Notes are
outstanding, it shall not (i) consolidate with or merge into any other
Person or (ii) sell, lease or otherwise transfer, directly or
indirectly, all or any substantial part of the assets of the Company and
the Subsidiaries, taken as a whole, to any other Person unless (A) the
successor formed by such consolidation or the survivor of such merger or
the Person that acquires by conveyance, transfer or lease all or any
substantial part of the assets of the Company and the Subsidiaries as an
entirety, as the case may be, shall be a solvent corporation organized
and existing under the laws of the United States or any State thereof
(including the District of Columbia), and, if the Company is not such
corporation, such corporation shall have executed and delivered to each
holder of any Notes its assumption of the due and punctual performance
and observance of each covenant and condition of the Purchase Agreement
and the Notes and (B) immediately after giving effect to such
transaction, no Event of Default and no condition or event which with
the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default, shall have occurred and be
continuing.
(e) The Company agrees that so long as any of the Notes are
outstanding, neither the Company nor any of the Subsidiaries will in any
manner, directly or indirectly, incur or be liable in respect of any
Indebtedness senior to or ranking pari passu with the Notes, except:
(i) Indebtedness of the Company represented by the Notes;
(ii) Indebtedness of the Company existing as of March 27,
1997 as set forth on Schedule 3(b)(iii) of the Company Disclosure Letter
(as defined in the Purchase Agreement);
(iii) other Indebtedness not exceeding $2,000,000 in
aggregate principal amount at any time outstanding; and
(iv) extensions, refinancings, amendments and modifications
of any Indebtedness described in clause (ii) above, provided that the
principal amount of such Indebtedness is not increased.
Indebtedness of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed money, (ii)
all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay
the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (iv) all
obligations of such Person as lessee which are capitalized in accordance
with generally accepted accounting principles, (v) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect
of letters of credit, banker s acceptances, surety or other bonds and
similar instruments, (vi) all obligations of such Person to purchase
securities (or other property) which arise out of or in connection with
the sale of the same or substantially similar securities or property,
(vii) all Indebtedness of others secured by a Lien (as defined below) on
any asset of such Person, whether or not such Indebtedness is assumed by
<PAGE> 10
such Person, and (viii) all Indebtedness of others guaranteed by such
Person or for which such Person is otherwise contingently liable.
(f) The Company agrees that so long as any of the Notes are
outstanding, neither the Company nor any of the Subsidiaries shall
create, incur, assume or suffer to exist any mortgage, deed of trust,
security interest, lien or other encumbrance (each, a Lien) upon any
of its properties or assets, whether now owned or hereafter acquired,
except Liens in favor of holders of the Notes and Permitted Liens.
Permitted Liens shall mean: (i) liens for taxes not yet
payable or being contested in good faith and by appropriate proceedings
diligently pursued, provided that the reserve or other appropriate
provision, if any, as shall be required by generally accepted accounting
principles shall have been made therefor; (ii) deposits or pledges to
secure the payment of workmen s compensation, unemployment insurance,
old age pensions or other social security benefits or obligations; (iii)
deposits or pledges to secure the performance of bids, tenders,
contracts, leases, public or statutory obligations, surety or appeal
bonds, or other deposits or pledges for purposes of a like general
nature made or given in the ordinary course of business and not in
connection with the borrowing of money; (iv) Liens in favor of holders
of Indebtedness permitted under Section 6(e); (v) such utility, access
and other easements, rights of way, restrictions, exceptions, minor
defects or irregularities in or clouds on title or encumbrances not
arising out of the borrowing of money or the securing of advances or
credit, and which will not interfere with or impair in any respect the
utility, operation or value of any properties of the Company; (vi) liens
of mechanics, warehousemen, carriers or other similar statutory liens
incurred in good faith in the ordinary course of business; (vii) liens
existing as of March 27, 1997 on properties and assets of the Company or
any Subsidiary as set forth in Schedule 3(b)(iii) of the Company
Disclosure Letter; and (viii) other liens incidental to the conduct of
the Company s business or the ownership of its property and assets
(including landlord liens) that (1) are not incurred in connection with
the borrowing of money or the obtaining of advances or credit or the
guaranteeing of the obligations of another Person, (2) do not in the
aggregate materially detract from the value of the Company s properties
or assets or materially impair the Company s ability to use such
property or assets in the operation of its business and (3) do not
secure any obligation in an amount exceeding $250,000.
(g) The Company shall deliver (by overnight courier) to each
Holder promptly following the occurrence thereof written notice of (i)
an Event of Default or of any condition or event which, after notice,
lapse of time, or both, could constitute an Event of Default, and (ii)
the commencement of any action, suit, claim, investigation or legal or
administrative or arbitration proceeding which could have a material
adverse affect on the Company or any of the Subsidiaries.
SECTION 7. Events of Default.
(a) The following shall constitute an Event of Default under
the Notes:
(i) the Company shall fail to pay when due any principal of
or interest on any Note or any other amount payable under the Notes or
the Purchase Agreement;
(ii) the Company shall fail to observe or perform any
covenant contained in Section 6(c), 6(d), 6(e), or 6(f);
<PAGE> 11
(iii) the Company shall fail to observe or perform any
covenant or agreement contained in the Notes or the Purchase Agreement
(other than those covered by clause (i) or (ii) above) for 15 days after
written notice thereof has been given to the Company;
(iv) any representation, warranty, certification or
statement made by the Company in the Purchase Agreement or in the Notes
or in any certificate, financial statement or other document delivered
pursuant to the Purchase Agreement or the Notes shall prove to have been
incorrect in any material respect when made;
(v) the Company or any of its subsidiaries shall fail to
make any payment in respect of any Material Indebtedness (as defined
below) when due or within any applicable grace period;
(vi) any event or condition shall occur which (A) results in
the acceleration of the maturity of any Material Indebtedness or (B)
enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of such Indebtedness or any Person acting on such
holder s behalf to accelerate the maturity thereof;
(vii) the Company or any of its subsidiaries shall commence
a voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing;
(viii) an involuntary case or other proceeding shall be
commenced against the Company or any of its subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an
order for relief shall be entered against the Company or any of its
subsidiaries under the federal bankruptcy laws as now or hereafter in
effect;
(ix) any member of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of $100,000 which it
shall have become liable to pay under Title IV of ERISA; or notice of
intent to terminate a Material Plan shall be filed under Title IV of
ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c) (5) of ERISA, with respect to, one or
more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of $200,000;
<PAGE> 12
(x) a judgment or order for the payment of money in excess
of $1,000,000 shall be rendered against the Company or any of its
subsidiaries and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 business days; or
(xi) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
(other than the Purchaser and its affiliates) after the date hereof
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said
Act) of 15% or more of the outstanding shares of common stock of the
Company; or individuals who were directors of the Company as of the date
hereof (together with any new director whose election by the Company s
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination was previously
so approved) shall cease for any reason to constitute a majority of the
board of directors of the Company.
For purposes of this Section, Material Indebtedness means
Indebtedness (other than the Notes) of the Company or one or more of any
Subsidiaries, arising in one or more related or unrelated transactions,
in an aggregate principal amount exceeding $750,000; provided that such
term shall not include the Indebtedness described on Exhibit C to
Schedule 3(n) of the Company Disclosure Letter for so long as none of
the following has occurred: (i) any holder of such Indebtedness shall
have either accelerated such Indebtedness or commenced any enforcement
action with respect thereto, (ii) any holder of Senior Indebtedness
shall have ceased to waive any default under such Senior Indebtedness
arising out of such failure to pay any Indebtedness described on Exhibit
C to Schedule 3(n) and (iii) the aggregate dollar amount of all such
outstanding Indebtedness specified on Exhibit C to Schedule 3(n) (other
than fees, interest or penalties thereon) shall have increased above the
level so specified. As used herein, the terms ERISA, ERISA Group,
Material Plan, Multiemployer Plan and PBGC have the meanings set
forth in the Purchase Agreement.
(b) In case of the happening of an Event of Default, then, and
in every such happening and at any time thereafter during the
continuance of such Event of Default, the Holders of at least 51% in
interest of Notes at the time outstanding may, by written notice to the
Company, declare the Notes to be forthwith due and payable, whereupon
the Notes shall become forthwith due and payable, both as to the
outstanding principal amount thereof and accrued interest thereon,
without presentment, demand, protest, or other notice of any kind, all
of which are hereby expressly waived, anything contained herein or
therein to the contrary notwithstanding; provided that in the case of
any of the Events of Default specified in Section 7(a)(vii) or
7(a)(viii) above with respect to the Company, without any notice to the
Company or any other act by the Holders, the Notes shall become
forthwith due and payable, both as to the outstanding principal amount
thereof and accrued interest thereon, without presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly
waived, anything contained herein or therein to the contrary
notwithstanding.
(c) In case an Event of Default shall have occurred and be
continuing, then, (i) the Holders of at least 51% in interest of the
Notes at the time outstanding may proceed to protect and enforce such
Holders rights either by suit in equity and/or by action at law,
whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or the Notes or in aid of the
<PAGE> 13
exercise of any power granted in the Purchase Agreement or in the Notes,
or proceed to enforce the payment of the Notes or to enforce any other
legal or equitable right of the Holders of the Notes and (ii) the
interest rate per annum with respect to any Note shall, for each day
that such Event of Default exists, be automatically increased to a rate
per annum equal to the sum of (A) 3% plus (B) the Applicable Rate for
such day. Any overdue principal of or interest on this Note and any
overdue amount payable hereunder or under the Purchase Agreement shall
bear interest, payable on demand, and in lawful money of the United
States, for each day until paid at the rate per annum specified in
clause (ii) of the immediately preceding sentence. No remedy herein
conferred hereunder is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or not or hereafter existing at
law or in equity or by statute or otherwise. No course of dealing
between the Company or any of its subsidiaries and any Holder of Notes
or any delay on the part of any Holder of Notes in exercising any rights
hereunder shall operate as a waiver of any rights of any such person
hereunder or under the Purchase Agreement.
SECTION 8. Subordination. (a) The Company, for itself, its
successors and assigns, covenants and agrees, and each Holder by its
acceptance hereof likewise covenants and agrees, that each Note shall be
subordinated, to the extent set forth below, to the prior payment in
full of all Senior Indebtedness (as hereinafter defined).
(b) During the period referred to in Section 8(g), the Company
shall not make or agree to make, and the Holder will not, demand, sue
for, take, or retain, any direct or indirect payment (in cash, property,
securities, by set-off or otherwise) on account of the principal of or
interest on this Note, provided, however, that the Company may pay and
the Holder may demand, sue for, take and retain any payments of interest
and principal, including, without limitation, payment upon the Company s
right to redeem under Section 2, under the terms and conditions of the
Notes made or due prior to the date on which the Holder shall have
received written notice (by registered mail, overnight courier or
confirmed facsimile) of any Subordination Event (as hereinafter
defined). Nothing in this Section 8 shall be deemed to prevent the
accrual of interest on outstanding amounts, contemplated by the
provisions of this Note including, without limitation, Section 7(c).
Nothing in this Section 8 shall be deemed to prevent the Holder from
demanding, suing for, taking or retaining any payments on account of
this Note after the earlier of (i) the date on which the Senior
Indebtedness has been paid in full and (ii) either (y) 180 days after
the occurrence of an Event of Default (other than an Event of Default
under Section 7(a)(iii) or an Event of Default under Section
7(a)(vi)(B)) shall have occurred or (y) 270 days after an Event of
Default under Section 7(a)(iii) shall have occurred, provided that in
all cases in which more than one Event of Default is outstanding at one
time, the applicable period for purposes of this clause (ii) shall be
the shortest period possible. Notwithstanding the preceding sentence,
if at the time of receipt by the Holder of any payment on account of the
Notes (w) any Senior Indebtedness shall have reached final maturity
(whether by acceleration or otherwise), (x) the holders of such Senior
Indebtedness referred to in clause (w) above shall have previously
commenced proceedings to enforce payment of such Senior Indebtedness,
(y) such proceedings shall be continuing and (z) prior to the Holder s
receipt of such payment, the holders of such Senior Indebtedness shall
have notified the Holder of the commencement of such proceedings, then
no such payment shall be made on account of the Notes until the Senior
Indebtedness described in clause (w) is paid in full and if any such
payment is received by the Holder it shall be paid over to the holder of
the Senior Indebtedness referred to in clause (w) above in an amount
equal to the lesser of (A) the outstanding amount of such Senior
Indebtedness and (B) the amount of such payment.
(c)(i) In the event of the occurrence of an event of default
under any agreement that includes the Company s obligation to pay Senior
<PAGE> 14
Indebtedness of the Company, the failure to repay any Senior
Indebtedness upon the final maturity thereof or otherwise upon any
payment or distribution, whether of cash, securities, or other property,
to creditors of the Company in a total or partial liquidation,
reorganization or dissolution of the Company, whether voluntary or
involuntary, or in a bankruptcy, reorganization, insolvency,
receivership, assignment for the benefit of creditors, marshaling of
assets, or similar proceeding relating to the Company or its property
(the existence of such acceleration, failure to pay upon final maturity
or proceeding being herein referred to as a Subordination Event), then
except as set forth in the proviso set forth in the first sentence of
Section 8(b), all Senior Indebtedness (including any interest thereon
accruing after the occurrence of any such event) shall first be paid in
full before any payment or distribution, whether in cash, securities or
other property other than Subordinated Securities (as hereinafter
defined), shall be made to the Holder on account of this Note. Any
payment or distribution, whether in cash, securities, or other property
(other than the Subordinated Securities), which would otherwise (but for
these subordination provisions) be payable or deliverable in respect of
this Note shall be paid or delivered directly to the holder of the
Senior Indebtedness until all Senior Indebtedness (including any
interest thereon accruing after the occurrence of any such event) shall
have been paid in full. Subordinated Securities shall mean any
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is
subordinate, at least to the extent provided in these subordination
provisions with respect to the Notes, to the payment of all Senior
Indebtedness at the time outstanding or to any securities issued in
respect thereof under any such plan of reorganization or readjustment.
(ii) In the case of a happening of any Event of Default
other than any of the Events of Default specified in Section 7(a)(vii)
or 7(a)(viii), the Holders will not declare the Notes to be forthwith
due and payable until the earliest of (x) the final maturity of any
Senior Indebtedness, (y) the acceleration of the maturity of any Senior
Indebtedness and (z) either (A) 180 days after the occurrence of an
Event of Default (other than an Event of Default under Section 7(a)(iii)
or an Event of Default under Section 7(a)(vi)(B)) shall have occurred or
(B) 270 days after an Event of Default under Section 7(a)(iii) shall
have occurred, provided that in all cases in which more than one Event
of Default is outstanding at one time, the applicable period for
purposes of this clause (z) shall be the shortest period possible.
(d) The provisions of this Section constitute a continuing
subordination agreement, and the holder of Senior Indebtedness may
continue, without notice to the Holder, to extend credit and make loans
and advances to or for the account of the Company in reliance hereon;
provided that such loans and advances are not prohibited by the
provisions of Section 6(e). The holder of Senior Indebtedness may, at
any time and from time to time, without consent or notice to the Holder,
without incurring responsibility to the Holder, and without impairing or
releasing any rights of the holder of Senior Indebtedness or any
obligations of the Holder hereunder: (i) change the manner, place or
terms of payment or change or extend the time of payment of, or renew or
alter any of the Senior Indebtedness, or otherwise amend in any manner
any of the Senior Indebtedness or any instrument evidencing the same or
any agreement under which any of the Senior Indebtedness is outstanding;
(ii) require such additional collateral from the Company or others to
secure any of the Senior Indebtedness as it may deem necessary or
desirable; (iii) sell, exchange, release or otherwise deal with any
collateral for the Senior Indebtedness; (iv) release any person (other
than the Company) liable in any manner for the payment or collection of
any of the Senior Indebtedness; and (v) exercise or refrain from
exercising any right against the Company and any other person.
<PAGE> 15
(e) The holder of Senior Indebtedness shall not be prejudiced in
the right to enforce subordination of the Notes by any act or failure to
act on the part of the Company or of the holder of Senior Indebtedness.
(f) Except as otherwise expressly agreed to or undertaken by the
Holder herein, nothing contained herein shall be deemed to impose upon
the Holder any liability or obligation of the Company to the holder of
Senior Indebtedness or shall be construed as implying any guarantee,
warranty, undertaking or representation on the part of the Holder as to
the discharge by the Company of any liability or obligation of the
Company to the holder of Senior Indebtedness.
(g) As long as any Senior Indebtedness is outstanding, the
Holder shall not commence, or join with any creditor other than the
holder of Senior Indebtedness in commencing, any proceeding referred to
in Section 8(b) (which shall be deemed to include an involuntary
bankruptcy proceeding against the Company) until the earlier of (i) the
date on which the Senior Indebtedness has been paid in full and (ii)
either (x) 180 days after the occurrence of an Event of Default (other
than an Event of Default under Section 7(a)(iii) or an Event of Default
under Section 7(a)(vi)(B)) shall have occurred or (y) 270 days after an
Event of Default under Section 7(a)(iii) shall have occurred, provided
that in all cases in which more than one Event of Default is outstanding
at one time, the applicable period for purposes of this clause (ii)
shall be the shortest period possible.
(h) If the Holder receives any payment or distribution of any
character in contravention of any of the terms hereof, it shall hold
such payment or distribution in trust for the benefit of, and shall
promptly pay over or deliver and transfer such payment or distribution
to, the holder of the Senior Indebtedness.
(i) As used in this Section, Senior Indebtedness shall mean any
Indebtedness (as hereinafter defined) of the Company, other than the
Notes, permitted to be issued under Section 6(e), provided that in each
case the terms of any such Senior Indebtedness do not prohibit (except
on the terms set forth in this Note) the payment of principal of and
interest on the Note (including, without limitation, upon redemption by
the Company). Senior Indebtedness shall expressly include the
Indebtedness under the Amended and Restated Secured Credit Agreement,
dated as of February 28, 1997, among the Company, Bank of America
National Trust and Savings Association, as agent, and other named
institutions, as such agreement may be amended from time to time, except
to the extent that the Indebtedness thereunder is increased in a manner
not permitted under Section 6(e), and the Amended and Restated Note
Agreement, dated as of February 28, 1997, among the Company, Principal
Mutual Life Insurance Company and Massachusetts Mutual Life Insurance
Company, as such agreement may be amended from time to time, except to
the extent that the Indebtedness thereunder is increased in a manner not
permitted under Section 6(e).
(j) The provisions of this Section are for the purpose of
defining the relative rights of the holders of Senior Indebtedness on
the one hand, and the Holders on the other hand, against the Company and
its property, and nothing herein shall impair, as between the Company
and the Holders, the obligation of the Company, which is unconditional
and absolute, to pay to the Holder hereof the principal hereof and
interest hereon in accordance with the terms and provisions hereof; nor
shall anything herein prevent the Holders from exercising all remedies
otherwise permitted by applicable law hereunder upon default under this
Note, subject to the limitations set forth in Sections 8(b), 8(c)(ii)
and 8(g) and to the rights, if any, under this Section, of holders of
<PAGE> 16
Senior Indebtedness to receive cash, property, stock or obligations
otherwise payable or deliverable to the Holders. Nothing in this
Section 8 shall prohibit or in any way restrict the Holder s right, at
any time (including without limitation following a Subordination Event),
to the benefit of the provisions of Section 3.
(k) After the payment in full of all amounts payable with
respect to Senior Indebtedness, the Holders shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property, stock or obligations applicable to
Senior Indebtedness until the principal of and interest on this Note
shall be paid in full, and, for the purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of any
cash, property, stock, or obligations to which the Holders would be
entitled except for the provisions of this Section, and no payment
pursuant to the provisions of this Section to the holders of Senior
Indebtedness by the Holders, shall, as between the Company, its
creditors other than holders of Senior Indebtedness and the Holders, be
deemed to be a payment by the Company to or on account of Senior
Indebtedness. Nothing contained in this Note shall prevent the Company
from making payments at any time of principal of or interest on the
Notes except under the conditions described in Section 8(b) or 8(c).
SECTION 9. Extension of Maturity. Should the principal of or
interest on this Note become due and payable on other than a business
day, the maturity thereof shall be extended to the next succeeding
business day, and interest shall be payable thereon at the rate per
annum (calculated on the basis of the actual number of days elapsed over
a year of 360 days) herein specified during such extension. The term
business day shall mean any day that is not a Saturday, Sunday or legal
holiday in the State of New York.
SECTION 10. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.
SECTION 11. CONSENT TO JURISDICTION. EACH OF THE HOLDER AND THE
COMPANY HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY
NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTES OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE HOLDER AND THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH OF THE HOLDER AND THE COMPANY CONSENT TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE DELIVERY (BY OVERNIGHT COURIER) TO
IT AT ITS ADDRESS SPECIFIED IN SECTION 9(c) OF THE PURCHASE AGREEMENT
(OR IN THE CASE OF A HOLDER OTHER THAN THE PURCHASER, TO ITS ADDRESS AS
IT APPEARS IN THE REGISTER MAINTAINED BY THE COMPANY). EACH OF THE
HOLDER AND THE COMPANY FURTHER AGREES THAT A FINAL JUDGMENT IN ANY SUCH
PROCEEDING SHALL BE CONCLUSIVE AND BINDING AND MAY BE ENFORCED IN OTHER
<PAGE> 17
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.
SECTION 12. WAIVER OF JURY TRIAL. EACH OF THE HOLDER AND THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Roger E. Covey
------------------------------
Name: Roger E. Covey
Title: Chief Executive Officer
<PAGE> 18
[FORM OF TRANSFER NOTICE]
For value received ______________________ hereby sells, assigns and
transfers unto __________________________, whose social security or
other identifying number is ______________________ and whose address
(including postal zip code) is __________________________ and does
hereby irrevocably constitute and appoint _____________________ attorney
to transfer the said Note of the within named Company with full power of
substitution in the premises.
Dated: ____________
___________________
Transferor
NOTICE: The Signature to this Notice must correspond with the name as
written upon the face of this Note and every particular, without
alteration or enlargement or any change whatever.
Exhibit 3
September 9, 1997
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788
Attention: President
Re: $12 Million Floating Rate Convertible Notes due 2000
Ladies and Gentlemen:
Reference is hereby made to the Note Purchase Agreement
dated March 27, 1997 (the Purchase Agreement), between Computer
Associates International, Inc. (CA) and System Software Associates,
Inc. (SSA), and the $12 Million Floating Rate Convertible Note due
2000 issued by SSA to CA thereunder (the Note). Capitalized terms
used but not otherwise defined in this letter shall have the meanings
given to such terms in the Purchase Agreement. SSA and CA have
discussed SSA s proposed underwritten public offering of Convertible
Subordinated Notes (the Offering), as described in Amendment No. 3 to
the Registration Statement on Form S-3 filed on September 3, 1997 (File
No. 333-31271), as amended (the Registration Statement). In
connection with the Offering, SSA has requested that CA execute, and CA
is willing to execute, the lock-up agreement in the form of Exhibit A
attached hereto (the Lock-up Agreement), in consideration of SSA s
undertakings set forth herein. In consideration of the execution,
delivery and performance of the Lock-up Agreement and the mutual
agreements set forth herein, SSA and CA hereby agree as follows:
1. Notwithstanding anything to the contrary in the provisions of
Section 7 of the Purchase Agreement, SSA shall prepare and file the
Shelf Registration Statement covering all of the shares of Common Stock
of the Company issuable upon the conversion of the Note (the Shares) on
or prior to the fifth Business Day after the effective date of the
Registration Statement relating to the Offering (the Offering Effective
Date), and SSA shall use its best efforts to have the Shelf Registration
Statement declared effective by the SEC within 45 days after the
Offering Effective Date. Except as set forth herein, the
registration of the Shares shall be in accordance with the Purchase
Agreement.
2. SSA shall not be entitled to exercise its right to redeem the
Notes under Section 2 thereof until the latter to occur of (a) the
effective date of the registration of the Shares or (b) 90 days after
the Offering Effective Date. Following the latter of the preceding
periods, SSA s redemption right under Section 2 of the Note shall again
be available in accordance with Section 2 of the Note.
3. Notwithstanding anything to the contrary in Section 3 of the
Note, the Note shall be convertible into Shares at the option of CA upon
the expiration of the initial 45 day Lock-up Period, as defined in the
Lock-up Agreement.
<PAGE> 2
4. CA hereby waives the restriction set forth in Section 6(c) of
the Note with respect to the declaration and payment by SSA of dividends
upon 10,000 shares of its Series A Preferred Stock in the amounts and at
the times provided for in the Certificate of Designations for the Series
A Preferred filed by SSA with the Secretary of State of the State of
Delaware in the form filed as an exhibit to the Registration Statement.
Regards,
System Software Associates, Inc.
By:/s/ Joseph J. Skadra
---------------------------
Title: Vice President and
Chief Financial Officer
Accepted and Agreed:
Computer Associates International, Inc.
By:/s/ Charles P. McWade
-----------------------------------
Title: Senior Vice President - Finance
Exhibit 4
September 8, 1997
Hambrecht & Quist, LLC
Lazard Freres & Co., LLC
as Representative of the several
Underwriters to be named in the
within-mentioned Underwriting Agreement
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that Hambrecht & Quist, LLC (H&Q)
and Lazard Freres & Co., LLC, as representatives (Representatives) of
the several underwriters (the Underwriters), propose to enter into an
Underwriting Agreement (the Underwriting Agreement), with System
Software Associates, Inc. (the Company), providing for the public
offering by the Underwriters, including the Representatives, of
Convertible Subordinated Notes of the Company (the Public Offering) as
described in Amendment No. 3 to the Registration Statement on Form S-3
filed on September 3, 1997 (File No. 333-31271) (as amended, the
Registration Statement).
In consideration of the Underwriters agreement to make the Public
Offering and the Company s agreement (to be entered into concurrent
herewith) to file within five business days after the effective date of
the Registration Statement a registration statement with respect to the
Shares (as defined below) which are underlying the $12 Million Floating
Rate Convertible Note Due 2000 issued by the Company to Computer
Associates International, Inc. dated March 27, 1997 (the Convertible
Note), and to use its best efforts to cause such registration to be
declared effective by no later than forty-five (45) days after the
effective date of the Registration Statement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned agrees that, with respect to the number of
Shares and for the number of days immediately following the effective
date of the Registration Statement specified in Schedule 1 hereto (the
Lock-up Period), the undersigned will not, without the prior written
consent of H&Q directly or indirectly:
(i) offer, sell, pledge, contract to sell (including any short
sale whether or not against the box), grant or sell any option
or other contract to purchase, purchase or otherwise acquire
any option or other contract to sell or otherwise dispose of
or transfer the shares of Common Stock of the Company (the
Shares) issuable upon the conversion of the Convertible
Note;
<PAGE> 2
(ii) enter into any Hedging Transaction (as defined below)
relating to any Shares; or
(iii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, the economic consequence
of ownership of any Shares.
The foregoing restrictions are expressly intended to be applicable
whether any such above-referenced transaction is settled by delivery of
Shares or other securities, in cash or otherwise. In addition, such
restrictions are expressly intended to preclude the undersigned from
entering into any Hedging Transaction or other transaction during the
Lock-up Period which is designed to or reasonably expected to lead to
or result in a disposition of any Shares during the Lock-up Period, even
if the Shares would be disposed of by someone other than the
undersigned. Hedging Transaction means any short sale (whether or not
against the box) or any purchase or other acquisition, sale or grant of
any right (including, without limitation, any put or call option or any
combination thereof) with respect to any security or other instrument
(other than broad-based market basket or index) that includes, relates
to or otherwise derives any significant part of its value from the
Shares.
Without limiting the restrictions herein, any disposition by the
undersigned shall remain at all times subject to applicable securities
laws, including, without limitation, the resale restrictions imposed by
Rule 144 promulgated under the Securities Act.
The undersigned agrees that the Company will, with respect to any
Shares for which the undersigned is the record or beneficial holder,
cause the transfer agent for the Company to note stop transfer
instructions with respect to such Shares on the transfer books and
records of the Company.
The undersigned understands that the Company, the Underwriters and
the Representatives will proceed with the Public Offering in reliance of
this Lock-up Agreement.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this letter
agreement. Any obligations of the undersigned shall be binding upon the
successors and assigns of the undersigned.
Very truly yours,
Computer Associates International,Inc.
By: Charles P. McWade
Senior Vice President
Finance
<PAGE> 3
<TABLE>
<CAPTION>
Schedule I
Shares Lock-up Period
- ------ --------------
<S> <C>
1,200,000 Shares issuable upon 45 days
conversion of the Convertible Note
Number of Shares issuable upon 90 days
conversion of the Convertible Note in
excess of 1,200,000
</TABLE>
