<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-31271
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SYSTEM SOFTWARE ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 36-3144515
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
500 WEST MADISON STREET, 32ND FLOOR
CHICAGO, ILLINOIS 60661
(312) 641-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. JOSEPH J. SKADRA
CHIEF FINANCIAL OFFICER
SYSTEM SOFTWARE ASSOCIATES, INC.
500 WEST MADISON STREET, 32ND FLOOR
CHICAGO, ILLINOIS 60661
(312) 641-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
DOUGLAS R. NEWKIRK, ESQ. WILLIAM J. GRANT, JR., ESQ.
SACHNOFF & WEAVER, LTD. WILLKIE FARR & GALLAGHER
30 SOUTH WACKER DRIVE, 29TH FLOOR 153 EAST 53RD STREET
CHICAGO, ILLINOIS 60606 NEW YORK, NY 10022
(312) 207-1000 (212) 821-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following
box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
$90,000,000 SUBJECT TO COMPLETION,
DATED AUGUST 7, 1997
[LOGO OF SSA]
% Convertible Subordinated Notes due 2002
-----------
The Notes to be issued by System Software Associates, Inc. ("SSA" or the
"Company") will be convertible at any time, unless previously redeemed, into
Common Stock, $.0033 par value per share (the "Common Stock"), of the Company
at a conversion price of $ per share, subject to adjustment under
certain conditions. The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "SSAX." On August 7, 1997, the last sale price of the
Common Stock as reported on the Nasdaq National Market was $8.81 per share.
Interest on the Notes will be payable semiannually on February 15 and August 15
of each year, commencing February 15, 1998. The Company intends to apply to
list the Notes on the Nasdaq National Market under the symbol "SSAXH."
The Notes will not be redeemable at the option of the Company prior to August
1, 2000. Thereafter, the Notes will be redeemable at the option of the Company,
in whole or in part, at any time and from time to time, at the redemption
prices set forth herein, plus accrued interest. Upon a Change in Control, as
defined herein, holders of Notes will have the right, subject to certain
conditions and restrictions, to require the Company to purchase all or part of
their Notes at the principal amount thereof plus accrued and unpaid interest.
See "Description of Notes."
The Notes will be unsecured and subordinate in right of payment to all
existing and future Senior Indebtedness, as defined herein, of the Company and
are effectively subordinate to all obligations of the subsidiaries of the
Company. The Indenture relating to the Notes will not restrict the incurrence
of Senior Indebtedness or other indebtedness of the Company or its
subsidiaries. See "Description of Notes--Subordination of Notes." As of July
31, 1997, the Company had approximately $86.0 million of Senior Indebtedness,
of which up to $83.8 million is expected to be repaid from the net proceeds to
the Company from the sale of the Notes and from a $48.4 million private
placement of junior subordinated promissory notes and warrants by the Company
expected to close simultaneously with the closing of the offering of the Notes.
See "Description of the Private Offering."
-----------
THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............. $ $ $
- -------------------------------------------------------------------------------
Total(4).............. $90,000,000 $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of initial issuance.
(2) See "Underwriting" for information relating to indemnification of the
Underwriters.
(3) Before deducting expenses payable by the Company estimated at $500,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $13,500,000 principal amount of Notes on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to the right of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the Notes will be made at the offices of Alex. Brown & Sons
Incorporated, Baltimore, Maryland on or about August , 1997.
Alex. Brown & Sons
Incorporated
THE DATE OF THIS PROSPECTUS IS AUGUST , 1997
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Securities
and Exchange Commission (the "Commission"). The Common Stock is listed on the
Nasdaq National Market. For further information with respect to the Company,
reference is hereby made to such reports and other information which can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and the Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006 or
obtained by calling the Nasdaq Public Reference Room Disclosure Group at (800)
638-8241. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and on the Commission's
Web site at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the Notes offered hereby. In accordance with the rules and regulations of the
Commission, this Prospectus omits certain of the information contained in the
Registration Statement. Reference is hereby made to the Registration Statement
and related exhibits and the documents incorporated herein by reference for
further information with respect to the Company and the Notes. Statements
contained herein or incorporated herein by reference concerning the provisions
of any document are not necessarily complete and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, is also available on the
Commission's Web site at http://www.sec.gov.
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "intend" and "expect" and similar
expressions are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in or implied by these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors." Prospective investors should consider carefully
these factors in addition to the other information set forth in this
Prospectus.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OR THE COMMON
STOCK ISSUABLE UPON THE CONVERSION OF THE NOTES. SUCH TRANSACTIONS MAY INCLUDE
STABILIZING THE MARKET PRICE OF THE NOTES OR THE COMMON STOCK, OR BOTH, THE
PURCHASE OF NOTES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
This Prospectus includes product names, trade names and trademarks of System
Software Associates, Inc. and its subsidiaries and other companies. BPCS(R),
BPCS Client/Server(TM), DOCA(TM) and AgileLink 2000(TM) are trademarks of the
Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes no exercise of the
Underwriter's over-allotment option and all references to years or periods
therein are references to the Company's fiscal years ending October 31 or the
applicable periods therein.
THE COMPANY
System Software Associates, Inc. ("SSA" or the "Company") is a leading
provider of cost-effective business enterprise information systems to the
industrial sector worldwide. The Company's BPCS (Business Planning and Control
System) Client/Server product line provides business process re-engineering and
integration of an enterprise's operations, including multi-mode manufacturing
processes, supply chain management and global financial solutions. The BPCS
Client/Server product line delivers scalability, interoperability and
reconfigurability in a comprehensive product suite to meet changing market
demands. The distributed object computing architecture ("DOCA") of BPCS
Client/Server provides the benefits of next generation technology in conformity
with industry standards. The Company markets, sells and services its products
to large- and intermediate-sized industrial sector firms primarily through its
own world-wide sales organization and, to a much lesser extent, through a
network of over 100 independent software companies ("Affiliates"). The Company
has strategic relationships with major computer hardware manufacturers, such as
IBM, Hewlett Packard and Digital Equipment; supply chain management software
companies, such as i2 and Manugistics; and major systems integrators, such as
CAP Gemini and the Big Six consulting firms.
The Company's BPCS product line was initially developed for the IBM AS/400,
and until 1995, most of the Company's revenues were derived from BPCS product
licenses and related services sold for use on the AS/400 platform and, to a
lesser extent, earlier IBM midrange computers. In 1993, the Company commenced a
major development initiative to create a version of its BPCS product line for
the UNIX operating system in an effort to address the non-AS/400 market. In
late 1994, the Company began a major effort to re-architect its product line
for the client/server, object-based environment. These efforts resulted in the
initial release of Version 6.0 in April 1996 and the general release of Version
6.0 in September 1996. The Company has continued to release upgrades of Version
6.0 which have significantly improved the performance and scalability of the
product while continuing to enhance functionality. The Company believes that
the most recent release of Version 6.0 offers high levels of functionality and
performance and that the flexibility of its DOCA architecture represents a
significant advantage when compared to other enterprise software applications.
BPCS Client/Server now operates across a broad array of platforms, including
Hewlett-Packard HP 9000, IBM AS/400, IBM RISC System/6000 and DEC Alpha
servers. The Company's UNIX version of the BPCS Client/Server product line
software operates on both Informix and Oracle databases. The BPCS product line
has been installed at over 8,500 clients and over 25,000 sites in over 70
countries. The Company believes that it is the leading vendor of enterprise
resource planning (ERP) software for customers on the AS/400 platform. The
target marketplace for the BPCS Client/Server product line is large- and
medium-sized industrial sector firms.
THE RECAPITALIZATION
Simultaneously with the issuance of the Notes offered hereby, the Company
intends to issue and sell $48.4 million in principal amount of junior
subordinated promissory notes (the "Junior Notes"), together with associated
stock purchase warrants (the "Warrants"), in a private placement (the "Private
Offering") to a group of institutional investors including Bain Capital and JMI
Equity Fund III, L.P. (collectively, the "Private Investors"). The closing of
the offering of the Notes is conditioned on the completion of the Private
Offering, the closing of which is subject to a number of conditions, including,
satisfactory completion of due diligence, the negotiation of definitive
agreements, the completion of the offering of the Notes offered hereby, the
entry into a new credit facility for up to approximately $30.0 million (the
3
<PAGE>
"New Credit Facility"), the entry of a new employment agreement with Roger E.
Covey, Chairman and Chief Executive Officer of the Company, on terms mutually
acceptable to the Private Investors and Mr. Covey and other customary closing
conditions. The issuance and sale of the Junior Notes and the Warrants,
together with the issuance and sale of the Notes offered hereby, are referred
to collectively herein as the "Recapitalization." The aggregate net proceeds to
the Company from the Recapitalization are expected to be approximately $131.7
million ($144.7 million if the Underwriters' over-allotment option is exercised
in full). The Recapitalization is designed to increase the Company's liquidity
to enable it to further the development, marketing and sale of its recently
released Version 6.0 BPCS Client/Server product line. In connection with the
Private Offering, the Company's Board of Directors will be expanded from four
to seven members, with two of the new directors to be selected by the Private
Investors in their sole discretion, and a third new, independent director to be
mutually selected by the Private Investors and the current Board members. In
addition, the Company has agreed to recruit and hire a new Chief Operating
Officer/President.
THE OFFERING
Securities Offered.............. $90,000,000 aggregate principal amount of
% Convertible Subordinated Notes due 2002
(the "Notes") ($103,500,000 principal amount
if the over-allotment option is exercised in
full).
Interest Payment Dates.......... February 15 and August 15 of each year,
beginning February 15, 1998.
Maturity Date................... August 1, 2002.
Conversion...................... Convertible at the option of the holder of
each Note, in whole or in part, into shares
of Common Stock, $0.0033 par value per share,
of the Company (the "Common Stock") at any
time, unless previously redeemed or
repurchased, at a conversion price of $
per share, subject to adjustment in certain
events. See "Description of Notes--Conversion
of Notes."
Optional Redemption............. The Notes are not redeemable at the option of
the Company prior to August 1, 2000.
Thereafter, the Notes are redeemable at the
option of the Company, in whole or in part at
any time, at the prices specified herein,
together with accrued and unpaid interest.
See "Description of Notes--Redemption of
Notes at the Option of the Company."
Repurchase at Option of Holders
Upon a Change in Control ......
In the event that a Change in Control (as
defined herein) occurs, each holder of a Note
may require the Company to repurchase all or
a portion of such holder's Notes at a price
equal to 100% of the principal amount thereof
plus accrued and unpaid interest to the
purchase date. See "Description of Notes--
Redemption of Notes at the Option of Holders
Upon a Change in Control."
Subordination................... The Notes are subordinate to all existing and
future Senior Indebtedness (as defined
herein) of the Company and
4
<PAGE>
effectively subordinated to all liabilities
of the Company's subsidiaries. See
"Description of Notes--Subordination of
Notes." As of July 31, 1997, approximately
$86.0 million of Senior Indebtedness was
outstanding. Following the Recapitalization
and the application of the net proceeds
therefrom, it is expected that approximately
$2.1 million of Senior Indebtedness will be
outstanding (assuming the repayment or
conversion of the Existing Subordinated Debt
(as defined herein)). In addition, the
Company will be permitted to incur up to
approximately $30.0 million in additional
indebtedness under the New Credit Facility,
which will constitute Senior Indebtedness.
See "Use of Proceeds" and "Capitalization."
The Indenture (as defined herein) will not
restrict the incurrence of additional Senior
Indebtedness or other indebtedness by the
Company or by any of its subsidiaries (with
the exception of certain restrictions on the
terms of the Junior Notes). See "Risk
Factors--Subordination of Notes."
Use of Proceeds.................
The Company will use approximately $71.8
million of the net proceeds of the
Recapitalization to repay all principal
outstanding under (1) its multi-bank credit
facility (the "Existing Credit Facility"),
under which approximately $46.0 million in
principal was outstanding as of July 31, 1997
and (2) the Company's Senior Secured Notes
due November 1, 1997 (the "Senior Notes"),
under which approximately $25.8 million in
principal was outstanding as of July 31,
1997. In addition, as a result of the closing
of the Recapitalization, the Company's $12.0
million floating rate convertible note due
2000 (the "Existing Subordinated Debt") will,
at the option of the holder thereof, become
(i) due and payable at any time commencing on
the 90th day following the closing of the
Recapitalization, or (ii) convertible at any
time commencing on the 45th day following the
closing of the Recapitalization into
approximately 3.6 million shares of Common
Stock. See "Use of Proceeds." The remaining
net proceeds of the Recapitalization will be
used by the Company for general corporate
purposes, including, but not limited to,
capital expenditures and increasing working
capital.
Trading.........................
The Company intends to apply to list the
Notes on the Nasdaq National Market under the
symbol "SSAXH." The Company's Common Stock is
traded on the Nasdaq National Market under
the symbol "SSAX."
Risk Factors.................... An investment in the Notes involves a high
degree of risk. See "Risk Factors" for a
discussion of certain factors that should be
considered in evaluating an investment in the
Notes.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
FISCAL YEAR ENDED OCTOBER 31, 30,
---------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees........... $178.5 $187.9 $229.7 $250.0 $226.7 $100.0 $130.2
Client services and
other................. 50.3 75.5 94.6 124.1 114.1 59.1 60.0
------ ------ ------ ------ ------ ------ ------
Total revenues........ 228.8 263.4 324.3 374.1 340.8 159.1 190.2
Costs and expenses...... 187.8 227.3 307.9 333.0 399.6 169.2 191.0
------ ------ ------ ------ ------ ------ ------
Operating income (loss). 41.0 36.1 16.4 41.1 (58.8) (10.1) (0.8)
Income (loss) before
income taxes and
minority interest...... 41.6 35.7 15.4 40.9 (51.4) (10.9) (7.8)
Net income (loss)....... $ 26.6 $ 23.4 $ 10.0 $ 26.6 $(32.8) $ (6.9) $ (5.0)
Earnings (loss) per
share.................. $ 0.66 $ 0.57 $ 0.25 $ 0.63 $(0.76) $(0.16) $(0.12)
Weighted average common
and equivalent shares
outstanding............ 40.5 40.7 40.5 42.2 43.0 43.1 42.6
Ratio of earnings to
fixed charges (1)...... 15.3 10.4 3.7 6.5 -- (2) -- (2) -- (2)
Pro forma ratio of
earnings to fixed
charges (3)............ -- (3) -- (3)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1997
----------------------
ACTUAL AS ADJUSTED (4)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents................................... $ 20.4 $ 67.8
Working capital, excluding short-term borrowings and
Senior Notes payable.................................. 80.3 120.0
Intangibles:
Software costs, net................................... 93.2 93.2
Cost in excess of net assets of acquired businesses,
net.................................................. 21.3 21.3
------ ------
Total intangibles...................................... 114.5 114.5
Total assets........................................... 382.4 427.6
Short-term borrowings and Senior Notes payable......... 71.8 --
Long-term obligations.................................. 14.1 130.5
Total stockholders' equity............................. 113.7 117.7
</TABLE>
- --------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges) by fixed charges (interest expense and the portion of rental
expense which represents interest).
(2) Actual earnings (loss) available for fixed charges of ($51.4 million),
($10.9 million), and ($7.8 million) were inadequate to cover fixed charges
of $12.7 million, $5.2 million and $11.5 million for the year ended October
31, 1996, and the six months ended April 30, 1996 and April 30, 1997,
respectively.
(3) The pro forma ratio of earnings (loss) to fixed charges assumes the
Recapitalization and use of proceeds, as described herein, occurred on
November 1, 1995 for the ratio for the year ended October 31, 1996, and on
November 1, 1996 for the ratio for the six months ended April 30, 1997. In
addition, the ratios assume that the interest rate on the Notes is 7.5%,
the net proceeds to the Company are invested in interest bearing accounts
averaging 5.0% interest on an annual basis and the estimated fair value of
the Warrants is $10.0 million, which value will be amortized as interest
expense over the term of the Junior Notes. Pro forma earnings (loss)
available for fixed charges of $(38.7) million and $3.7 million were
inadequate to cover pro forma fixed charges of $19.8 million and $13.8
million for the year ended October 31, 1996 and the six months ended April
30, 1997, respectively.
(4) Adjusted to reflect the Recapitalization and the application of the
estimated net proceeds therefrom (assuming that the Existing Subordinated
Debt is repaid or redeemed with the net proceeds from the
Recapitalization), after deducting underwriting discounts and commissions
and other estimated expenses of the Recapitalization. Assumes that the
estimated fair value of the Warrants is $10.0 million. Also assumes that
approximately $6.0 million in deferred charges and fees related to the
Existing Subordinated Debt, the Existing Credit Facility and the Senior
Notes are written off upon repayment of such indebtedness in connection
with the Recapitalization. In the event that the holder of the Existing
Subordinated Debt elects to convert such debt into Common Stock in lieu of
repayment, the Company would issue approximately 3.6 million shares of
Common Stock to such holder and cash, working capital, total assets and
total stockholders' equity would each be increased by $12.0 million.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating an investment in the
Notes offered by this Prospectus:
NET LOSSES; UNCERTAINTY OF FUTURE RESULTS
Although the Company had an operating profit for the quarter ended April 30,
1997, the Company has experienced operating and net losses in 1996 and in the
six months ended April 30, 1997. There can be no assurance that the Company
will not continue to incur operating and net losses. The Company's future
operating results will depend upon a number of business factors, including the
other factors discussed in these "Risk Factors," as well as general economic
conditions. Furthermore, prior to a given year or other fiscal period, the
Company hires sales and product development personnel and makes other fixed
cost decisions which will result in increased expenses in such year or other
period, based upon anticipated revenues for such year or other period. Due to
the seasonality and concentration of the Company's revenues at the end of
fiscal periods (particularly the fourth quarter) and the Company's cost
structure, if revenue targets are not met, any or all of the Company's
business, operating results and financial condition could be materially
adversely affected. See "--Variability of Quarterly Operating Results;
Seasonality." In addition, in connection with the Recapitalization, the
Company will be required to write off certain deferred charges and fees
related to the Existing Subordinated Debt, the Existing Credit Facility and
the Senior Notes, which would result in a non-cash after tax charge in the
fourth quarter of 1997 of approximately $4.4 million. In the event that the
Existing Subordinated Debt converts into Common Stock, rather than the
repayment as assumed in the Recapitalization, the non-cash after tax charge
would be $0.6 million. Further, due to the possible settlement and estimated
settlement value of the Company's class action litigation and the Company's
continuing review of its general reserves in the ordinary course, it is
possible that the Company may increase the level of certain accounting
reserves in the third and fourth quarters of 1997 and in future quarters. Such
charges could materially and adversely affect the results of operations of the
Company for the quarter in which they are taken.
LEVERAGE
In connection with the Recapitalization, the Company will incur
approximately $138.4 million of additional indebtedness, resulting in a ratio
of the Company's total debt to equity (expressed as a percentage) of
approximately 111% as of April 30, 1997, on a pro forma basis (after giving
effect to the Recapitalization and the application of $83.8 of the proceeds
therefrom to repay borrowings under the Company's Existing Credit Facility and
Senior Notes, and assuming repayment of the Existing Subordinated Debt).
Annual interest expense on this debt is estimated to be approximately $14.8
million, including an estimated annual charge of $1.7 million of non-cash
interest expense over the term of the Junior Notes representing the
amortization of the value assigned to the Warrants. The Company will also be
permitted to incur up to approximately $30.0 million in additional
indebtedness under the New Credit Facility. See "Description of the Private
Offering." In addition, as of July 31, 1997, the Company has guaranteed or is
directly liable for payments under capital leases payable over lease terms
ranging from one to three years and aggregating approximately $2.1 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
The degree to which the Company is leveraged could (i) adversely affect its
ability to obtain additional financing, (ii) make it more vulnerable to
general economic and market conditions, industry downturns and competitive
pressures, (iii) impair its ability to fund research and development and
respond to technological changes, and (iv) result in the dedication of a
significant amount of any cash generated from operating activities to the
payment of debt service and other financing obligations, thereby reducing
funds available for operations, its existing markets and future business
opportunities. The Company's ability to meet its debt service and other
obligations will be dependent on the Company's future performance, which will
be subject to financial, business and other factors affecting operations of
the Company, many of which are beyond its control.
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SUBORDINATION OF NOTES
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness (as defined herein) of the
Company. As a result of such subordination, in the event of the Company's
liquidation or insolvency, a payment default with respect to Senior
Indebtedness, a covenant default with respect to Senior Indebtedness, or upon
acceleration of the Notes due to an event of default, the assets of the
Company will be available to pay obligations on the Notes only after all
Senior Indebtedness has been paid in full. In such event, there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding.
The Notes are obligations exclusively of the Company. Since the operations
of the Company are partially conducted through subsidiaries, the cash flow and
the consequent ability of the Company to service debt, including the Notes,
are partially dependent upon the earnings of its subsidiaries and the
distribution of those earnings to, or upon loans or other payments of funds by
those subsidiaries to, the Company. See "--Risks From International
Operations." The payment of dividends and the making of loans and advances to
the Company by its subsidiaries may be subject to statutory or contractual
restrictions, are dependent upon the earnings of those subsidiaries and are
subject to various business considerations. Any right of the Company to
receive assets of any of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subordinate to any
security interests in the assets of such subsidiary and any indebtedness of
such subsidiary senior to that held by the Company.
As of July 31, 1997, the Company had approximately $86.0 million of
indebtedness and other liabilities that would have constituted Senior
Indebtedness, including approximately $46.0 million of borrowings outstanding
under the Existing Credit Facility, approximately $25.8 million of Senior
Notes and $12.0 million under the Existing Subordinated Debt. The Company
intends to use a portion of the proceeds from the Recapitalization to repay
all amounts outstanding under the Senior Notes and the Existing Credit
Facility. In addition, as a result of the closing of the Recapitalization, the
Existing Subordinated Debt will, at the option of the holder thereof, become
(i) due and payable at any time commencing on the 90th day following the
closing of the Recapitalization, or (ii) convertible at any time commencing on
the 45th day following the closing of the Recapitalization into approximately
3.6 million shares of Common Stock. See "Use of Proceeds." In connection with
the Recapitalization, the Company will be permitted to enter into the New
Credit Facility under which the Company may incur up to approximately $30.0
million in Senior Indebtedness. A substantial portion of existing Senior
Indebtedness is secured by a lien on substantially all the assets of the
Company and the stock of certain of its subsidiaries and the New Credit
Facility may be secured to a similar extent. The Indenture does not prohibit
or limit the incurrence of Senior Indebtedness or the incurrence of other
indebtedness and other liabilities by the Company or its subsidiaries (with
the exception of certain restrictions on the terms of the Junior Notes). The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. To the extent permitted by the terms of the Warrants
and the Junior Notes, the Company expects from time to time to incur
additional indebtedness and other liabilities, including Senior Indebtedness,
and also expects that its subsidiaries will from time to time incur additional
indebtedness and other liabilities. See "Description of Notes--Subordination
of Notes."
PAYMENT OF JUNIOR NOTES PRIOR TO NOTES UNDER CERTAIN CIRCUMSTANCES; TERMS
FAVORABLE TO HOLDERS OF JUNIOR NOTES AND WARRANTS
Although the Junior Notes are legally subordinate in right of payment to the
Notes, the terms of the Junior Notes permit the payment of the Junior Notes
prior to the Notes at the option of the Company at any time after the first
anniversary of the issuance of the Junior Notes; provided that (i) such
payments are made by the Company with the proceeds from the issuance of (y)
debt having a lower effective interest rate than the Junior Notes and a
maturity date not earlier than the maturity date of the Notes or
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(z) equity capital and (ii) the average trading price of the Common Stock
during the 60 trading days immediately preceding the second business day prior
to the date of repurchase is at least 130% of the Conversion Price (as defined
herein). Any such refinancing debt would likely constitute Senior Indebtedness
under the Indenture, and therefore be senior in right of payment to the Notes.
The Indenture contains few covenants restricting the activities of the
Company. The Purchase Agreement relating to the Junior Notes and the Warrants,
on the other hand, contains many covenants which restrict the actions of the
Company, including, but not limited to, the ability of the Company to incur
additional indebtedness (other than the Notes, the New Credit Facility and
certain other exceptions), to pay dividends or make other payments with
respect to the Company's capital stock, to make investments and to engage in
new lines of business. See "Description of the Private Offering--Junior
Notes--Junior Note Covenants." Such covenants will give the Private Investors
the ability to control certain actions of the Company, as well as the ability
to negotiate terms, in circumstances that may not be available to the holders
of the Notes. The holders of the Junior Notes may also have significant
leverage over the Company in the event of a breach, or the threat of a
potential breach, by the Company of the covenants contained in the Purchase
Agreement for the Junior Notes and the Warrants. Under certain circumstances,
including certain events of default under the Purchase Agreement (which may
not constitute an "Event of Default" under the Indenture absent acceleration
of the maturity of the Junior Notes), the Private Investors will have the
right to elect a majority of the members of the Board and to control the
voting stock of Roger E. Covey, Chairman and Chief Executive Officer of the
Company. See "--Control by Existing Stockholder; Potential Control by Private
Investors."
COMPETITION
The ERP application software market is highly competitive, rapidly changing
and significantly affected by new product introductions and other market
activities of industry participants. The Company's BPCS Client/Server product
line is targeted at both the market for open systems, client/server ERP
software solutions and the IBM AS/400 ERP market. The Company's current and
prospective competitors offer a variety of products and solutions to address
these markets. The Company's primary competition comes from a large number of
independent software vendors and other sources including (i) companies
offering products that run on AS/400 and other mid-range computers, including
J.D. Edwards and JBA, and (ii) companies offering products that run on UNIX-
based systems in a client/server environment such as Oracle Corporation
(Oracle), Baan Company N.V. (Baan) and SAP AG (SAP). The Company also faces
competition from a variety of other vendors of ERP software, including QAD. In
addition, the Company faces indirect competition from suppliers of custom-
developed business application software that have focused mainly on
proprietary mainframe- and minicomputer-based systems with highly customized
software, such as the systems consulting groups of major accounting firms and
systems integrators. The Company also faces indirect competition from
proprietary systems developed by the internal MIS departments of large
organizations.
Some of the Company's competitors have longer operating histories, greater
financial, technical, marketing and other resources than the Company, greater
name recognition, and a larger installed base of customers in the UNIX-based,
client/server ERP market. Further, because the Company's product runs on
relational database management systems (RDBMS) and Oracle has the largest
market share for RDBMS software, Oracle may have a competitive advantage in
selling its application products to its RDBMS customer base. Furthermore, as
the client/server computing market develops, companies with significantly
greater resources than the Company could attempt to increase their presence in
the ERP market by acquiring or forming strategic alliances with competitors of
the Company.
In the market for client/server ERP systems, the Company and its customers
rely on a number of systems consulting and systems integration firms for
implementation and other customer support services, as well as recommendations
of the Company's product during the evaluation stage of the purchase process.
Many of these third parties have similar, and usually more established,
relationships with the
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Company's principal competitors. If the Company is unable to develop and
retain effective, long-term relationships with a sufficient number of these
third parties, the Company's competitive position could be materially
adversely effected. See "--New Entrant into Complex Sales Environment."
The Company believes that its future strength will depend in part on its
ability to expand sales of the BPCS Client/Server product line. Many of the
Company's competitors currently offer applications products for client/server
systems. There can be no assurance that the Company will be able to compete
successfully with existing or new competitors or that competition will not
have a material adverse effect on the Company's business, operating results or
financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's revenues and operating results have varied, sometimes
substantially, from quarter to quarter. The Company anticipates that its
revenues in general, and its license fee revenues, in particular, will
continue to fluctuate and will be relatively difficult to forecast due to a
number of reasons, many of which are beyond the Company's control. The factors
affecting these fluctuations include (i) delays in sales due to the relatively
long sales cycles for the Company's BPCS Client/Server product line; (ii) the
size, timing and complexity of individual license transactions; (iii) customer
order deferrals in anticipation of product enhancements or new product
offerings by the Company or its competitors; (iv) market acceptance of new or
enhanced versions of the Company's product and hardware platforms, operating
systems and RDBMS with which the Company's products operate; (v) the timing of
the introduction of new product functionality by the Company or its
competitors; (vi) customer cancellation of major planned software
implementation programs; (vii) changes in operating expenses; (viii) the
publication of opinions about the Company, its products and technology by
industry analysts; (ix) foreign currency exchange rate fluctuations; (x)
changes in pricing policies by the Company or its competitors; (xi) delays in
localizing the Company's product for new markets; and (xii) general economic
factors.
A significant portion of the Company's revenues in any quarter may be
derived from a limited number of large, non-recurring license sales which may
cause significant variations in quarterly license fees. The Company also
believes that the purchase of its product is relatively discretionary and
generally involves a significant commitment of a customer's capital resources.
Therefore, a downturn in any potential customer's business could result in
order cancellations which could have a significant adverse impact on the
Company's revenue and quarterly results. Moreover, declines in general
economic conditions could precipitate significant reductions in corporate
spending for information technology, which could result in delays or
cancellations of orders for the Company's product line.
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest revenues and operating
income. The Company believes that fourth quarter revenues are positively
impacted by the Company's sales compensation plans. This factor, which the
Company believes is common in the computer software industry, typically
results in first quarter revenues in any year being lower than revenues in the
immediately preceding fourth quarter. In addition, the Company's European
operations generally provide lower revenues during the summer months as a
result of the generally reduced economic activity in Europe during such time.
This seasonal factor could materially adversely affect third quarter revenues.
The Company has also historically recognized a substantial portion of its
revenues from sales booked and shipped in the last month of a quarter. As a
result, the magnitude of quarterly fluctuations in license fees may not become
evident until late in a particular quarter. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter,
the Company is unlikely to be able to generate revenues from alternate sources
in time to compensate for the shortfall. As a result, a lost or delayed sale
could have a material adverse effect on the Company's quarterly operating
results. To the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely affected. The
Company has also historically operated with little backlog because its
products are generally
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shipped as orders are received. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter.
Based upon the factors described above, the Company believes that its
quarterly revenues and operating results are likely to vary significantly in
the future, that period-to-period comparisons of its results of operations are
not necessarily meaningful and that, as a result, such comparisons should not
be relied upon as indications of future performance. Moreover, although the
Company's revenues have generally increased in recent periods, there can be no
assurance that the Company's revenues will grow in future periods, at past
rates or at all, or that the Company will be profitable on a quarterly or
annual basis. In future periods, the Company's operating results may be below
the expectations of stock market analysts and investors. In such event, the
price of the Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
RISKS ASSOCIATED WITH LENGTHY SALES CYCLE
Because the license of the Company's BPCS Client/Server product line
generally involves a significant capital commitment by the customer (ranging
from approximately $100,000 to tens of millions of dollars), the sales cycle
associated with a customer's purchase of BPCS Client/Server product line is
generally lengthy (with a typical duration between three and 18 months),
varies from customer to customer and is subject to a number of significant
risks over which the Company has little or no control. These risks include
customers' budgetary constraints, timing of budget cycle, concerns about the
introduction of new products by the Company or its competitors and general
economic downturns which can result in delays or cancellations of information
systems investments. Due in part to the strategic nature of the BPCS
Client/Server product line, potential customers are typically cautious in
making product acquisition decisions. The decision to license the BPCS
Client/Server product line generally requires the Company to provide a
significant level of education to prospective customers regarding the uses and
benefits of the BPCS Client/Server product line, and the Company must
frequently commit substantial presales support resources. The Company is also
sometimes reliant on third parties for implementation and systems integration
services, which may cause sales cycles to be lengthened or result in the loss
of sales. The uncertain outcome of the Company's sales efforts and the length
of its sales cycles could result in substantial fluctuations in operating
results. If sales forecasted from a specific customer for a particular quarter
are not realized in that quarter, then the Company is unlikely to be able to
generate revenue from alternative sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of some orders, a
lost or delayed sale could have a material adverse effect on the Company's
quarterly operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CLASS ACTION LAWSUIT
In January 1997, class action lawsuits against the Company and certain of
its officers were filed in state court in Illinois and in the federal court in
Chicago, Illinois. The state court action alleges damages to persons who
purchased the Company's Common Stock during the period from November 21, 1994
through January 7, 1997 arising from alleged violations of the Illinois
securities laws and associated statutory and common law. The federal actions
allege damages to persons who purchased the Company's Common Stock during the
period from August 22, 1994 through January 7, 1997 arising from alleged
violations of the federal securities laws and associated common laws. The
lawsuits name the Company and several of its officers and directors as
defendants, and allege violations of securities laws, fraud and negligence,
stemming from circumstances which resulted in the restatement of the Company's
financial statements for 1994 and 1995. See Note 2 of Notes to the Company's
Consolidated Financial Statements for the years ended October 31, 1994, 1995
and 1996. The complaints do not specify the amounts of damages sought.
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The Company has executed a settlement agreement with the class plaintiffs in
the Illinois state court action titled Steinberg v. SSA, 97 CH 287 (the
"Settlement"). The Company has agreed to pay $1.7 million in cash and the
director and officer defendants collectively have agreed to contribute 100,000
shares of Common Stock. The presiding judge in the Illinois case granted
preliminary approval to the Settlement on June 27, 1997. A final hearing on
the Settlement is scheduled for September 5, 1997. There can be no assurance
that the Settlement will be approved, nor can there be any assurance that the
Settlement, if approved, will legally bar the federal claims described above.
In addition, even if the Settlement bars the federal claims described above,
because the class period of the federal claim is slightly larger than the
class period of the state claim, the Settlement may not result in the
dismissal of the federal action. The failure to achieve a dismissal of any of
these actions or the failure to settle them on sufficiently advantageous terms
could have a material adverse effect on the business, operating results and
financial condition of the Company.
SEC INVESTIGATION
Since October 1995, the Company has been the subject of a private
investigation by the Securities and Exchange Commission. The Company believes
the inquiry relates to its revenue recognition policies. The investigation is
ongoing and the Company presently has no basis for determining when it is
likely to conclude. In January 1997, the Company restated its fiscal 1994
financial statements to reverse $10.1 million in revenues from a software
contract originally recognized in the third quarter of fiscal 1994. In
addition, the Company restated its fiscal 1995 financial statements to reverse
$15.0 million in revenues from two related Latin American reseller agreements
originally recognized in the third and fourth quarters of fiscal 1995, and
$5.0 million in revenues originally recognized in the third quarter of fiscal
1995 from the last two installments of a four-installment contract. See Note 2
to the Company's Consolidated Financial Statements for the years ended October
31, 1994, 1995 and 1996. Commencing with the fourth quarter of 1996, the
Company adopted a more conservative method of accounting for reseller
agreements under which revenue will not be recorded under such contracts until
software is sold to the end user. The adoption of this new method of
accounting resulted in the reversal of approximately $33.8 million in revenues
recognized in the first three quarters of fiscal 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Change in Accounting Method." The Company is unable to predict at this time
the scope or consequences to the Company of the Commission's investigation, or
whether the actions taken by the Company that are described above address the
issues being investigated by the Commission. There can be no assurance that
such investigation would not have a material adverse effect on the business,
financial condition or results of operations of the Company.
RAPID TECHNOLOGICAL CHANGE; PRODUCT ROLLOUT DELAYS
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements and preferences, and
frequent new product introductions and enhancements. Customer requirements for
products can change rapidly as a result of innovations or changes within the
computer hardware and software industries, the introduction of new products
and technologies (including new hardware platforms and programming languages)
and the emergence, evolution or widespread adoption of industry standards. For
example, increasing commercial use of the Internet may give rise to new
customer requirements and new industry standards. The Company's future success
will depend upon its ability to continue to enhance its current product line
and to develop and introduce new product functionality that keeps pace with
technological developments, satisfies increasingly sophisticated customer
requirements and achieves market acceptance. In particular, the Company must
continue to anticipate and respond adequately to advances in RDBMS software
and desktop computer operating systems such as Windows. There can be no
assurance that the Company will be successful in developing and marketing on a
timely and cost-effective basis fully functional product enhancements or new
product functionality that respond to technological advances by others, or
that its new product functionality will achieve market acceptance.
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As a result of the complexities inherent in both the RDBMS and client/server
environments and the broad functionality and performance demanded by customers
for ERP products, major new product enhancements and new product functionality
can require long development and testing periods to achieve market acceptance.
The Company has, in the past, experienced delays, as is common throughout the
software industry, in the scheduled introduction of new and enhanced product
functionality. In addition, complex software programs such as those offered by
the Company may contain undetected errors or "bugs" when first introduced or
as new versions are released that are discovered only after the product has
been installed and used by customers. There can be no assurance that errors
will not be found in future releases of the Company's software, or that any
such errors will not impair the market acceptance of the product and adversely
affect the Company's business, operating results and financial condition.
Problems encountered by customers implementing new releases or with
performance of the Company's product can be expected to occur, given the
inherent complexities of its client/server based product. In April 1996, the
Company introduced the first release of Version 6.0 of its BPCS Client/Server
product line to early adopter customers. These early adopters of Version 6.0
experienced difficulties in achieving full functionality and performance with
respect to some aspects of Version 6.0. Since the initial release of Version
6.0 to early adopters, the Company has spent a significant amount of time,
effort and expense in intensive collaborative efforts with such early adopters
to increase functionality and performance of the Version 6.0 product line. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
DEPENDENCE ON AS/400 USERS
Although the Company has developed new versions of its BPCS Client/Server
product line for the open systems marketplace, a substantial portion of the
Company's revenues relate to licenses of BPCS Client/Server for IBM AS/400
installations in the industrial sector. In fiscal 1996, over 75% of the
Company's software license fee revenue was derived from the AS/400 market.
Therefore, even as the Company continues to innovate and market versions of
the BPCS Client/Server product line for the open systems environment, a
substantial portion of the Company's future revenues will be derived from and
will be dependent upon the continued widespread use of the AS/400 and the
continued support of IBM's AS/400 platform and proprietary DB/2 database
system. There can be no assurance that the Company's customers will continue
to use or that IBM will continue to support the AS/400 and DB/2. The Company
will be required and intends to continue to devote substantial resources to
supporting its installed base of AS/400 customers and the versions of the BPCS
Client/Server product line used by them. In order to retain its AS/400
customers, the Company may be required to adapt its BPCS Client/Server product
line to conform to any changes made in the AS/400 operating system in the
future. The Company's inability to adapt to future changes in the AS/400
and/or DB/2 systems, or delays in doing so, could have a material adverse
effect on the Company's business, operating results and financial condition.
NEW ENTRANT INTO COMPLEX SALES ENVIRONMENT
The Company has only recently developed and begun to market its BPCS
Client/Server product line for UNIX operating environments. The market for
open systems-based applications differs in many respects from the market for
AS/400-based applications, which historically had been the Company's exclusive
focus. Among other things, the UNIX market is characterized by numerous
database vendors, hardware vendors, systems integrators and consultants, all
of whom can influence the purchase of enterprise applications such as those
marketed by the Company. There can be no assurance that the Company's sales
and marketing efforts will be successful in this highly complex sales
environment. The Company's future success will depend in part upon the
productivity of its sales and marketing force and the ability of the Company
to attract, integrate, train, motivate and retain new sales and marketing
personnel. Competition for sales and marketing personnel in the software
industry is intense. There can be no assurance that the Company's recent and
planned expenses and personnel decisions in sales and
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marketing will ultimately prove to be successful or that the incremental
revenue generated will exceed the significant incremental costs associated
with these efforts. In addition, there can be no assurance that the Company's
sales and marketing organization will be able to compete successfully against
the significantly more extensive and better funded sales and marketing
operations of many of the Company's current and potential competitors. The
Company's inability to implement successful sales and marketing efforts in the
UNIX market could have a material adverse effect on the Company's business,
operating results and financial condition.
In the UNIX-based marketplace, the Company relies on a number of systems
consulting and systems integration firms to enhance its marketing, sales and
customer support efforts, particularly with res pect to implementation and
support of its product as well as sales lead generation and assistance in the
sales
process. As the Company continues to implement its strategy of focusing on the
licensing of its products in the UNIX-based marketplace, the Company will
become increasingly dependent upon third-party implementation providers for
product implementation, end user training and sales support. Although the
Company seeks to maintain close relationships with these firms, many such
firms have similar, and in some cases more established, relationships with the
Company's principal competitors. There can be no assurance that these third-
party service firms will provide the level and quality of service required to
meet the needs of the Company's end users, nor can there be any assurance that
such service firms will recommend the Company's product when assisting their
clients in product selection decisions. Failure by the Company to maintain its
existing relationships with such third parties or the failure to maintain
their support for the Company's products, could materially and adversely
affect the Company's UNIX marketing efforts and could have a material adverse
affect on the Company's business, operating results and financial condition.
RISKS FROM INTERNATIONAL OPERATIONS
The Company currently operates directly and through its Affiliates in over
90 countries. In the fiscal year ended October 31, 1996 and in the six months
ended April 30, 1997, approximately 61% and 68%, respectively, of the
Company's total revenues were generated from sales outside of the United
States. The Company's operations are subject to risks inherent in
international business activities, including, in particular, general economic
conditions in each country, overlap of different tax structures, management of
an organization spread over various countries, exposure to currency
fluctuations, unexpected changes in regulatory requirements, compliance with a
variety of foreign laws and regulations, and longer accounts receivables
payment cycles in certain countries. Other risks associated with international
operations include import and export licensing requirements, trade
restrictions and changes in tariff rates. There can be no assurance that the
geographic, time zone, language and cultural differences between the Company's
international personnel and operations will not result in problems that
materially adversely affect the Company's business, operation results and
financial condition. The Company has in the past experienced and may continue
to experience operating losses in one or more regions of the world for one or
more periods. The Company's ability to manage such operational fluctuations
and the failure to sustain or increase international revenue could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company generates a significant portion of its revenues and expenses
from foreign operations in currencies other than United States dollars. As a
result, fluctuations in the values of the respective currencies in which the
Company generates revenue and incurs expense could materially adversely affect
its business, operating results and financial condition. While the Company may
in the future change its pricing practices, an increase in the value of the
United States dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, less competitive in other markets.
Fluctuations in currencies relative to the United States dollar will affect
period-to-period comparisons of the Company's reported results of operations.
Due to the constantly changing currency exposures and the volatility of
currency exchange rates, there can be no assurance that the Company will not
experience
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currency losses in the future, nor can the Company predict the effect of
exchange rate fluctuations upon future operating results. The Company does not
currently undertake hedging transactions and has limited resources to cover
its currency exposure. The Company may choose to hedge a portion of its
currency exposure in the future as it deems appropriate. See "Management's
Discussion and Analysis of Financial
Condition and Results of Operations."
INABILITY TO ENFORCE THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of the protections provided under
applicable copyright and trade secret laws, as well as on confidentiality
procedures and licensing arrangements, to establish and protect its rights in
its software. Despite the Company's efforts, it may be possible for
unauthorized third parties to copy certain portions of the Company's product
or to reverse engineer or obtain and use information that the Company regards
as proprietary. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, there can be no assurance that the Company will be able
to protect its proprietary software against unauthorized third-party copying
or use, which could adversely affect the Company's competitive position and
could have a material adverse effect on the Company's business, operating
results and financial condition.
CONTROL BY EXISTING STOCKHOLDER; POTENTIAL CONTROL BY PRIVATE INVESTORS
Roger E. Covey, Chairman and Chief Executive Officer of the Company,
currently beneficially owns approximately 31.2% of the Company's outstanding
Common Stock (approximately 20.8% on a fully-diluted basis after giving effect
to the Recapitalization, assuming conversion of the Notes at an assumed
conversion rate of $10.30 and assuming conversion of the Existing Subordinated
Debt). Accordingly, Mr. Covey may have the effective power to influence
significantly the outcome of matters submitted for stockholder action,
including the election of members of the Company's Board and the approval of
significant change in control transactions, and may be deemed to have control
over the management and affairs of the Company. This significant equity
interest in the Company may have the effect of making certain transactions
more difficult absent the support of Mr. Covey and may have the effect of
delaying or preventing a change in control of the Company.
The Private Investors will have the right to elect two new directors to the
Board of Directors at their sole discretion and the Company will designate a
third new, independent director mutually acceptable to the Private Investors.
The holders of the Warrants will also have the right under certain
circumstances, including upon certain events of default, to elect a majority
of the members of the Board and to control the voting of Mr. Covey's stock.
See "Description of the Private Offering--Warrants--Control Rights." For so
long as the Junior Notes are outstanding or the Private Investors hold
Warrants representing the right to purchase in excess of 5% of the Company's
outstanding Common Stock, the Company may not take certain actions without the
prior written consent of the holders of a majority in principal amount of the
Junior Notes or in number of the Warrants, as applicable, including the
payment of dividends or any other distribution with respect to the Common
Stock, the incurrence of additional debt (other than the Notes, the New Credit
Facility and certain other exceptions), the entering into of any merger,
consolidation, sale, assignment, lease or transfer of any material portion of
the Company's assets and certain other material transactions. See "Description
of the Private Offering--Warrants--Common Stock Warrant Veto Rights;
Covenants." In addition, in the event of (i) the breach of any financial
covenant or the occurrence of any other material event of default under the
Purchase Agreement, or (ii) the failure of the Company to recruit a new Chief
Operating Officer/President mutually acceptable to the Company and the Private
Investors, the Company may not approve its annual budget or capital
expenditure budget or expend any amounts in excess of any budget without the
consent of the holders of a majority in number of the Warrants outstanding.
15
<PAGE>
These rights will operate to give the holders of the Junior Notes and the
Warrants effective control over the management and affairs of the Company
under certain circumstances, will have the effect of making certain
transactions more difficult absent the consent of the holders of a majority of
the outstanding Junior Notes and Warrants, and may have the effect of delaying
or preventing a change in control of the Company.
VOLATILITY OF STOCK PRICE
The market price of the Common Stock and the Notes after the Offering may be
significantly affected by any or all of the factors cited herein in "Risk
Factors", including quarterly fluctuations in the Company's results of
operations, demand for the Company's product and services, the size, timing
and structure of significant licenses by customers, market acceptance of new
or enhanced versions of the Company's BPCS Client/Server product line, the
publication of opinions about the Company, its products and technology by
industry analysts, the entry of new competitors and technological advances by
competitors, delays in sales as a result of lengthy sales cycles, changes in
operating expenses, foreign currency exchange rate fluctuations, changes in
pricing policies by the Company or its competitors, customer order deferrals
in anticipation of product enhancements by the Company or its competitors, the
timing of the release of new or enhanced versions of the Company's BPCS
Client/Server product line, customer cancellation of major planned software
development programs, general economic factors and other factors, many of
which are beyond the Company's control. In future quarters, the Company's
operating results may be below expectations of public market analysts and
investors. In such event, or in the event that adverse conditions prevail or
are perceived to prevail generally or with respect to the Company's business,
the price of the Company's Common Stock would likely be immediately materially
adversely affected. In addition, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations,
as well as general economic, political and market conditions, such as
recessions or international currency fluctuations, may adversely affect the
market price of the Common Stock and the Notes.
ANTI-TAKEOVER CONSIDERATIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with an
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. The Company has also
adopted a stockholders' rights plan, which can have a significant anti-
takeover effect by inhibiting a potential offeror, the value of whose acquired
shares would be substantially diluted by the operation of the plan. Upon a
Change in Control as defined herein under "Description of Notes," the holders
of the Notes may require the Company to redeem the Notes at a price equal to
100% of the principal amount thereof, plus accrued and unpaid interest. Upon a
Change in Control, the Company will also be obligated to repay all principal
and accrued and unpaid interest under the Junior Notes, and the holders of the
outstanding Preferred Stock Warrants (as defined herein) will have the right
to exercise such Warrants to purchase the New Preferred Stock and the right to
elect a majority of the Board of Directors, which in turn could induce the
Company to exercise its right to repurchase the Preferred Stock Warrants at an
aggregate redemption price of $117.5 million. See "Description of the Private
Offering--Warrants--Preferred Stock Warrant" and "--Control Rights." A Change
in Control under similar circumstances would most likely also constitute an
event of default under the Company's New Credit Facility. These provisions
could serve to impede or prevent a change of control or have a depressive
effect on the price of the Company's Common Stock and securities convertible
or exchangeable into Common Stock, such as the Notes.
16
<PAGE>
LIMITATIONS ON REPURCHASE UPON A CHANGE IN CONTROL
In the event of a Change in Control, each Noteholder may under certain
circumstances require the Company to repurchase all or a portion of such
holder's Notes at 100% of the principal amount thereof plus accrued and unpaid
interest to the repurchase date. If a Change in Control were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
repurchase price for all Notes tendered by the holders thereof. It is expected
that the Company's repurchase of Notes, absent a waiver, would constitute a
default under the terms of the New Credit Facility. In addition, the Company's
repurchase of Notes as a result of the occurrence of a Change in Control may
be prohibited or limited by the holders of Senior Indebtedness under the
subordination provisions applicable to the Notes, or be prohibited or limited
by or create an event of default under, the terms of other agreements relating
to borrowings which constitute Senior Indebtedness as may be entered into,
amended, supplemented or replaced from time to time. Failure of the Company to
repurchase Notes at the option of the Noteholder upon a Change in Control
would result in an Event of Default under the Indenture. See "Description of
Notes--Redemption of Notes at the Option of Holders Upon a Change in Control."
ABSENCE OF TRADING MARKETS
Prior to this Offering, there has been no trading market for the Notes and
there can be no assurance that a trading market will develop or, if one does
develop, of its liquidity or whether it will be maintained. To the extent that
an active market does not develop for the Notes the market price and a
holder's ability to sell the Notes could be materially adversely affected.
COMMON STOCK AVAILABLE FOR RESALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market after this
Offering could adversely affect the prevailing market price of the Common
Stock, which, in turn, could adversely affect the market price of the Notes.
The directors, executive officers and certain stockholders of the Company have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
for a period of at least 90 days after the effective date of the Registration
Statement without the prior written consent of the Representative (as defined
herein). Roger E. Covey, Chairman and Chief Executive Officer of the Company,
currently beneficially owns 13,284,750 shares of Common Stock, representing
approximately 31.2% of the Company's outstanding stock as of July 31, 1997.
Beginning 90 days after the effective date of the Registration Statement,
approximately 426,000 shares of Mr. Covey's Common Stock will be available for
sale during any three-month period under Rule 144(e) under the Securities Act
without restriction, other than the restrictions on transfers set forth under
"Description of the Private Offering--Junior Notes--Restrictions on Mr.
Covey's Shares."
On the 45th day following the closing of the Recapitalization, the holder of
the Existing Subordinated Debt will have the right to require the Company to
convert such debt into approximately 3.6 million shares of Common Stock.
Promptly following the closing of the Offering, the Company has agreed to file
a registration statement on Form S-3 to register under the Securities Act the
3.6 million shares issuable upon conversion of the Existing Subordinated Debt.
Of such shares, 1.2 million will generally be available for sale in the public
market beginning 45 days after the effective date of the Registration
Statement, and approximately 2.4 million will generally be available for sale
in the public market beginning 90 days after the effective date of the
Registration Statement.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $86.4 million ($99.4 million if the Underwriters' over-allotment
option is exercised in full), and the net proceeds from the Recapitalization
(which includes this Offering and the Private Offering) are estimated to be
approximately $131.7 million ($144.7 million if the Underwriter's over-
allotment option is exercised in full).
The Company will use a portion of the net proceeds of the Recapitalization
to repay all amounts outstanding under its Existing Credit Facility (which as
of July 31, 1997 were approximately $46.0 million) and under its Senior Notes
(which as of July 31, 1997 were approximately $25.8 million). In addition, a
portion of the net proceeds may be used to repay all $12.0 million of Existing
Subordinated Debt which will, as a result of the closing of the Private
Offering and at the option of the holder of such debt, become (i) due and
payable at any time commencing on the 90th day following the closing of the
Recapitalization, or (ii) convertible at any time commencing on the 45th day
following the closing of the Recapitalization into approximately 3.6 million
shares of Common Stock (based on a conversion price of $3.33 per share). The
Existing Subordinated Debt matures on March 31, 2000 and bears interest at a
floating rate (9.5% as of June 30, 1997). The Existing Credit Facility and the
Senior Notes currently bear interest at prime plus 2%, and mature on November
1, 1997.
The Company expects to use the remainder of the net proceeds, which are
estimated to be approximately $47.9 million ($59.9 million if the Existing
Subordinated Debt is converted), together with existing resources, to open new
offices, retain additional skilled personnel in sales, pre-sales and research
and development, for several small acquisitions, and for other working capital
and general corporate purposes. The Company has no pending agreements,
understandings or pending negotiations regarding any proposed acquisitions.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol SSAX. The following table shows the quarters' high and low closing
prices, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 1997
FISCAL 1995 FISCAL 1996 (1)
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter................... $11.75 $ 8.17 $27.67 $18.63 $14.06 $10.00
Second Quarter.................. 18.92 11.50 25.63 20.25 10.88 4.13
Third Quarter................... 19.58 12.58 24.13 11.63 9.56 5.63
Fourth Quarter.................. 30.00 15.25 13.38 8.69 8.81 8.06
</TABLE>
--------
(1) Fourth Quarter through August 7, 1997
On August 7, 1997, the last reported sale price for the Common Stock was
$8.81.
Commencing in January 1991, the Company has paid an annual dividend on its
Common Stock. The following table lists the dividend paid per share of Common
Stock in each of the last three fiscal years:
<TABLE>
<CAPTION>
DIVIDEND
YEAR PER SHARE
---- ---------
<S> <C>
1994............................................................ $.08
1995............................................................ .08
1996............................................................ .10
</TABLE>
The Company does not currently anticipate that it will resume payment of an
annual dividend. Covenants in the terms of the Junior Notes, the Warrants and
the Existing Subordinated Debt prohibit or restrict the payment of dividends
upon equity securities of the Company. The Company anticipates that the New
Credit Facility will also restrict the payment of dividends by the Company.
18
<PAGE>
CAPITALIZATION
The following table sets forth the short term debt and capitalization of the
Company as of April 30, 1997 and as adjusted to give effect to the (i)
issuance and sale of the Notes, the Junior Notes and the Warrants, and (ii)
the application of the estimated net proceeds from the Recapitalization
(assuming the Underwriters' over-allotment option is not exercised and the
Existing Subordinated Debt is repaid or redeemed). This information does not
give effect to the possible conversion of the Existing Subordinated Debt into
approximately 3.6 million shares of Common Stock, which conversion right
arises as a result of the Recapitalization. See "Use of Proceeds." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1997
--------------------
AS
ACTUAL ADJUSTED (4)
------ ------------
(IN MILLIONS)
<S> <C> <C>
Short term borrowings and current maturities of senior
notes payable......................................... $ 71.8 $ --
====== ======
Long Term Obligations:
Convertible subordinated promissory note............. $ 12.0 $ --
Convertible subordinated notes, none issued actual,
$90.0 million issued, as adjusted................... -- 90.0
Junior subordinated promissory notes, none issued
actual,
$48.4 million principal amount issued, as adjusted
(1)................................................. -- 38.4
Notes payable, obligations under capital leases
and other obligations............................... 2.1 2.1
------ ------
Total Long Term Obligations........................ 14.1 130.5
------ ------
Stockholders' Equity:
Preferred stock, $.01 par value, 100,000 shares
authorized,
none issued or outstanding.......................... -- --
Common stock, $.0033 par value, 60,000,000 shares
authorized, 42,633,000 shares outstanding, actual
and as adjusted (2)................................. 0.1 0.1
Capital in excess of par value (3)................... 42.8 52.8
Retained earnings (4)................................ 73.5 67.5
Cumulative translation adjustment.................... (2.7) (2.7)
------ ------
Total Stockholders' Equity......................... 113.7 117.7
------ ------
Total Capitalization............................... $127.8 $248.2
====== ======
</TABLE>
- --------
(1) Less discount attributable to the estimated fair value of the Warrants of
$10.0 million.
(2) Subsequent to April 30, 1997, the Company's Certificate of Incorporation
was amended to increase the number of authorized shares of Common Stock to
250,000,000 shares.
(3) As adjusted includes the estimated fair value of the Warrants of $10.0
million. In the event that the holder of the Existing Subordinated Debt
elects to convert such debt into Common Stock, total stockholders' equity
would be increased by approximately $12.0 million.
(4) As adjusted includes write off of approximately $6.0 million in deferred
charges and fees related to the Existing Subordinated Debt, the Existing
Credit Facility and the Senior Notes which will occur upon the repayment
of such indebtedness in connection with the Recapitalization.
19
<PAGE>
SELECTED FINANCIAL DATA
The following data have been derived from the Consolidated Financial
Statements audited by Price Waterhouse LLP, independent accountants, for the
fiscal years ended October 31, 1995 and 1994, and audited by KPMG Peat Marwick
LLP, independent accountants, for the fiscal year ended October 31, 1996. The
data set forth below are qualified by reference to the consolidated balance
sheets at October 31, 1995 and 1996 and related consolidated statements of
operations, cash flows and changes in stockholders' equity for the three years
ended October 31, 1996 and the Notes thereto contained elsewhere in this
Prospectus. The consolidated financial data as of and for the six months ended
April 30, 1996 and 1997 are unaudited but have been prepared on the same basis
as the audited financial statements and, in the opinion of management, contain
all adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the results of operations and financial condition for
such periods. The results of operations presented below are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED APRIL 30,
------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees........... $178.5 $187.9 $229.7 $250.0 $226.7 $100.0 $ 130.2
Client services and
other................. 50.3 75.5 94.6 124.1 114.1 59.1 60.0
------ ------ ------ ------ ------ ------- -------
Total revenues....... 228.8 263.4 324.3 374.1 340.8 159.1 190.2
------ ------ ------ ------ ------ ------- -------
Costs and Expenses:
Cost of license fees... 47.2 51.4 60.7 64.9 66.9 25.6 33.0
Cost of client services
and other............. 31.6 43.5 57.2 76.8 89.0 41.4 47.1
Sales and marketing.... 56.7 63.8 90.8 87.6 103.8 45.2 43.9
Research and
development........... 16.5 23.0 35.1 40.2 54.4 23.4 26.9
General and
administrative........ 35.8 45.6 64.1 63.5 85.5 33.6 40.1
------ ------ ------ ------ ------ ------- -------
Total costs and
expenses............ 187.8 227.3 307.9 333.0 399.6 169.2 191.0
------ ------ ------ ------ ------ ------- -------
Operating income (loss). 41.0 36.1 16.4 41.1 (58.8) (10.1) (0.8)
------ ------ ------ ------ ------ ------- -------
Gain on sale of
available-for-sale
securities............. -- -- -- -- 13.1 -- --
Non-operating income
(expense), net......... 0.6 (0.4) (1.0) (0.2) (5.7) (0.8) (7.0)
------ ------ ------ ------ ------ ------- -------
Income (loss) before
income taxes and
minority interest...... 41.6 35.7 15.4 40.9 (51.4) (10.9) (7.8)
Provision (benefit) for
income taxes........... 15.0 12.7 5.6 14.2 (18.6) (4.0) (2.8)
------ ------ ------ ------ ------ ------- -------
Income (loss) before
minority interest...... 26.6 23.0 9.8 26.7 (32.8) (6.9) (5.0)
Minority interest....... -- 0.4 0.2 (0.1) -- -- --
------ ------ ------ ------ ------ ------- -------
Net income (loss)....... $ 26.6 $ 23.4 $ 10.0 $ 26.6 $(32.8) $ (6.9) $ (5.0)
====== ====== ====== ====== ====== ======= =======
Earnings (loss) per
share.................. $ 0.66 $ 0.57 $ 0.25 $ 0.63 $(0.76) $ (0.16) $ (0.12)
====== ====== ====== ====== ====== ======= =======
Weighted average common
and equivalent shares
outstanding............ 40.5 40.7 40.5 42.2 43.0 43.1 42.6
====== ====== ====== ====== ====== ======= =======
Ratio of earnings to
fixed charges (1)...... 15.3 10.4 3.7 6.5 -- (2) -- (2) -- (2)
Pro forma ratio of
earnings to fixed
charges (3)............ -- (3) -- (3)
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30, 1997
---------------------------------- -------------------
AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED (4)
------ ------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 23.4 $ 57.6 $ 60.2 $ 57.1 $ 38.1 $ 20.4 $ 67.8
Working capital,
excluding short term
borrowings and Senior
Notes payable.......... 49.5 91.2 87.3 96.3 70.3 80.3 120.0
Intangibles:
Software costs, net.... 16.8 27.3 49.3 59.0 82.8 93.2 93.2
Cost in excess of
assets of acquired
businesses, net....... 9.6 14.0 15.8 18.2 22.8 21.3 21.3
------ ------ ------ ------ ------ ------ ------
Total intangibles....... 26.4 41.3 65.1 77.2 105.6 114.5 114.5
Total assets............ 200.0 280.4 333.1 393.2 384.4 382.4 427.6
Short-term borrowings
and current maturities
of Senior Notes
payable................ -- -- -- 4.0 -- 71.8 --
Long-term obligations... 3.5 34.0 32.7 33.9 75.1 14.1 130.5
Total Stockholders'
equity................. 80.0 101.2 109.3 143.4 110.2 113.7 117.7
</TABLE>
- -------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges) by fixed charges (interest expense and the portion of
rental expense which represents interest).
(2) Actual earnings (loss) available for fixed charges of ($51.4 million),
($10.9 million) and ($7.8 million) were inadequate to cover fixed charges
of $12.7 million, $5.2 million and $11.5 million for the year ended
October 31, 1996 and the six months ended April 30, 1996 and April 30,
1997, respectively.
(3) The pro forma ratio of earnings (loss) to fixed charges assumes the
Recapitalization and use of proceeds, as described herein, occurred on
November 1, 1995 for the ratio for the year ended October 31, 1996, and on
November 1, 1996 for the ratio for the six months ended April 30, 1997. In
addition, the ratios assume that the interest rate on the Notes is 7.5%,
the net proceeds to the Company are invested in interest bearing accounts
averaging 5.0% interest on an annual basis and the estimated fair value of
the Warrants is $10.0 million, which value will be amortized as interest
expense over the term of the Junior Notes. Pro forma earnings (loss)
available for fixed charges of $(38.7) million and $3.7 million were
inadequate to cover pro forma fixed charges of $19.8 million and $13.8
million for the year ended October 31, 1996 and the six months ended April
30, 1997, respectively.
(4) Adjusted to reflect the Recapitalization and the application of the
estimated net proceeds therefrom (assuming that the Existing Subordinated
Debt is repaid or redeemed with the net proceeds from the
Recapitalization), after deducting underwriting discounts and commissions
and other estimated expenses of the Recapitalization. Assumes that the
estimated fair value of the Warrants is $10.0 million. Also assumes that
approximately $6.0 million in deferred charges and fees related to the
Existing Subordinated Debt, the Existing Credit Facility and the Senior
Notes are written off upon repayment of such indebtedness in connection
with the Recapitalization. In the event that the holder of the Existing
Subordinated Debt elects to convert such debt into Common Stock in lieu of
repayment, the Company would issue approximately 3.6 million shares of
Common Stock to such holder and cash, working capital, total assets and
total stockholders' equity would each be increased by $12.0 million.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in this section as well as those
under the caption "Risk Factors" appearing elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere
in this Prospectus.
OVERVIEW
The Company is a leading provider of cost-effective business enterprise
information systems to the industrial sector worldwide. The Company markets,
sells and services its products to large- and intermediate-sized industrial
sector firms primarily through its own world-wide sales organization and, to a
lesser extent, through a network of over 100 independent software companies,
which SSA refers to as its "Affiliates," and major systems integrators.
The Company classifies its revenue in two broad categories: license fees and
client services and other. License fee revenues are primarily derived from the
licensing of the Company's BPCS Client/Server product line. Client services
and other revenues are derived from implementation (installation), consulting,
training and other services, such as customization, modifications and Year
2000 software conversions.
SSA was founded as an MRP (Manufacturing Resource Planning) software company
supplying software for IBM midrange computers. The Company believes it is the
largest supplier of MRP software for IBM AS/400 installations. The Company is
presently concluding a transition phase, having first released the new object-
oriented version of its BPCS Client/Server product line, Version 6.0, to early
adopters in April 1996.
Certain difficulties attended the early releases of the UNIX version of the
BPCS product line and the Company's expansion of its product development and
marketing efforts beyond the IBM AS/400 platform and into the open systems
marketplace. License fees increased only slightly from 1994 to 1995, and
decreased from 1995 to 1996. Some early adopters experienced difficulties in
achieving full functionality and performance with the early release. The
general release of Version 6.0 did not occur until September 1996. In
addition, the Company expended significant amounts across its organization to
build a new sales and marketing and client services infrastructure to support
the release of the open systems version of the BPCS Client/Server product
line. Thus, in 1996, the Company's cost of client services and other, sales
and marketing expense and research and development expense all increased
significantly over 1995 levels. Because these investments did not generate
contemporaneous increases in license fees and client services revenues, the
Company reported an operating loss of $58.8 million. As Version 6.0 improved
in its functionality and performance characteristics, license fees increased.
For the first six months of 1997, license fee revenues increased 30%, total
revenues increased 20% and the operating loss decreased to $0.8 million from
$10.1 million when compared to the same period in 1996.
The Company has expended over $200 million for research and development of
Version 6.0 of BPCS Client/Server. These expenditures, combined with the
losses from operations incurred in 1996 and 1997 to date, have seriously
depleted the Company's liquidity, and have led to increased borrowings under
the Company's Existing Credit Facility. The Recapitalization, of which this
Offering is a part, is expected to enhance the Company's liquidity.
21
<PAGE>
The Company includes software license fees, and any related commissions
earned by the Affiliates, in license fees and cost of license fees,
respectively. Software license fee revenues are recognized upon client
acceptance and delivery of the software to the end user, provided that no
significant vendor obligations remain and collectibility is probable. Revenue
and commissions from software maintenance and HelpLine agreements are deferred
and recognized ratably over the term of the contract. Client services revenues
are recognized as the services are performed. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, the Company expenses software
development costs as they are incurred until technological feasibility is
established, after which such costs are capitalized until the product is
available for general release to customers. The capitalized costs generally
include a portion of construction costs as well as costs incurred during final
product testing prior to full product release.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain information
from the Company's consolidated statements of operations as a percentage of
total revenues. The Company's results of operations and balance sheets for
1994 and 1995 have been restated with respect to several software contracts.
See Note 2 of Notes to Consolidated Financial Statements for the years ended
October 31, 1994, 1995 and 1996. The discussion below addresses the restated
financial statements.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
OCTOBER 31, APRIL 30,
------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees........................... 70.8% 66.8% 66.5% 62.9% 68.5%
Client services and other.............. 29.2 33.2 33.5 37.1 31.5
----- ----- ----- ----- -----
Total revenues....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and Expenses:
Cost of license fees................... 18.7 17.4 19.6 16.1 17.3
Cost of client services and other...... 17.7 20.5 26.1 26.0 24.8
Sales and marketing.................... 28.0 23.4 30.4 28.4 23.1
Research and development............... 10.8 10.7 16.0 14.7 14.1
General and administrative............. 19.8 17.0 25.1 21.1 21.1
----- ----- ----- ----- -----
Total costs and expenses............. 95.0 89.0 117.2 106.3 100.4
----- ----- ----- ----- -----
Operating income (loss).................. 5.0 11.0 (17.2) (6.3) (0.4)
----- ----- ----- ----- -----
Gain on sale of available-for-sale
securities.............................. -- -- 3.8 -- --
Non-operating income (expense), net...... (0.3) (0.1) (1.7) (0.5) (3.7)
----- ----- ----- ----- -----
Income (loss) before income taxes and
minority interest....................... 4.7 10.9 (15.1) (6.8) (4.1)
Provision (benefit) for income taxes..... 1.7 3.8 (5.5) (2.5) (1.5)
----- ----- ----- ----- -----
Income (loss) before minority interest... 3.0 7.1 (9.6) (4.3) (2.6)
Minority interest........................ 0.1 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)........................ 3.1% 7.1% (9.6)% (4.3)% (2.6)%
===== ===== ===== ===== =====
</TABLE>
22
<PAGE>
Six Months Ended April 30, 1997 Compared to the Six Months Ended April 30,
1996
Revenues
Total revenues increased 20% to $190.2 million for the first six months of
1997 over total revenues of $159.1 million recorded during the first six
months of fiscal 1996.
License Fees. License fees increased 30% to $130.2 million in the first six
months of 1997, compared to $100.0 million in the corresponding prior period,
which reflected increasing market acceptance of Version 6.0, which was
released for general availability in the fourth quarter of 1996.
Client Services. Client services and other revenues increased 2% to $60.0
million in the first half of 1997, from $59.1 million in the first half of
1996. The $33.0 million of client services and other revenues in the second
quarter of 1997, the largest quarterly services revenues in the Company's
history, represented a 22% increase over the immediately prior quarter and an
8% increase over the second quarter of 1996. The increase in services revenues
is attributable to an increase in the number of services personnel following
significant investments in training in open systems and object skills
accompanying the development and release of Version 6.0.
Costs and Expenses
Cost of License Fees. The principal components of cost of license fees are
commissions paid to independent Affiliates, hardware costs, amortization of
capitalized software costs and royalties paid to third parties. Cost of
license fees as a percentage of related revenues remained relatively constant
at 25% and 26% for the first six months of 1997 and 1996, respectively, due to
increased amortization expense of capitalized software development costs being
offset by decreased Affiliate commissions.
Cost of Client Services and Other. The principal components of cost of
client services and other are salaries and other direct employment costs paid
to the Company's client services personnel and amounts paid to independent
client services professionals. Cost of client services and other as a
percentage of related revenues was 79% for the first six months of 1997
compared to 70% during the corresponding prior year period. The higher costs
in 1997 resulted from an increase in the number of newly hired technical
professionals around the world, in particular those with open systems and
object skills, and from the allocation of technical personnel to perform
warranty work.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other direct employment costs of the Company's sales and pre-
sales professionals, as well as marketing costs, which include advertising,
trade shows and production of sales brochures. Sales and marketing expenses as
a percentage of license fee revenues was 34% and 45% for the first six months
of 1997 and 1996, respectively. The decrease was due to increased productivity
of the Company's direct sales organization and decreased marketing
expenditures. In anticipation of the Company's introduction of its open
systems product, the Company hired a significant number of new sales and pre-
sale professionals with skills and experience in the open systems arena. In
late 1996 and early 1997, a number of these professionals who had not been
significantly productive were either terminated or left the Company. As a
result, the Company's sales and marketing expenses decreased in the first half
of 1997 over the corresponding prior period, even though license fees
increased 30% over the same periods.
Research and Development. Gross (total) research and development (R&D)
expenditures in the first six months of 1997 increased $8.6 million, or 21%,
to $48.8 million in the first six months of 1997 from $40.2 million in the
corresponding prior period. The increase was due to the Company's continuing
development of its distributed object computing technology and enhancements of
its existing product line.
23
<PAGE>
The Company capitalized $21.9 million of software development costs in the
first six months of 1997, as compared to $16.8 million in the first six months
of 1996. The capitalization ratio (capitalized software as a percentage of
gross R&D expenditures) in the first six months of 1996 and 1997 was 42% and
45%, respectively. The following table sets forth R&D expenditures and related
capitalized amounts for the first six months of 1996 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERCENTAGE
APRIL 30, CHANGE
------------------ ----------
1997 VS.
1996 1997 1996
-------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Gross R&D expenditures........................ $ 40.2 $ 48.8 21%
Less amount capitalized....................... (16.8) (21.9) 30%
-------- --------
Net R&D costs................................. $ 23.4 $ 26.9 15%
======== ========
</TABLE>
General and Administrative. General and administrative expenses increased
$6.5 million to $40.1 million in the first half of 1997 from $33.6 million in
the first half of 1996 to support the Company's growth. These expenses include
increased facilities costs related to acquisitions and increased costs for
computer equipment.
Operating Income (Loss). The operating loss of $0.8 million in the first six
months of 1997 improved $9.3 million from the operating loss of $10.1 million
in the corresponding prior period, principally due to increased software
license fees and decreased sales and marketing expenses.
Non-Operating Income (Expense), Net. Non-operating expense consists
primarily of interest expense and fees related to the Company's Existing
Credit Facility and Senior Notes and other long-term obligations, less
interest income earned on invested cash. Non-operating expense of $7.0 million
in the first six months of 1997 increased $6.2 million over the corresponding
prior period due to higher borrowing levels under the Company's Existing
Credit Facility, higher interest rates applicable to the Existing Credit
Facility and the Senior Notes, interest on the Company's Existing Subordinated
Debt and reduced interest income related to lower cash balances.
Fiscal 1994 Compared to Fiscal 1995 and Fiscal 1996
Revenues
Revenues increased 15% from 1994 to 1995. All regions grew in 1995, with
particularly strong results in North America and Europe. Total revenues
decreased 9% from 1995 to 1996. North America recorded higher revenues in 1996
while the Company's other regions were flat to down.
License Fees. License fees increased 9% from 1994 to 1995 and decreased 9%
in 1996. In 1995, a small decline in AS/400 revenue was offset by sales of the
Company's open systems product, which was released in the second quarter of
1995. Despite the solid revenue growth in North America in 1996, a sharp
decline in the European region more than offset North America's favorable
results. North American license fees reflected growth in both the AS/400 and
UNIX product lines.
Client Services. Client services revenues increased 31% in 1995 compared to
a decrease of 8% in 1996. The growth from 1994 to 1995 was related to the
increase in software revenues. The decline in 1996 was due to lower
productivity caused in part by allocation of resources to perform warranty
work and investments in training client services professionals. As a
percentage of total revenues, client services revenues increased slightly to
34% in 1996 from 33% in 1995.
24
<PAGE>
Costs and Expenses
Cost of License Fees. Cost of license fees as a percentage of license fee
revenues was 26%, 26%, and 30% in 1994, 1995, and 1996, respectively. The
increase in 1996 to 30% was primarily due to increased amortization expense of
capitalized software development costs and increased warranty costs.
Cost of Client Services and Other. Cost of client services and other as a
percentage of related revenues was 60%, 62%, and 78% in 1994, 1995, and 1996,
respectively. The increase in 1996 is primarily due to lower productivity
related to newly hired technical professionals around the world, in particular
those with open systems and object skills, allocation of resources to perform
warranty work, and investments in training.
Sales and Marketing. Sales and marketing expenses as a percentage of license
fee revenues was 40%, 35%, and 46% in 1994, 1995, and 1996, respectively. The
favorable result from 1994 to 1995 was due to increased productivity of the
sales force and programs to reduce fixed expenses which began early in 1995.
The higher percentage in 1996 was primarily due to decreased revenue as
described above and increased expenditures to establish worldwide marketing
programs, and the development of vertical industry groups in support of the
Company's continuing move into the UNIX open systems client/server market. In
addition, training programs for the sales force resulted in increased expenses
during the year.
Research and Development. Gross (total) R&D expenditures decreased 4% in
1995 versus an increase of 56% in 1996. The decline in 1995 from 1994 was
primarily due to expense reduction programs which began early in 1995 and
impacted R&D spending favorably by replacing contracted technical personnel
with employed technical personnel. Excluding the costs of contracted technical
personnel, remaining R&D expenditures increased 22% in 1995 when compared to
1994 due to increased employee costs for technical personnel. The 1996
increase was attributable to the Company's continuing development of its
distributed object computing technology and enhancement of its existing
products.
The Company capitalized $29.0, $21.6 and $41.9 million of software
development costs in fiscal 1994, 1995 and 1996, respectively. The
capitalization rate in 1994, 1995, and 1996 was 45%, 35%, and 44%,
respectively. The decrease from 1994 to 1995 was driven by a higher proportion
of R&D spending incurred to support and maintain existing products and the
completion of certain open systems products. The 1996 increase was due to
construction and testing activities related to the Company's distributed
object computing architecture. The following table sets forth R&D expenditures
and related capitalized amounts for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE
------------
YEAR ENDED OCTOBER 31, 1995 1996
------------------------- VS. VS.
1994 1995 1996 1994 1995
------- ------- ------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gross R&D expenditures............... $ 64.1 $ 61.8 $ 96.3 (4%) 56%
Less amount capitalized.............. (29.0) (21.6) (41.9) (25%) 94%
------- ------- -------
Net R&D costs........................ $ 35.1 $ 40.2 $ 54.4 15% 35%
======= ======= =======
</TABLE>
General and Administrative. General and administrative expenses declined 1%
from 1994 to 1995 and increased 35% from 1995 to 1996. The increase in 1996
over 1995 was primarily due to new facilities to support the Company's
worldwide expansion, increased computer equipment rent and a $9.3 million
provision for doubtful accounts. The provision for doubtful accounts was $8.0,
$3.3, and $9.3 million for 1994, 1995, and 1996, respectively.
Operating Income (Loss). Operating income increased from $16.4 million in
1994 to $41.1 million in 1995, principally due to significantly higher total
revenues and lower aggregate sales and marketing
25
<PAGE>
expenses in 1995. The operating loss of $58.8 million in 1996 resulted
primarily from reduced total revenues and increases in every category of costs
and expenses. See "--Overview."
Non-operating Expense. In 1995, higher cash balances throughout the year and
higher interest rates on invested cash as well as a reduction in interest
bearing notes payable resulted in decreased net interest expense. The increase
in 1996 is due to higher borrowing levels under the Company's Existing Credit
Facility and increased fees and interest rates related to the Company's
renegotiation of its borrowing arrangements' terms and conditions in the
fourth quarter of 1996.
Income Taxes. The Company's effective tax expense (benefit) rate has
remained relatively constant at approximately 36% in 1994, 35% in 1995 and
(36%) in 1996. The benefit recorded in 1996 represents federal and state tax
refunds to be received in 1997 and amounts to be realized through future
utilization of net operating loss and tax credit carryforwards.
Impact of Inflation. To date, the Company has not experienced any
significant effect from inflation. The Company's major expenses have been
salaries and related costs incurred principally for product development and
enhancements, sales and marketing, and administration. The Company generally
has been able to meet increases in costs by increasing prices of its products
and services.
Foreign Currency Exposures. Sales outside of the United States account for
approximately 60% of the Company's total revenue. The Company's international
sales (with the exception of certain Latin American countries) are
predominately invoiced and paid in foreign currencies. Consequently, the
Company's revenues are impacted by the fluctuation of foreign currencies
versus the U.S. Dollar. The operating income impact of such fluctuations,
however, is offset to the extent expenses of the Company's international
operations are incurred and paid for in local currencies.
The Company generally minimizes the financial impact of foreign currency
exchange transactions through the use of foreign exchange forward contracts,
which generally mature within three months of origination (see Note 5 to the
Consolidated Financial Statements).
QUARTERLY RESULTS
The following table contains selected unaudited consolidated financial
results by quarter for the last eight fiscal quarters. In management's
opinion, this information reflects all adjustments (which consist only of
normal recurring adjustments) necessary to present the results fairly when
read in conjunction with the Consolidated Financial Statements and related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... $57.3 $91.6 $ 48.1 $ 51.9 $ 45.2 $ 81.5 $ 65.1 $ 65.1
Client services and
other................. 32.4 31.1 28.5 30.6 27.1 27.9 27.1 33.0
----- ----- ------ ------ ------ ------ ------ ------
Total revenues.......... 89.7 122.7 76.6 82.5 72.3 109.4 92.2 98.1
Costs and expenses...... 81.3 99.4 77.0 92.1 106.4 124.1 96.8 94.2
----- ----- ------ ------ ------ ------ ------ ------
Operating income (loss). 8.4 23.3 (0.4) (9.6) (34.1) (14.7) (4.6) 3.9
Gain on sale of
available-for-sale
securities............. -- -- -- -- 3.6 9.5 -- --
Non-operating income
(expense), net......... (0.1) (0.1) (0.3) (0.5) (1.2) (3.7) (2.1) (4.9)
----- ----- ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest...... 8.3 23.2 (0.7) (10.1) (31.7) (8.9) (6.7) (1.0)
Provision (benefit) for
income taxes........... 3.0 7.9 (0.3) (3.7) (11.4) (3.2) (2.4) (0.4)
----- ----- ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 5.3 $15.3 $ (0.4) $ (6.4) $(20.3) $ (5.7) $ (4.3) $ (0.6)
===== ===== ====== ====== ====== ====== ====== ======
Earnings (loss) per
share.................. $0.13 $0.35 $(0.01) $(0.15) $(0.47) $(0.13) $(0.10) $(0.01)
===== ===== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... 64% 75% 63% 63% 63% 74% 71% 66%
Client services and
other................. 36 25 37 37 37 26 29 34
--- --- --- --- --- --- --- ---
Total revenues.......... 100 100 100 100 100 100 100 100
Costs and expenses...... 91 81 101 111 147 113 105 96
--- --- --- --- --- --- --- ---
Operating income (loss). 9 19 (1) (11) (47) (13) (5) 4
Gain on sale of
available-for-sale
securities............. -- -- -- -- 5 9 -- --
Non-operating income
(expense), net......... 0 0 0 (1) (2) (3) (2) (5)
--- --- --- --- --- --- --- ---
Income (loss) before
income taxes and
minority interest...... 9 19 (1) (12) (44) (7) (7) (1)
Provision (benefit) for
income taxes........... 3 7 0 (4) (16) (2) (2) 0
--- --- --- --- --- --- --- ---
Net income (loss)....... 6% 12% (1%) (8%) (28%) (5%) (5%) (1%)
=== === === === === === === ===
</TABLE>
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest revenues and operating
income. The Company believes that fourth quarter revenues are positively
impacted by the Company's sales compensation plans. This factor, which the
Company believes is common in the computer software industry, typically
results in first quarter revenues in any year being lower than revenues in the
immediately preceding fourth quarter. In addition, the Company's European
operations generally provide lower revenues during the summer months as a
result of the generally reduced economic activity in Europe during such time.
This seasonal factor could materially adversely affect third quarter revenues.
The Company has also historically recognized a substantial portion of its
revenues from sales booked and shipped in the last month of a quarter. As a
result, the magnitude of quarterly fluctuations in license fees may not become
evident until late in a particular quarter. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter,
the Company is unlikely to be able to generate revenues from alternate sources
in time to compensate for the shortfall. As a result, a lost or delayed sale
could have a material adverse effect on the Company's quarterly operating
results. To the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely affected. The
Company has also historically operated with little backlog because its
products are generally shipped as orders are received. As a result, revenue
from license fees in any quarter is substantially dependent on orders booked
and shipped in that quarter.
Based upon the factors described above, the Company believes that its
quarterly revenues and operating results are likely to vary significantly in
the future, that period-to-period comparisons of its results of operations are
not necessarily meaningful and that, as a result, such comparisons should not
be relied upon as indications of future performance. Moreover, although the
Company's revenues have generally increased in recent periods, there can be no
assurance that the Company's revenues will grow in future periods, at past
rates or at all, or that the Company will be profitable on a quarterly or
annual basis. In future periods, the Company's operating results may be below
the expectations of stock market analysts and investors. In such event, the
price of the Common Stock could be materially adversely affected.
CHANGE IN ACCOUNTING METHOD
During the fourth quarter of 1996, the Company changed its method of
accounting for reseller agreements so that revenue is recorded at the time of
sale to the end user. During the first three quarters of 1996, revenue from
reseller agreements had previously been recorded upon execution of the
reseller agreement and delivery of the software. The Company believes the
change in method is more conservative
27
<PAGE>
and provides a more meaningful measurement of its operations. The change in
accounting method affected the first three quarters of 1996 as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 APRIL 30, 1996 JULY 31, 1996
------------------- ------------------- -------------------
AS AS AS
ORIGINALLY AS ORIGINALLY AS ORIGINALLY AS
REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED
---------- -------- ---------- -------- ---------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
License fees............ $59.3 $ 48.1 $ 71.5 $ 51.9 $ 48.2 $ 45.2
Client services and
other.................. 28.5 28.5 30.6 30.6 27.1 27.1
Total revenues........ 87.8 76.6 102.1 82.5 75.3 72.3
Income (loss) before
income taxes........... 4.5 (0.7) 0.4 (10.1) (29.9) (31.7)
Net income (loss)....... $ 2.9 $ (0.4) $ 0.3 $ (6.4) $(19.1) $(20.3)
Earnings (loss) per
share.................. $0.07 $(0.01) $ 0.01 $(0.15) $(0.44) $(0.47)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, and April 30, 1997, cash and equivalents totaled $38.1
million and $20.4 million, respectively. During 1996, cash and equivalents
declined $19.0 million and borrowing under the Company's Existing Credit
Facility and Senior Notes on a net basis increased by $42.4 million due to the
operating loss in the current year, continued significant investment in
product development, payment of the Company's annual dividend, which increased
25% over the prior year ($.10 per share versus $.08 in the prior year), tax
payments related to the Company's profitability in fiscal 1995, acquisitions
of affiliates and increased operating expenses in support of the Company's
strategic move into the UNIX open systems market. At October 31, 1996, $46.4
million was outstanding under the Company's $50.0 million multi-bank line of
credit. At October 31, 1995, there was no outstanding balance. During 1996,
the Company made its scheduled $4.0 million repayment on its Senior Notes,
leaving $26.0 million outstanding at October 31, 1996.
Cash and equivalents decreased $17.7 million from October 31, 1996 to April
30, 1997 and borrowings increased by $11.4 million on a net basis during the
same period. Cash usage was primarily due to continued significant investment
in product development, an operating loss for the first six months of 1997 and
interest payments. At April 30, 1997, $46.0 million was outstanding under the
Company's Existing Credit Facility and $25.8 million was outstanding on the
Company's Senior Notes. Outstanding letters of credit issued against the
Existing Credit Facility were $700,000 and $1.2 million at April 30, 1997 and
October 31, 1996, respectively. On March 27, 1997, the Company issued the
Existing Subordinated Debt for $12.0 million to a strategic investor to meet
anticipated cash requirements. Management believes that, based upon its
anticipated operating results, the proceeds of this Offering and the Private
Offering will provide sufficient liquidity to meet the Company's short-term
capital requirements.
28
<PAGE>
BUSINESS
The Company is a leading provider of cost-effective business enterprise
information systems to the industrial sector worldwide. The Company's BPCS
(Business Planning and Control System) Client/Server product line provides
business process re-engineering and integration of an enterprise's operations,
including multi-mode manufacturing processes, supply chain management and
global financial solutions. The BPCS Client/Server product line delivers
scalability, interoperability and reconfigurability in a comprehensive product
suite to meet changing market demands. The distributed object computing
architecture ("DOCA") of BPCS Client/Server provides the benefits of next
generation technology in conformity with industry standards. The Company
markets, sells and services its products to large- and intermediate-sized
industrial sector firms primarily through its own world-wide sales
organization and, to a much lesser extent, through a network of over 100
independent software companies ("Affiliates"). The Company has strategic
relationships with major computer hardware manufacturers, such as IBM, Hewlett
Packard and Digital Equipment; supply chain management software companies,
such as i2 and Manugistics; and major systems integrators, such as CAP Gemini
and the Big Six consulting firms.
Effective information technology systems, capable of generating and
disseminating critical information throughout an extended enterprise, can be a
strategic resource for pursuing competitive advantage, allowing an
organization to respond more rapidly to changing market and customer needs.
Organizations rely on ERP systems to manage and integrate resources across the
entire enterprise, including component procurement, inventory management,
manufacturing control, sales management, supply chain management, finance and
other functions. The emergence of new computer and communications
technologies, the requirements for addressing Year 2000 system issues and new
developments in electronic commerce are creating demand for a new generation
of ERP applications that offer solutions with expanded functionality that can
be implemented faster with less risk and lower cost and that are designed to
accommodate future changes to all business processes.
The BPCS Client/Server product line consists of over 60 integrated products
designed for manufacturing, supply chain management and financial
applications, as well as electronic commerce and application development
tools. Historically, the Company's software was primarily designed to operate
on IBM AS/400 computers. BPCS Client/Server now operates across a broad array
of platforms, including Hewlett-Packard HP 9000, IBM AS/400, IBM RISC
System/6000 and DEC Alpha servers. The Company's UNIX version of the BPCS
Client/Server product line operates on both Informix and Oracle databases. The
entire BPCS Client/Server product line is available in English, and a
significant portion of the line is available in 19 other languages, including,
Chinese (simplified and traditional), Dutch, French, German, Italian,
Japanese, Korean, Portuguese, Swedish and Spanish. The BPCS Client/Server
product line has been designed to meet localized regulatory policies and
statutory requirements of many countries.
The Company's BPCS product line was initially developed for the IBM AS/400,
and until 1995, most of the Company's revenue was derived from BPCS product
licenses and related services sold for the use on the AS/400 platform and, to
a lesser extent, earlier IBM midrange computers. In 1993, the Company
commenced a major development initiative to create a version of its BPCS
product line for the UNIX operating system in an effort to address the non-
AS/400 market. In late 1994, the Company began a major effort to re-architect
its product line for the client/server, object-based environment. These
efforts resulted in the initial release of Version 6.0 in April 1996 and the
general release of the Version 6.0 in September 1996. The Company has
continued to release upgrades of Version 6.0 which have significantly improved
the performance and scalability of the product while continuing to enhance
functionality. The Company believes that the most recent release of Version
6.0 offers high levels of functionality and performance and that the
flexibility of its DOCA architecture represents a significant advantage when
compared to other enterprise software applications.
The BPCS Client/Server product line has been installed for more than 8,500
clients and more than 25,000 sites in over 70 countries worldwide, the
substantial majority of which comprise the Company's installed base of AS/400
customers. The Company believes that it is the leading vendor of ERP software
for customers on the AS/400. The target marketplace for the BPCS Client/Server
product line is large- and intermediate-sized industrial sector firms in such
diverse industries as pharmaceuticals, automotive, electronics, consumer
products, forest products, and food and beverages. The Company's clients
include leading firms in those industries.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY MANAGERS
The following table sets forth certain information concerning the Executive
Officers, Directors and other key managers of the Company as of July 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roger E. Covey.......... 42 Chairman of the Board of Directors and
Chief Executive Officer
Riz Shakir.............. 40 Executive Vice President--Research and Development
Joseph J. Skadra........ 55 Vice President--Finance, Chief Financial Officer and Secretary
Paul Lavallee........... 43 President--Americas
Denis Bignold........... 52 President--Asia Pacific
Richard Morgan-Evans.... 50 President--Europe, Middle East, Africa
Andrew J. Filipowski.... 45 Director
John W. Puth............ 68 Director
William N. Weaver, Jr. . 62 Director
</TABLE>
Roger E. Covey, founded the Company and since November 1, 1994 has served as
Chief Executive Officer and Chairman of the Board of the Company, positions
which he also held from its inception in October 1981 until August 1991, at
which time he was elected as Vice-Chairman of the Board. From September 1,
1994 until October 31, 1994, he served as the Company's Vice President--
Research and Development. He holds a B.S. degree from the University of
Illinois and an M.B.A. and an M.A. in Chinese Art History, both from the
University of Chicago.
Riz Shakir, joined the Company as Area Vice President--Architecture in June
1994, and currently serves as Executive Vice President--Research and
Development. Prior to joining the Company, he was CEO of ASIC, a company
specializing in building custom enterprise software solutions based on Object
and Distributed Computing technologies. Mr. Shakir holds a B.Sc. degree from
Imperial College of Science and Technology in London.
Joseph J. Skadra, was appointed Vice President--Finance, Chief Financial
Officer and Secretary of the Company on August 24, 1994. He was employed by
Figgie International, Inc. from 1970 to 1994, where he held various operating
and financial positions at the Vice President level. His last position at
Figgie International was Senior Vice President, Finance and Controller. Mr.
Skadra holds a B.S. and a B.A. degree from Case Western Reserve University.
Paul Lavallee, was named as President--Americas in November 1996. Mr.
Lavallee joined the Company in May 1995 as the General Manager, Eastern United
States and became Area Vice President--North America in May 1996. Prior to
joining the Company, he was President of the Eastern Subsidiary of Effective
Management Systems, Inc., a supplier of ERP Systems and Manufacturing
Execution Systems for UNIX and Windows/NT operating systems. Mr. Lavallee was
also a founder of ASE Systems (one of the Company's earliest and largest
Affiliates), an enterprise systems consulting and implementation firm which
was later acquired by the Company. Mr. Lavallee has a B.S. in Accounting from
Roger Williams College and an M.B.A. from Providence College.
Denis Bignold, was appointed to his current position as President--Asia
Pacific in November 1996. Mr. Bignold joined the Company in 1989 to run the
Company's Pacific subsidiary and in 1992 became President, SSA Japan. He
worked as the Global General Manager for BPCS Plant Maintenance Division in
Minnesota from 1993 until late 1994 when he became Vice President of SSA Asia
Pacific. Immediately prior to joining the Company he was the General Manager
of Computer Power, the largest Australian-owned computer company.
30
<PAGE>
Richard Morgan-Evans, has been President--Europe, Middle East and Africa
since November 1996. Mr. Morgan-Evans joined the Company in 1987 as a Sales
Director and was also a founder/director of SSA Europe. In 1988, he was named
SSA Europe's general manager and in October 1994 was appointed Vice President,
SSA Europe. Prior to joining the Company, he spent 12 years at IBM in Europe.
Andrew J. Filipowski, has been a Director of the Company since July 1996.
Mr. Filipowski has been President and Chief Executive Officer of PLATINUM
technology, inc., a provider of enterprise infrastructure software products,
since that company's founding in April 1987. Mr. Filipowski was a founder of
DBMS, Inc., a software products and services company and served as its
Chairman, President and Chief Executive Officer from 1979 until March 1987.
John W. Puth, has been a Director of the Company since his appointment in
April 1988. Since December 1987, Mr. Puth has served as President of J. W.
Puth Associates, an industrial consulting firm. From January 1983 through
December 1987, Mr. Puth was Chairman and President of Clevite Industries,
Inc., a manufacturer of industrial products. From October 1975 until January
1983, Mr. Puth was President and Chief Executive Officer of Vapor Corporation.
Mr. Puth is a director of Allied Products Corporation, Brockway, Standard
Holdings Corporation, A.M. Castle & Co., L.B. Foster Company, Lindberg
Corporation and USFreightways Corporation, as well as several privately-held
corporations. He holds a B.S. degree from Lehigh University.
William N. Weaver, Jr., has been a Director of the Company since December
1986 and its Assistant Secretary since March 1985. Mr. Weaver is a member of
the law firm of Sachnoff & Weaver, Ltd., an Illinois professional corporation,
which is counsel to the Company. Mr. Weaver has practiced law in the State of
Illinois since 1964 and serves as a director of USFreightways Corporation, as
well as several privately-held corporations. He holds an A.B. degree from
Oberlin College and a J.D. from John Marshall Law School.
The terms of the Private Offering provide that the size of the Company's
Board of Directors shall be increased from the current four members to seven
members, with two of the new directors to be selected by the Private Investors
in their sole discretion, and a third new, independent director to be
designated by the Company, subject to the approval of the Private Investors.
In addition, the Company has agreed to recruit and hire a new Chief Operating
Officer/President. See "Description of the Private Offering--Warrants--Control
Rights."
31
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued pursuant to an indenture (the "Indenture") to be
dated as of August , 1997 between the Company and Harris Trust & Savings
Bank, as trustee (the "Trustee"). The terms of the Notes will include those
stated in the Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act of 1939, as in effect on the date of the Indenture
(the "Trust Indenture Act"). The Notes will be subject to all such terms, and
prospective investors are referred to the Indenture and the Trust Indenture
Act for a statement of such terms.
The statements under this section relating to the Notes and the Indenture
are summaries of certain terms applicable to the Notes and the Indenture, and
do not purport to be complete and are qualified in their entirety by express
reference to the Indenture, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. Capitalized terms used herein and not otherwise defined shall
have the meanings specified in the Indenture. As used in this section, the
term "Company" refers only to System Software Associates, Inc., and not to any
of its subsidiaries.
GENERAL
The Notes will be general unsecured obligations of the Company, subordinate
in right of payment to certain other obligations of the Company, and
convertible into Common Stock of the Company as described below under the
heading "--Conversion of Notes." The Notes will be limited to $90,000,000
aggregate principal amount ($103,500,000 aggregate principal amount if the
Underwriters' over-allotment option is exercised in full). The Notes will bear
interest from the date of initial issuance, at the rate per annum shown on the
cover page of this Prospectus, payable semiannually on February 15 and August
15 of each year to Holders of record at the close of business on February 1
and August 1 next preceding each such interest payment date, unless redeemed,
repurchased or converted earlier pursuant to the terms of the Indenture. The
first interest payment date will be February 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Principal of,
and premium, if any, and interest on the Notes will be payable at the office
of the paying agent, which will initially be the Trustee. Interest payments
will be mailed to each Holder's registered address. The Notes will mature on
August 1, 2002.
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. Notes may be presented
for conversion, exchange or registration of transfer at the office or agency
maintained by the Company, which shall initially be the corporate trust office
of the Trustee. No service charge is payable for any registration of transfer
or exchange of Notes; provided, however, the Company may require payment by a
Holder of a sum sufficient to cover any tax, assessment or other governmental
charge payable in connection with any such transfer or exchange.
Prior to this Offering, there has been no public trading market for the
Notes. Although the Company intends to apply to list the Notes on the Nasdaq
National Market, there can be no assurance that an active public market for
the Notes will develop or, if a public market develops, that the market price
will exceed the public offering price set forth on the cover page of this
Prospectus. If an active public trading market for the Notes does not develop,
the market prices and liquidity of the Notes may be adversely affected.
Because the Notes are convertible into Common Stock, the prices at which the
Notes trade in the market will likely be affected by the market price of the
Company's Common Stock.
CONVERSION OF NOTES
The Holder of any Note will have the right, exercisable at any time, subject
to prior redemption or repurchase, to convert the principal amount of such
Note (or any portion thereof
that is an integral multiple of $1,000) into shares of Common Stock of the
Company at the conversion price set forth on the cover page of this
Prospectus, subject to adjustment as described below (the "Conversion Price").
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<PAGE>
The right to convert a Note called for redemption will terminate at the
close of business on the fifth Business Day preceding the redemption date for
such Note (unless the Company shall default in making the redemption payment
when due). A Note for which a Holder has exercised the option of such Holder
to require the Company to purchase the Note upon a Change in Control (as
defined herein) may be converted only if such Holder's repurchase notice is
withdrawn by a written notice of withdrawal delivered to the paying agent
prior to the close of business on the repurchase date in accordance with the
terms of the Indenture.
Except as provided below, upon conversion, no payment or adjustment will be
made for accrued interest on a converted Note or for dividends or
distributions on shares of Common Stock issued upon conversion of a Note. If
any Holder surrenders a Note for conversion between the record date for the
payment of an installment of interest and the Business Day next preceding the
following interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date will be paid to the registered
Holder of such Note on such record date. In such event, such Note, when
surrendered for conversion, must be accompanied by delivery of a check or
draft payable in an amount equal to the interest payable on such interest
payment date on the principal amount of the Note so converted. If a Note or
portion thereof is called for redemption and the Holder elects to convert such
Note after it has been called for redemption, the Holder will be entitled to
receive interest on such Note for the period from the last interest payment
date to the date of conversion. No fractional shares will be issued upon
conversion of Notes. The Company will pay an amount of cash based on the
market price of the Common Stock on the trading day prior to the date of
conversion for any such fractional share interest.
The initial Conversion Price is subject to adjustment (under formulae set
forth in the Indenture) upon the occurrence of certain events, including: (i)
the issuance of shares of Common Stock as a dividend or distribution on the
Common Stock; (ii) the issuance to all holders of Common Stock of rights or
warrants to subscribe for or purchase Common Stock (or securities convertible
into Common Stock) at a price per share less than the then Current Market
Price per share (as defined in the Indenture); (iii) the subdivision or
combination of the outstanding Common Stock; (iv) the distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock), evidences of indebtedness or other assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above and dividends and distributions paid exclusively in cash);
(v) dividends or other distributions consisting exclusively of cash (excluding
any cash portion of distributions referred to in clause (iv)) to all holders
of Common Stock to the extent that such distributions, combined together with
(A) all other such all-cash distributions made within the preceding 12 months
in respect of which no adjustment has been made plus (B) any cash and the fair
market value of other consideration payable in respect of any tender offers by
the Company for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then Current Market Price of
the Common Stock times the number of shares of Common Stock then outstanding)
on the record date for such distribution; (vi) the purchase of Common Stock
pursuant to a tender offer made by the Company or any of its subsidiaries to
the extent that the same involves an aggregate consideration that, together
with (X) any cash and the fair market value of any other consideration payable
in any other tender offer by the Company or any of its subsidiaries for Common
Stock expiring within 12 months preceding such tender offer in respect of
which no adjustment has been made plus (Y) the aggregate amount of any such
all-cash distributions referred to in clause (v) above to all holders of
Common Stock within the 12 months preceding the expiration of such tender
offer in respect of which no adjustments have been made, exceeds 10% of the
Company's market capitalization on the expiration of such tender offer; and
(vii) payment in respect of a tender offer or exchange offer by a person other
than the Company or any subsidiary and in which, as of the closing date of the
offer, the Board of Directors is not recommending rejection of the offer. The
adjustment referred to in clause (vii) above will only be made if (i) the
tender offer or exchange offer is for an amount which increases that person's
ownership of Common Stock to more than 20% of the total shares of Common Stock
outstanding
33
<PAGE>
and (ii) the cash and value of any other consideration included in such
payment per share of Common
Stock exceeds the Current Market Price per share of Common Stock on the
business day next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer. The adjustment referred to
in clause (vii) above will not be made, however, if, as of the closing of the
offer, the offering documents with respect to such offer disclose a plan or an
intention to cause the Company to engage in a consolidation or merger of the
Company or a sale of the Company's assets, as an entirety or substantially as
an entirety.
In the event of a distribution which would trigger an adjustment referred to
in clauses (iv) or (v) where the consideration so distributed applicable to
one share of Common Stock is equal to or greater than the Current Market Price
of the Common Stock on the applicable record date, the Company may, instead of
making any adjustment in the Conversion Price, make proper provision so that
each Holder of a Note who converts such Note (or any portion thereof) after
the record date for such distribution and prior to the expiration or
redemption of such rights shall be entitled to receive upon such conversion,
in addition to the shares of Common Stock issuable upon conversion, the
appropriate amount of such consideration. No adjustment of the Conversion
Price will be made until cumulative adjustments to the Conversion Price as
last adjusted amount to 1% or more.
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance assuming that a holder
of Notes would not have exercised any rights of election as to the stock,
other securities or other property or assets receivable in connection
therewith.
The Company from time to time may, to the extent permitted by law, reduce
the Conversion Price of the Notes by any amount for any period of at least 30
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
REDEMPTION OF NOTES AT THE OPTION OF THE COMPANY
The Notes may not be redeemed at the Company's option prior to August 1,
2000. Thereafter, the Notes may be redeemed at the option of the Company, in
whole or in part, at any time and from time to time, at the redemption prices
(expressed in percentages of principal amount) set forth below, together with
accrued interest to, but excluding, the date fixed for redemption.
If redeemed during the twelve-month period beginning August 1,
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000...........................................................
2001 and thereafter............................................
</TABLE>
34
<PAGE>
Notice of redemption will be mailed at least 15, but not more than 60, days
prior to the redemption date to each Holder of Notes to be redeemed at such
Holder's registered address. Interest shall cease to accrue on Notes or
portions thereof called for redemption on and after the redemption date.
If fewer than all the Notes are to be redeemed, the Trustee will select
Notes (in principal amounts of $1,000 or integral multiples thereof) for
redemption by lot or by a method the Trustee considers fair and appropriate;
provided that such method is not prohibited by any stock exchange or market on
which the Notes are then listed. If any Note is to be redeemed in part only, a
new Note or Notes in principal amount equal to the unredeemed principal
portion thereof will be issued.
REDEMPTION OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL
In the event of a Change in Control, each Holder will have the option,
subject to the terms and conditions of the Indenture, to require the Company
to purchase all or any part (provided that the principal amount must be $1,000
or an integral multiple thereof) of the Holder's Notes, on the date (the
"Repurchase Date") that is 30 days after the date the Company or the Trustee
gives Holders of Notes notice (the "Company Notice") of the occurrence of the
Change in Control, for a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to, but excluding, the Repurchase
Date.
The Company covenants that, prior to the making of the notice to Holders
provided for below, but in any event within 30 days following any Change in
Control, the Company shall (i) repay in full all indebtedness under the
Company's New Credit Facility or offer to repay in full all such indebtedness
and to repay the indebtedness of each lender that has accepted such offer or
(ii) obtain the requisite consent under the Company's New Credit Facility to
permit the repurchase of the Notes pursuant to this covenant. The Company
shall first comply with the covenant in the preceding sentence before it shall
be required to repurchase the Notes pursuant to this covenant. The Company
also covenants not to make any payment to the holders of the Junior Notes or
Warrants arising due to a Change in Control until expiration of the period of
time in which a Holder may exercise its repurchase rights. Within 10 days
after any Change in Control requiring the Company to deliver the notice to
Holders provided for below, the Company shall so notify the Trustee and the
lenders under the Company's New Credit Facility.
On or before the 15th day after the occurrence of the Change in Control, the
Company or, at the written request of the Company on or before the 10th day
after receipt of such request, the Trustee, shall mail or cause to be mailed
to each Holder the Company Notice, setting forth, among other things, the
terms and conditions of, and the procedures required for exercise of, the
Holder's right to require the purchase of such Holder's Notes. To exercise the
repurchase right, a Holder must deliver written notice of such exercise to the
Trustee on or before the 30th day after the date of the Company Notice,
specifying the Notes with respect to which the right of repurchase is being
exercised. Such notice of exercise may be withdrawn by the Holder by a written
notice of withdrawal delivered to the paying agent at any time prior to the
close of business on the Repurchase Date.
A "Change in Control" shall be deemed to have occurred at such time after
the original issuance of the Notes as
(a) any Person (other than the Company, any subsidiary of the Company, or
any entity Controlled (as defined herein) by the foregoing, any current
officer of the Company, or any employee benefit plan of the Company or any
such subsidiary) is or becomes the beneficial owner, directly or
indirectly, through a purchase or other acquisition transaction or series
of transactions (other than a merger or consolidation involving the
Company), of shares of capital stock of the Company entitling such Person
to exercise in excess of 35% of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the election of
directors;
35
<PAGE>
(b) there occurs any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of the assets of the Company as, or
substantially as, an entirety to another Person (other than (i) any such
transaction pursuant to which the holders of the Common Stock immediately
prior to such transaction have, directly or indirectly, shares of capital
stock of the continuing or surviving corporation immediately after such
transaction which entitle such holders to exercise in excess of 50% of the
total voting power of all shares of capital stock of the continuing or
surviving corporation entitled to vote generally in the election of
directors and (ii) any merger (1) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or (2) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of common stock and separate series of common
stock carrying substantially the same relative rights as the Common Stock);
or
(c) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the two-year period immediately preceding such change
(together with (i) any other director whose election by the Board of
Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of at least a majority
of the directors then in office either who were directors at the beginning
of such period or whose election or nomination for election was previously
so approved and (ii) the two directors designated from time to time to
serve on the Board of Directors by the Private Investors) cease for any
reason to constitute a majority of the directors then in office.
The Holders' redemption right upon the occurrence of a Change in Control
could, in certain circumstances, make more difficult or discourage a potential
takeover of the Company, and, thus, removal of incumbent management. See "Risk
Factors--Anti-Takeover Considerations." The Change in Control redemption
right, however, is not the result of management's knowledge of any specific
effort to accumulate shares of Common Stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise.
Instead, the Change in Control purchase feature is a standard term contained
in other similar debt offerings and the terms of such feature have resulted
from negotiations between the Company and the Underwriters.
The Indenture does not permit the Company's Board of Directors to waive the
Company's obligation to purchase Notes at the option of a Holder in the event
of a Change in Control. The Company could, however, in the future, enter into
certain transactions, including highly leveraged recapitalizations, that would
not constitute a Change in Control and would, therefore, not provide the
Holders with the protection of requiring the Company to repurchase the Notes.
The holders of Junior Notes and Warrants will be subordinate in right of
payment to the holders of the Notes upon a Change in Control under the
Indenture or the Purchase Agreement. The right to require the Company to
repurchase Notes as a result of the occurrence of a Change in Control,
however, could create an event of default under then existing Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
a waiver or prior payment in full of the Senior Indebtedness, be blocked by
the subordination provisions of the Notes. See "--Subordination of Notes."
Failure by the Company to repurchase the Notes when required will result in an
Event of Default with respect to the Notes whether or not such repurchase is
prohibited by the subordination provisions described below.
SUBORDINATION OF NOTES
The Notes will be subordinate and junior in right of payment to the extent
set forth in the Indenture to all existing and future Senior Indebtedness of
the Company, whether outstanding on the date of the Indenture or thereafter
incurred. Upon (i) any payments or distribution of assets of the Company in
any dissolution, winding-up, liquidation or reorganization of the Company
(whether in an insolvency or
36
<PAGE>
bankruptcy proceeding or otherwise) or (ii) the acceleration of the Notes
because of an Event of Default (which acceleration has not been rescinded in
accordance with the terms of the Indenture), all amounts due or to become due
upon all Senior Indebtedness or to the Trustee shall first be paid in full
before any payment is made on or in respect of the Notes.
Upon the occurrence of an Event of Default with respect to the failure to
pay any principal of, premium, if any, or interest on any Senior Indebtedness
when due (whether upon stated maturity, acceleration or otherwise), no payment
or distribution shall be made to the Trustee or any Holder of Notes in respect
of the Notes unless and until such default shall have been cured or waived or
shall have ceased to exist. Upon the occurrence of a non-payment Event of
Default with respect to certain Designated Senior Indebtedness that permits
the holders of such Designated Senior Indebtedness to accelerate its maturity,
and following receipt by the Trustee of a written notice of default (a
"Payment Blockage Notice") from a representative of the holders of such
Designated Senior Indebtedness or the Company, no payment or distribution may
be made to the Trustee or any Holder of Notes in respect of the Notes for a
period of up to 179 days from the date of such Payment Blockage Notice if the
maturity of such Designated Senior Indebtedness has not been accelerated,
unless and until such default shall be cured or waived or shall have ceased to
exist.
The subordination provisions described herein will not prevent the
occurrence of any Event of Default (as defined in the Indenture). As a result
of these subordination provisions, in the event of the insolvency of the
Company, Holders of the Notes may recover less ratably than general creditors
of the Company.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on or in connection
with, and all fees, costs, expenses and other amounts accrued or due on or in
connection with, Indebtedness (as defined below) of the Company, whether
outstanding on the date of this Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption
or guarantee thereof expressly provides that such Indebtedness shall not be
senior in right of payment to the Notes or expressly provides that such
Indebtedness is pari passu with or "junior" to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any subsidiary of the Company or amounts payable with respect
to the Junior Notes, the Warrants or the New Preferred Stock. "Indebtedness"
means (a) the principal of and premium, if any, and interest on, and fees,
costs, enforcement expenses and other reimbursement or indemnity obligations
in respect of, all indebtedness or obligations of the Company for money
borrowed (including purchase money obligations with original maturities in
excess of one year), (b) all reimbursement obligations and other liabilities
(contingent or otherwise) of the Company with respect to letters of credit,
bank guarantees or bankers' acceptances, (c) all obligations and liabilities
(contingent or otherwise) in respect of capitalized lease obligations of the
Company or obligations under any lease or related document in which the
Company is obligated to purchase leased property, (d) all obligations of the
Company (contingent or otherwise) with respect to an interest rate or other
swap, cap or collar agreement or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by the Company in
respect of indebtedness, obligations or liabilities of another Person of the
kind described in clauses (a) through (d), (f) any indebtedness or other
obligations described in clauses (a) through (d) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held
by the Company and (g) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any
indebtedness, obligation or liability of the kind described in clauses (a)
through (f).
37
<PAGE>
The principal amount of Senior Indebtedness outstanding at July 31, 1997 was
approximately $86.0 million. Upon completion of the Recapitalization, of which
this Offering forms a part, it is estimated that the principal amount of
Senior Indebtedness outstanding will be approximately $2.1 million (assuming
the Existing Subordinated Debt is repaid or converted following the
Recapitalization). See "Use of Proceeds." In addition, the Company may incur
up to approximately $30.0 million of additional Senior Indebtedness under the
New Credit Facility. The Indenture will not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company can create,
incur, assume or guarantee, nor will the Indenture limit the amount of
indebtedness which any Subsidiary can incur.
MERGER AND CONSOLIDATION
The Company may consolidate with or merge with or into any other
corporation, and the Company may transfer its property and assets
substantially as an entirety to any person, provided: (i) either the Company
is the resulting or surviving corporation, or the successor corporation is a
domestic corporation and the successor expressly assumes, by supplemental
indenture executed and delivered to the Trustee, payment of the principal of,
premium, if any, and interest on the Notes and performance and observance of
every obligation of the Company under the Indenture, and (ii) immediately
before and immediately after giving effect to such transaction, no default or
Event of Default shall have occurred and be continuing.
COVENANTS
The Indenture will contain limited covenants restricting the activities of
the Company. See "Risk Factors--Payment of Junior Notes Prior to Notes Under
Certain Circumstances; Terms Favorable to Holders of Junior Notes and
Warrants." The Indenture will provide that the Company shall not adopt any
plan of liquidation which provides for, contemplates or the effectuation of
which is preceded by, (i) the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company otherwise than
substantially as an entirety and (ii) the distribution of all or substantially
all the proceeds of such sale, lease, conveyance or other disposition and of
the remaining assets of the Company, unless the Company makes provisions for
satisfaction of the Company's obligation to pay principal and interest on the
Notes.
The Indenture will also provide that, without the consent of at least a
majority in principal amount of the Notes then outstanding, the Company shall
not amend, modify or alter the terms of the Junior Notes, the Warrants or the
New Preferred Stock in any way that will (i) increase the amount of cash
interest payable on any Junior Notes or advance the dates on which such cash
interest is payable, (ii) advance the final maturity date of any Junior Notes
to a date prior to the maturity date of the Notes, or (iii) otherwise be
materially adverse to the interests of the Holders of the Notes as holders of
debt securities of the Company. The Indenture will also prohibit the optional
prepayment of the Junior Notes by the Company prior to the maturity of the
Notes unless (i) such payments are made by the Company with the proceeds from
the issuance of (y) Indebtedness having a lower effective interest rate than
the Junior Notes and a maturity date not earlier than the maturity date of the
Notes or (z) equity capital and (ii) the average trading price of the Common
Stock during the 60 trading days immediately preceding the second business day
prior to the date of the repurchase is at least 130% of the Conversion Price.
The Indenture will also prohibit the Company from exercising its right to
repurchase the Preferred Stock Warrant and Control Rights (each as defined
herein) for so long as any Notes are outstanding.
EVENTS OF DEFAULT; NOTICE AND WAIVER
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of
38
<PAGE>
the Notes then outstanding may declare all unpaid principal of and accrued
interest to the date of acceleration on the Notes then outstanding to be due
and payable immediately; except that in the case of an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization, all
unpaid principal of and accrued interest on the Notes then outstanding shall
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of Notes. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power conferred
on it.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding may on behalf of the Holders of all Notes waive any past Default
or Event of Default and its consequences (except a Default or an Event of
Default in the payment of principal or interest on the Notes or arising with
respect to the conversion rights of the Holders).
The term "Event of Default" when used in the Indenture will mean any one of
the following: (i) failure of the Company to pay interest for 30 days or
principal or premium, if any, when due; (ii) failure of the Company to comply
with any of its other agreements contained in the Notes or the Indenture for
30 days after notice, other than the failure of the Company to comply with (x)
the restrictions on liquidation, consolidation, merger or transfer of all or
substantially all of its assets, (y) the restrictions on modifying the terms
of the Junior Notes, Warrants or New Preferred Stock without the consent of
the requisite Holders, prepaying the Junior Notes or repurchasing the
Preferred Stock Warrant and Control Rights, or (z) the provisions regarding
the conversion of the Notes, each of which shall constitute a default upon
such notice without the passage of time; (iii) default by the Company or any
Significant Subsidiary with respect to its obligation to pay principal of or
interest on Indebtedness aggregating more than $10.0 million, or the
acceleration of such Indebtedness of the Company under the terms of the
instruments evidencing such Indebtedness, which has not been withdrawn within
10 days from the date of such default; (iv) the entry by a court of competent
jurisdiction of a judgment, order or decree against the Company or any
Significant Subsidiary in an aggregate amount (excluding amounts covered by
insurance) in excess of $1,000,000, which judgment, order or decree remains
undischarged, unstayed and unsatisfied for a period of 60 consecutive days;
and (v) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary.
The Indenture will provide that the Trustee shall, within 90 days after the
Trustee has knowledge of the occurrence of any default (the term "default" to
include the events specified above without grace or notice) known to it, give
to the Holders of Notes notice of such default, unless such default shall have
been cured or waived before the giving of such notice; provided that, the
Trustee may withhold from Holders notice of a default or an Event of Default
(except a default or an Event of Default in the payment of principal, premium,
if any, or interest) if the Trustee determines in good faith that the
withholding of such notice is in the interest of the Holders of the Notes.
The Indenture will provide that no Holder of a Note may pursue any remedy
under the Indenture against the Company (except actions for payment of overdue
principal, premium, if any, or interest or for the conversion of the Notes),
unless (i) the Holder gives to the Trustee written notice of a continuing
Event of Default, (ii) the Holders of at least 25% in principal amount of the
outstanding Notes make a written request to the Trustee to pursue the remedy,
(iii) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense, (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity, and (v) the Trustee shall not have received a contrary
direction from the Holders of a majority in principal amount of the
outstanding Notes.
The Indenture will provide that the Company shall deliver to the Trustee
within 90 days after the end of each fiscal year of the Company, an Officer's
Certificate as to the signer's knowledge of the Company's compliance with all
conditions and covenants on its part contained in the Indenture and stating
whether or not the signer knows of any default or Event of Default. If such
signer knows of such a default or Event of Default, such certificate shall
describe the default or Event of Default and the efforts to remedy the same.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and canceled upon payment or conversion of
all the Notes outstanding. At any time when all the Notes shall have become
due and payable, or are by their terms to become due and payable within one
year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, the
Company may terminate all of its obligations under the Indenture, other than
its obligation to pay the principal, premium, if any, and interest on the
Notes and certain other obligations (including its obligation to deliver
shares of Common Stock upon conversion of any Notes), by depositing with the
Trustee monies sufficient to pay at maturity or upon redemption all the
principal, premium, if any, and interest due on the Notes on such date of
maturity or redemption, and all other sums payable by the Company under the
Indenture.
AMENDMENT AND WAIVER
Subject to the exceptions described below, the Company and the Trustee may
supplement the Indenture or the Notes with the consent of the Holders of a
majority in principal amount of the outstanding Notes. The Holders of a
majority in principal amount of the Notes then outstanding may (a) waive
compliance in a particular instance by the Company with any provision of the
Indenture or the Notes or (b) waive any past default or Event of Default under
the Indenture and its consequences, except (i) a default in the payment of
interest or premium, if any, on, or the principal of, the Notes, (ii) a
failure by the Company to convert any Notes into Common Stock, (iii) a default
in the payment of redemption or repurchase price or (iv) a default in respect
of a covenant or provisions which require the consent of the Holders of all
Notes then outstanding. See "--Events of Default; Notice and Waiver."
Notwithstanding the foregoing, without the consent of the Holder of each Note
affected thereby, the Company and the Trustee may not supplement the Indenture
or the Notes to (i) extend the fixed maturity of any Note, or reduce the rate
or extend the time of payment of interest thereon, or reduce the principal
amount thereof or premium, if any, thereon, or reduce any amount payable on
redemption thereof, or impair the right of any Holder of a Note to institute
suit for the payment thereof, or make the principal thereof or interest or
premium, if any, thereon payable in any coin or currency other than that
provided in the Notes, or modify the provisions of the Indenture with respect
to the subordination of the Notes in a manner adverse to the Holders of the
Notes in any material respect, or change the obligation of the Company to
repurchase any Note upon the occurrence of a Change in Control in a manner
adverse to the Holder of Notes, or impair the right to convert the Notes into
Common Stock in any material respect, or (ii) reduce the percentage of Notes
required to consent to any supplemental indenture.
CONCERNING THE TRUSTEE
Harris Trust & Savings Bank will be the Trustee under the Indenture.
The Indenture will contain certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; provided, however, if it acquires any conflicting
interest (as defined in the Indenture) and there exists a default with respect
to the Notes, it must eliminate such conflict or resign.
The Holders of a majority in principal amount of all outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy or power available to the Trustee,
provided that such direction does not conflict with any rule of law or with
the Indenture. The Indenture provides that in case an Event of Default shall
occur and be continuing, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any of the Holders of Notes, unless such Holders shall have offered to the
Trustee indemnity satisfactory to the Trustee against any loss, liability,
expense or fee.
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DESCRIPTION OF THE PRIVATE OFFERING
The Junior Notes and the Warrants will be issued pursuant to a Securities
Purchase Agreement (the "Purchase Agreement") between the Company and the
Private Investors. The statements under this section are summaries of certain
terms applicable to the Junior Notes and the Warrants, and do not purport to
be complete and are qualified in their entirety by express reference to the
Purchase Agreement, including the exhibits thereto, a copy of which is filed
as an exhibit to the Registration Statement of which this Prospectus is a
part. Capitalized terms used herein shall have the same meanings specified in
the Purchase Agreement.
JUNIOR NOTES
General
The Junior Notes and the Warrants are being sold as units in the Private
Offering that is expected to close concurrently with this Offering. The
closing of the Private Offering is contingent on the satisfaction of a number
of conditions, including, satisfactory completion of due diligence, the
negotiation of definitive agreements, the completion of the offering of the
Notes offered hereby, the entry into the New Credit Facility, the entry into a
new employment agreement with Roger E. Covey, Chairman and Chief Executive
Officer of the Company, on terms mutually acceptable to the Private Investors
and Mr. Covey and other customary closing conditions. The Junior Notes will be
general unsecured obligations of the Company, subordinate in right of payment
to the Notes and the New Credit Facility and certain other obligations of the
Company. The Junior Notes will be in the aggregate principal amount of $48.4
million and will bear interest at a rate of 12% per annum for the first four
years following the closing date, 14% per annum for the fifth year, and
thereafter at a rate of 16% per annum, in each case computed on the basis of a
360-day year. Interest on the Junior Notes will increase by 4% per annum upon
the occurrence and during the continuance of any payment or other material
default. Interest is payable quarterly in arrears in cash, except that at the
Company's option, in certain circumstances, the Company may pay interest in
the form of additional Junior Notes, of up to 6% per annum in years 1 through
4, up to 3.5% per annum in year 5 and zero thereafter. The Junior Notes will
mature on August 1, 2003, and will not be prepayable at the option of the
Company until the first anniversary of the closing date.
Prepayment of the Junior Notes
After the first anniversary of the closing date, the Junior Notes may be
prepaid at the Company's election upon payment of a premium equal to 12% of
the principal amount repaid in the second year, 10% of the principal amount
repaid in the third year, and 6% of the principal amount repaid thereafter, as
long as (i) the Junior Notes are repaid with the proceeds from the issuance of
(y) debt having a lower effective interest rate than the Junior Notes and a
maturity date not earlier than the maturity date of the Notes or (z) equity
securities and (ii) the average trading price of the Common Stock during the
60 trading days immediately preceding the second business day prior to the
date of repurchase is at least 130% of the Conversion Price.
Junior Notes Covenants
The Junior Notes will require the Company to comply with various covenants,
including, without limitation, certain financial covenants based on
achievement of specified levels of EBITDA on a rolling four-quarter basis and
revenues on a rolling twelve-month basis, and restrictions on mergers,
consolidations, sales of assets, liens, transactions with affiliates, engaging
in new lines of business, payment of dividends and redemption and prepayment
of debt (other than the Notes and other Senior Indebtedness) and limitations
on the issuance of additional debt ranking pari passu or senior to the Junior
Notes (other than the Notes and a specified aggregate maximum amount under the
New Credit Facility together with other Senior Indebtedness).
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<PAGE>
Junior Notes Events of Default
Events of default under the Junior Notes include, without limitation,
payment defaults, covenant defaults, cross defaults to acceleration of other
significant indebtedness, bankruptcy and a Change in Control.
Restrictions on Mr. Covey's Shares
The Stockholders Agreement to be entered into among the Company, the Private
Investors and Mr. Covey in connection with the Private Offering (the
"Stockholders Agreement") contains certain restrictions on the voting rights
and transferability of shares of Common Stock held by Mr. Covey. Upon and
during the continuation of either (i) the breach of any financial covenant or
any other material event of default under the Junior Notes, or (ii) the
failure of the Company to recruit a new Chief Operating Officer/President
mutually acceptable to the Company and the Private Investors, Mr. Covey will
be required to vote his shares as directed by the Private Investors. The
Junior Notes also provide that Mr. Covey will grant a right of first refusal
to the Private Investors, subject to certain de minimis exceptions, with
respect to any transfer by him of equity securities of the Company (other than
certain specified transfers to charitable organizations and his children). Mr.
Covey will also permit the Private Investors to participate on a pro rata
basis in the sale by him of equity securities of the Company, and the Private
Investors will permit Mr. Covey to participate in any public or private sale
of equity securities of the Company by them (in each case subject to certain
exceptions).
WARRANTS
The Company will issue to the Private Investors Warrants that are
exercisable for either (i) Common Stock representing 19.9% of the Common Stock
outstanding on the closing date for the Private Offering (the "Common Stock
Warrants"), or (ii) the Company's Series A Preferred Stock, par value $0.01
per share (the "New Preferred Stock") (the "Preferred Stock Warrants", and
together with the Common Stock Warrants, the "Warrants"), having an aggregate
liquidation preference of up to $137.5 million. The Common Stock Warrants will
no longer be exercisable upon the exercise or purchase of the Preferred Stock
Warrants and the Control Rights, and the Preferred Stock Warrants will no
longer be exercisable upon the exercise of the Common Stock Warrants. The
following discussion of the terms and provisions of the Warrants is qualified
in its entirety by reference to the Purchase Agreement and the Warrants.
Common Stock Warrants
Each holder of a Common Stock Warrant is entitled to purchase shares of
Common Stock at an exercise price equal to the lowest of (i) $7.07, which is
85% of the average closing price of the Common Stock for the 30 trading days
ending on the trading day immediately preceding July 14, 1997, which average
is $8.32, (ii) 85% of the average closing price of the Common Stock for the 30
trading days ending on the trading day immediately preceding the date of
issuance of the Junior Notes, or (iii) 85% of the average closing price of the
Common Stock for the 30 trading days immediately following the date of
issuance of the Common Stock Warrants. The Common Stock Warrants are
exercisable at any time until the earliest of (x) ten years from the date of
the closing of the Private Offering, (y) the date of the exercise of the
Preferred Stock Warrant or the Control Rights (as defined below) or (z) the
date of the repurchase of the Preferred Stock Warrants and the Control Rights
by the Company following notice of exercise by the holders. The Warrants are,
upon issuance, immediately transferable separately from the Junior Notes. The
Common Stock Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price and the number of shares
subject to such Common Stock Warrants in certain events, such as the issuance
or sale of equity securities at a price lower than the per share exercise
price of the Common Stock Warrants, stock and cash dividends, stock splits,
mergers, a sale of all or substantially all of the Company's assets at less
than market values, and other customary anti-dilution events (including,
without limitation, the issuance of shares upon conversion of the Existing
Subordinated
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<PAGE>
Debt). Other than as discussed below, the holders of the Warrants will not
have any rights as a stockholder of the Company unless and until such holder
exercises the Warrants.
Preferred Stock Warrants
The Preferred Stock Warrants are exercisable upon not less than thirty (30)
days' prior written notice to the Company on or after September 1, 2003 or
upon not less than three days' prior written notice to the Company upon the
earlier event of any liquidation, Change in Control or bankruptcy of the
Company, and will expire ten years from the date of closing of the Private
Offering or the earlier exercise of the Common Stock Warrants.
The New Preferred Stock issuable upon exercise of the Preferred Stock
Warrants will have an aggregate liquidation preference equal to $137.5 million
and will accrue aggregate cumulative dividends at a per annum rate equal to
21% of such liquidation preference. These dividends will be payable in cash,
although the Company may, at its option, pay up to 14% of the liquidation
preference in additional shares of New Preferred Stock. The aggregate exercise
price for the Preferred Stock Warrants will be $20.0 million. The Private
Investors will have the option to elect a "net exercise" pursuant to which
they would receive New Preferred Stock having an aggregate liquidation
preference equal to $117.5 million and would make no cash payment. The Company
will have the right to repurchase the Preferred Stock Warrant and the Control
Rights from the Private Investors at any time for $117.5 million, but if the
Company has received notice of the holder's intent to exercise the Preferred
Stock Warrant or the Control Rights, the Company shall exercise its right to
repurchase the Preferred Stock Warrant and the Control Rights prior to the
proposed date of exercise specified in such notice. The Company's repurchase
of the Preferred Stock Warrants and the Control Rights will not be permitted
by the terms of the Notes so long as the Notes remain outstanding.
Control Rights
The Private Investors will be entitled to designate two directors in their
sole discretion and the Company will designate a third, new independent
director, subject to the approval of the Private Investors. The number of
directors of the Company will be fixed at seven. At any time after the earlier
of September 30, 2003 or the occurrence of certain triggering events
(including liquidation, Change in Control or bankruptcy), holders of the
Warrants will have the right (upon at least thirty (30) days' prior written
notice to the Company, or upon at least three days' prior written notice to
the Company in the event of any liquidation, Change in Control or bankruptcy
of the Company) to elect a majority of the Board of Directors (the "Control
Rights"). The Control Rights lapse on the earliest of (i) ten years from the
date of the closing of the Private Offering, (ii) the exercise of the Common
Stock Warrant or (iii) the repurchase of the Preferred Stock Warrant and the
Control Rights by the Company. Directors elected upon exercise of the Control
Rights will not vote on repurchase of the Preferred Stock Warrant, subject to
their fiduciary duties.
Common Stock Warrant Veto Rights; Covenants
For so long as the original holders own Common Stock Warrants to purchase
more than 5% of the Company's outstanding Common Stock, the Company may not,
without the prior consent of holders of a majority of the Common Stock
Warrants, take certain actions, including (i) the declaration or payment of
any dividend or redemption of any equity securities; (ii) the incurrence of
any debt, subject to certain exceptions (including the Notes and the New
Credit Facility); (iii) the entry into any merger, consolidation, sale,
assignment or lease of any material portion of its assets; (iv) the purchase
or acquisition of a material portion of the equity or assets of any other
business or entity; (v) the entry into or amendment of any partnership or
joint venture agreement; (vi) any assignment for the benefit of creditors,
bankruptcy or the taking of steps toward dissolution; (vii) any material
change in the nature of the Company's business; or (viii) the creation or
transfer of assets to any subsidiary of the Company.
43
<PAGE>
For so long as the original holders own Common Stock Warrants to purchase
more than 5% of the Company's outstanding Common Stock, on or after the breach
of any financial covenant or other material event of default under the
Purchase Agreement, or the failure of the Company to recruit a new Chief
Operating Officer/President mutually acceptable to the Company and the Private
Investors, the Company may not, without the prior consent of holders of a
majority of the Common Stock Warrants, take certain actions, including without
limitation, (i) expand the size of the board of directors or create or expand
any committee of the board, (ii) elect, appoint or remove certain specified
officers of the Company, or (iii) approve or expand its annual budget and
related business plans.
Registration Rights
Warrant holders will be entitled to two demand registrations covering the
shares of Common Stock and New Preferred Stock issuable upon exercise of the
Warrants and unlimited piggyback registrations, subject to customary cutback
provisions.
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<PAGE>
DESCRIPTION OF COMMON STOCK
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including election of directors, and, except
under certain circumstances, for the voting rights of the Warrants, and as
otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of the preferred stock, the holders of
shares of Common Stock exclusively possess all voting power. The Certificate
of Incorporation does not provide for cumulative voting in the election of
directors, which means that the holders of a majority of the shares entitled
to vote at a meeting at which a quorum is present can elect all of the
directors then standing for election. Subject to any preferential rights of
any outstanding series of preferred stock or the New Preferred Stock, the
holders of Common Stock are entitled to such dividends as may be declared from
time to time by the Board of Directors from funds available therefor, and upon
liquidation are entitled to receive pro rata all assets of the Company
available for distribution to such holders. See "Price Range of Common Stock
and Dividend Policy." The holders of Common Stock have no preemptive rights
and no rights to convert their shares of Common Stock into any other security.
All outstanding shares of Common Stock are fully paid and nonassessable, and
the shares of Common Stock issuable upon conversion of the Notes will be, upon
issuance, fully paid and nonassessable. As of June 30, 1997, 42,646,400 shares
of Common Stock were issued and outstanding and were held by approximately 451
holders of record.
RIGHTS PLAN
On April 26, 1988, the Board of Directors of the Company declared a dividend
distribution of one right (a "Right") for each outstanding share of Common
Stock (collectively, the "Voting Stock") payable to holders of record as of
the close of business on and generally to shares of Common Stock issuable
under the Company's stock option plans. One right will also attach to each
share of Common Stock issued by the Company subsequent to May 5, 1988 and
prior to the Distribution Date (as defined below). Each Right entitles the
registered holder to purchase, after the Distribution Date, from the Company
one share of Common Stock at a price of $47.00 (the "Purchase Price"). The
description and terms of the Rights are set forth in a Rights Agreement, dated
as of May 3, 1988 (the "Rights Agreement"), between the Company and The First
National Bank of Chicago, as Rights Agent (the "Rights Agent"), as amended and
supplemented. The Rights Plan is set forth in full in the Rights Agreement and
the description thereof herein is qualified in its entirety by reference to
such Rights Agreement.
In general, the Rights become exercisable or transferable only upon the
occurrence of certain events related to changes in ownership of the Voting
Stock. Each Right entitles its holder to purchase from the Company one share
of Common Stock, at a purchase price of $47.00 per Share, subject to
adjustment. The Rights will separate from the Voting Stock and become
exercisable or transferable on a distribution date (the "Distribution Date"),
which will occur on the earlier of (i) a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of securities representing 20% or more of the Voting
Stock of the Company or (ii) 10 days following the commencement of (or a
public announcement of an intention to make) a tender or exchange offer that
would result in a person or group of related persons becoming the beneficial
owner of at least 30% of the outstanding Voting Stock. Upon the occurrence of
these or certain other events related to changes in the ownership of the
Voting Stock, each holder of a Right (other than those owned by the Acquiring
Person or persons purchasing from the Acquiring Person) would be entitled to
purchase shares of the Voting Stock, or an acquiring corporation's common
stock, having a market value equal to two times the exercise value of the
Right.
The Rights expire on the earliest of (i) May 3, 1998, (ii) consummation of a
merger transaction with a person or group who acquired Voting Stock pursuant
to transaction approved by a majority of the disinterested members of the
Company's Board of Directors, or (iii) redemption of the Rights. Subject to
certain conditions, the Rights may be redeemed by the Company's Board of
Directors at any time at a price of $0.01 per Right. The Rights are not
currently exercisable and trade together with the shares of Voting Stock
associated therewith.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. This discussion does not
purport to deal with all aspects of federal income taxation that may be
relevant to a particular investor's decision to purchase the Notes, and it is
not intended to be wholly applicable to all categories of investors, some of
which, such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons, may be subject to special rules.
In addition, this discussion is limited to persons that purchase the Notes in
this Offering and hold the Notes as a "capital asset" within the meaning of
Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Notes into shares of Common Stock. However,
cash paid in lieu of a fractional share of Common Stock will likely result in
taxable gain (or loss), which will be capital gain (or loss), to the extent
that the amount of such cash exceeds (or is exceeded by) the portion of the
adjusted basis of the Note allocable to such fractional share. The adjusted
basis of shares of Common Stock received on conversion will equal the adjusted
basis of the Note converted, reduced by the portion of adjusted basis
allocated to any fractional share of Common Stock exchanged for cash. The
holding period of an investor in the Common Stock received on conversion will
include the period during which the converted Notes were held.
The Conversion Price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion of Notes." Section 305 of
the Code and the Treasury Regulations issued thereunder may treat the holders
of the Notes as having received a constructive distribution, resulting in
ordinary income (subject to a possible dividends received deduction in the
case of corporate holders) to the extent of the Company's current earnings and
profits as of the end of the taxable year to which the constructive
distribution relates and/or accumulated earnings and profits, if and to the
extent that certain adjustments in the Conversion Price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable
dividend to holders of Common Stock) increase the proportionate interest of a
holder of Notes in the fully diluted Common Stock, whether or not such holder
ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the Conversion Price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of
outstanding Common Stock in the assets or earnings and profits of the Company,
then such increase in the proportionate interest of the holders of the Common
Stock generally will be treated as a distribution to such holders, taxable as
ordinary income (subject to a possible dividends received deduction in the
case of corporate holders) to the extent of the Company's current earnings and
profits as of the end of the taxable year to which the constructive
distribution relates and/or accumulated earnings and profit.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of Sections 1276 through 1278 of the Code. Under the market
discount rules, if a holder of a Note purchases it at market discount (i.e.,
at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter
46
<PAGE>
recognizes gain upon a disposition or retirement of the Note, then the lesser
of the gain recognized or the portion of the market discount that accrued on a
ratable basis (or, if elected, on a constant interest rate basis) generally
will be treated as ordinary income at the time of the disposition. Moreover,
any market discount on a Note may be taxable to an investor to the extent of
appreciation at the time of certain otherwise non-taxable transactions (e.g.
gifts). Any accrued market discount not previously taken into income prior to
a conversion of a Note, however, is likely to carry over to the Common Stock
received on conversion and be treated as ordinary income upon a subsequent
disposition of such Common Stock to the extent of any gain recognized on such
disposition. In addition, absent an election to include market discount in
income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry
such debt instrument until the holder disposes of the debt instrument in a
taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of those
Notes measured by the difference (if any) between (i) the amount of cash and
the fair market value of any property received (except to the extent that such
cash or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary
income) and (ii) the holder's adjusted tax basis in those Notes (including any
market discount previously included in income by the holder). Each holder of
Common Stock into which the Notes are converted, in general, will recognize
gain or loss upon the sale, exchange, redemption, or other disposition of the
Common Stock measured under rules similar to those described in the preceding
sentence for the Notes. Special rules may apply to redemptions of Common Stock
which may result in different treatment. Any such gain or losses recognized on
the sale, exchange, redemption, repurchase, retirement or other disposition of
a Note or share of a Common Stock should be capital gain or loss (except as
discussed under "--Market Discount" above), and would be long-term capital
gain or loss if the Note or the Common Stock had been held for more than one
year at the time of the sale or exchange. An investor's initial basis in a
Note will be the cash price paid therefor.
BACK-UP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding"
from a reportable payment at a rate of 31% if, among other things, (i) the
holder fails to furnish a social security number or other taxpayer
identification number ("TIN") to the Company certified under penalties of
perjury within a reasonable time after the request therefor; (ii) the IRS
notified the Company that the TIN furnished by the holder is incorrect; (iii)
the IRS notifies the Company that backup withholding should be commenced
because the holder has failed to properly report interest or dividends; or
(iv) when required to do so, the holder fails to certify under penalties of
perjury that such holder is not subject to backup withholding or that the TIN
provided to the Company is correct. Reportable payments include interest
payments, dividend payments and, under certain circumstances, principal
payments on the Notes. A holder who does not provide the Company with its
correct TIN also may be subject to penalties imposed by the IRS. Any amount
withheld from a payment to a holder under the back-up withholding rules is
creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. Back-up withholding will not
apply, however, with respect to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representative,
Alex. Brown & Sons Incorporated, have severally agreed to purchase from the
Company the following respective principal amounts of Notes set forth opposite
their names below at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- -----------
<S> <C>
Alex. Brown & Sons Incorporated............................... $
-----------
Total..................................................... $90,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase the entire principal amount of Notes offered hereby if any such Notes
are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of % of such offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of % of the public offering price of the Notes to certain other
dealers. After the initial offering of the Notes, the offering price and the
other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an
additional $13.5 million aggregate principal amount of Notes at the public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of additional Notes that the Notes
to be purchased by it shown in the above table bears to $90.0 million, and the
Company will be obligated, pursuant to the option, to sell such Notes to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Notes offered hereby. If
purchased, the Underwriters will offer such additional Notes on the same terms
as those on which the $90.0 million principal amount of Notes are being
offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock, or securities convertible into or exchangeable for such
stock, for a period of at least 90 days after the date of this Prospectus,
without the prior written consent of the Representative, excepting the
Warrants issued in the Private Offering or the grant or exercise of options
pursuant to the Company's existing stock option and purchase plans. The
directors, executive officers and certain stockholders of the Company have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
for a period of at least 90 days after the effective date of the Registration
Statement without the prior written consent of the Representative. The holder
of the Existing Subordinated Debt has agreed not to offer, sell or otherwise
dispose of 1.2 million shares of Common Stock issuable upon conversion of the
Existing Subordinated Debt for a period of at least 45 days after the
effective date of the Registration Statement, and for at least 90 days after
the effective date of the Registration Statement with respect to the
approximately 2.4 million remaining shares issuable upon conversion of the
Existing Subordinated Debt.
48
<PAGE>
The Notes are a new issue of securities with no established trading market.
The Company intends to apply to list the Notes on the Nasdaq National Market.
The Company has been advised by the Underwriters that the Underwriters plan to
make a market in the Notes as permitted by applicable laws and regulations.
The Underwriters are not obligated to make such a market and may discontinue
any market trading at any time without notice. No assurance can be given
therefore as to the liquidity of or trading markets for the Notes. The
Representative of the Underwriters makes a market in the Common Stock.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes and the Common Stock. As an exception to these
rules, the Representative is permitted to engage in certain transactions that
stabilize the price of the Notes and the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Notes and the Common Stock.
If the Underwriters create a short position in the Notes in connection with
this Offering, i.e., if they sell a greater aggregate principal amount of
Notes than is set forth on the cover page of this Prospectus, the
Representative may reduce that short position by purchasing Notes in the open
market. The Representative may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representative purchases Notes
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Notes, it may reclaim the amount of the selling concession
from the Underwriters and selling group members who sold those Notes as part
of this Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Notes or the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. Passive market making may stabilize or maintain
the market price of the Common Stock and, consequently, the Notes above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
49
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents it has
previously filed with the Commission (File No. 0-15322) pursuant to the
Exchange Act:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996, as amended;
(b) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended January 31, 1997 and April 30, 1997;
(c) the Company's Proxy Statement for the Annual Meeting of Stockholders
held on May 28, 1997;
(d) the Company's Current Reports on Form 8-K filed November 8, 1996,
November 15, 1996, November 19, 1996, December 11, 1996, January 10, 1997
and April 30, 1997;
(e) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, declared effective February
12, 1987; and
(f) the description of the Company's Common Stock Purchase Rights
contained in the Company's Registration Statement on Form 8-A, filed May
18, 1988.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this Offering shall also be deemed
to be incorporated by reference herein and to be a part hereof from the date
of filing of such reports and documents. Any statement incorporated or deemed
to be incorporated herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that any statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. Neither the Company
nor the Underwriters will update this Prospectus for events occurring
subsequent to the date of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents). Requests for such documents should be made to the attention of the
Investor Relations Department at the principal executive offices of the
Company, 500 West Madison, 32nd Floor, Chicago, Illinois 60661 or by telephone
at (312) 641-2900.
50
<PAGE>
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Sachnoff &
Weaver, Ltd. ("S&W") and for the Underwriters by Willkie Farr & Gallagher.
William N. Weaver, Jr., a member of the Board of Directors, is a member of
S&W. S&W has acted and continues to act as counsel to the Company with regard
to certain matters and has received legal fees for services rendered in
connection therewith.
In consideration for Mr. Weaver's services as a director, the Company has
granted S&W options to purchase a total of 92,250 shares of the Company's
Common Stock. In addition to his pro rata interest in the shares underlying
such options, Mr. Weaver owns 300,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company as of October 31, 1996
and for the year then ended have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements as of October 31, 1995 and for the two
years then ended, included in this Prospectus have been so included in
reliance upon the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEARS ENDED OCTOBER 31, 1994, 1995 and 1996
Independent Auditors' Report (KPMG Peat Marwick LLP)..................... F-2
Report of Independent Accountants (Price Waterhouse LLP)................. F-3
Consolidated Balance Sheets as of October 31, 1995, as restated, and
1996.................................................................... F-4
Consolidated Statements of Operations for the years ended October 31,
1994 and 1995, as restated, and 1996.................................... F-6
Consolidated Statements of Cash Flows for the years ended October 31,
1994 and 1995, as restated, and 1996.................................... F-7
Consolidated Statements of Changes in Stockholders' Equity for the years
ended October 31, 1994 and 1995, as restated, and 1996.................. F-8
Notes to Consolidated Financial Statements............................... F-9
SIX MONTHS ENDED APRIL 30, 1996 and 1997
Consolidated Balance Sheets as of October 31, 1996 and April 30, 1997
(unaudited)............................................................. F-22
Consolidated Statements of Operations for the six month periods ended
April 30, 1996 and 1997 (unaudited)..................................... F-24
Consolidated Statements of Cash Flows for the six month periods ended
April 30, 1996 and 1997 (unaudited)..................................... F-25
Notes to Consolidated Financial Statements............................... F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
System Software Associates, Inc.
We have audited the accompanying consolidated balance sheet of System
Software Associates, Inc. and its subsidiaries as of October 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of System
Software Associates, Inc. and its subsidiaries as of October 31, 1996, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
January 7, 1997, except as to
Notes 6, 7, and 11 which are
as of January 29, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
System Software Associates, Inc.
In our opinion, the accompanying consolidated financial statements listed in
the accompanying index present fairly, after the restatement described in Note
2, in all material respects, the financial position of System Software
Associates, Inc. and its subsidiaries at October 31, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended October 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. We have not audited the consolidated
financial statements of System Software Associates, Inc. and its subsidiaries
for any period subsequent to October 31, 1995.
/s/ Price Waterhouse LLP
Chicago, Illinois
January 7, 1997, except as to Notes 6, 7 and 11
which are as of January 29, 1997
F-3
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
---------------
1995
ASSETS RESTATED 1996
------ -------- ------
(IN MILLIONS)
<S> <C> <C>
Current Assets:
Cash and equivalents......................................... $ 57.1 $ 38.1
Accounts receivable, less allowance for doubtful accounts of
$12.5 and $16.5............................................. 184.6 163.6
Income taxes receivable...................................... -- 4.4
Deferred income taxes........................................ 7.0 10.1
Prepaid expenses and other current assets.................... 21.3 25.5
------ ------
Total current assets....................................... 270.0 241.7
------ ------
Property and Equipment:
Data processing equipment.................................... 30.9 37.3
Furniture and office equipment............................... 14.1 18.7
Leasehold improvements....................................... 7.8 9.0
Transportation equipment..................................... 2.8 2.3
------ ------
55.6 67.3
Less--Accumulated depreciation and amortization.............. 31.3 39.5
------ ------
Total property and equipment............................... 24.3 27.8
------ ------
Other Assets:
Software costs, less accumulated amortization of $41.1 and
$61.1....................................................... 59.0 82.8
Cost in excess of net assets of acquired businesses, less
accumulated amortization of $6.0 and $8.7................... 18.2 22.8
Deferred income taxes........................................ -- 1.2
Investments in associated companies.......................... 16.5 2.2
Miscellaneous................................................ 5.2 5.9
------ ------
Total other assets......................................... 98.9 114.9
------ ------
Total Assets............................................... $393.2 $384.4
====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 RESTATED 1996
------------------------------------ ------------------ ----------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C>
Current Liabilities:
Current maturities of senior notes
payable................................ $ 4.0 $ --
Accrued commissions and royalties....... 28.7 26.3
Accounts payable and other accrued
liabilities............................ 46.9 62.5
Accrued compensation and related
benefits............................... 23.5 23.8
Deferred revenue........................ 61.7 58.8
Income taxes payable.................... 12.9 --
---------------- ----------------
Total current liabilities............. 177.7 171.4
---------------- ----------------
Long-Term Obligations..................... 33.9 75.1
---------------- ----------------
Deferred Revenue.......................... 27.3 27.7
---------------- ----------------
Deferred Income Taxes..................... 9.9 --
---------------- ----------------
Minority Interest in Consolidated
Subsidiaries............................. 1.0 --
---------------- ----------------
Stockholders' Equity:
Preferred stock, $.01 par value, 100,000
shares authorized, none issued or
outstanding............................ -- --
Common stock, $.0033 par value,
60,000,000 shares authorized,
42,094,500 and 42,577,000 shares
issued................................. 0.1 0.1
Capital in excess of par value.......... 26.1 32.8
Retained earnings....................... 115.5 78.5
Unrealized gain on available-for-sale
securities............................. 2.5 --
Cumulative translation adjustment....... (0.8) (1.2)
---------------- ----------------
Total stockholders' equity............ 143.4 110.2
Commitments and Contingencies (Note 11). -- --
---------------- ----------------
Total Liabilities and Stockholders'
Equity............................... $ 393.2 $ 384.4
================ ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------
1994 1995
RESTATED RESTATED 1996
------------- ------------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
License fees..................... $ 229.7 $ 250.0 $ 226.7
Client services and other........ 94.6 124.1 114.1
------------ ------------ ------------
Total revenues................. 324.3 374.1 340.8
------------ ------------ ------------
Costs and expenses:
Cost of license fees............. 60.7 64.9 66.9
Cost of client services and
other........................... 57.2 76.8 89.0
Sales and marketing.............. 90.8 87.6 103.8
Research and development......... 35.1 40.2 54.4
General and administrative....... 64.1 63.5 85.5
------------ ------------ ------------
Total costs and expenses....... 307.9 333.0 399.6
------------ ------------ ------------
Operating income (loss)............ 16.4 41.1 (58.8)
------------ ------------ ------------
Gain on sale of available-for-sale
securities........................ -- -- 13.1
Non-operating income (expense),
net............................... (1.0) (0.2) (5.7)
------------ ------------ ------------
Income (loss) before income taxes
and minority interest............. 15.4 40.9 (51.4)
Provision (benefit) for income
taxes............................. 5.6 14.2 (18.6)
------------ ------------ ------------
Income (loss) before minority
interest.......................... 9.8 26.7 (32.8)
Minority interest.................. 0.2 (0.1) --
------------ ------------ ------------
Net income (loss).................. $ 10.0 $ 26.6 $ (32.8)
============ ============ ============
Earnings (loss) per share.......... $ 0.25 $ 0.63 $ (0.76)
============ ============ ============
Weighted average common and
equivalent shares outstanding..... 40.5 42.2 43.0
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1994 1995
RESTATED RESTATED 1996
-------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................. $ 10.0 $ 26.6 $(32.8)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and
equipment....................................... 8.4 7.9 9.2
Amortization of other assets..................... 11.0 17.3 23.0
Provision for doubtful accounts.................. 8.0 3.3 9.3
Gain on sale of available-for-sale securities.... -- -- (13.1)
Deferred income taxes............................ 4.1 (2.6) (14.2)
Deferred revenue................................. 28.2 7.3 (2.5)
Minority interest................................ (0.2) 0.1 --
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable............................ (23.4) (32.3) 12.6
Prepaid expenses and other current assets...... (0.2) (0.3) (2.1)
Miscellaneous assets........................... -- (3.3) 2.4
Accrued commissions and royalties.............. (5.7) 0.3 (6.8)
Accounts payable and other accrued liabilities. 16.8 1.0 8.0
Accrued compensation and related benefits...... 5.6 1.8 --
Income taxes................................... (4.2) 12.2 (14.2)
------ ------ ------
Net cash provided by (used in) operating
activities.................................. 58.4 39.3 (21.2)
------ ------ ------
Cash Flows From Investing Activities:
Purchases of property and equipment................ (14.7) (5.3) (11.4)
Software costs..................................... (31.2) (25.1) (43.8)
Purchase of available-for-sale securities.......... -- (5.4) --
Investments and acquisitions, net of cash acquired. (1.2) (6.1) (4.5)
Proceeds from sale of available-for-sale
securities........................................ -- -- 23.2
Proceeds from sales of assets...................... 1.9 1.7 --
Other.............................................. (0.4) 0.3 (0.1)
------ ------ ------
Net cash flows used in investing activities.. (45.6) (39.9) (36.6)
------ ------ ------
Cash Flows From Financing Activities:
Principal payments under financing obligations..... (3.8) (3.5) (5.7)
Amount borrowed under line of credit, net.......... -- -- 46.4
Proceeds from exercise of stock options............ 0.5 4.1 2.1
Dividends paid..................................... (3.2) (3.2) (4.2)
------ ------ ------
Net cash provided by (used in) financing
activities.................................. (6.5) (2.6) 38.6
------ ------ ------
Effect of exchange rate changes on cash.............. (3.7) 0.1 0.2
------ ------ ------
Net increase (decrease) in cash and equivalents...... 2.6 (3.1) (19.0)
Cash and equivalents:
Beginning of year.................................. 57.6 60.2 57.1
------ ------ ------
End of year........................................ $ 60.2 $ 57.1 $ 38.1
====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON TREASURY TOTAL
COMMON STOCK CAPITAL IN AVAILABLE- CUMULATIVE STOCK STOCK-
------------- EXCESS OF RETAINED FOR-SALE TRANSLATION ------------- HOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS SECURITIES ADJUSTMENT SHARES AMOUNT EQUITY
------ ------ ---------- -------- ---------- ----------- ------ ------ --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance October 31,
1993................... 27.3 $0.1 $19.9 $85.0 $-- $(1.3) (0.4) $(2.5) $101.2
---- ---- ----- ----- ---- ----- ---- ----- ------
Shares issued upon
exercise of employee
stock options.......... 0.1 0.5 0.5
Tax benefit of stock
options exercised...... 0.3 0.3
Foreign currency
translation adjustment. 0.5 0.5
Dividends paid--$0.08
per share.............. (3.2) (3.2)
Net income.............. 10.0 10.0
---- ---- ----- ----- ---- ----- ---- ----- ------
Balance October 31,
1994, Restated......... 27.4 0.1 20.7 91.8 -- (0.8) (0.4) (2.5) 109.3
---- ---- ----- ----- ---- ----- ---- ----- ------
Shares issued upon
exercise of employee
stock options.......... 0.5 4.1 4.1
Tax benefit of stock
options exercised...... 2.8 2.8
Foreign currency
translation adjustment. -- --
Dividends paid--$0.08
per share.............. (3.2) (3.2)
Shares issued in
business combinations.. 0.2 (1.5) 0.3 0.4 2.5 1.3
Unrealized gain on
available-for-sale
securities............. 2.5 2.5
Net income.............. 26.6 26.6
Shares issued in three-
for-two split.......... 14.0
---- ---- ----- ----- ---- ----- ---- ----- ------
Balance October 31,
1995, Restated......... 42.1 0.1 26.1 115.5 2.5 (0.8) -- -- 143.4
---- ---- ----- ----- ---- ----- ---- ----- ------
Shares issued upon
exercise of employee
stock options.......... 0.3 2.1 2.1
Tax benefit of stock
options exercised...... 1.2 1.2
Foreign currency
translation adjustment. (0.4) (0.4)
Dividends paid--$0.10
per share.............. (4.2) (4.2)
Shares issued in
business combinations.. 0.2 3.4 3.4
Sale of available-for-
sale securities........ (2.5) (2.5)
Net loss................ (32.8) (32.8)
---- ---- ----- ----- ---- ----- ---- ----- ------
Balance October 31,
1996................... 42.6 $0.1 $32.8 $78.5 $ -- ($1.2) -- $ -- $110.2
==== ==== ===== ===== ==== ===== ==== ===== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-8
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations
System Software Associates, Inc. (the "Company" or "SSA") is a leading
provider of cost-effective business information systems to the industrial
sector worldwide. SSA's integrated product line BPCS (Business Planning and
Control System) provides business process reengineering and integration of all
operations, including configurable manufacturing processes, supply chain
management, and global finance solutions. SSA's object-oriented interoperable
tool set AS/SET (Application System/Solution Engineering Technology) allows
the production of platform independent client/server applications. The Company
supports its clients primarily through a worldwide network of branch offices.
The Company markets, sells, and services its products to intermediate size and
large companies through its own sales organization and a network of
approximately 90 independent software companies (the "Affiliates").
Principles of consolidation
The consolidated financial statements include the accounts of System
Software Associates, Inc. and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Foreign currency translation
The functional currencies for substantially all of the Company's foreign
subsidiaries are their local currencies. The foreign subsidiaries' balance
sheets are translated at the year end rates of exchange and their results of
operations at weighted average rates of exchange for the year. Translation
adjustments resulting from this process are recorded directly in stockholders'
equity and will be included in the determination of net income (loss) only
upon sale or liquidation of the subsidiaries, which is not contemplated at
this time. Foreign exchange transaction losses aggregating $0.8 million, $0.7
million, and $0.4 million are included in general and administrative expenses
for 1994, 1995, and 1996, respectively.
Revenue recognition
The license fees generated and related commissions earned by the independent
Affiliates are included in license fees and cost of license fees,
respectively. Software license fees are recognized upon client acceptance and
delivery of the software product to the end user. Revenues and commissions
from software maintenance and HelpLine agreements are deferred and recognized
ratably over the term of the contract. Client services revenues are recorded
when such services are provided. Concentrations of credit risk with respect to
accounts receivable are limited due to a large customer base and its
geographic dispersion.
The principal components of cost of license fees are commissions paid to
independent Affiliates, hardware costs, amortization of capitalized software
costs, and royalties paid to third parties. The principal components of cost
of client services and other are salaries paid to the Company's client
services personnel and amounts paid to independent client services
professionals. Accrued Affiliate and salesman commissions are not paid until
the related accounts receivable balances have been collected.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
various methods over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the life of the
assets or related leases. Gains or losses resulting from sales or retirements
are recorded as
F-9
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
incurred, at which time related costs and accumulated depreciation are removed
from the accounts. Maintenance and repairs are charged to expense as incurred.
Depreciation and amortization of property and equipment was $8.4 million, $7.9
million, and $9.2 million in 1994, 1995, and 1996, respectively.
Software costs
Purchased software is capitalized and stated at cost. The Company
capitalizes software development costs in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86. Amortization of capitalized
costs is computed on a straight line basis using an estimated useful life of
five years or in proportion to current and anticipated revenues, whichever
provides the greater amortization. Capitalized software costs are summarized
as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------
1995 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Purchased software........................................ $ 8.7 $ 9.5
Internally developed software............................. 91.4 134.4
------ ------
100.1 143.9
Less--Accumulated amortization............................ (41.1) (61.1)
------ ------
Net capitalized software costs.......................... $ 59.0 $ 82.8
====== ======
</TABLE>
Amortization of capitalized software costs charged to cost of license fees
aggregated $9.2 million, $14.9 million, and $20.0 million during 1994, 1995,
and 1996, respectively.
Research and development
Research and development expenses, principally the design and development of
software products (exclusive of costs capitalized under SFAS No. 86), are
expensed as incurred.
Cost in excess of net assets of acquired businesses
The excess of cost over the fair value of the net identifiable assets of
acquired businesses is amortized on a straight-line basis, typically over a
seven-year period. Amortization expense was $1.8 million, $2.2 million, and
$2.7 million in 1994, 1995, and 1996, respectively.
Fair value of financial instruments
The fair value of cash and equivalents, receivables, accounts and income
taxes payable, and accrued expenses approximates their carrying values. The
fair value of forward contracts was not significant at October 31, 1995 and
1996. It was not practical to determine the fair value of short-term
borrowings and Senior Notes at October 31, 1996 as the Company was not in
compliance with certain covenants at that date, or the fair value of
investments in associated companies at October 31, 1996 as there are no quoted
market prices for these investments.
Earnings per share
Earnings per share for 1994 and 1995 have been computed using the weighted
average number of common shares and common share equivalents outstanding
during the periods. Weighted average shares outstanding have been adjusted to
reflect as outstanding, for such periods, all shares issuable under stock
F-10
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
options using the treasury stock method and the November 28, 1995 three-for-
two stock split. The loss per share for 1996 has been computed using only the
weighted average number of shares outstanding.
Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Statements of cash flows
For purposes of reporting cash flows, the Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Interest income earned on cash equivalents aggregated $1.8
million, $2.0 million, and $1.1 million during 1994, 1995, and 1996,
respectively. Supplemental information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
--------------
1994 1995 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Non-cash investing and financing activities:
Leases capitalized......................................... $1.9 -- $0.6
Liabilities assumed in connection with investments and
acquisitions.............................................. $1.9 $8.7 $1.2
Shares issued in business combinations..................... -- $1.3 $3.4
Cash paid during the year for:
Interest................................................... $3.1 $2.2 $4.0
Income taxes............................................... $3.4 $5.0 $9.5
</TABLE>
NOTE 2--RESTATEMENT OF PRIOR YEARS' RESULTS OF OPERATIONS:
The Company has restated its consolidated financial statements for the years
ended October 31, 1994 and 1995 for revenues from software contracts entered
into during those periods.
In the third quarter of 1994, the Company entered into a software license
contract for $10.1 million. Due to problems identified during the
implementation of certain of the software products, a dispute arose. This
dispute was settled in fiscal 1996. The investigation surrounding the dispute
identified that certain uncertainties existed as of October 31, 1994 which
made the collectibility of the revenue uncertain at that date. Accordingly,
the fiscal 1994 consolidated financial statements have been restated to
reverse the revenue and certain of the costs associated with the contract. The
impact of these adjustments on the Company's consolidated financial results as
originally reported is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1994
---------------------------------------
AS ORIGINALLY
REPORTED AS RESTATED
-------------------- ------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total Revenue................... $ 334.4 $ 324.3
Income Before Income Taxes and
Minority Interest.............. $ 23.8 $ 15.4
Net Income...................... $ 15.4 $ 10.0
Earnings Per Share.............. $ 0.38 $ 0.25
Stockholders' Equity............ $ 114.7 $ 109.3
</TABLE>
F-11
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fiscal 1995 restatement reflects the reversal of revenues for three
contracts entered into during that year. During the third quarter of 1995, the
Company recognized $5.0 million in revenues from the final two installment
payments of a four installment payment contract. Subsequently, it was
determined that such revenue was recorded prior to the completion of
contractual terms which would allow for the revenue to be recognized. During
the third and fourth quarters of fiscal 1995, the Company entered into
reseller agreements of $10.0 and $5.0 million, respectively. Subsequently, the
Company determined that the payment terms for the contracts were not fixed.
Accordingly, the fiscal 1995 consolidated financial statements have been
restated to reverse the revenue and certain of the costs associated with the
contracts. The impact of these adjustments on the Company's consolidated
financial results as originally reported is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1995
--------------------------------------
AS ORIGINALLY
REPORTED AS RESTATED
------------------- ------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total Revenue.................... $ 394.4 $ 374.1
Income Before Income Taxes and
Minority Interest............... $ 52.4 $ 40.9
Net Income....................... $ 34.1 $ 26.6
Earnings Per Share............... $ 0.81 $ 0.63
Stockholders' Equity............. $ 156.3 $ 143.4
</TABLE>
NOTE 3--BUSINESS COMBINATIONS:
During the past three years the Company has expanded its global coverage and
strengthened its product offerings through various acquisitions.
The following table summarizes all acquisitions which were accounted for
under the purchase method and, accordingly, resulted in allocations of the
purchase prices to the net assets acquired based upon their estimated fair
values as of the acquisition dates. The accompanying consolidated statements
of operations reflect the results of operations of the acquired companies
since the acquisition dates. Proforma results of operations are not presented
as the acquisitions were not significant. These transactions typically
involved the Company acquiring a majority interest or additional interest in
an existing independent Affiliate.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
(IN MILLIONS) 1994 1995 1996
- ------------------------ ------------------------ ------------------------ --------------------
<S> <C> <C> <C>
SSA DAT GmbH (49%) (a) SSA Ontario Corporation NofTek NW, Inc.
Ocean Information Sys- SSA Services Pty., Ltd. (SSA Northwest) (c)
tems (b) Castillo Informatica
Sdn Bhd (SSA Malaysia) BPCS Division of Exigent (SSA Iberica) (c)
SSA Italia (20%) (a) Computer Group Vector Systems Anal-
Certain assets of ysis SSA North Cen-
Transtech, tral (c)
Inc.
Aggregate
consideration........... $2.7 $6.5 $8.0
Goodwill................ $2.3 $6.3 $7.2
</TABLE>
- --------
(a) Acquired the remaining 49% of SSA Germany and a 20% interest in SSA
Italia in 1994.
(b) Acquired the remaining 15% interest in SSA Services Pty., Ltd. (SSA
Australia and New Zealand) in 1995.
(c) Acquired the remaining interests of 90% in SSA Northwest, 27% in SSA
Iberica and 81% in SSA North Central in 1996.
F-12
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, the Company issued 586,000 shares of common stock, with an
aggregate fair value of $21.9 million, for all outstanding common stock of
three companies: Softwright Systems Limited, a leading provider of business
object technology and systems in Europe specializing in object technology,
multimedia, and other leading edge applications, and two of the Company's
independent affiliates, SSA Northeast and Priority Systems, Inc. The
combinations were accounted for as poolings of interest. The results of
operations were included in the Company's consolidated financial statements
from the dates of combinations, as the operations for all periods prior to the
combinations were not material in relation to the Company's consolidated
financial statements.
NOTE 4--INVESTMENTS IN ASSOCIATED COMPANIES:
In July 1995, the Company entered into a strategic alliance relationship
with Harbinger Corporation pursuant to which the Company sold its EDI software
assets (net book value of $2.3 million) to Harbinger and was granted a license
by Harbinger to market and sell AS/400, UNIX, and PC-based EDI software
products (there was no gain or loss recognized on the sale). Minimum royalties
amounting to $1.4 million and $5.8 million were accrued in 1995 and paid by
the Company to Harbinger during 1996. The Company received as consideration
550,000 shares of Harbinger Common Stock and 4,000,000 shares of Harbinger
Zero Coupon Preferred Stock. The Zero Coupon Preferred Stock vests at the rate
of up to 1,000,000 shares per year beginning in 1997 based upon achieving
certain performance targets, and must be redeemed by Harbinger upon vesting
for $1.00 per share in cash or, at the option of the Company, an equivalent
amount of Harbinger Common Stock. In August 1995, the Company purchased an
additional 450,000 shares of Harbinger Common Stock. At October 31, 1995, the
investment in Harbinger Corporation Common Stock was classified as available-
for-sale and reported at its fair value of $14 million. The adjustment to fair
value in 1995 generated a $2.5 million unrealized gain, net of $1.4 million
deferred tax and was excluded from earnings and reported in a separate
component of shareholders' equity. During 1996 the Company sold all of its
shares of Harbinger Common Stock. The proceeds from the sales were $23.2
million, which resulted in a gain of $8.4 million, net of $4.7 million in
taxes.
The Company also owns minority interests in several of its affiliates and
accounts for these investments under the cost method if the Company owns less
than 20% and the equity method if ownership is more than 20% of each
associated company. The Company does not exercise control over the operations
of these companies.
NOTE 5--FINANCIAL INSTRUMENTS:
The Company uses forward exchange contracts for the primary purpose of
reducing its exposure to fluctuations in foreign currency exchange rates. The
instruments are employed to manage transactional exposure. While these
financial instruments are subject to the risk that market rates may change
subsequent to the acquisition of the financial instrument, such changes would
generally be offset by opposite effects on the items being managed. The
Company's financial instruments typically mature within three months of
origination and are transacted at rates which reflect the market rate at the
date of the contract.
As of October 31, 1996, the Company had forward contracts for the purchase
and sale of European and other currencies, with purchases totaling $3.2
million and sales totaling $26.8 million. These contracts matured on or before
November 5, 1996.
NOTE 6--LINE OF CREDIT:
At October 31, 1995 the Company had a $50 million, multi-bank line of credit
which was to mature in June, 1997. At the option of the Company, borrowings
under the agreement bore interest at the Prime Rate or LIBOR plus a margin.
The margin on LIBOR ranged from 3/4% to 3%, and was based on the
F-13
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cumulative amount borrowed and the leverage ratio of the Company at the time
of the borrowings. Certain of the Company's majority-owned subsidiaries were
eligible to borrow under the agreement, either in U.S. or local currency.
Available borrowings were reduced by outstanding letters of credit, and 10% of
the face amount of outstanding foreign currency hedge contracts once the
Company's total foreign currency hedges exceed $50 million. The Company was
required to pay a commitment fee equal to 1/8% of the unused portion of the
commitment. The agreement contained covenants that were essentially the same
as those of the senior notes described in Note 7, and also included a covenant
based on the Company's quick ratio.
As a result of operating losses during 1996, the Company was unable to
maintain compliance with certain of the financial covenants within the
agreement and technical defaults occurred. The Company obtained waivers of the
defaults through February 1, 1997, and in January 1997 amended certain terms
and conditions of the agreement whereby all defaults were waived and the
maturity date on the line of credit was extended to November 1, 1997. Other
significant provisions of the amendment include the following: Additional
borrowings and new letters of credit are precluded and the line of credit is
to be collateralized with substantially all of the Company's domestic assets
and a portion of the stock of certain of the Company's foreign subsidiaries.
Upon delivery of the collateral, the interest rate on outstanding borrowings
changes from the current default rate of prime +2% to prime +1% (increasing to
Prime +3% upon a subsequent default), and letter of credit fees will be 2% per
annum (3% upon a subsequent default). The existing financial covenants have
been replaced with covenants that require the Company to maintain and report a
weekly minimum cash balance, maintain a minimum net worth and limit its
quarterly capital expenditures. Additionally, the Company has agreed to issue
warrants at fair market value at the time of issuance to the banks to purchase
an aggregate of 500,000 shares of the Company's common stock. The warrants
will be freely transferable and can be exercised at any time within five years
of the issue date. The Company is required to make a mandatory prepayment pro-
rata to the banks and Senior Noteholders of 100% of the proceeds of any debt
or equity offering up to the amount of unpaid indebtedness outstanding to the
banks and the Noteholders.
At October 31, 1996, borrowings under the line of credit of $46.4 million
were classified as long-term. Outstanding letters of credit issued against the
line of credit at October 31, 1996 were $1.2 million. The weighted average
interest rate on outstanding borrowings during 1996 was 7.78%. There were no
borrowings under the line of credit during 1995 and 1994, except for $10
million borrowed and repaid in October 1994.
NOTE 7--LONG-TERM OBLIGATIONS:
Long-term obligations consist of the followings:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
-----------
1995 1996
----- -----
(IN
MILLIONS)
<S> <C> <C>
Multi-bank line of credit (see Note 6)....................... $ -- $46.4
Senior Notes payable......................................... 30.0 26.0
Notes payable and other obligations.......................... 9.8 1.2
Obligations under capital leases............................. 1.7 3.6
----- -----
41.5 77.2
Less--Current maturities..................................... 7.6 2.1
----- -----
$33.9 $75.1
===== =====
</TABLE>
F-14
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At October 31, 1996, Senior Notes payable consisted of $4 million senior
notes and $22 million senior notes originally due September 15, 1997 and
September 15, 1998, respectively, with the original interest rates of 6.23%
and 6.69%, respectively. The notes contained covenants including minimum net
worth, fixed charge coverage and leverage ratios.
As a result of operating losses during 1996, the Company was unable to
maintain compliance with the fixed charge financial covenant of the notes and
technical defaults occurred. The Company obtained waivers of the defaults
through February 1, 1997, and in January 1997 amended certain terms and
conditions of the Senior Notes whereby all defaults were waived and the
maturity dates were changed to November 1, 1997. Under an intercreditor
arrangement with the Company's banks and as described in Note 6, the notes
have been collateralized with certain of the Company's assets and mandatory
prepayments are required from the proceeds of any debt or equity offering.
Interest due on the notes was changed from semi-annual to monthly payment
dates. Upon delivery of collateral, the interest rates on each of the notes
changes from the current default rates of 8.23% and 8.69%, respectively, to
prime +1% (increasing to prime +3% upon a subsequent default). The existing
financial covenants have been amended to be the same as the new covenants
contained in the Company's line of credit described in Note 6. Additionally,
the Senior Noteholders will be issued warrants to purchase 275,000 shares of
the Company's common stock under the same terms as the warrants issued to the
banks as described in Note 6. At October 31, 1996, the Senior Notes of $26
million were classified as long-term.
At October 31, 1996, notes payable and other obligations consist of
commitments made in connection with investments and acquisitions which mature
as follows: $0.6 million in 1997, and $0.6 million in 1998.
Capital lease obligations represent the present value of future payments
under leases for transportation and data processing equipment. The recorded
cost of these assets aggregated $5.6 million and $5.6 million at October 31,
1995 and 1996, respectively; accumulated amortization thereon aggregated $3.3
million and $3.4 million, respectively. Amortization of assets under capital
leases is included in depreciation and amortization expense.
The following is a schedule of future minimum lease payments under capital
lease obligations, together with the present value of minimum lease payments
at October 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, (IN MILLIONS) AMOUNT
------------------------------------ ------
<S> <C>
1997............................................................... $1.8
1998............................................................... 1.6
1999............................................................... 0.6
2000............................................................... 0.1
----
Total minimum lease payments....................................... 4.1
Less--Amount representing interest................................. 0.5
----
Present value of minimum lease payments............................ 3.6
Less--Current maturities........................................... 1.5
----
$2.1
====
</TABLE>
Interest expense was $2.8 million, $2.2 million, and $4.7 million during
1994, 1995, and 1996, respectively.
F-15
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES:
Deferred income taxes arise from temporary differences between the income
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.
Pretax income (loss) from continuing operations was taxed in the following
jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
1994 1995 1996
----------------------
(IN MILLIONS)
<S> <C> <C> <C>
Domestic.......................................... $ 7.7 $ 31.4 $ (57.6)
Foreign........................................... 7.7 9.5 6.2
------ ------ --------
$ 15.4 $ 40.9 $ (51.4)
====== ====== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
31,
--------------------
1994 1995 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal........................................... $(4.9) $ 8.9 $ (8.3)
State............................................. 0.1 0.7 (2.8)
Foreign........................................... 6.3 7.2 5.3
----- ----- ------
1.5 16.8 (5.8)
----- ----- ------
Deferred:
Federal........................................... 4.7 (2.8) (11.5)
State............................................. 0.4 (0.1) (0.8)
Foreign........................................... (1.0) 0.3 (0.5)
----- ----- ------
4.1 (2.6) (12.8)
----- ----- ------
$ 5.6 $14.2 $(18.6)
===== ===== ======
</TABLE>
In addition to taxes incurred on foreign operations, the Company is subject
to and includes foreign taxes on net remittances from foreign Affiliates as a
component in its provision for foreign income taxes. No domestic provision has
been recorded for unremitted earnings of foreign subsidiaries as it is
anticipated that any U.S. income taxes on distributions of earnings not
permanently reinvested will be offset by foreign tax credits.
A reconciliation of taxes based on the federal statutory rate and the
Company's actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
31,
--------------------
1994 1995 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax at the federal statutory rate........... $ 4.5 $14.3 $(18.0)
State income taxes, net of federal benefit......... 0.1 0.6 (1.3)
Foreign Sales Corporation, net..................... (0.4) (0.1) --
Foreign operating losses........................... 1.7 0.6 (0.3)
Research and development tax credit................ (2.1) (1.3) (1.2)
Meals and entertainment............................ 0.1 0.4 1.1
Other, net......................................... 1.7 (0.3) 1.1
----- ----- ------
$ 5.6 $14.2 $(18.6)
===== ===== ======
</TABLE>
F-16
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax balance is comprised of (asset) liability:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
-------------
1995 1996
----- ------
(IN
MILLIONS)
<S> <C> <C>
Revenues (net of commissions) recognized for tax purposes in
advance of financial reporting............................. $(3.2) $ (3.3)
Capitalization of software costs for financial reporting
purposes................................................... 15.6 24.7
Provision for doubtful accounts............................. (3.7) (5.0)
Rent expense for financial reporting purposes............... (1.6) (1.4)
Expense recognized for financial reporting purposes in
advance of tax............................................. (1.2) (3.0)
Deferred gain............................................... (1.7) (1.6)
Unrealized equity gain...................................... 1.4 --
Domestic credit carryforwards............................... (1.4) (1.4)
Foreign carryforwards....................................... (4.0) (3.6)
Foreign tax credit carryforwards............................ -- (11.0)
Research and development credit carryforwards............... -- (2.6)
Domestic net operating loss carryforwards................... -- (11.7)
Valuation allowance......................................... 3.2 8.3
Other, net.................................................. (0.5) 0.3
----- ------
$ 2.9 $(11.3)
===== ======
</TABLE>
At October 31, 1996, the Company has approximately $6.0 million of foreign
net operating loss carryforwards, $31.1 million of domestic net operating loss
carryforwards, and $15.0 million of tax credit carryforwards. At October 31,
1995 and October 31, 1996, the Company recorded valuation allowances related
to these items of $3.2 million and $8.3 million, respectively. The Company
recognizes certain deferred tax assets based upon Management's assessment that
these assets will "more likely than not" be recognized in the future in
accordance with SFAS 109, "Accounting for Income Taxes". This assessment is
based primarily on estimates of future operating results.
Of the $6.0 million of foreign net operating loss carryforwards, $3.0
million expire in varying amounts through the fiscal year ending October 31,
2003 and $3.0 million may be carried forward indefinitely. The $31.1 million
in domestic net operating loss carryforwards expire on October 31, 2011. The
$15.0 million of tax credit carryforwards expire in varying amounts through
the fiscal year ending October 31, 2011.
During 1994, 1995, and 1996 certain employees disposed of shares acquired
through the exercise of stock options that allowed the Company to record
additional compensation expense for tax purposes measured as the difference
between the fair value of the stock and the option price at the date of
exercise. The aggregate tax benefit to the Company of $0.3 million, $2.8
million, and $1.2 million, respectively, has been credited to capital in
excess of par value.
NOTE 9--STOCKHOLDERS' EQUITY:
The Company has certain stock option plans and a long-term incentive plan
under which options to purchase shares of the Company's common stock, stock
appreciation rights, restricted stock, and cash awards may be granted to key
employees and non-employees of the Company and its Affiliates. The plans
provide that an aggregate of 6,356,250 common shares be available for grant,
subject to adjustments for
F-17
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock splits, stock dividends, mergers, or other changes in capitalization.
Options become exercisable in varying periods (typically 5 years) and are
priced by the Board of Directors, but may not be less than 50% of the fair
market value of the shares at the date of grant. All options granted during
1994, 1995, and 1996 were granted at fair market value.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
AVAILABLE OPTION PRICE
FOR GRANT UNEXERCISED EXERCISABLE PER SHARE
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance, October 31, 1993.. 1,199,362 1,258,760 428,688 $ 1.38 -- 24.75
---------- ---------- -------- ---------------
Granted.................... (571,500) 571,500 11.75 -- 16.75
Becoming exercisable....... 280,293 4.64 -- 24.75
Cancelled.................. 54,900 (54,900) 6.00 -- 15.13
Exercised.................. (97,900) (97,900) 2.89 -- 12.38
---------- ---------- -------- ---------------
Balance, October 31, 1994.. 682,762 1,677,460 611,081 1.38 -- 24.75
---------- ---------- -------- ---------------
Granted.................... (498,000) 498,000 12.25 -- 27.13
Becoming exercisable....... 338,367 6.00 -- 24.75
Cancelled.................. 154,467 (154,467) 6.00 -- 19.67
Exercised.................. (497,946) (497,946) 1.56 -- 19.50
Reflect three-for-two stock
split..................... 169,615 761,524 225,751
---------- ---------- -------- ---------------
Balance, October 31, 1995.. 508,844 2,284,571 677,253 0.92 -- 18.09
---------- ---------- -------- ---------------
Granted.................... (1,468,001) 1,468,001 9.81 -- 24.08
Becoming exercisable....... 393,822 4.00 -- 18.08
Cancelled.................. 1,384,237 (1,384,237) (191,211) 4.00 -- 24.08
Exercised.................. (275,906) (275,906) 1.93 -- 13.89
---------- ---------- -------- ---------------
Balance, October 31, 1996.. 425,080 2,092,429 603,958 $ 0.92 -- 13.89
========== ========== ======== ===============
</TABLE>
During 1988, the Board of Directors approved a stockholder rights plan
designed to deter coercive takeover tactics and to prevent an acquiror from
gaining control of the Company without offering a fair price to all of the
Company's stockholders. At that time, the Company declared a distribution of
one right for each share of common stock outstanding (effected as a stock
dividend) to stockholders of record as of May 5, 1988, and generally to shares
issuable under the Company's stock option plans. Each right entitles the
registered holder to purchase from the Company one share of common stock at a
purchase price of $47. Each right is exercisable ten days after the
acquisition of 20% or more of the Company's voting stock, or the commencement
of a tender or exchange offer under which the offeror would own 30% or more of
the Company's stock.
In the event of a proposed takeover satisfying certain additional
conditions, the rights could be exercised by all holders other than the
takeover bidder at an exercise price of half of the current market price of
the Company's common stock. This would have the effect of significantly
diluting the holdings of the takeover bidder. These rights expire on May 3,
1998.
F-18
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--FOREIGN INFORMATION:
Information regarding geographic areas for the years ended October 31, 1994,
1995, and 1996 is as follows:
<TABLE>
<CAPTION>
UNITED EUROPE
STATES MIDDLE EAST OTHER ELIMINATIONS TOTAL
------ ----------- ------ ------------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Year Ended October 31, 1994
Sales to unaffiliated
customers.................. $155.5 $119.4 $ 82.6 $(33.2) $324.3
Operating income............ $ 14.0 $ 1.9 $ 0.5 $ 16.4
Identifiable assets......... $199.1 $101.4 $ 84.0 $(51.4) $333.1
====== ====== ====== ====== ======
Year Ended October 31, 1995
Sales to unaffiliated
customers.................. $173.7 $148.1 $ 92.0 $(39.7) $374.1
Operating income............ $ 28.5 $ 9.3 $ 3.3 $ 41.1
Identifiable assets......... $225.2 $130.2 $ 87.3 $(49.5) $393.2
====== ====== ====== ====== ======
Year Ended October 31, 1996
Sales to unaffiliated
customers.................. $164.9 $113.8 $ 95.0 $(32.9) $340.8
Operating loss.............. $(17.4) $(26.6) $(14.8) $(58.8)
Identifiable assets......... $234.9 $ 98.6 $107.2 $(56.3) $384.4
====== ====== ====== ====== ======
</TABLE>
The sales and operating income (loss) amounts reflected above include
intercompany royalties.
United States sales by geographical areas during the years ended October 31,
1994, 1995, and 1996 are as follows:
<TABLE>
<CAPTION>
FOREIGN
---------------------------------
EUROPE ASIA CANADA
UNITED STATES MIDDLE EAST PACIFIC LATIN AMERICA TOTAL
------------- ----------- ------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Year Ended October 31,
1994................... $119.1 $16.6 $9.9 $9.9 $155.5
Year Ended October 31,
1995................... $147.3 $14.3 $5.4 $6.7 $173.7
Year Ended October 31,
1996................... $143.1 $13.0 $4.3 $4.5 $164.9
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES:
The Company leases its office space and certain equipment under
noncancelable operating leases that expire at various dates through 2015. Rent
expense under such leases aggregated approximately $9.0 million, $15.7
million, and $24.1 million during 1994, 1995, and 1996, respectively. Minimum
annual rental commitments under noncancelable operating leases for periods
subsequent to October 31, 1996 are as follows: $23.1 million in 1997, $17.8
million in 1998, $12.5 million in 1999, $9.9 million in 2000, $8.6 million in
2001, and $42.3 million in 2002 and thereafter.
In January 1997, class action lawsuits were filed in state court in Illinois
and in the federal court in Chicago, Illinois against the Company and certain
of its officers. The federal actions allege damages to persons who purchased
the Company's common stock during the period August 22, 1994 through January
7, 1997 arising from alleged violations of the federal securities laws and
associated common laws. The state court action alleges damages to persons who
purchased the Company's common stock during the period November 21, 1994
through January 7, 1997 arising from alleged violations of the Illinois
securities laws and associated common and statutory law. Although the outcome
of these proceedings cannot be determined with certainty, management intends
to defend the actions vigorously, and, in consultation with its legal counsel,
believes that the allegations are without merit and that the final outcomes
should not have a material adverse effect on the Company's operations or
financial position.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. Although the outcome of these
proceedings cannot be determined with certainty, management believes that the
final outcomes of these proceedings should not have a material adverse effect
on the Company's operations or financial position.
F-19
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
On November 20, 1995, the Company filed an action against Owens-Illinois
("Owens") in Illinois state court seeking damages based on Owens' failure to
make payments required under a July 29, 1994 contract (the "Contract") between
the parties. On the same day the Company filed suit against Owens, Owens filed
a lawsuit in Illinois state court for recision of the Contract and for
damages. On April 18, 1996, the Company and Owens jointly announced that they
had settled the lawsuits and, as a result, both lawsuits were dismissed. Terms
of the settlement were not disclosed.
In late November, 1995, two class action suits were filed in the federal
court in Chicago, Illinois, against the Company and certain of its officers,
alleging damages to persons who purchased the Company's common stock during
the period August 21, 1995 through November 22, 1995. The plaintiffs
subsequently dismissed each of these suits voluntarily, without liability to
the Company.
On February 22, 1991, a class action lawsuit was filed in the federal court
in Chicago, Illinois, against the Company, its Chairman and Chief Executive
Officer, and its former Chief Financial Officer. On July 2, 1993, after a two
week trial, the jury returned a verdict in favor of all defendants on all
counts. On August 10, 1994, the 7th Circuit Court in Chicago affirmed the jury
verdict.
F-20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-21
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
ASSETS 1996 1997
------ ----------- -----------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and equivalents................................. $ 38.1 $ 20.4
Accounts receivable, less allowance for doubtful
accounts of $16.5 and $16.5......................... 163.6 163.6
Income taxes receivable.............................. 4.4 3.3
Deferred income taxes................................ 10.1 12.5
Prepaid expenses and other current assets............ 25.5 34.6
------ ------
Total current assets............................... 241.7 234.4
------ ------
Property and Equipment:
Data processing equipment............................ 37.3 39.0
Furniture and office equipment....................... 18.7 17.5
Leasehold improvements............................... 9.0 9.6
Transportation equipment............................. 2.3 1.7
------ ------
67.3 67.8
Less--Accumulated depreciation and amortization...... 39.5 42.3
------ ------
Total property and equipment....................... 27.8 25.5
------ ------
Other Assets:
Software costs, less accumulated amortization of
$61.1 and $74.3..................................... 82.8 93.2
Cost in excess of net assets of acquired businesses,
less accumulated amortization of $8.7 and $10.3..... 22.8 21.3
Deferred income taxes................................ 1.2 1.5
Investments in associated companies.................. 2.2 1.5
Miscellaneous........................................ 5.9 5.0
------ ------
Total other assets................................. 114.9 122.5
------ ------
Total Assets....................................... $384.4 $382.4
====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
- ------------------------------------ ------------------- ------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Short-term borrowings and current
maturities of senior notes
payable.......................... $ -- $ 71.8
Accrued commissions and royalties. 26.3 25.7
Accounts payable and other accrued
liabilities...................... 62.5 60.2
Accrued compensation and related
benefits......................... 23.8 17.9
Deferred revenue.................. 58.8 50.3
------------------ ------------------
Total current liabilities....... 171.4 225.9
------------------ ------------------
Long-Term Obligations............. 75.1 14.1
------------------ ------------------
Deferred Revenue.................. 27.7 28.7
------------------ ------------------
Stockholders' Equity:
Preferred stock, $.01 par value,
100,000 shares authorized,
none issued or outstanding....... -- --
Common stock, $.0033 par value,
60,000,000 shares authorized,
42,577,000 and 42,633,000 shares
issued........................... 0.1 0.1
Capital in excess of par value.... 32.8 42.8
Retained earnings................. 78.5 73.5
Cumulative translation adjustment. (1.2) (2.7)
------------------ ------------------
Total stockholders' equity...... 110.2 113.7
------------------ ------------------
Total Liabilities and
Stockholders' Equity........... $384.4 $382.4
================== ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------------------
1996 1997
------------------ ------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Revenues:
License fees......................... $ 100.0 $ 130.2
Client services and other............ 59.1 60.0
------------------ ------------------
Total revenues..................... 159.1 190.2
------------------ ------------------
Costs and Expenses:
Cost of license fees................. 25.6 33.0
Cost of client services and other.... 41.4 47.1
Sales and marketing.................. 45.2 43.9
Research and development............. 23.4 26.9
General and administrative........... 33.6 40.1
------------------ ------------------
Total costs and expenses........... 169.2 191.0
------------------ ------------------
Operating income (loss)................ (10.1) (0.8)
Non-operating income (expense), net.... (0.8) (7.0)
------------------ ------------------
Income (loss) before income taxes...... (10.9) (7.8)
Provision (benefit) for income taxes... (4.0) (2.8)
------------------ ------------------
Net income (loss)...................... $ (6.9) $ (5.0)
================== ==================
Earnings (loss) per share.............. $ (0.16) $ (0.12)
================== ==================
Dividends per share.................... $ 0.10 $ --
================== ==================
Weighted average common shares
outstanding........................... 43.1 42.6
================== ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------
1996 1997
-------- --------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)........................................ $ (6.9) $ (5.0)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization of property and equipment.. 4.1 4.5
Amortization of other assets............................. 10.7 15.6
Provision for doubtful accounts.......................... (0.7) --
Deferred income taxes.................................... (0.4) (2.7)
Deferred revenue......................................... (2.8) (5.3)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................... 9.3 (4.1)
Prepaid expenses and other current assets.............. (3.6) (0.3)
Miscellaneous assets................................... 1.1 0.9
Accrued commissions and royalties...................... (7.4) (0.3)
Accounts payable and other accrued liabilities......... (11.6) (1.8)
Accrued compensation and related benefits.............. (4.7) (5.1)
Income taxes........................................... (11.7) 1.1
-------- --------
Net cash used in operating activities................ (24.6) (2.5)
-------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment...................... (5.3) (1.5)
Software costs........................................... (18.5) (23.6)
Investments and acquisitions, net of cash acquired....... (3.6) --
-------- --------
Net cash flows used in investing activities.......... (27.4) (25.1)
-------- --------
Cash Flows From Financing Activities:
Amount borrowed (repaid) under bank line of credit, net.. 20.3 (0.4)
Principal payments under other financing obligations..... (1.5) (1.2)
Proceeds from exercise of stock options.................. 2.0 0.2
Net proceeds from convertible subordinated promissory
note.................................................... -- 12.0
Dividends paid........................................... (4.2) --
-------- --------
Net cash provided by financing activities............ 16.6 10.6
-------- --------
Effect of exchange rate changes on cash.................... (0.1) (0.7)
-------- --------
Net decrease in cash and equivalents................. (35.5) (17.7)
Cash and equivalents:
Beginning of year...................................... 57.1 38.1
-------- --------
End of period.......................................... $ 21.6 $ 20.4
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of System
Software Associates, Inc. and its majority owned subsidiaries ("SSA" or "the
Company"). Except for the consolidated balance sheet at October 31, 1996, the
financial information included herein is unaudited. However, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Results shown for interim periods are not
necessarily indicative of the results to be obtained for a full fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included elsewhere in this
Prospectus.
NOTE 2--LONG-TERM OBLIGATIONS:
On March 27, 1997, the Company issued a convertible subordinated promissory
note to a strategic investor in the amount of $12 million, bearing interest at
the prime rate plus 1% and convertible into common stock of the Company at the
lesser of $3.33 per share or 80% of the fair market value of the stock at the
time of conversion. The loan is due in three years and is not convertible
during the first year, except in the event of prepayment. The convertible
subordinated promissory note has a beneficial conversion feature because the
fair market value of the Company's stock was in excess of its per share
conversion price at the issuance date. The value of the beneficial conversion
feature of $8.9 million was reflected as an increase in additional paid in
capital and other current assets and will be amortized as interest expense
over the one year period beginning the date of issuance.
NOTE 3--LEGAL PROCEEDINGS:
In January 1997, class action lawsuits were filed in state court in Illinois
and in the federal court in Chicago, Illinois against the Company and certain
of its officers. The federal actions allege damages to persons who purchased
the Company's common stock during the period August 22, 1994 through January
7, 1997 arising from alleged violations of the federal securities laws and
associated common laws. The state court action alleges damages to persons who
purchased the Company's common stock during the period November 21, 1994
through January 7, 1997 arising from alleged violations of the Illinois
securities laws and associated common and statutory law. Although the outcome
of these proceedings cannot be determined with certainty, management intends
to defend the actions vigorously, and, in consultation with its legal counsel,
believes that the allegations are without merit and that the final outcomes
should not have a material adverse effect on the Company's operations or
financial position.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. Although the outcome of these
proceedings cannot be determined with certainty, management believes that the
final outcomes of these proceedings should not have a material adverse effect
on the Company's operations or financial position.
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SECURITIES DESCRIBED HEREIN BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAK-
ING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES
SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PRO-
SPECTUS CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS PROSPEC-
TUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 18
Price Range of Common Stock and Dividend Policy........................... 18
Capitalization............................................................ 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Management................................................................ 30
Description of Notes...................................................... 32
Description of the Private Offering....................................... 41
Description of Common Stock............................................... 45
Certain Federal Income Tax Considerations................................. 46
Underwriting.............................................................. 48
Incorporation of Certain Documents by Reference........................... 50
Legal Matters............................................................. 51
Experts................................................................... 51
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$90,000,000
[LOGO OF SSA]
% Convertible Subordinated Notes due 2002
-------------
PROSPECTUS
-------------
Alex. Brown & Sons
Incorporated
August , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting discounts and commissions) payable in
connection with the issuance and distribution of the Notes pursuant to the
Prospectus contained in this Registration Statement.
<TABLE>
<S> <C>
SEC filing fee for Registration Statement....................... $ 31,364
NASD filing fee................................................. 10,850
Nasdaq listing fee.............................................. 10,000*
Accountants fees and expenses................................... 125,000*
Blue Sky fees and expenses...................................... 10,000*
Legal fees and expenses......................................... 180,000*
Printing and engraving.......................................... 120,000*
Miscellaneous expenses.......................................... 12,786
--------
Total....................................................... $500,000
========
</TABLE>
- --------
*Estimated Amount
All of the expenses listed above will be borne by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of the Registrant provide that the Registrant shall indemnify
its officers and directors to the fullest extent permitted by applicable law.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in
general, that each director and officer of a corporation may be indemnified
against expenses (including attorneys' fees, judgments, fines and amounts paid
in settlement) actually and reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceedings in
which he is involved by reason of the fact that he is or was a director or
officer if he acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reasonable cause to
believe that his conduct was unlawful. If the legal proceeding, however, is by
or in the right of the corporation, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the company unless a court determines otherwise.
The Certificate of Incorporation of the Registrant, as amended to date,
provides that the personal liability of the directors of the Registrant shall
be eliminated to the fullest extent permitted by applicable law. The DGCL
permits a corporation's certificate of incorporation to provide that no
director of the corporation shall be personally liable to the corporation or
its stockholders for monetary damages for any breach of his fiduciary duty as
a director; provided, however, that such provision shall not apply to any
liability of a director (1) for any breach of a director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions that are not in
good faith or involve intentional misconduct or a knowing violation of the
law, (3) under Section 174 of the DGCL or (4) for any transaction from which
the director derived an improper personal benefit.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1 Underwriting Agreement*
3.1 Certificate of Incorporation (incorporated by reference into the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1987)
3.2 Amendment to Certificate of Incorporation filed June 6, 1997
3.3 By-laws of the Company (incorporated by reference into the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1989)
3.4 Certificate of Designations for Series A Preferred Stock**
4.1 Form of Indenture between the Company and Harris Trust and Savings
Bank, as Trustee
4.2 Form of Note (included in Exhibit 4.1)
4.3 Securities Purchase Agreement for the Junior Notes and the Warrants
between the Company and the Private Investors**
4.4 Form of Junior Note**
4.5 Common Stock Warrant and Preferred Stock Warrant**
4.6 Stockholders Agreement among the Company, the Private Investors and
Roger E. Covey**
4.7 Registration Rights Agreement between the Company and the Private
Investors**
5 Opinion of Sachnoff & Weaver, Ltd. regarding the legality of the
securities being registered*
12 Statement re: computation of ratios
23.1 Consent of Price Waterhouse LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Sachnoff & Weaver, Ltd. (included in Exhibit 5)*
24 Powers of attorney (included on the signature page of this
Registration Statement)
25 Statement of eligibility of trustee**
99.1 Note Purchase Agreement, dated March 27, 1997, for purchase of $12
million Floating Rate Convertible Notes due 2000
99.2 Form of Floating Rate Convertible Note due 2000**
99.3 Amended and Restated Secured Credit Agreement, dated as of February
28, 1997, among the Company, Bank of America National Trust & Savings
Association and certain financial institutions
99.4 Amended and Restated Note Agreement, dated as of February 28, 1997,
for the purchase of $26 million Senior Secured Notes due November 1,
1997 among the Company, Principal Mutual Life Insurance Company and
Massachusetts Mutual Life Insurance Company
99.5 Management Agreement between Bain Capital Partners V, L.P. and the
Company.**
</TABLE>
- --------
* Previously filed.
** To be filed by amendment
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or
II-2
<PAGE>
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for the indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT ON FORM S-3 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON AUGUST 7, 1997.
System Software Associates, Inc.
/s/ Joseph J. Skadra
By___________________________________
Joseph J. Skadra, Vice
Presidentand Chief Financial
Officer
THE UNDERSIGNED OFFICERS AND DIRECTORS OF SYSTEM SOFTWARE ASSOCIATES, INC.,
HEREBY SEVERALLY CONSTITUTE AND APPOINT JOSEPH J. SKADRA AND DOUGLAS R.
NEWKIRK, AND EACH OF THEM SINGLY, OUR TRUE AND LAWFUL ATTORNEYS AND AGENTS,
WITH FULL POWER TO THEM, AND EACH OF THEM, TO SIGN FOR US AND IN OUR NAMES IN
THE CAPACITIES INDICATED BELOW, THE REGISTRATION STATEMENT ON FORM S-3 FILED
HEREWITH AND ANY AND ALL PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS TO SAID
REGISTRATION STATEMENT, AND GENERALLY TO DO ALL SUCH THINGS IN OUR NAMES AND
ON OUR BEHALF IN OUR CAPACITIES AS OFFICERS AND DIRECTORS TO ENABLE SYSTEM
SOFTWARE ASSOCIATES, INC. TO COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND ALL REQUIREMENTS OF THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE
SIGNED BY OUR SAID ATTORNEYS, OR ANY OF THEM, TO SAID REGISTRATION STATEMENT
AND ANY AND ALL AMENDMENTS THERETO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Roger E. Covey* Chief Executive Officer and August 7, 1997
____________________________________ Chairman of the Board of
Roger E. Covey Directors (Principal
Executive Officer)
/s/ Joseph J. Skadra Chief Financial Officer, August 7, 1997
____________________________________ Vice President--Finance
Joseph J. Skadra and Secretary (Principal
Financial and Accounting
Officer)
/s/ Andrew J. Filipowski* Director August 7, 1997
____________________________________
Andrew J. Filipowski
/s/ John W. Puth* Director August 7, 1997
____________________________________
John W. Puth
/s/ William N. Weaver, Jr.* Director August 7, 1997
____________________________________
William N. Weaver, Jr.
</TABLE>
/s/ Joseph J. Skadra
*By_______________________
Joseph J. Skadra,Attorney-in-
fact
II-4
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
SYSTEM SOFTWARE ASSOCIATES, INC.
--------------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
System Software Associates, Inc.
2. The Certificate of Incorporation of the Corporation is hereby further
amended by striking Article FOURTH and substituting in lieu of said Article
FOURTH the following:
Article FOURTH is hereby amended to read in its entirety as follows:
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 250,100,000 shares, which shall be
classified as follows:
(i) 250,000,000 shares of Common Stock, $0.0033 par value per share
(hereinafter called the "Common Stock");
(ii) 100,000 shares of Preferred Stock $0.01 par value per share
(hereinafter called the "Preferred Stock"), which may be issued from time
to time in one or more series. The number of shares, the stated value and
the dividend or interest rate, if any, of each such series and the
preferences and relative, participating and special rights and the
qualifications, limitations or restrictions shall be fixed in the case of
each series by resolution of the Board of Directors at the time of
issuance, subject in all cases to the laws of the State of Delaware
applicable thereto, and set forth in a certificate of designation filed and
recorded with respect to each series in accordance with the laws of the
State of Delaware.
Any and all such shares issued, and for which the full consideration has
been paid or delivered, shall be deemed fully paid stock and the holder of
such shares shall not be liable for any further call or assessment or any
other payment thereon.
The Amendment of the Certificate of Incorporation herein certified has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
Signed on June 6, 1997
/s/ Joseph J. Skadra
------------------------------------
Joseph J. Skadra, Vice President
<PAGE>
================================================================================
INDENTURE
Dated as of August __, 1997
between
SYSTEM SOFTWARE ASSOCIATES, INC.
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
___% Subordinated Convertible Notes due 2002
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Indenture
TIA Section Section
- ----------- ---------
(S) 310 (a)(1).................................................... 8.9
(a)(2).................................................... 8.9
(a)(3).................................................... N.A.**
(a)(4).................................................... N.A.
(a)(5).................................................... 8.9
(b)....................................................... 8.9; 8.10
(c)....................................................... N.A.
(S) 311 (a)....................................................... 8.13
(b)....................................................... 8.13
(c)....................................................... N.A.
(S) 312 (a)....................................................... 6.1
(b)....................................................... 6.2
(c)....................................................... 6.2
(S) 313 (a)....................................................... 6.3
(b)(1).................................................... N.A.
(b)(2).................................................... 6.3
(c)....................................................... 6.3; 17.3
(d)....................................................... 6.3
(S) 314 (a)....................................................... 5.8; 6.4;
17.3
(b)....................................................... N.A.
(c)(1).................................................... 17.5
(c)(2).................................................... 17.5
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 17.5
(f)....................................................... N.A.
(S) 315 (a)....................................................... 8.1(a)
(b)....................................................... 7.8; 17.3
(c)....................................................... 8.2
(d)....................................................... 8.1(c)
(e)....................................................... 7.9
(S) 316 (a)(last sentence)........................................ [2.9]
(a)(1)(A)................................................. [8.5]
(a)(1)(B)................................................. 7.7
(a)(2).................................................... N.A.
(b)....................................................... [7.7]
(c)....................................................... 10.4;
15.5(h)(4)
(S) 317 (a)(1).................................................... 7.5
(a)(2).................................................... 7.5
(b)....................................................... 8.5
(S) 318 (a)....................................................... 17.7
* This Cross-Reference Table shall not, for any purpose, be deemed a part of
this Indenture.
** N.A. means Not Applicable.
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TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS.......................................................1
Section 1.1. Definitions..............................................1
Affiliate..............................................2
Board of Directors.....................................2
Business Day...........................................2
Change in Control......................................2
Closing Price..........................................2
Commission.............................................2
Common Stock...........................................2
Company................................................3
Controlled.............................................3
Conversion Price.......................................3
Corporate Trust Office.................................3
Current Market Price...................................3
default................................................3
Defaulted Interest.....................................3
Designated Senior Indebtedness.........................3
Exchange Act...........................................4
Expiration Time........................................4
Event of Default.......................................4
Indebtedness...........................................4
Indenture..............................................5
Initial Purchasers.....................................5
Junior Subordinated Notes..............................5
New Preferred Stock....................................5
New Securities.........................................5
Officers' Certificate..................................5
Opinion of Counsel.....................................5
outstanding............................................5
Payment Blockage Notice................................6
Person.................................................6
Predecessor Security...................................6
Purchased Shares.......................................6
Publicly Traded Securities.............................6
Record Date............................................6
Representative.........................................6
Responsible Officer....................................7
Repurchase Date........................................7
Repurchase Price.......................................7
Securities Act.........................................7
Security or Securities.................................7
Security register......................................7
Securityholder or holder...............................7
Senior Indebtedness....................................7
Significant Subsidiary.................................8
Subsidiary.............................................8
Trading Day............................................8
Trigger Event..........................................8
Trust Indenture Act....................................8
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Trustee............................................... 8
U.S. Government Obligations........................... 9
Warrants.............................................. 9
ARTICLE II. ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF SECURITIES ......................................... 9
Section 2.1. Designation, Amount and Issue of
Securities.......................................... 9
Section 2.2. Form of Securities.................................... 9
Section 2.3. Date and Denomination of Securities
Payments of Interest................................10
Section 2.4. Execution of Securities...............................12
Section 2.5. Exchange and Registration of Transfer of
Securities..........................................12
Section 2.6. Mutilated, Destroyed, Lost or Stolen
Securities..........................................14
Section 2.7. Temporary Securities..................................15
Section 2.8. Cancellation of Securities Paid, Etc..................15
ARTICLE III. REDEMPTION OF SECURITIES...................................16
Section 3.1. Redemption Prices.....................................16
Section 3.2. Notice of Redemption; Selection of
Securities..........................................16
Section 3.3. Payment of Securities Called for
Redemption..........................................18
Section 3.4. Conversion Arrangement on Call for
Redemption..........................................19
ARTICLE IV. SUBORDINATION OF SECURITIES.................................19
Section 4.1. Agreement of Subordination............................19
Section 4.2. Payments to Securityholders...........................20
Section 4.3. Subrogation of Securities.............................23
Section 4.4. Authorization to Effect Subordination.................24
Section 4.5. Notice to Trustee.....................................25
Section 4.6. Trustee's Relation to Senior Indebtedness.............26
Section 4.7. No Impairment of Subordination........................26
Section 4.8. Certain Conversions Deemed Payment....................26
Section 4.9. Article Applicable to Paying Agents...................27
Section 4.10. Senior Indebtedness Entitled to Rely..................27
ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY..........................27
Section 5.1. Payment of Principal, Premium and Interest............27
Section 5.2. Maintenance of Office or Agency.......................28
Section 5.3. Appointments to Fill Vacancies in
Trustee's Office....................................28
Section 5.4. Provisions as to Paying Agent.........................28
Section 5.5. Corporate Existence...................................30
Section 5.6. Amendments to Junior Notes, Warrants
New Preferred Stock.................................30
Section 5.7. Stay, Extension and Usury Laws........................30
Section 5.8. Compliance Certificate................................30
Section 5.9.. No Prepayment of Junior Notes at the
Option of the Company..............................30
Section 5.10. No Repurchase of Warrants.............................31
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Section 5.11. Liquidation........................................... 31
Section 5.12. Notice of Defaults.................................... 32
Section 5.13. Payment of Taxes and Other Claims..................... 32
Section 5.14. Further Instruments and Acts.......................... 32
ARTICLE VI. SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND TRUSTEE.......................................... 32
Section 6.1. Securityholders' Lists................................. 32
Section 6.2. Preservation and Disclosure of Lists................... 33
Section 6.3. Reports by Trustee..................................... 33
Section 6.4. Reports by Company..................................... 34
ARTICLE VII. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON AN EVENT OF DEFAULT....................................... 34
Section 7.1. Events of Default...................................... 34
Section 7.2. Payments of Securities on Default; Suit
Therefor............................................. 37
Section 7.3. Application of Monies Collected by Trustee............. 38
Section 7.4. Proceedings by Securityholder.......................... 39
Section 7.5. Proceedings by Trustee................................. 40
Section 7.6. Remedies Cumulative and Continuing..................... 40
Section 7.7. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders.............. 41
Section 7.8. Notice of Defaults..................................... 42
Section 7.9. Undertaking to Pay Costs............................... 42
ARTICLE VIII. CONCERNING THE TRUSTEE..................................... 42
Section 8.1. Duties and Responsibilities of Trustee................. 42
Section 8.2. Reliance on Documents, Opinions, Etc................... 42
Section 8.3. No Responsibility for Recitals, Etc.................... 45
Section 8.4. Trustee, Paying Agents, Conversion Agents
or Registrar May Own Securities...................... 45
Section 8.5. Monies to Be Held in Trust............................. 45
Section 8.6. Compensation and Expenses of Trustee................... 46
Section 8.7. Officers' Certificate as Evidence...................... 46
Section 8.8. Conflicting Interests of Trustee....................... 47
Section 8.9. Eligibility of Trustee................................. 47
Section 8.10. Resignation or Removal of Trustee..................... 47
Section 8.11. Acceptance by Successor Trustee....................... 49
Section 8.12. Succession by Merger, Etc............................. 49
Section 8.13. Limitation on Rights of Trustee as
Creditor............................................ 50
ARTICLE IX. CONCERNING THE SECURITYHOLDERS............................... 50
Section 9.1. Action by Securityholders.............................. 50
Section 9.2. Proof of Execution by Securityholders.................. 51
Section 9.3. Who Are Deemed Absolute Owners......................... 51
Section 9.4. Company-Owned Security Disregarded..................... 51
Section 9.5. Revocation of Consents: Future Holders
Bound................................................ 52
ARTICLE X. SECURITYHOLDERS' MEETINGS..................................... 52
Section 10.1. Purpose of Meetings................................... 52
Section 10.2. Call of Meetings by Trustee........................... 53
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Section 10.3. Call of Meetings by Company or......................... 53
Securityholders...................................... 53
Section 10.4. Qualifications for Voting.............................. 54
Section 10.5. Regulations............................................ 54
Section 10.6. Voting................................................. 54
Section 10.7. No Delay of Rights by Meeting.......................... 55
ARTICLE XI. SUPPLEMENTAL INDENTURES....................................... 55
Section 11.1. Supplemental Indentures Without Consent
of Securityholders................................... 55
Section 11.2. Supplemental Indentures with Consent of
Securityholders...................................... 57
Section 11.3. Effect of Supplemental Indenture....................... 58
Section 11.4. Notation on Security................................... 58
Section 11.5. Evidence of Compliance of Supplemental
Indenture to Be Furnished Trustee.................... 58
ARTICLE XII. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND
LEASE 58
Section 12.1. Company May Consolidate Etc. on Certain................ 58
Terms................................................ 59
Section 12.2. Successor Corporation to Be Substituted................ 60
Section 12.3. Opinion of Counsel to Be Given Trustee
ARTICLE XIII. SATISFACTION AND DISCHARGE OF INDENTURE..................... 60
Section 13.1. Discharge of Indenture................................. 60
Section 13.2. Deposited Monies to Be Held in Trust by
Trustee.............................................. 61
Section 13.3. Paying Agent to Repay Monies Held...................... 61
Section 13.4. Return of Unclaimed Monies............................. 61
Section 13.5. Reinstatement.......................................... 61
ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS................................................ 62
Section 14.1. Indenture and Securities Solely Corporate
Obligations............................................... 62
ARTICLE XV. CONVERSION OF SECURITIES...................................... 62
Section 15.1. Right to Convert............................................ 62
Section 15.2. Exercise of Conversion Privilege;
Issuance of Common Stock on Conversion;
No Adjustment for Interest or Dividends................... 63
Section 15.3. Cash Payments in Lieu of Fractional Shares.................. 64
Section 15.4. Conversion Price............................................ 65
Section 15.5. Adjustment of Conversion Price.............................. 65
Section 15.6. Effect of Reclassification,
Consolidation, Merger or Sale............................. 76
Section 15.7. Taxes on Shares Issued...................................... 77
Section 15.8. Reservation of Shares to Be Fully Paid;
Compliance with Governmental
Requirements; Listing of Common Stock..................... 77
Section 15.9. Responsibility of Trustee................................... 78
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Section 15.10. Notice to Holders Prior to Certain Actions............................. 79
ARTICLE XVI. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE IN
CONTROL................................................................................ 80
Section 16.1. Right to Require Repurchase............................................ 80
Section 16.2. Notices: Method of Exercising Repurchase Right, Etc.................... 80
Section 16.3. Certain Definitions.................................................... 82
Section 16.4. Change in Control...................................................... 82
Section 16.5. Consolidation, Merger, Etc............................................. 84
ARTICLE XVII. MISCELLANEOUS PROVISIONS..................................................... 85
Section 17.1. Provisions Binding on Company's Successors............................. 85
Section 17.2. Official Acts by Successor Corporation................................. 85
Section 17.3. Addresses for Notices, Etc............................................. 85
Section 17.4. Governing Law.......................................................... 86
Section 17.5. Evidence of Compliance with Conditions Precedent Certificates to
Trustee.............................................................. 86
Section 17.6. Legal Holidays......................................................... 86
Section 17.7. Trust Indenture Act.................................................... 86
Section 17.8. No Security Interest Created........................................... 87
Section 17.9. Benefits of Indenture.................................................. 87
Section 17.10. Table of Contents, Headings, Etc....................................... 87
Section 17.11. Authenticating Agent................................................... 87
Section 17.12. Execution in Counterparts.............................................. 88
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INDENTURE, dated as of August __ 1997, between System Software Associates,
Inc., a Delaware corporation (hereinafter sometimes called the "Company," as
more fully set forth in Section 1.1), and Harris Trust and Savings Bank, as
trustee hereunder (hereinafter sometimes called the "Trustee," as more fully set
forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the issue of its ___% Convertible Subordinated Notes due August 1, 2002
(hereinafter sometimes called the "Securities"), in an aggregate principal
amount not to exceed $90,000,000 ($103,500,000 if the over-allotment option is
exercised in full) and, to provide the terms and conditions upon which the
Securities are to be authenticated, issued and delivered, the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Securities, the certificate of authentication to be borne by
the Securities, a form of assignment, a form of option to elect repurchase upon
a Change in Control (as defined in Section 16.4) and a form of conversion notice
to be borne by the Securities are to be substantially in the forms hereinafter
provided for; and
WHEREAS, all acts and things necessary to make the Securities, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Securities have in
all respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Securities
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises and of the purchase and acceptance of the Securities by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the
Securities (except as otherwise provided below), as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. The terms defined in this Section 1.1 (except as
herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
<PAGE>
terms used in this Indenture that are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context otherwise requires) shall
have the meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture. The
words "herein," "hereof," "hereunder," and words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the
singular.
Affiliate: The term "Affiliate" of any specified Person shall mean any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means the
power to direct or cause the direction of the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Board of Directors: The term "Board of Directors" shall mean the Board of
Directors of the Company or a committee of such Board duly authorized to act for
it hereunder.
Business Day: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in Chicago, Illinois and New York, New York are authorized or
obligated by law or executive order to close or be closed.
Change in Control: The term "Change in Control" shall have the meaning
specified in Section 16.4.
Closing Price: The term "Closing Price" shall have the meaning specified in
Section 15.5(h)(1).
Commission: The term "Commission" shall mean the Securities and Exchange
Commission.
Common Stock: The term "Common Stock" shall mean any stock of any class of
the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the Company.
Subject to the provisions of Section 15.6, however, shares issuable on
conversion of Securities shall include only shares of the class designated as
common stock of the Company at the date of this Indenture or shares of any class
or classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or
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winding up of the Company and which are not subject to redemption by the
Company, provided that, if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
Company: The term "Company" shall mean System Software Associates, Inc., a
Delaware corporation, and, subject to the provisions of Article XII, shall
include its successors and assigns.
Controlled: The term "Controlled" shall have the meaning specified in
Section 16.4.
Conversion Price: The term "Conversion Price" shall have the meaning
specified in Section 15.4.
Corporate Trust Office: The term "Corporate Trust Office" or other similar
term shall mean the office of the Trustee at which at any particular time its
corporate trust business shall be principally administered, which office is, at
the date as of which this Indenture is dated, located at [Address], Attention:
[Name], (System Software Associates, Inc., __% Convertible Subordinated Notes
due 2002).
Current Market Price: The term "Current Market Price" shall have the
meaning specified in Section 15.5(h)(2).
default: The term "default" shall mean any event that is, or after notice
or passage of time, or both, would be, an Event of Default.
Defaulted Interest: The term "Defaulted Interest" shall have the meaning
specified in Section 2.3.
Designated Senior Indebtedness: The term "Designated Senior Indebtedness"
means any particular Senior Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides that
such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes
of the Indenture (provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Indebtedness to
exercise the rights of Designated Senior Indebtedness).
Exchange Act: The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder,
as in effect from time to time.
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Expiration Time: The term "Expiration Time" shall have the meaning
specified in Section 15.5(f).
Event of Default: The term "Event of Default" shall mean any event
specified in Section 7.1(a), (b), (c), (d), (e), (f) or (g).
Indebtedness: The term "Indebtedness" means, with respect to any Person,
and without duplication, (a) the principal of and premium, if any, and interest
on, and fees, costs, enforcement expenses, collateral protection expenses and
other reimbursement or indemnity obligations in respect of all indebtedness or
obligations of the Company to any Person, including, but not limited to, banks
and other lending institutions, for money borrowed that is evidenced by a
Security, bond, Note, loan agreement, or similar instrument or agreement
(including purchase money obligations with original maturities in excess of one
year and noncontingent reimbursement obligations in respect of amounts paid
under letters of credit), (b) all reimbursement obligations and other
liabilities (contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances, (c) all obligations and
liabilities (contingent or otherwise) in respect of leases of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person and all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in connection
with the lease of real property which provides that such Person is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property, (d) all
obligations of such Person (contingent or otherwise) with respect to an interest
rate or other swap, cap or collar agreement or other similar instrument or
agreement or foreign currency hedge, exchange, purchase or similar instrument or
agreement, (e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or otherwise)
of such Person to purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of indebtedness, obligations or liabilities of another
Person of the kind described in clauses (a) through (d), (f) any indebtedness or
other obligations described in clauses (a) through (d) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person and (g) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind described
in clauses (a) through (f).
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Indenture: The term "Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
Initial Purchasers: The term "Initial Purchasers" means Alex. Brown & Sons
Incorporated, [____________] and [______________].
Junior Notes: The term "Junior Notes" shall mean the 12% Junior Notes of
the Company due August 1, 2003.
New Preferred Stock: The term "New Preferred Stock" shall mean the shares
of preferred stock of the Company issuable upon exercise of the Warrants.
New Securities: The term "New Securities" shall have the meaning specified
in Section 15.5(d).
Officers' Certificate: The term "Officers' Certificate," when used with
respect to the Company, shall mean a certificate signed by both (a) the
President, the Chief Executive Officer, Executive or Senior Vice President or
any Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and (b) the Treasurer or
any Assistant Treasurer or Secretary or any Assistant Secretary of the Company.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in
writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee.
outstanding: The term "outstanding," when used with reference to
Securities, shall, subject to the provisions of Section 9.4, mean, as of any
particular time, all Securities authenticated and delivered by the Trustee under
this Indenture, except
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for the redemption of which
monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have
been set aside and segregated in trust by the Company (if the Company shall
act as its own paying agent); provided that, if such Securities are to be
redeemed prior to the maturity thereof, notice of such redemption shall
have been given as in Article III provided, or provision satisfactory to
the Trustee shall have been made for giving such notice;
(c) Securities in lieu of which, or in substitution for which, other
Securities shall have been authenticated
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and delivered pursuant to the terms of Section 2.6 unless proof
satisfactory to the Trustee is presented that any such Securities are held
by bona fide holders in due course; and
(d) Securities converted into Common Stock pursuant to Article XV and
Securities deemed not outstanding pursuant to Article III.
Payment Blockage Notice: The term "Payment Blockage Notice" has the meaning
specified in Section 4.2.
Person: The term "Person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a limited
liability company, a trust, an unincorporated organization or a government or an
agency or a political subdivision thereof.
Predecessor Security: The term "Predecessor Security" of any particular
Security shall mean every previous Security evidencing all or a portion of the
same debt as that evidenced by such particular Security and, for the purposes of
this definition, any Security authenticated and delivered under Section 2.6 in
lieu of a lost, destroyed or stolen Security shall be deemed to evidence the
same debt as the lost, destroyed or stolen Security that it replaces.
Purchased Shares: The term "Purchased Shares" has the meaning specified in
Section 15.5(f).
Publicly Traded Securities: The term "Publicly Traded Securities" shall
have the meaning specified in Section 16.4.
Record Date: The term "Record Date" shall have the meaning specified in
Section 15.5(h)(4).
Representative: The term "Representative" means the (a) indenture trustee
or other trustee, agent or representative for any Senior Indebtedness or (b)
with respect to any Senior Indebtedness that does not have any such trustee,
agent or other representative, (i) in the case of such Senior Indebtedness
issued pursuant to an agreement providing for voting arrangements as among the
holders or owners of such Senior Indebtedness, any holder or owner of such
Senior Indebtedness acting with the consent of the required persons necessary to
bind such holders or owners of such Senior Indebtedness and (ii) in the case of
all other such Senior Indebtedness, the holder or owner of such Senior
Indebtedness.
Responsible Officer: The term "Responsible Officer," when used with respect
to the Trustee, shall mean an officer of the Trustee in the Corporate Trust
Office assigned and duly authorized by the Trustee to administer the corporate
trust matters hereunder.
Repurchase Date: The term "Repurchase Date" shall have the meaning
specified in Section 16.1.
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Repurchase Price: The term "Repurchase Price" shall have the meaning
specified in Section 16.1.
Securities Act: The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
Security or Securities: The terms "Security" or "Securities" shall mean any
of the ___% Convertible Subordinated Notes of the Company, due August 1, 2002,
authenticated and delivered under this Indenture.
Security register: The term "Security register" shall have the meaning
specified in Section 2.5.
Securityholder or holder: The terms "Securityholder" or "holder" as applied
to any Security, or other similar terms (but excluding the term "beneficial
holder"), shall mean any person in whose name at the time a particular Security
is registered on the Security registrar's books.
Senior Indebtedness: The term "Senior Indebtedness" means the principal of,
premium, if any, interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) on or in
connection with, and all fees, costs, expenses and other amounts accrued or due
on or in connection with, Indebtedness of the Company, whether outstanding on
the date of this Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to, the
foregoing), unless in the case of any particular Indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof expressly
provides that such Indebtedness shall not be senior in right of payment to the
Securities or expressly provides that such Indebtedness is "pari passu" with or
"junior" to the Securities. Notwithstanding the foregoing, the term Senior
Indebtedness shall not include any Indebtedness of the Company to any Subsidiary
of the Company or amounts payable with respect to the Junior Notes, the Warrants
or any series of preferred stock of the Company.
Significant Subsidiary: The term "Significant Subsidiary" means a
corporation or other entity of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Securities and Exchange Commission.
Subsidiary: The term "Subsidiary" means, with respect to any Person, (i)
any corporation, association or other business entity of which more than 50% of
the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
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indirectly, by such Person or one or more Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
managing general partner of which is such Person or a Subsidiary of such Person
or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
Trading Day: The term "Trading Day" shall have the meaning specified in
Section 15.5(h)(5).
Trigger Event: The term "Trigger Event" shall have the meaning specified in
Section 15.5(d).
Trust Indenture Act: The term "Trust Indenture Act" shall mean the Trust
Indenture Act of 1939, as amended, as it was in force at the date of execution
of this Indenture, except as provided in Sections 11.3, 15.6 and 16.5; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after the
date hereof, the term "Trust Indenture Act" shall mean, to the extent required
by such amendment, the Trust Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" shall mean Harris Trust and Savings Bank, and
its successors and any corporation resulting from or surviving any consolidation
or merger to which it or its successors may be a party and any successor trustee
at the time serving as successor trustee hereunder.
U.S. Government Obligations: The term "U.S. Government Obligations" means
direct non-callable obligations of, or non-callable obligations guaranteed by,
the United States of America for the payment of which guarantee or obligation
the full faith and credit of the United States is pledged.
Warrants: The term "Warrants" shall mean the warrants to purchase shares of
Common Stock and a new series of the Company's preferred stock issued to the
holders of the Junior Note.
The definitions of certain other terms are as specified in Article XV and
Article XVI.
ARTICLE II.
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF SECURITIES
Section 2.1. Designation, Amount and Issue of Securities. The Securities
shall be designated as "__% Convertible Subordinated Notes due 2002." Securities
not to exceed the aggregate principal amount of $90,000,000 (or $103,500,000 if
the over-allotment option set forth in Section 2 of the Underwriting Agreement,
dated August __, 1997 (as amended from time to time by the parties thereto) by
and between the Company and the Initial
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Purchasers is exercised in full) upon the execution of this Indenture, or
(except pursuant to Sections 2.5, 2.6, 3.3, 15.2 and 16.2 hereof) from time to
time thereafter, may be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Securities to or upon the written order of the Company, signed by its (a)
President, Executive or Senior Vice President or any Vice President (whether or
not designated by a number or numbers or word or words added before or after the
title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder.
Section 2.2. Form of Note. The Securities and the Trustee's certificate of
authentication to be borne by such Securities shall be substantially in the form
set forth in Exhibit A, which is incorporated in and made a part of this
Indenture.
Any of the Securities may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Securities may be
listed, or to conform to usage.
The terms and provisions contained in the Form of Note attached as Exhibit
A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3. Date and Denomination of Securities Payments of Interest. The
Securities shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. Every Security shall
be dated the date of its authentication and shall bear interest from the
applicable date in each case as specified on the face of the Form of Note
attached as Exhibit A hereto. Interest on Securities shall be paid in arrears on
each February 15 and August 15 commencing February 15, 1998 and ending on
February 15, 2002, unless redeemed, repurchased or converted earlier pursuant to
the terms of this Indenture. Interest on the Securities shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The person in whose name any Security (or its Predecessor Security) is
registered at the close of business on any record date with respect to any
interest payment date (including any Security that is converted after the record
date and on or before the
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interest payment date) shall be entitled to receive the interest payable on such
interest payment date notwithstanding the cancellation of such Security upon any
transfer, exchange or conversion subsequent to the record date and on or prior
to such interest payment date; provided, that in the case of any Security, or
portion thereof, called for redemption on a redemption date or repurchased in
connection with a Change in Control on a Repurchase Date that is after a record
date and prior to (but excluding) the next succeeding interest payment date,
interest shall not be paid to the person in whose name the Security, or portion
thereof, is registered on the close of business on such record date and the
Company shall have no obligation to pay interest on such Security or such
portion except to the extent required to be paid upon redemption or repurchase
of such Security or portion thereof pursuant to Section 3.3 or 16.1 hereof.
Interest may, at the option of the Company, be paid by check mailed to the
address of such person on the Security register; provided that, with respect to
any holder of Securities with an aggregate principal amount equal to or in
excess of $[5,000,000] at the request of such holder in writing to the Company
at least five (5) days prior to the date set for payment of interest (who shall
then furnish written notice to such effect to the Trustee), interest on such
holder's Securities shall be paid by wire transfer in immediately available
funds in accordance with the wire transfer instructions supplied by such holder
to the Trustee and paying agent (if different from the Trustee). The term
"interest payment date" shall mean February 15 and August 15 of each year
commencing on February 15, 1998. The term "record date" with respect to any
interest payment date shall mean the February 1 or August 1 preceding said
February 15 or August 15, respectively.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any said February 15 or August 15 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Securityholder
on the relevant record date by virtue of his having been such Securityholder and
such Defaulted Interest shall be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below.
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a special record
date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest to be paid on each Security and the date
of the payment (which shall be not less than twenty-five (25) days after
the receipt by the Trustee of such notice, unless the Trustee shall consent
to an earlier date), and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the
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proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a special record date for
the payment of such Defaulted Interest which shall be not more than fifteen
(15) days and not less than ten (10) days prior to the date of the proposed
payment and not less than ten (10) days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify the
Company of such special record date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Securityholder at his address as it appears in the
Security register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) were registered at the close of business
on such special record date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange and automated quotation system on which the Securities
may be listed or designated for listing, and upon such notice as may be
required by such exchange and automated quotation system, if, after notice
given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the
Trustee.
Section 2.4. Execution of Securities. The Securities shall be signed in the
name and on behalf of the Company by the facsimile signature of its President,
any Executive or Senior Vice President or any Vice President (whether or not
designated by a number or numbers or word or words added before or after the
title "Vice President") and attested by the facsimile signature of its Treasurer
or Assistant Treasurer or its Secretary or any of its Assistant Secretaries
(which may be printed, engraved or otherwise reproduced thereon, by facsimile or
otherwise). Only such Securities as shall bear thereon a certificate of
authentication substantially in the form set forth on the Form of Note attached
as Exhibit A hereto, manually executed by the Trustee (or an authenticating
agent appointed by the Trustee as provided by Section 17.11), shall be entitled
to the benefits of this Indenture or be valid or obligatory for any purpose.
Such certificate by the Trustee (or such an authenticating agent) upon any
Security executed by the Company shall be conclusive evidence that the Security
so authenticated has been duly authenticated and delivered hereunder and that
the holder is entitled to the benefits of this Indenture.
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In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Securities so signed shall
have been authenticated and delivered by the Trustee, or disposed of by the
Company, such Securities nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Securities had not ceased to be
such officer of the Company and any Security may be signed on behalf of the
Company by such persons as, at the actual date of the execution of such
Security, shall be the proper officers of the Company, although at the date of
the execution of this Indenture any such person was not such an officer.
Section 2.5. Exchange and Registration of Transfer of Securities. The
Company shall cause to be kept at the Corporate Trust Office a register (the
register maintained in such office and in any other office or agency of the
Company designated pursuant to Section 5.2 being herein sometimes collectively
referred to as the "Security register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security register shall be in
written form or in any form capable of being converted into written form within
a reasonably prompt period of time. The Trustee is hereby appointed "Security
registrar" for the purpose of registering Securities and transfers of Securities
as herein provided. The Company may appoint one or more co-registrars in
accordance with Section 5.2.
Upon surrender for registration of transfer of any Security to the Security
registrar or any co-registrar, and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of any authorized denominations and
of a like aggregate principal amount.
Securities may be exchanged for other Securities of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency maintained by the
Company pursuant to Section 5.2. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Securityholder making the exchange is entitled
to receive bearing registration numbers not contemporaneously outstanding.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
All Securities presented or surrendered for registration of transfer or for
exchange, redemption, repurchase or conversion
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shall (if so required by the Company or the Security registrar) be duly
endorsed, or be accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company and the Trustee, and the Securities shall be
duly executed by the Securityholder thereof or his attorney duly authorized in
writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities.
Neither the Company nor the Trustee nor any Security registrar nor any co-
registrar shall be required to exchange or register a transfer of (a) any
Securities for a period of fifteen (15) days next preceding any selection of
Securities to be redeemed or (b) any Securities or portions thereof called for
redemption pursuant to Article III or (c) any Securities or portion thereof
surrendered for conversion pursuant to Article XV.
Section 2.6. Mutilated, Destroyed, Lost or Stolen Securities. In case any
Security shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute, and upon its written request the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and deliver, a
new Security, bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated Security, or in lieu of and in substitution
for the Security so destroyed, lost or stolen. In every case the applicant for a
substituted Security shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in every case of
destruction, loss or theft, the applicant also shall furnish to the Company, to
the Trustee and, if applicable, to such authenticating agent evidence to their
satisfaction of the destruction, loss or theft of such Security and of the
ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Security and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Security, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Security which has matured or is about
to mature or has been called for redemption or is about to be converted into
Common Stock shall become mutilated or be destroyed, lost or stolen, the Company
may, instead of issuing a substitute Security, pay or authorize the payment of
or convert or authorize the conversion of the same (without surrender thereof
except in the case of a mutilated Security), as the case
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may be, if the applicant for such payment or conversion shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in case of destruction, loss or theft, evidence satisfactory
to the Company, the Trustee and, if applicable, any paying agent or conversion
agent of the destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
2.6 by virtue of the fact that any Security is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Security shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Securities duly issued hereunder. To the extent permitted by law, all Securities
shall be held and owned upon the express condition that the foregoing provisions
are exclusive with respect to the replacement or payment or conversion of
mutilated, destroyed, lost or stolen Securities and shall preclude any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment or
conversion of negotiable instruments or other securities without their
surrender.
Section 2.7. Temporary Securities. Pending the preparation of Securities in
certificated form, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon the written request of the Company,
authenticate and deliver temporary Securities (printed, typewritten or
lithographed). Temporary Securities shall be issuable in any authorized
denomination, and substantially in the form of the Securities in certificated
form, but with such omissions, insertions and variations as may be appropriate
for temporary Securities, all as may be determined by the Company. Every such
temporary Security shall be executed by the Company and authenticated by the
Trustee or such authenticating agent upon the same conditions and in
substantially the same manner, and with the same effect, as the Securities in
certificated form. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent Securities in certificated
form and thereupon any or all temporary Securities may be surrendered in
exchange therefor, at each office or agency maintained by the Company pursuant
to Section 5.2 and the Trustee or such authenticating agent shall authenticate
and deliver in exchange for such temporary Securities an equal aggregate
principal amount of Securities in certificated form. Such exchange shall be made
by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits and subject to the same limitations under this Indenture as
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Securities in certificated form authenticated and delivered hereunder.
Section 2.8. Cancellation of Securities Paid, Etc. All Securities
surrendered for the purpose of payment, redemption, repurchase, conversion,
exchange or registration of transfer, shall, if surrendered to the Company or
any paying agent or any Security registrar or any conversion agent, be
surrendered to the Trustee and promptly canceled by it, or, if surrendered to
the Trustee, shall be promptly canceled by it, and no Securities shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Indenture; provided that, any Security or portion thereof surrendered for
repurchase shall only be canceled at such time as such Security or portion
thereof has been repurchased pursuant to Article XVI hereof. The Trustee shall
destroy canceled Securities (unless the Company directs it to do otherwise) and,
after such destruction, shall, if requested by the Company, deliver a
certificate of such destruction to the Company. If the Company shall acquire any
of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless and until
the same are delivered to the Trustee for cancellation.
ARTICLE III.
REDEMPTION OF SECURITIES
Section 3.1. Redemption Prices. The Company may not redeem the Securities
prior to August 1, 2000. At any time on or after August 1, 2000, the Company
may, at its option from time to time, redeem all or any part of the Securities
on any date prior to maturity, upon notice as set forth in Section 3.2, and at
the optional redemption prices set forth in the Form of Note attached as Exhibit
A hereto, together with accrued interest to, but excluding, the date fixed for
redemption.
Section 3.2. Notice of Redemption; Selection of Securities. In case the
Company shall desire to exercise the right to redeem all or , as the case may
be, any part of the Securities pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its request, the Trustee in the name of and at the
expense of the Company, shall mail or cause to be mailed a notice of such
redemption at least fifteen (15) and not more than sixty (60) days prior to the
date fixed for redemption to the holders of Securities so to be redeemed as a
whole or in part at their last addresses as the same appear on the Security
register (provided that if the Company shall give such notice, it shall also
give written notice, and written notice of the Securities to be redeemed, to the
Trustee). Such mailing shall be by first class mail. The notice if mailed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the holder receives such notice. In any case, failure to give
such notice by mail or any defect in the notice to the holder of
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any Security designated for redemption as a whole or in part shall not affect
the validity of the proceedings for the redemption of any other Security.
Each such notice of redemption shall specify the aggregate principal amount
of Securities to be redeemed, the date fixed for redemption, the redemption
price at which Securities are to be redeemed, the place or places of payment,
that payment will be made upon presentation and surrender of such Securities,
that interest accrued to, but excluding, the date fixed for redemption will be
paid as specified in said notice, and that on and after said date interest
thereon or on the portion thereof to be redeemed will cease to accrue. Such
notice shall also state the current Conversion Price and the date on which the
right to convert such Securities or portions thereof into Common Stock will
expire. If fewer than all the Securities are to be redeemed, the notice of
redemption shall identify the Securities to be redeemed. In case any Security is
to be redeemed in part only, the notice of redemption shall state the portion of
the principal amount thereof to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion thereof will
be issued.
On or prior to the redemption date specified in the notice of redemption
given as provided in this Section 3.2, the Company will deposit with the Trustee
or with one or more paying agents (or, if the Company is acting as its own
paying agent, set aside, segregate and hold in trust as provided in Section 5.4)
an amount of money sufficient to redeem on the redemption date all the
Securities (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that, if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
________ [a.m./p.m.] ___________ time, on such date. If any Security called for
redemption is converted pursuant hereto, any money deposited with the Trustee or
any paying agent or so segregated and held in trust for the redemption of such
Security shall be paid to the Company upon its written request, or, if then held
by the Company, shall be discharged from such trust. If fewer than all the
Securities are to be redeemed, the Company will give the Trustee written notice
in the form of an Officers' Certificate not fewer than forty-five (45) days (or
such shorter period of time as may be acceptable to the Trustee) prior to the
redemption date as to the aggregate principal amount of Securities to be
redeemed.
If fewer than all the Securities are to be redeemed, the Trustee shall
select the Securities or portions thereof to be redeemed (in principal amounts
of $1,000 or integral multiples thereof) by lot or, in its discretion, on a pro
rata basis with such adjustments up to $1,000 in order to retain the minimum
denominations of the Securities. If any Security selected for
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partial redemption is converted in part after such selection, the converted
portion of such Security shall be deemed (so far as may be) to be the portion to
be selected for redemption. The Securities (or portions thereof) so selected
shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Security is converted as a whole or in part before
the mailing of the notice of redemption.
Upon any redemption of less than all Securities, the Company and the
Trustee may (but need not) treat as outstanding any Securities surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as outstanding any Security
authenticated and delivered during such period in exchange for the unconverted
portion of any Security converted in part during such period.
Section 3.3. Payment of Securities Called for Redemption. If notice of
redemption has been given as above provided, the Securities or portion of
Securities with respect to which such notice has been given shall, unless
converted into Common Stock pursuant to the terms hereof, become due and payable
on the date and at the place or places stated in such notice at the applicable
redemption price, together with interest accrued to (but excluding) the date
fixed for redemption, and on and after said date (unless the Company shall
default in the payment of such Securities at the redemption price, together with
interest accrued to said date) interest on the Securities or portion of
Securities so called for redemption shall cease to accrue and such Securities
shall cease after the close of business on the fifth Business Day preceding the
date fixed for redemption to be convertible into Common Stock and, except as
provided in Sections 8.5 and 13.4, to be entitled to any benefit or security
under this Indenture, and the holders thereof shall have no right in respect of
such Securities except the right to receive the redemption price thereof and
unpaid interest to (but excluding) the date fixed for redemption. On
presentation and surrender of such Securities at a place of payment in said
notice specified, the said Securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable redemption price, together
with interest accrued thereon to (but excluding) the date fixed for redemption;
provided that, if the applicable redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be payable
to the holders of such Securities registered as such on the relevant record date
instead of the holders surrendering such Securities for redemption on such date.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Security or Securities, of authorized
denominations, in principal amount equal to the unredeemed portion of the
Securities so presented.
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Notwithstanding the foregoing, the Trustee shall not pay the redemption
price of any Securities or mail any notice of optional redemption during the
continuance of a default in payment of interest or premium on the Securities or
of any Event of Default of which, in the case of any Event of Default other than
under Sections 7.1(a) or 7.1(b), a Responsible Officer of the Trustee has
knowledge. If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid or duly provided for, bear interest from the date fixed for
redemption at the rate borne by the Security and such Security shall remain
convertible into Common Stock until the principal and premium, if any, shall
have been paid or duly provided for.
Section 3.4. Conversion Arrangement on Call for Redemption. In connection
with any redemption of Securities, the Company may arrange for the purchase and
conversion of any Securities by an agreement with one or more investment bankers
or other purchasers to purchase such Securities by paying to the Trustee in
trust for the Securityholders, on or before the date fixed for redemption, an
amount not less than the applicable redemption price, together with interest
accrued to (but excluding) the date fixed for redemption, of such Securities.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the redemption price of such Securities,
together with interest accrued to (but excluding) the date fixed for redemption,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such purchasers. If such an agreement is entered into (a copy of which
shall be filed with the Trustee prior to the date fixed for redemption), any
Securities not duly surrendered for conversion by the holders thereof may, at
the option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such holders and (notwithstanding anything to
the contrary contained in Article XV) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the date
fixed for redemption (and the right to convert any such Securities shall be
extended through such time), subject to payment of the above amount as
aforesaid. At the written direction of the Company, the Trustee shall hold and
dispose of any such amount paid to it in the same manner as it would monies
deposited with it by the Company for the redemption of Securities. Without the
Trustee's prior written consent, no arrangement between the Company and such
purchasers for the purchase and conversion of any Securities shall increase or
otherwise affect any of the powers, duties, responsibilities or obligations of
the Trustee as set forth in this Indenture, and the Company agrees to indemnify
the Trustee from, and hold it harmless against, any loss, liability or expense
arising out of or in connection with any such arrangement for the purchase and
conversion of any Securities between the Company and such purchasers to which
the Trustee has not consented in writing, including the costs and expenses,
including reasonable legal fees, incurred by the Trustee in the defense of any
claim or
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liability arising out of or in connection with the exercise or performance of
any of its powers, duties, responsibilities or obligations under this Indenture.
ARTICLE IV.
SUBORDINATION OF SECURITIES
Section 4.1. Agreement of Subordination. The Company covenants and agrees,
and each holder of Securities issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article IV and each Person holding any Security, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all
Securities (including, but not limited to, the redemption price with respect to
the Securities called for redemption in accordance with Section 3.2 or submitted
for repurchase in accordance with Section 16.2, as the case may be, as provided
in the Indenture) issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred.
No provision of this Article IV shall prevent the occurrence of any default
or Event of Default hereunder.
Section 4.2. Payments to Securityholders. No payment shall be made with
respect to the principal of, or premium, if any, or interest on the Securities
(including, but not limited to, the redemption price with respect to the
Securities to be called for redemption in accordance with Section 3.2 or
submitted for repurchase in accordance with Section 16.2, as the case may be, as
provided in the Indenture), except payments and distributions made by the
Trustee as permitted by the first or second paragraph of Section 4.5, if:
(1) a default in the payment of principal, premium, interest, rent or
other obligations due on any Senior Indebtedness occurs and is continuing
(or, in the case of Senior Indebtedness for which there is a period of
grace, in the event of such a default that continues beyond the period of
grace, if any, specified in the instrument or lease evidencing such Senior
Indebtedness), unless and until such default shall have been cured or
waived or shall have ceased to exist; or
(2) a default, other than a payment default, on any Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to
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accelerate its maturity and the Trustee receives a written notice of the
default (a "Payment Blockage Notice") from a Representative or the Company.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(2) above, no subsequent Payment Blockage Notice shall be effective for purposes
of this Section unless and until (A) at least 365 days shall have elapsed since
the initial effectiveness of the immediately prior Payment Blockage Notice, and
(B) all scheduled payments of principal, premium, if any, and interest on the
Securities that have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Securities upon the earlier of:
(3) the date upon which the default is cured or waived or ceases to
exist, or
(4) in the case of a default referred to in clause (2) above, 179 days
pass after notice is received if the maturity of such Designated Senior
Indebtedness has not been accelerated,
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Indebtedness, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Indebtedness, before any payment is made on account
of the principal of, premium, if any, or interest on the Securities (except
payments made pursuant to Article XIII from monies deposited with the Trustee
pursuant thereto prior to commencement of proceedings for such dissolution,
winding up, liquidation or reorganization) and upon any such dissolution or
winding up or liquidation or reorganization of the Company or bankruptcy,
insolvency, receivership or other proceeding, any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holders of the Securities or the Trustee
would be entitled, except for the provision of this Article IV, shall (except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the
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holders of the Securities or by the Trustee under this Indenture if received by
them or it, directly to the holders of Senior Indebtedness (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders, or as otherwise required by law or a court order) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Indebtedness in full, in cash or other payment
satisfactory to the holders of such Senior Indebtedness, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any payment or distribution or provision therefor is made
to the holders of the Securities or to the Trustee.
For purposes of this Article IV, the words, "cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, the payment of which is
subordinated at least to the extent provided in this Article IV with respect to
the Securities to the payment of all Senior Indebtedness which may at the time
be outstanding; provided that, (i) the Senior Indebtedness is assumed by the new
corporation, if any, resulting from any reorganization or readjustment, and (ii)
the rights of the holders of Senior Indebtedness (other than leases which are
not assumed by the Company or the new corporation, as the case may be) are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
In the event of the acceleration of the Securities because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Securities in respect of the principal of, premium, if any, or interest on
the Securities (including, but not limited to, the redemption price with respect
to the Securities called for redemption in accordance with Section 3.2 or
submitted for repurchase in accordance with Section 16.2, as the case may be, as
provided in the Indenture), except payments and distributions made by the
Trustee as permitted by the first or second paragraph of Section 4.5, until all
Senior Indebtedness has been paid in full in cash or other payment satisfactory
to the holders of Senior Indebtedness or such acceleration is rescinded in
accordance with the terms of this Indenture. If payment of the Securities is
accelerated because of an Event of Default, the Company shall
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promptly notify holders of Senior Indebtedness of the acceleration unless there
are no payment obligations of the Company thereunder and all obligations
thereunder to extend credit have been terminated or expired.
In the event that, notwithstanding the foregoing provisions, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee or the
holders of the Securities before all Senior Indebtedness is paid in full in cash
or other payment satisfactory to the holders of such Senior Indebtedness, or
provision is made for such payment thereof in accordance with its terms in cash
or other payment satisfactory to the holders of such Senior Indebtedness, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or
other payment satisfactory to the holders of such Senior Indebtedness, after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to
the further provisions of Section 4.5, and the right to rescind and annul
acceleration of the notice pursuant to Section 7.1.
Section 4.3. Subrogation of Securities. Subject to the payment in full of
all Senior Indebtedness, the rights of the holders of the Securities shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Indebtedness pursuant to the provisions of this Article IV (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Securities are subordinated and is entitled
to like rights of subrogation) to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal, premium, if any, and interest on the Securities shall be paid in full
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the holders of the Securities or the Trustee would be entitled except for the
provisions of this Article IV, and no payment pursuant to the provisions of this
Article IV, to or for the benefit of the holders of Senior Indebtedness by
holders of the Securities or the Trustee, shall, as between the Company, its
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creditors other than holders of Senior Indebtedness, and the holders of the
Securities, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness and no payments or distributions of cash, property or
securities to or for the benefit of the holders of the Securities pursuant to
the subrogation provisions of this Article IV, which would otherwise have been
paid to the holders of Senior Indebtedness shall be deemed to be a payment by
the Company to or for the account of the Securities. It is understood that the
provisions of this Article IV are and are intended solely for the purposes of
defining the relative rights of the holders of the Securities, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the Securities the principal of (and premium, if any)
and interest on the Securities as and when the same shall become due and payable
in accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Securities and creditors of the Company other than
the holders of the Senior Indebtedness, nor shall anything herein or therein
prevent the Trustee or the holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article IV of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article IV, the Trustee, subject to the provisions of Section 8.1, and the
holders of the Securities shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Trustee or to the holders of the Securities, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon and all other facts pertinent thereto or to this Article IV.
Section 4.4. Authorization to Effect Subordination. Each holder of a
Security by the holder's acceptance thereof authorizes and directs the Trustee
on the holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article IV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of
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claim or proof of debt in the form required in any proceeding referred to in the
third paragraph of Section 7.2 hereof at least 30 days before the expiration of
the time to file such claim, the holders of any Senior Indebtedness or their
representatives are hereby authorized to file an appropriate claim for and on
behalf of the holders of the Securities.
Section 4.5. Notice to Trustee. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Securities pursuant to the provisions of this Article
IV. Notwithstanding the provisions of this Article IV or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment of monies to or by
the Trustee in respect of the Securities pursuant to the provisions of this
Article IV, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof at the Corporate Trust Office from the Company
(in the form of an Officers' Certificate) or a Representative or a holder or
holders of Senior Indebtedness or from any trustee thereof and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 8.1, shall be entitled in all respects to assume that no such facts
exist; provided that, if on a date not fewer than two Business Days prior to the
date upon which by the terms hereof any such monies may become payable for any
purpose (including, without limitation, the payment of the principal of, or
premium, if any, or interest on any Security) the Trustee shall not have
received, with respect to such monies, the notice provided for in this Section
4.5, then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such monies and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such prior
date.
Notwithstanding anything in this Article IV to the contrary, nothing shall
prevent any payment by the Trustee to the Securityholders of monies deposited
with it pursuant to Section 13.1, and any such payment shall not be subject to
the provisions of Section 4.1 or 4.2.
The Trustee, subject to the provisions of Section 8.1, shall be entitled to
rely on the delivery to it of a written notice by a Representative or a person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a
Representative or a holder of Senior Indebtedness or a trustee on behalf of any
such holder or holders. In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this
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Article IV, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article IV, and if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
Section 4.6. Trustee's Relation to Senior Indebtedness. The Trustee in its
individual capacity shall be entitled to all the rights set forth in this
Article IV in respect of any Senior Indebtedness at any time held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in Section
8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its
rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 8.1, the Trustee shall not be liable to any holder of
Senior Indebtedness if it shall pay over or deliver to holders of Securities,
the Company or any other person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.7. No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
Section 4.8. Certain Conversions Deemed Payment. For the purposes of this
Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or premium,
if any) or interest on Securities or on account of the purchase or other
acquisition of Securities, and (2) the payment, issuance or delivery of cash
(except in satisfaction of fractional shares pursuant to Section 15.2), property
or securities (other than junior securities) upon conversion of a Security shall
be deemed to constitute payment on account of the principal of such Security.
For the purposes of this Section 4.8, the term "junior securities" means (a)
shares of any stock of any class of the Company, or (b) securities of the
Company which are subordinated
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in right of payment to all Senior Indebtedness which may be outstanding at the
time of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Securities are so subordinated as provided
in this Article. Nothing contained in this Article IV or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the
Securityholders, the right, which is absolute and unconditional, of the Holder
of any Security to convert such Security in accordance with Article XV.
Section 4.9. Article Applicable to Paying Agents. If at any time any paying
agent other than the Trustee shall have been appointed by the Company and be
then acting hereunder, the term "Trustee" as used in this Article shall (unless
the context otherwise requires) be construed as extending to and including such
paying agent within its meaning as fully for all intents and purposes as if such
paying agent were named in this Article in addition to or in place of the
Trustee; provided, however, that the first paragraph of Section 4.5 shall not
apply to the Company or any Affiliate of the Company if it or such Affiliate
acts as paying agent.
Section 4.10. Senior Indebtedness Entitled to Rely. The holders of Senior
Indebtedness (including, without limitation, Designated Senior Indebtedness)
shall have the right to rely upon this Article IV, and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders unless such holders shall have agreed in writing thereto.
ARTICLE V.
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1. Payment of Principal, Premium and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Securities at
the places, at the respective times and in the manner provided herein and in the
Securities. Each installment of interest on the Securities due on any semi-
annual interest payment date may be paid by mailing checks for the interest
payable to or upon the written order of the holders of Securities entitled
thereto as they shall appear on the Security register; provided, that, with
respect to any holder of Securities with an aggregate principal amount equal to
or in excess of $[5,000,000], at the request of such holder in writing to the
Company at least five (5) days prior to the date set for payment of interest
(who shall then furnish notice to such effect to the Trustee), interest on such
holder's Securities shall be paid by wire transfer in immediately available
funds in accordance with the wire transfer instructions supplied by such holder
to the Trustee and paying agent (if different from the Trustee).
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Section 5.2. Maintenance of Office or Agency. The Company will maintain in
Chicago, Illinois, an office or agency where the Securities may be surrendered
for registration of transfer or exchange or for presentation for payment or for
conversion or redemption and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency not designated or appointed by the Trustee.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office or the office or agency of the Trustee in
[__________________].
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided
that, no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in Chicago, Illinois, for such
purposes. The Company will give prompt written notice to the holders of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying agent,
Security registrar, Custodian and conversion agent, and each of the Corporate
Trust Office of the Trustee and the office or agency of the Trustee in
[______________] as the office or agency of the Company for each of the
aforesaid purposes.
The Trustee agrees to mail, or cause to be mailed, the notices set forth in
Section 8.10(a) and the third paragraph of Section 8.11.
Section 5.3. Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 5.4. Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, it will cause
such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of
this Section 5.4:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or interest on the
Securities (whether such sums have been paid to it by the Company or
by any other
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obligor on the Securities) in trust for the benefit of the holders of
the Securities;
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities) to make any
payment of the principal of and premium, if any, or interest on the
Securities when the same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the
Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal of,
premium, if any, or interest on the Securities, deposit with the paying
agent a sum sufficient to pay such principal, premium, if any, or interest,
and (unless such paying agent is the Trustee) the Company will promptly
notify the Trustee of any failure to take such action; provided that, if
such deposit is made on the due date, such deposit shall be received by the
paying agent by 10:00 a.m. [a.m./p.m.] (Chicago time), on such date.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of, premium, if any, or interest on
the Securities, set aside, segregate and hold in trust for the benefit of
the holders of the Securities a sum sufficient to pay such principal,
premium, if any, or interest so becoming due and will notify the Trustee of
any failure to take such action and of any failure by the Company (or any
other obligor under the Securities) to make any payment of the principal
of, premium, if any, or interest on the Securities when the same shall
become due and payable.
(c) Anything in this Section 5.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be
paid to the Trustee all sums held in trust by the Company or any paying
agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying
agent shall be released from all further liability with respect to such
sums.
(d) Anything in this Section 5.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 5.4 is subject
to Sections 13.3 and 13.4.
Section 5.5. Corporate Existence. Subject to Article XII, the Company will
do or cause to be done all things necessary to
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preserve and keep in full force and effect its corporate existence.
Section 5.6. Amendments to Junior Notes, Warrants or New Preferred Stock.
Without the consent of at least a majority in principal a mount of the
Securities then outstanding, the Company shall not amend, modify or alter the
terms of the Junior Notes, the Warrants or the New Preferred Stock in any way
that will (i) increase the amount of cash interest payable on any Junior Notes
or advance dates on which such cash interest is payable, (ii) advance the final
maturity date of any Junior Notes, or (iii) otherwise be materially adverse to
the interests of the holders of the Securities as the holders of debt securities
of the Company.
Section 5.7. Stay, Extension and Usury Laws. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of, premium, if any,
or interest on the Securities as contemplated herein, wherever enacted, now or
at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been enacted.
Section 5.8. Compliance Certificate. The Company shall deliver to the
Trustee within 90 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending October 31, 1997) an Officers'
Certificate as to the signer's knowledge of the Company's compliance with all
conditions and covenants on its part contained in this Indenture and stating
whether or not the signers know of any Event of Default that occurred during
such period. If they do, such Officers' Certificate shall describe the Event of
Default and its status and the Company's efforts to remedy the same.
Section 5.9. No Prepayment of Junior Notes at the Option of the Company.
The Company shall not prepay the principal, premium, if an y, or interest on the
Junior Notes prior to the stated payment date unless (i) such payments are made
by the Company with the proceeds from the issuance of (y) Indebtedness having a
lower effective interest rate than the terms of the Junior Notes and a maturity
date not earlier than the maturity date of the Securities or (z) capital stock
of the Company and (ii) the average Closing Price of the Common Stock during the
sixty (60) Trading Days immediately preceding the second Business
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Day prior to the date of such prepayment is at least equal to 130% of
the Conversion Price.
Section 5.10. No Repurchase of Warrants. The Company shall not repurchase
any of the Warrants or any rights associated therewith for so long as any
Securities are outstanding.
Section 5.11. Liquidation. Subject to the provisions of Article IV, so far
as they may be applicable hereto, the Board of Directors or the stockholders of
the Company may not adopt a plan of liquidation which plan provides for,
contemplates or the effectuation of which is preceded by (a) the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company otherwise than substantially as an entirety (Article XII of this
Indenture being the Article which governs any such sale, lease, conveyance or
other disposition substantially as an entirety), and (b) the distribution of all
or substantially all of the proceeds of such sale, lease, conveyance or other
disposition and of the remaining assets of the Company to the holders of the
capital stock of the Company, unless the Company shall in connection with the
adoption of such plan make provision for, or agree that prior to making any
liquidating distributions it will make provision for, the satisfaction of the
Company's obligations hereunder and under the Securities as to the payment of
the principal and interest. The Company shall be deemed to make provision for
such payments only if (1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the principal of and
interest on the Securities then outstanding to maturity and to pay all other
sums payable by it hereunder, or (2) there is an express assumption of the due
and punctual payment of the Company's obligations hereunder and under the
Securities and the performance and observance of all covenants and conditions to
be performed by the Company hereunder, by the execution and delivery of a
supplemental indenture in form satisfactory to the Trustee, by a person who
acquires, or will acquire (otherwise than pursuant to a lease) a portion of the
assets of the Company, and which person will have assets (immediately after the
acquisition) and aggregate earnings (for such person's four full fiscal quarters
immediately preceding such acquisition) equal to not less than the assets of the
Company (immediately preceding such acquisition) and the aggregate earnings of
the Company (for its four full fiscal quarters immediately preceding the
acquisition), respectively, and which is a corporation organized under the laws
of the United States, any State thereof or the District of Columbia; provided,
however, that the Company shall not make any liquidating distribution until
after the Company shall have certified to the Trustee with an Officers'
Certificate at least five days prior to the making of any liquidating
distribution that it has complied with the provisions of this Section 5.11.
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Section 5.12. Notice of Defaults. In the event that Indebtedness of the
Company in an aggregate amount in excess of $10,000,000 is declared due and
payable before its maturity because of the occurrence of any default under such
Indebtedness, the Company will promptly give written notice to the Trustee of
such declaration or of the occurrence of any event which, with the giving of
notice or the passage of time, or both, would entitle the holder or holders of
such Indebtedness to declare such Indebtedness due and payable before its
maturity.
Section 5.13. Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all material taxes, assessments and governmental charges levied
or imposed upon the Company, directly or by reason of its ownership of any
Subsidiary or upon the income, profits or property of the Company, and (2) all
material lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a lien upon the property of the Company; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which adequate provision has been made.
Section 5.14. Further Instruments and Acts. Upon request of the Trustee,
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
ARTICLE VI.
SECURITYHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND TRUSTEE
Section 6.1. Securityholders' Lists. The Company covenants and agrees that
it will furnish or cause to be furnished to the Trustee, semiannually, not more
than fifteen (15) days after each February 1 and August 1 in each year beginning
with February 1, 1998, and at such other times as the Trustee may request in
writing, within thirty (30) days after receipt by the Company of any such
request (or such lesser time as the Trustee may reasonably request in order to
enable it to timely provide any notice to be provided by it hereunder), a list
in such form as the Trustee may reasonably require of the names and addresses of
the holders of Securities as of a date not more than fifteen (15) days (or such
other date as the Trustee may reasonably request in order to so provide any such
notices) prior to the time such information is furnished, except that no such
list need be furnished so long as the Trustee is acting as Security registrar.
Section 6.2. Preservation and Disclosure of Lists.
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(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders
of Securities contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Security
registrar, if so acting. The Trustee may destroy any list furnished to it
as provided in Section 6.1 upon receipt of a new list so furnished.
(b) The rights of Securityholders to communicate with other holders
of Securities with respect to their rights under this Indenture or under
the Securities, and the corresponding rights and duties of the Trustee,
shall be as provided by the Trust Indenture Act.
(c) Every Securityholder, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of
Securities made pursuant to the Trust Indenture Act.
Section 6.3. Reports by Trustee.
(a) Within 60 days after August 1 of each year commencing with the
year 1998, the Trustee shall transmit to holders of Securities such reports
dated as of August 1 of the year in which such reports are made concerning
the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of such report shall, at the time of such transmission to
holders of Securities, be filed by the Trustee with each stock exchange and
automated quotation system upon which the Securities are listed and with
the Company. The Company will notify the Trustee in writing within a
reasonable time when the Securities are listed on any stock exchange and
automated quotation system.
Section 6.4. Reports by Company. The Company shall file with the Trustee
(and the Commission if at any time the Indenture becomes qualified under the
Trust Indenture Act), and transmit to holders of Securities, such information,
documents and other reports and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that, any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act shall be filed with the Trustee within fifteen (15) days after the
same are so required to be filed with the Commission.
ARTICLE VII.
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REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON AN EVENT OF DEFAULT
Section 7.1. Events of Default. In case one or more of the following Events
of Default (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment of any installment of interest upon any of
the Securities as and when the same shall become due and payable, and
continuance of such default for a period of thirty (30) days, whether or
not such payment is permitted under Article IV hereof; or
(b) default in the payment of the principal of or premium, if any, on
any of the Securities as and when the same shall become due and payable
either at maturity or in connection with any redemption pursuant to Article
III or repurchase pursuant to Article XVI, by acceleration or otherwise,
whether or not such payment is permitted under Article IV hereof; or
(c) failure on the part of the Company duly to observe or perform (i)
any of its obligations under Section 5.6, 5.9, 5.10, 5.11, 12.1 or 15.1 of
this Indenture (immediately upon the giving of notice described below,
without the passage of time) or (ii) any other of the covenants or
agreements on the part of the Company in the Securities or in this
Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section 7.1 specifically
dealt with) continued for a period of thirty (30) days after the date on
which written notice of such failure, requiring the Company to remedy the
same, shall have been given to the Company by the Trustee, or to the
Company and a Responsible Officer of the Trustee by the holders of at least
25 percent (25%) in aggregate principal amount of the Securities at the
time outstanding determined in accordance with Section 9.4; or
(d) failure on the part of the Company or any Significant Subsidiary
with respect to its obligation to pay principal of or interest on
indebtedness for borrowed money in excess of $10 million; or
(e) default by the Company with respect to any indebtedness for
borrowed money of the Company, which default results in acceleration of any
such indebtedness which is in an amount of in excess of $10 million
without such indebtedness having been discharged, or such acceleration
having been rescinded or annulled for a period of ten (10) days; or
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(f) the Company or any Significant Subsidiary 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
(g) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary 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 sixty (60) consecutive days; or
(h) the entry by a court having jurisdiction in the premises of a
final judgment, decree or order against the Company or any Significant
Subsidiary which shall require the payment by the Company or any of its
Significant Subsidiaries of an amount (to the extent not covered by
insurance) in excess of $1 million and the continuance of any such
judgment, decree or order unstayed and in effect for a period of sixty (60)
consecutive days which is not being contested in good faith by appropriate
proceedings;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(f) or (g)), unless the principal of all of the Securities shall
have already become due and payable, either the Trustee or the holders of not
less than 25 percent (25%) in aggregate principal amount of the Securities then
outstanding hereunder determined in accordance with Section 9.4, by notice in
writing to the Company (and to the Trustee if given by Securityholders), may
declare the principal of all the Securities and the interest accrued thereon to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything in this Indenture or
in the Securities contained to the contrary notwithstanding. If an Event of
Default specified in Section 7.1(f) or (g) occurs, the principal of all the
Securities and the interest accrued thereon shall be immediately and
automatically due and payable without necessity of further action. This
provision, however, is subject to the condition that if, at any time after the
principal of the Securities shall have been so declared due and payable, and
before any judgment or decree for the payment of the monies due shall have been
obtained
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or entered as hereinafter provided, the Company shall pay or shall deposit with
the Trustee a sum sufficient to pay all matured installments of interest upon
all Securities and the principal of and premium, if any, on any and all
Securities which shall have become due otherwise than by acceleration (with
interest on overdue installments of interest (to the extent that payment of such
interest is enforceable under applicable law) and on such principal and premium,
if any, at the rate borne by the Securities, to the date of such payment or
deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and
all defaults under this Indenture, other than the nonpayment of principal of and
premium, if any, and accrued interest on Securities which shall have become due
by acceleration, shall have been cured or waived pursuant to Section 7.7, then
and in every such case the holders of a majority in aggregate principal amount
of the Securities then outstanding determined in accordance with Section 9.4, by
written notice to the Company and to the Trustee, may waive all defaults or
Events of Default and rescind and annul such declaration and its consequences
but no such waiver or rescission and annulment shall extend to or shall affect
any subsequent default or Event of Default, or shall impair any right consequent
thereon. The Company shall notify a Responsible Officer of the Trustee, promptly
upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such waiver or rescission and annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the holders of Securities, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Securities, and the Trustee
shall continue as though no such proceeding had been taken.
Section 7.2. Payments of Securities on Default; Suit Therefor. The Company
covenants that (a) in case default shall be made in the payment of any
installment of interest upon any of the Securities as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty (30) days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities as and when the same
shall have become due and payable, whether at maturity of the Securities or in
connection with any redemption or repurchase, under this Indenture, by
declaration or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the benefit of the holders of the Securities, the whole
amount that then shall have become due and payable on all such Securities for
principal and premium, if any, or interest, or both, as the case may be, with
interest upon the overdue principal and premium, if any, and (to the extent that
payment of such interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the
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Securities and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including compensation to the
Trustee, its agents, attorney and counsel, and any expenses or liabilities
incurred by the Trustee hereunder. Until such demand by the Trustee, the Company
may pay the principal of and premium, if any, and interest on the Securities to
the registered holders, whether or not the Securities are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the
Securities and collect in the manner provided by law out of the property of the
Company or any other obligor on the Securities wherever situated the monies
adjudged or decreed to be payable.
In the case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Securities under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Securities, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal, premium, if
any, and interest owing and unpaid in respect of the Securities, and, in case of
any judicial proceedings, to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and of the Securityholders allowed in such judicial proceedings relative
to the Company or any other obligor on the Securities, its or their creditors,
or its or their property, and to collect and receive any monies or other
property payable or deliverable on any such claims, and to distribute the same
after the deduction of any amounts due the Trustee under Section 8.6 and any
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the
Securityholders to make such payments to the Trustee, and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements, including counsel fees
incurred by it up to the date of such
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distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Securities may be
entitled to receive in such proceedings, whether in liquidation or under any
plan of reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this Indenture, or under
any of the Securities, may be enforced by the Trustee without the possession of
any of the Securities, or the production thereof at any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Securities.
In any proceedings brought by the Trustee (and in any proceedings involving
the interpretation of any provision of this Indenture to which the Trustee shall
be a party), the Trustee shall be held to represent all the holders of the
Securities, and it shall not be necessary to make any holders of the Securities
parties to any such proceedings.
Section 7.3. Application of Monies Collected by Trustee. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Securities, and stamping
thereon the payment, if only partially paid, and upon surrender thereof, if
fully paid:
First: to the payment of all amounts due the Trustee under Section
8.6;
Second: subject to the provisions of Article IV, in case the principal
of the outstanding Securities shall not have become due and be unpaid, to
the payment of interest on the Securities in default in the order of the
maturity of the installments of such interest, with interest (to the extent
that such interest has been collected by the Trustee) upon the overdue
installments of interest at the rate borne by the Securities, such payments
to be made ratably to the persons entitled thereto;
Third: subject to the provisions of Article IV, in case the principal
of the outstanding Securities shall have become due, by declaration or
otherwise, and be unpaid, to the payment of the whole amount then owing and
unpaid upon the Securities for principal and premium, if any, and interest,
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with interest on the overdue principal and premium, if any, and (to the
extent that such interest has been collected by the Trustee) upon overdue
payments of interest at the rate borne by the Securities and in case such
monies shall be insufficient to pay in full the whole amounts so due and
unpaid upon the Securities, then to the payment of such principal and
premium, if any, and interest without preference or priority of principal
and premium, if any, over interest, or of interest over principal and
premium, if any, or of any installment of interest over any other
installment of interest, or of any Security over any other Security,
ratably to the aggregate of such principal and premium, if any, and accrued
and unpaid interest; and
Fourth: subject to the provisions of Article IV, to the payment of the
remainder, if any, to the Company or any other person lawfully entitled
thereto.
Section 7.4. Proceedings by Securityholder. No holder of any Security shall
have any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25 percent (25%) in
aggregate principal amount of the Securities then outstanding determined in
accordance with Section 9.4 shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee for sixty (60) days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 7.7, it being
understood and intended, and being expressly covenanted by the taker and holder
of every Security with every other taker and holder and the Trustee, that no one
or more holders of Securities shall have any right in any manner whatever by
virtue of or by availing of any provision of this Indenture to affect, disturb
or prejudice the rights of any other holder of Securities, or to obtain or seek
to obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities (except as
otherwise provided herein). For the protection and enforcement of this Section
7.4, each and every Securityholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
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Notwithstanding any other provision of this Indenture and any provision of
any Security, the right of any holder of any Security to receive payment of the
principal of and premium, if any, and interest on such Security, on or after the
respective due dates therefor, or to institute suit for the enforcement of any
such payment on or after such respective dates against the Company shall not be
impaired or affected without the consent of such holder.
Anything in this Indenture or the Securities to the contrary
notwithstanding, the holder of any Security, without the consent of either the
Trustee or the holder of any other Security, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 7.5. Proceedings by Trustee. In case of an Event of Default the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 7.6. Remedies Cumulative and Continuing. Except as provided in the
last paragraph of Section 2.6, all powers and remedies given by this Article VII
to the Trustee or to the Securityholders shall, to the extent permitted by law,
be deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Securities, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Securities to exercise any right
or power accruing upon any default or Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the Trustee or to the Securityholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
Section 7.7. Direction of Proceedings and Waiver of Defaults by Majority of
Securityholders. The holders of a majority in aggregate principal amount of the
Securities at the time outstanding determined in accordance with Section 9.4
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (a) such direction shall
not be in
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conflict with any rule of law or with this Indenture, and (b) the Trustee may
take any other action deemed proper by the Trustee which is not inconsistent
with such direction. The holders of a majority in aggregate principal amount of
the Securities at the time outstanding determined in accordance with Section 9.4
may on behalf of the holders of all of the Securities waive any past default or
Event of Default hereunder and its consequences except (i) a default in the
payment of interest or premium, if any, on, or the principal of, the Securities,
(ii) a failure by the Company to convert any Securities into Common Stock, (iii)
a default in the payment of redemption price pursuant to Article III or
repurchase price pursuant to Article XVI or (iv) a default in respect of a
covenant or provisions hereof which under Article XI cannot be modified or
amended without the consent of the holders of all Securities then outstanding.
Upon any such waiver the Company, the Trustee and the holders of the Securities
shall be restored to their former positions and rights hereunder but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon. Whenever any default or Event of Default
hereunder shall have been waived as permitted by this Section 7.7, said default
or Event of Default shall for all purposes of the Securities and this Indenture
be deemed to have been cured and to be not continuing but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
Section 7.8. Notice of Defaults. The Trustee shall, within ninety (90) days
after a Responsible Officer has knowledge of the occurrence of a default, mail
to all Securityholders, as the names and addresses of such holders appear upon
the Security register, notice of all defaults known to a Responsible Officer,
unless such defaults shall have been cured or waived before the giving of such
notice and provided that, except in the case of default in the payment of the
principal of, or premium, if any, or interest on any of the Securities, the
Trustee shall be protected in withholding such notice if and so long as a trust
committee of directors and/or officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Securityholders.
Section 7.9. Undertaking to Pay Costs. All parties to this Indenture agree,
and each holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; provided that, the provisions of this Section 7.9 (to the extent
permitted by law) shall not apply
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to any suit instituted by the Trustee, to any suit instituted by any
Securityholder, or group of Securityholders, holding in the aggregate more than
ten percent (10%) in principal amount of the Securities at the time outstanding
determined in accordance with Section 9.4, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of or
premium, if any, or interest on any Security on or after the due date therefor
or to any suit for the enforcement of the right to convert any Security in
accordance with the provisions of Article XV or to require the Company to
repurchase any Security in accordance with Article XVI.
ARTICLE VIII.
CONCERNING THE TRUSTEE
Section 8.1. Duties and Responsibilities of Trustee. The Trustee, prior to
the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In case an Event of
Default has occurred (which has not been cured or waived) the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture and the Trust
Indenture Act, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Indenture and no implied covenants or obligations shall
be read into this Indenture or the Trust Indenture Act against the
Trustee; and
(2) in the absence of bad faith and willful misconduct on the
part of the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture but, in the case
of any such certificates or opinions which by any provisions hereof
are specifically required to be furnished to the Trustee, the Trustee
shall be
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under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the holders of not less than a majority in principal amount of the
Securities at the time outstanding determined as provided in Section 9.4
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee as trustee, paying agent, Security
registrar, Custodian or conversion agent shall be subject to the provisions
of this Section.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers.
Section 8.2. Reliance on Documents, Opinions, Etc. Except as otherwise
provided in Section 8.1:
(a) the Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, Note, Security, coupon or other paper or
document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically prescribed) and
any resolution of the Board of Directors may be evidenced to the Trustee by
a copy thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
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(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney;
provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liability as a condition to so proceeding and the
reasonable expenses of every such examination shall be paid by the Company
or, if paid by the Trustee or any predecessor Trustee, shall be repaid by
the Company upon demand;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due
care hereunder; and
(g) the Trustee shall not be deemed to have notice of an Event of
Default or of any event or conditions which, with the giving of notice, the
passage of time, or both, might constitute an Event of Default unless (i)
the Trustee has received written notice thereof from the Company or any
Securityholder or (ii) a Responsible Officer of the Trustee shall have
actual knowledge thereof.
Section 8.3. No Responsibility for Recitals, Etc. The recitals contained
herein and in the Securities (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of any
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Securities or the proceeds of any Securities authenticated and delivered by the
Trustee in conformity with the provisions of this Indenture.
Section 8.4. Trustee, Paying Agents, Conversion Agents or Registrar May Own
Securities. The Trustee, any paying agent, any conversion agent or Security
registrar, in its individual or any other capacity, may become the owner or
pledgee of Securities with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Security registrar.
Section 8.5. Monies to Be Held in Trust. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as may be
agreed from time to time by the Company and the Trustee.
Section 8.6. Compensation and Expenses of Trustee. The Company covenants
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
in any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ), except any such expense, disbursement
or advance as may arise from its negligence, willful misconduct, recklessness or
bad faith. The Company also covenants to indemnify the Trustee in any capacity
under this Indenture and its agents and any authenticating agent for, and to
hold them harmless against, any loss, liability or expense incurred without
negligence, willful misconduct, recklessness, or bad faith on the part of the
Trustee or such agent or authenticating agent, as the case may be, and arising
out of or in connection with the acceptance or administration of this trust or
in any other capacity hereunder, including the costs and expenses of defending
themselves against any claim of liability in the premises. All indemnifications
and releases from liability granted hereunder to the Trustee shall extend to its
officers, directors, employees, agents, successors and assigns. The obligations
of the Company under this Section 8.6 to compensate or indemnify the Trustee and
to pay or reimburse the Trustee for expenses, disbursements and advances shall
be secured by a lien prior to that of the Securities upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the holders of particular Securities. The obligation of the Company
under this
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Section shall survive the satisfaction and discharge of this Indenture.
When the Trustee and its agents and any authenticating agent incur expenses
or render services after an Event of Default specified in Section 7.1(f) or (g)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy, insolvency or
similar laws.
Section 8.7. Officers' Certificate as Evidence. Except as otherwise
provided in Section 8.1, wherever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness,
or bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee.
Section 8.8. Conflicting Interests of Trustee. If the Trustee has or shall
acquire a conflicting interest within the meaning of the Trust Indenture Act,
the Trustee shall either eliminate such interest or resign, to the extent and in
the manner provided by, and subject to the provisions of, the Trust Indenture
Act and this Indenture.
Section 8.9. Eligibility of Trustee. There shall at all times be a Trustee
hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and which shall have (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company shall have) a combined capital and surplus of at least $50,000,000. If
such person publishes reports of condition at least annually, pursuant to law or
to the requirements of any supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 8.10. Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written notice of
such resignation to the Company and to the holders of Securities. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument shall be delivered to
the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted
appointment
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within sixty (60) days after the mailing of such notice of resignation to
the Securityholders, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide holder of a Security or Securities
for at least six months may, subject to the provisions of Section 7.9, on
behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 after
written request therefor by the Company or by any Securityholder who
has been a bona fide holder of a Security or Securities for at least
six months; or
(2) the Trustee shall cease to be eligible in accordance with the
provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Securityholder; or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument shall be delivered to
the Trustee so removed and one copy to the successor trustee, or, subject
to the provisions of Section 7.9, any Securityholder who has been a bona
fide holder of a Security or Securities for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment
of a successor trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee, unless within ten (10) days after notice to the Company of such
nomination, the Company objects thereto, in which case the
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Trustee so removed or any Securityholder, upon the terms and conditions and
otherwise as in Section 8.10(a) provided, may petition any court of
competent jurisdiction for an appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.10
shall become effective upon acceptance of appointment by the successor
trustee as provided in Section 8.11.
Section 8.11. Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property and funds held or collected by
such trustee as such, except for funds held in trust for the benefit of holders
of particular Securities, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this Section
8.11 unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.11, the Company (or the former trustee, at the written direction of
the Company) shall mail or cause to be mailed notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security register. If the Company fails to mail such notice within
ten (10) days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
Section 8.12. Succession by Merger, Etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be
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a party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including any trust created by this
Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee or authenticating agent
appointed by such predecessor trustee, and deliver such Securities so
authenticated and in case at that time any of the Securities shall not have been
authenticated, any successor to the Trustee or an authenticating agent appointed
by such successor trustee may authenticate such Securities either in the name of
any predecessor trustee hereunder or in the name of the successor trustee and in
all such cases such certificates shall have the full force of the Securities and
this Indenture; provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or authenticate Securities in the name
of any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
Section 8.13. Limitation on Rights of Trustee as Creditor. If and when the
Trustee shall be or become a creditor of the Company (or any other obligor upon
the Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
ARTICLE IX.
CONCERNING THE SECURITYHOLDERS
Section 9.1. Action by Securityholders. When in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Securities may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action, the holders
of such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Securityholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Securities voting in favor thereof at any meeting
of Securityholders duly called and held in accordance with the provisions of
Article X, or (c) by a combination of such instrument or instruments and any
such record of such a meeting of Securityholders. Whenever the Company or the
Trustee solicits
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the taking of any action by the holders of the Securities, the Company or the
Trustee may fix in advance of such solicitation, a date as the record date for
determining holders entitled to take such action. The record date shall be not
more than fifteen (15) days prior to the date of commencement of solicitation of
such action.
Section 9.2. Proof of Execution by Securityholders. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Securityholder or his agent or proxy shall be sufficient if made
in accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Securities shall be proved by the registry of such Securities or by a
certificate of the Security registrar.
The record of any Securityholders' meeting shall be proved in the manner
provided in Section 10.6.
Section 9.3. Who Are Deemed Absolute Owners. The Company, any other
obligor on the Securities, the Trustee, any authenticating agent, any paying
agent, any conversion agent and any Security registrar may deem the person in
whose name such Security shall be registered upon the Security register to be,
and may treat him as, the absolute owner of such Security (whether or not such
Security shall be overdue and notwithstanding any notation of ownership or other
writing thereon) for the purpose of receiving payment of or on account of the
principal of, premium, if any, and interest on such Security, for conversion of
such Security and for all other purposes and neither the Company nor any other
obligor on the Securities nor the Trustee nor any paying agent nor any
conversion agent nor any authenticating agent nor any Security registrar shall
be affected by any notice to the contrary. All such payments so made to any
holder for the time being, or upon his order, shall be valid, and, to the extent
of the sum or sums so paid, effectual to satisfy and discharge the liability for
monies payable upon any such Security.
Section 9.4. Company-Owned Security Disregarded. In determining whether
the holders of the requisite aggregate principal amount of Securities have
concurred in any direction, consent, waiver or other action under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; provided that, for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action, only Securities which a Responsible
Officer knows are so owned shall be so disregarded. Securities so owned which
have been pledged
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in good faith may be regarded as outstanding for the purposes of this Section
9.4 if the pledgee shall establish to the satisfaction of the Trustee the
pledgee's right to vote such Securities and that the pledgee is not the Company,
any other obligor on the Securities or a person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. In the case of a dispute as to such right,
any decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee. Upon request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and identifying
all Securities, if any, known by the Company to be owned or held by or for the
account of any of the above-described persons and, subject to Section 8.1, the
Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are outstanding for the purpose of any such determination.
Section 9.5. Revocation of Consents: Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action, any holder of a Security which is shown by the evidence to be
included in the Securities the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as provided in Section 9.2, revoke such action so far as
it concerns such Security. Except as aforesaid, any such action taken by the
holder of any Security shall be conclusive and binding upon such holder and upon
all future holders and owners of such Security and of any Securities issued in
exchange or substitution therefor, irrespective of whether any notation in
regard thereto is made upon such Security or any Security issued in exchange or
substitution therefor.
ARTICLE X.
SECURITYHOLDERS' MEETINGS
Section 10.1. Purpose of Meetings. A meeting of Securityholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(a) to give any notice to the Company or to the Trustee or to give
any directions to the Trustee permitted under this Indenture, or to consent
to the waiving of any default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Securityholders pursuant to any of the provisions of Article VII;
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(b) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article VIII;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2; or
(d) to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of the
Securities under any other provision of this Indenture or under applicable
law.
Section 10.2. Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Securityholders to take any action specified in Section 10.1,
to be held at such time and at such place at a location within ten (10) miles of
the Corporate Trust Office or the principal executive office of the Company, as
the Trustee shall determine. Notice of every meeting of the Securityholders,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting and the establishment of any record
date pursuant to Section 9.1, shall be mailed to holders of Securities at their
addresses as they shall appear on the Security register. Such notice shall also
be mailed to the Company. Such notices shall be mailed not less than fifteen
(15) nor more than ninety (90) days prior to the date fixed for the meeting.
Any meeting of Securityholders shall be valid without notice if the holders
of all Securities then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the holders of all Securities
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 10.3. Call of Meetings by Company or Securityholders. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent (10%) in aggregate principal amount of the
Securities then outstanding, shall have requested the Trustee to call a meeting
of Securityholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within ten (10) days after receipt of such
request, then the Company or such Securityholders may determine the time and the
place at any location within 10 miles of the Corporate Trust Office or the
principal executive offices of the Company for such meeting and may call such
meeting to take any action authorized in Section 10.1, by mailing notice thereof
as provided in Section 10.2.
Section 10.4. Qualifications for Voting. To be entitled to vote at any
meeting of Securityholders a person shall (a) be a holder of one or more
Securities on the record date pertaining to
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such meeting or (b) be a person appointed by an instrument in writing as proxy
by a holder of one or more Securities. The only persons who shall be entitled to
be present or to speak at any meeting of Securityholders shall be the persons
entitled to vote at such meeting and their counsel and any representatives of
the Trustee and its counsel and any representatives of the Company and its
counsel.
Section 10.5. Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Securityholders, in regard to proof of the holding
of Securities and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 10.3, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Securities represented at the meeting and entitled to
vote at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Securityholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Securities held or represented by such Securityholder;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not outstanding and ruled by the chairman
of the meeting to be not outstanding. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 10.2 or 10.3 may be adjourned from time to time by the
holders of a majority of the aggregate principal amount of Securities
represented at the meeting, whether or not constituting a quorum, and the
meeting may be held as so adjourned without further notice.
Section 10.6. Voting. The vote upon any resolution submitted to any meeting
of Securityholders shall be by written ballot on which shall be subscribed the
signatures of the holders of Securities or of their representatives by proxy and
the principal amount of the Securities held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in
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duplicate of the proceedings of each meeting of Securityholders shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 10.2. The record shall show the
principal amount of the Securities voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7. No Delay of Rights by Meeting. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Securityholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Securityholders under any of the provisions of this Indenture or of the
Securities.
ARTICLE XI.
SUPPLEMENTAL INDENTURES
Section 11.1. Supplemental Indentures Without Consent of Securityholders.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of the
holders of Securities pursuant to the requirements of Section 15.6 or the
repurchase obligations of the Company pursuant to the requirements of
Section 16.5;
(b) subject to Article IV, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Securities, any property or
assets;
(c) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation
of the covenants, agreements and obligations of the Company pursuant to
Article XII;
(d) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Board
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of Directors and the Trustee shall consider to be for the benefit of the
holders of Securities, and to make the occurrence, or the occurrence and
continuance, of a default in any such additional covenants, restrictions or
conditions a default or an Event of Default permitting the enforcement of
all or any of the several remedies provided in this Indenture as herein set
forth; provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for
an immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Securities in
coupon form (including Securities registrable as to principal only) and to
provide for exchangeability of such Securities with the Securities issued
hereunder in fully registered form and to make all appropriate changes for
such purpose;
(f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture which shall not
materially adversely affect the interests of the holders of the Securities;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities; or
(h) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the Trust Indenture Act, or under any similar federal
statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Securities at the
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time outstanding, notwithstanding any of the provisions of Section 11.2.
Section 11.2. Supplemental Indentures with Consent of Securityholders.
With the consent (evidenced as provided in Article IX) of th e holders of not
less than a majority in aggregate principal amount of the Securities at the time
outstanding determined in accordance with Section 9.4, the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or any
supplemental indenture or of modifying in any manner the rights of the holders
of the Securities; provided, however, that no such supplemental indenture shall
(i) extend the fixed maturity of any Security, or reduce the rate or extend the
time of payment of interest thereon, or reduce the principal amount thereof or
premium, if any, thereon, or reduce any amount payable on redemption thereof, or
impair the right of any Securityholder to institute suit for the payment
thereof, or make the principal thereof or interest or premium, if any, thereon
payable in any coin or currency other than that provided in the Securities, or
modify the provisions of this Indenture with respect to the subordination of the
Securities in a manner adverse to the Securityholders in any material respect,
or change the obligation of the Company to repurchase any Security upon the
occurrence of a Change in Control in a manner adverse to the holder of
Securities, or impair the right to convert the Securities into Common Stock in
any material respect, without the consent of the holder of each Security so
affected, or (ii) reduce the aforesaid percentage of Securities, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Securities then outstanding.
Upon the request of the Company, accompanied by a copy of the resolutions
of the Board of Directors certified by its Secretary or an Assistant Secretary
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3. Effect of Supplemental Indenture. Any supplemental indenture
executed pursuant to the provisions of this Article XI shall comply with the
Trust Indenture Act, as
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then in effect. Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitation of rights, obligations, duties and immunities under this Indenture of
the Trustee, the Company and the holders of Securities shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 11.4. Notation on Security. Securities authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article XI may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may, at the Company's
expense, be prepared and executed by the Company, authenticated by the Trustee
(or an authenticating agent duly appointed by the Trustee pursuant to Section
17.11) and delivered in exchange for the Securities then outstanding, upon
surrender of such Securities then outstanding.
Section 11.5. Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and
8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1. Company May Consolidate Etc. on Certain Terms. Subject to
the provisions of Section 12.2, nothing contained in this Indenture or in any of
the Securities shall prevent any consolidation or merger of the Company with or
into any other corporation or corporations (whether or not affiliated with the
Company), or successive consolidations or mergers in which the Company or its
successor or successors shall be a party or parties, or shall prevent any sale,
conveyance or lease (or successive sales, conveyances or leases) of the property
of the Company, substantially as an entirety, to any other corporation (whether
or not affiliated with the Company), authorized to acquire and operate the same
and which, in each case, shall be organized under the laws of the United States
of America, any state thereof or the District of Columbia; provided, that upon
any such consolidation, merger, sale, conveyance or lease, (i) the
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due and punctual payment of the principal of and premium, if any, and interest
on all of the Securities, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company, shall be expressly assumed, by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee by the corporation (if other than the Company) formed
by such consolidation, or into which the Company shall have been merged, or by
the corporation which shall have acquired or leased such property, and such
supplemental indenture shall provide for the applicable conversion rights set
forth in Section 15.6 and (ii) immediately before and immediately after giving
effect to such transaction, no default or Event of Default shall have occurred
and be continuing.
Section 12.2. Successor Corporation to Be Substituted. In case of any such
consolidation, merger, sale, conveyance or lease and upo n the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual payment
of the principal of and premium, if any, and interest on all of the Securities
and the due and punctual performance of all of the covenants and conditions of
this Indenture to be performed by the Company, such successor corporation shall
succeed to and be substituted for the Company, with the same effect as if it had
been named herein as such. Such successor corporation thereupon may cause to be
signed, and may issue either in its own name or in the name of the Company any
or all of the Securities issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee and, upon the order of
such successor corporation instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver, or cause to be authenticated and delivered, any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication, and any Securities which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All the Securities so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Securities had been issued at the date of the execution
hereof. In the event of any such consolidation, merger, sale or conveyance (but
not in the event of any such lease), the person named as the "Company" in the
first paragraph of this Indenture or any successor which shall thereafter have
become such in the manner prescribed in this Article XII shall be released from
its liabilities as obligor and maker of the Securities and from its obligations
under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
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Section 12.3. Opinion of Counsel to Be Given Trustee. The Trustee, subject
to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an Opinion
of Counsel as conclusive evidence that any such consolidation, merger, sale,
conveyance or lease and any such assumption complies with the provisions of this
Article XII.
ARTICLE XIII.
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1. Discharge of Indenture. When (a) the Company shall deliver
to the Trustee for cancellation all Securities theretofore authenticated (other
than any Securities which have been destroyed, lost or stolen and in lieu of or
in substitution for which other Securities shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Securities not
theretofore canceled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, monies sufficient to pay at
maturity or upon redemption of all of the Securities (other than any Securities
which shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Securities shall have been authenticated and
delivered) not theretofore canceled or delivered to the Trustee for
cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be, and
if in either case the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect (except as to (i) remaining rights of registration of transfer,
substitution and exchange and conversion of Securities, (ii) rights hereunder of
Securityholders to receive payments of principal of and premium, if any, and
interest on, the Securities and the other rights, duties and obligations of
Securityholders, as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights, obligations and immunities of
the Trustee hereunder), and the Trustee, on demand of the Company accompanied by
an Officers' Certificate and an Opinion of Counsel as required by Section 17.5
and at the cost and use of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture; the Company,
however, hereby agreeing to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Securities.
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Section 13.2. Deposited Monies to Be Held in Trust by Trustee. Subject to
Section 13.4, all monies deposited with the Trustee pursu ant to Section 13.1
and not in violation of Article IV shall be held in trust for the sole benefit
of the Securityholders and not to be subject to the subordination provisions of
Article IV, and such monies shall be applied by the Trustee to the payment,
either directly or through any paying agent (including the Company if acting as
its own paying agent), to the holders of the particular Securities for the
payment or redemption of which such monies have been deposited with the Trustee,
of all sums due and to become due thereon for principal and interest and
premium, if any.
Section 13.3. Paying Agent to Repay Monies Held. Upon the satisfaction and
discharge of this Indenture, all monies then held by any paying agent for the
Securities (other than the Trustee) shall, upon written request of the Company,
be repaid to the Company or paid to the Trustee, and thereupon such paying agent
shall be released from all further liability with respect to such monies.
Section 13.4. Return of Unclaimed Monies. Subject to the requirements of
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or interest on Securities and not applied but
remaining unclaimed by the holders of Securities for two years after the date
upon which the principal of, premium, if any, or interest on such Securities, as
the case may be, shall have become due and payable, shall be repaid to the
Company by the Trustee on demand and all liability of the Trustee shall
thereupon cease with respect to such monies and the holder of any of the
Securities shall thereafter look only to the Company for any payment which such
holder may be entitled to collect unless an applicable abandoned property law
designates another Person.
Section 13.5. Reinstatement. If the Trustee or the paying agent is unable
to apply any money in accordance with Section 13.2 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.1 until such time as the Trustee or
the paying agent is permitted to apply all such money in accordance with Section
13.2; provided, however, that if the Company makes any payment of interest or
premium, if any, on or principal of any Security following the reinstatement of
its obligations, the Company shall be subrogated to the rights of the holders of
such Securities to receive such payment from the money held by the Trustee or
paying agent.
ARTICLE XIV.
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IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1. Indenture and Securities Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest on
any Security, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture or in any Security,
or because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer, or director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Securities.
ARTICLE XV.
CONVERSION OF SECURITIES
Section 15.1. Right to Convert. Subject to and upon compliance with the
provisions of this Indenture, the holder of any Security shall have the right,
at any time prior to the close of business on August 1, 2002 (except that, with
respect to any Security or portion of a Security which shall be called for
redemption, such right shall terminate, except as provided in Section 15.2 or
Section 3.4, at the close of business on the fifth Business Day preceding the
date fixed for redemption of such Security or portion of a Security, unless the
Company shall default in payment due upon redemption thereof) to convert the
principal amount of any such Security, or any portion of such principal amount
which is $1,000 or an integral multiple thereof, into that number of fully paid
and non-assessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing the principal amount of the Security or
portion thereof surrendered for conversion by the Conversion Price in effect at
such time, by surrender of the Security so to be converted in whole or in part
in the manner provided, together with any required funds, in Section 15.2. A
holder of Securities is not entitled to any rights of a holder of Common Stock
until such holder has converted his Securities to Common Stock, and only to the
extent such Securities are deemed to have been converted to Common Stock under
this Article XV.
Section 15.2. Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Security, the holder of any such
Security to be
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converted in whole or in part shall surrender such Security, duly endorsed, at
an office or agency maintained by the Company pursuant to Section 5.2,
accompanied by the funds, if any, required by the last paragraph of this Section
15.2, and shall give written notice of conversion in the form provided on the
Securities (or such other notice which is acceptable to the Company) to the
office or agency that the holder elects to convert such Security or the portion
thereof specified in said notice. Such notice shall also state the name or names
(with address or addresses) in which the certificate or certificates for shares
of Common Stock which shall be issuable on such conversion shall be issued, and
shall be accompanied by transfer taxes, if required pursuant to Section 15.7.
Each such Security surrendered for conversion shall, unless the shares issuable
on conversion are to be issued in the same name as the registration of such
Security, be duly endorsed by, or be accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder or his duly
authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Securityholder (as if such transfer were a transfer of the Security
or Securities (or portion thereof) so converted), the Company shall issue and
shall deliver to such holder at the office or agency maintained by the Company
for such purpose pursuant to Section 5.2, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
Security or portion thereof in accordance with the provisions of this Article
and a check or cash in respect of any fractional interest in respect of a share
of Common Stock arising upon such conversion, as provided in Section 15.3. In
case any Security of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.3, the Company shall execute and
the Trustee shall authenticate and deliver to the holder of the Security so
surrendered, without charge to him, a new Security or Securities in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Security.
Each conversion shall be deemed to have been effected as to any such
Security (or portion thereof) on the date on which the requirements set forth
above in this Section 15.2 have been satisfied as to such Security (or portion
thereof), and the person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Security shall be surrendered.
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Any Security or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date to the close of business on the Business Day next preceding the following
interest payment date shall (unless such Security or portion thereof being
converted shall have been called for redemption during the period from the close
of business on such record date to the close of business on the Business Day
next preceding the following interest payment date) be accompanied by payment,
in immediately available funds or other funds acceptable to the Company, of an
amount equal to the interest payable on such interest payment date on the
principal amount being converted; provided, however, that no such payment need
be made if there shall exist at the time of conversion a default in the payment
of interest on the Securities. In the event a Security or portion thereof is
called for redemption and the holder elects to convert such Security after
it has been called for redemption, the holder will be entitled to receive
interest on such Security for the period from the last interest payment date
through the date of conversion. Except as provided above in this Section 15.2,
no adjustment shall be made for interest accrued on any Security converted or
for dividends on any shares issued upon the conversion of such Security as
provided in this Article.
Section 15.3. Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional sha res shall be issued
upon conversion of Securities. If more than one Security shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof to
the extent permitted hereby) so surrendered. If any fractional share of stock
would be issuable upon the conversion of any Security or Securities, the Company
shall make an adjustment and payment therefor in cash at the current market
value thereof to the holder of Securities. The current market value of a share
of Common Stock shall be the Closing Price on the first Trading Day immediately
preceding the day on which the Securities (or specified portions thereof) are
deemed to have been converted.
Section 15.4. Conversion Price. The conversion price shall be as specified
in the form of Security (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XV.
Section 15.5. Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding
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Common Stock in shares of Common Stock, the Conversion Price in effect at
the opening of business on the date 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. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company.
If any dividend or distribution of the type described in this Section
15.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if
such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them (for a period
expiring within 45 days after the date fixed for determination of
stockholders entitled to receive such rights or warrants) to subscribe for
or purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined below) on the date fixed for determination
of stockholders entitled to receive such rights or warrants, the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the date
fixed for determination of stockholders entitled to receive such rights or
warrants 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
determination of stockholders entitled to receive such rights and warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Current Market Price,
and of which the denominator shall be the number of shares of Common Stock
outstanding on the date fixed for determination of stockholders entitled to
receive such rights and warrants plus the total number of additional shares
of Common Stock offered for subscription or purchase. Such adjustment shall
be successively made whenever any such rights and warrants are issued, and
shall become effective immediately after the opening of business on the day
following the date fixed for determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock
are not delivered after the expiration of such rights or warrants, the
Conversion Price shall be readjusted to the Conversion Price which would
then be in effect had the adjustments made upon the issuance of such rights
or
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warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered. In the event that such rights or warrants
are not so issued, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such date fixed for the
determination of stockholders entitled to receive such rights or warrants
had not been fixed. In determining whether any rights or warrants entitle
the holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate offering
price of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such rights or warrants, the
value of such consideration, if other than cash, to be determined by the
Board of Directors.
(c) 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 proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall 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.
(d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions to which Section
15.5(a) applies) or evidences of its indebtedness or assets (including
securities, but excluding any rights or warrants referred to in Section
15.5(b), and excluding any dividend or distribution paid exclusively in
cash (any of the foregoing hereinafter in this Section 15.5(d) called the
"New Securities")), then, in each such case (unless the Company elects to
reserve such New Securities for distribution to the Securityholders upon
the conversion of the Securities so that any such holder converting
Securities will receive upon such conversion, in addition to the shares of
Common Stock to which such holder is entitled, the amount and kind of such
New Securities which such holder would have received if such holder had
converted its Securities into Common Stock immediately prior to the Record
Date (as defined in Section 15.5(h) for such distribution of the New
Securities)), the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in
effect on the Record Date with respect to such distribution by a fraction
of
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which the numerator shall be the Current Market Price per share of the
Common Stock on such Record Date less the fair market value (as determined
by the Board of Directors, whose determination shall be conclusive, and
described in a resolution of the Board of Directors) on the Record Date of
the portion of the Securities so distributed applicable to one share of
Common Stock and the denominator shall be the Current Market Price per
share of the Common Stock, such reduction to become effective immediately
prior to the opening of business on the day following such Record Date;
provided, however, that in the event the then fair market value (as so
determined) of the portion of the New Securities so distributed applicable
to one share of Common Stock is equal to or greater than the Current
Market Price of the Common Stock on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each
Securityholder shall have the right to receive upon conversion the amount
of New Securities such holder would have received had such holder converted
each Security on the Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 15.5(d) by reference to the actual or when issued trading market
for any securities, it must in doing so consider the prices in such market
over the same period used in computing the Current Market Price of the
Common Stock.
In the event the Company implements a stockholder rights plan, such
rights plan shall provide that upon conversion of the Securities the
holders will receive, in addition to the Common Stock issuable upon such
conversion, the rights issued under such rights plan (notwithstanding the
occurrence of an event causing such rights to separate from the Common
Stock at or prior to the time of conversion).
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not exercisable, and
(iii) are also issued in respect of future issuances of Common Stock, shall
be deemed not to have been distributed for purposes of this Section 15.5
(and no adjustment to the Conversion Price under this Section 15.5 will be
required) until the occurrence of the earliest Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and an
appropriate adjustment (if any is required) to the Conversion Price shall
be made under this Section 15.5(d). If any such right or warrant, including
any
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such existing rights or warrants distributed prior to the date of this
Indenture, are subject to events, upon the occurrence of which such rights
or warrants become exercisable to purchase different securities, evidences
of indebtedness or other assets, then the date of the occurrence of any and
each such event shall be deemed to be the date of distribution and record
date with respect to new rights or warrants with such rights (and a
termination or expiration of the existing rights or warrants without
exercise by any of the holders thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Price under this Section
15.5 was made, (1) in the case of any such rights or warrants which shall
all have been redeemed or repurchased without exercise by any holders
thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger
Event, as the case may be, as though it were a cash distribution, equal to
the per share redemption or repurchase price received by a holder or
holders of Common Stock with respect to such rights or warrants (assuming
such holder had retained such rights or warrants), made to all holders of
Common Stock as of the date of such redemption or repurchase, and (2) in
the case of such rights or warrants which shall have expired or been
terminated without exercise by any holders thereof, the Conversion Price
shall be readjusted as if such rights and warrants had not been issued.
For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that
also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares
of capital stock other than such shares of Common Stock or rights or
warrants (and any further Conversion Price reduction required by this
Section 15.5(d) with respect to such dividend or distribution shall then be
made) immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (and any further Conversion
Price reduction required by Sections 15.5(a) and (b) with respect to such
dividend or distribution shall then be made), except (A) the Record Date of
such dividend or distribution shall be substituted as "the date fixed for
the determination of stockholders entitled to receive such dividend or
other distribution" and "the date fixed for such determination" within the
meaning of Sections 15.5(a) and (b) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within
the meaning of Section 15.5(a).
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(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 15.6 applies or
as part of a distribution referred to in Section 15.5(d)) in an aggregate
amount that, combined together with (1) the aggregate amount of any other
such distributions to all holders of its Common Stock made exclusively in
cash within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this
Section 15.5(e) has been made, and (2) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) of consideration payable in respect of any tender offer
by the Company for all or any portion of the Common Stock concluded within
the 12 months preceding the date of payment of such distribution, and in
respect of which no adjustment pursuant to Section 15.5(f) has been made,
exceeds 10% of the product of the Current Market Price (determined as
provided in Section 15.5(h)) on the Record Date with respect to such
distribution times the number of shares of Common Stock outstanding on such
date, then, immediately after the close of business on such date, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the close of business on such Record Date by a fraction (i) the
numerator of which shall be equal to the Current Market Price on the Record
Date less an amount equal to the quotient of (x) the excess of such
combined amount over such 10% and (y) the number of shares of Common Stock
outstanding on the Record Date and (ii) the denominator of which shall be
equal to the Current Market Price on such Record Date; provided, however,
that, if the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price of the
Common Stock on the Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each Securityholder shall have the
right to receive upon conversion the amount of cash such holder would have
received had such Holder converted such Security immediately prior to such
Record Date. If such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been
declared.
(f) In case a tender offer made by the Company or any of its
subsidiaries for all or any portion of the Common Stock expires and such
tender offer (as amended upon the expiration thereof) requires the payment
to stockholders (based on the acceptance (up to any maximum specified in
the terms of the tender offer) of Purchased Shares (as defined below)) of
an aggregate consideration having a fair market
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value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Board of Directors)
that, combined together with (1) the aggregate of the cash plus the fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors), as of the expiration of such tender offer, of consideration
payable in respect of any other tender offers, by the Company or any of its
subsidiaries for all or any portion of the Common Stock expiring within the
12 months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to this Section 15.5(f) has been made and (2)
the aggregate amount of any distributions to all holders of the Common
Stock made exclusively in cash within 12 months preceding the expiration of
such tender offer and in respect of which no adjustment pursuant to Section
15.5(e) has been made, exceeds 10% of the product of the Current Market
Price (determined as provided in Section 15.5(h)) as of the last time (the
"Expiration Time") tenders could have been made pursuant to such tender
offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) at the Expiration Time, then,
and in each such case, immediately prior to the opening of business on the
day after the date of the Expiration Time, the Conversion Price 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 of the Expiration Time by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding (including any
tendered shares) at the Expiration Time multiplied by the Current Market
Price of the Common Stock on the Trading Day next succeeding the Expiration
Time and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the
terms of the tender offer) of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the product
of the number of shares of Common Stock outstanding (less any Purchased
Shares) at the Expiration Time and the Current Market Price of the Common
Stock on the Trading Day next succeeding the Expiration Time, such
reduction (if any) to become effective immediately prior to the opening of
business on the day following the Expiration Time. If the Company is
obligated to purchase shares pursuant to any such tender offer, but the
Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect
if such tender offer had not been made. If the application of this Section
15.5(f) to any tender offer would result in an
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increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 15.5(f).
(g) In case of a tender or exchange offer made by a person other than
the Company or any subsidiary of the Company for an amount which increases
the offeror's ownership of Common Stock to more than 20% of the Common
Stock outstanding and shall involve the payment by such person of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors) at the
Expiration Time that exceeds the Current Market Price of the Common Stock
on the Trading Day next succeeding the Expiration Time, and in which, as of
the Expiration Time the Board of Directors is not recommending rejection of
the offer, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the Expiration Time by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Expiration Time
multiplied by the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time and the denominator shall be the
sum of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred
to as the "Purchased Shares") and (y) the product of the number of shares
of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time, such reduction to become effective as
of immediately prior to the opening of business on the day following the
Expiration Time. In the event that such person is obligated to purchase
shares pursuant to any such tender or exchange offer, but such person is
permanently prevented by applicable law from effecting any such purchases
or all such purchases are rescinded, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
tender or exchange offer had not been made. Notwithstanding the foregoing,
the adjustment described in this Section 15.5(g) shall not be made if, as
of the Expiration Time, the offering documents with respect to such offer
disclose a plan or intention to cause the Company to engage in any
transaction described in Article XII.
(h) For purposes of this Section 15.5, the following terms shall have
the meaning indicated:
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(1) "Closing Price" with respect to any securities on any day
shall mean the closing sale price regular way on such day or, in case
no such sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in each case on the New
York Stock Exchange, or, if such security is not listed or admitted to
trading on such Exchange, on the principal national security exchange
or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the
average of the closing bid and asked prices of such security on the
over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from
time to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof,
whose determination shall be conclusive.
(2) "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten consecutive
Trading Days immediately prior to the date in question; provided,
however, that (1) if the "ex" date (as hereinafter defined) for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price
pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs
during such ten consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction by
which the Conversion Price is so required to be adjusted as a result
of such other event, (2) if the "ex" date for any event (other than
the issuance or distribution requiring such computation) that requires
an adjustment to the Conversion Price pursuant to Section 15.5(a),
(b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date for
the issuance or distribution requiring such computation and prior to
the day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by
which the Conversion Price is so required to be adjusted as a result
of such other event, and (3) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in
question, after taking into account any adjustment required pursuant
to clause (1) or (2) of this proviso, the Closing Price for each
Trading Day on
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or after such "ex" date shall be adjusted by adding thereto the amount
of any cash and the fair market value (as determined by the Board of
Directors or, to the extent permitted by applicable law, a duly
authorized committee thereof in a manner consistent with any
determination of such value for purposes of Section 15.5(d), (f) or
(g), whose determination shall be conclusive and described in a
resolution of the Board of Directors or such duly authorized committee
thereof, as the case may be) of the evidences of indebtedness, shares
of capital stock or assets being distributed applicable to one share
of Common Stock as of the close of business on the day before such
"ex" date. For purposes of any computation under Section 15.5(f) or
(g), the Current Market Price of the Common Stock on any date shall be
deemed to be the average of the daily Closing Prices per share of
Common Stock for such day and the next two succeeding Trading Days;
provided, however, that if the "ex" date for any event (other than the
tender or exchange offer requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 15.5(a), (b),
(c), (d), (e), (f) or (g) occurs on or after the Expiration Time for
the tender or exchange offer requiring such computation and prior to
the day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by
which the Conversion Price is so required to be adjusted as a result
of such other event. For purposes of this paragraph, the term "ex"
date, (1) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades regular way on
the relevant exchange or in the relevant market from which the Closing
Price was obtained without the right to receive such issuance or
distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which
the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes
effective, and (3) when used with respect to any tender or exchange
offer means the first date on which the Common Stock trades regular
way on such exchange or in such market after the Expiration Time of
such offer.
(3) "fair market value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of
Common Stock have the right to
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receive any cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or converted
into any combination of cash, securities or other property, the date
fixed for determination of shareholders entitled to receive such cash,
securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or
another national security exchange, a day on which the New York Stock
Exchange or another national security exchange is open for business or
(y) if the applicable security is quoted on the Nasdaq National
Market, a day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading or quoted,
any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by
law or executive order to close.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) and
(g), as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase
Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time
if the period is at least thirty (30) days, the reduction is irrevocable
during the period and the Board of Directors shall have made a
determination that such reduction would be in the best interests of the
Company, which determination shall be conclusive. Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company shall mail
to holders of record of the Securities a notice of the reduction at least
fifteen (15) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which
by reason of this Section 15.5(j) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article XV shall be
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made by the Company and shall be made to the nearest cent or to the nearest
one hundredth of a share, as the case may be.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any conversion agent other
than the Trustee an Officers' Certificate setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date
on which each adjustment becomes effective and shall mail notice of such
adjustment of the Conversion Price to the holder of each Security at his
last address appearing on the Security register provided for in Section 2.5
of this Indenture, within ten (10) days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of any such
adjustment.
(l) In any case in which this Section 15.5 provides that an adjustment
shall become effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (i) issuing to the
holder of any Security converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above such conversion by reason of the adjustment required by such
event and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder any amount
in cash in lieu of any fraction pursuant to Section 15.5.
(m) For purposes of this Section 15.5, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury
of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Company will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
Section 15.6. Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any recla ssification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other
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corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing corporation, as the case may be, shall execute with the
Trustee a supplemental indenture (which shall comply with the Trust Indenture
Act as in force at the date of execution of such supplemental indenture)
providing that such Security shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Securities (assuming, for such purposes,
a sufficient number of authorized shares of Common Stock available to convert
all such Securities) immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance assuming such holder of
Common Stock did not exercise his rights of election, if any, as to the kind or
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance (provided that, if the kind or amount of shares
of stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("nonelecting share"),
then for the purposes of this Section 15.6, the kind and amount of shares of
stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Securities, at his address appearing on
the Security register provided for in Section 2.5 of this Indenture, within ten
(10) days after execution thereof. Failure to deliver such notice shall not
affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5 shall
not apply.
Section 15.7. Taxes on Shares Issued. The issue of stock certificates on
conversions of Securities shall be made without
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charge to the converting Securityholder for any tax in respect of the issue
thereof. 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 stock
in any name other than that of the holder of any Security converted, and the
Company shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
Section 15.8. Reservation of Shares to Be Fully Paid; Compliance with
Governmental Requirements; Listing of Common Stock. The Company shall reserve,
free from preemptive rights, out of its authorized but unissued shares or shares
held in treasury sufficient shares of Common Stock to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Securities, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and non-assessable
by the Company and free from all taxes, liens and charges with respect to the
issue thereof.
The Company covenants that if any shares of Common Stock to be provided for
the purpose of conversion of Securities hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion, the Company will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be.
The Company further covenants that if at any time the Common Stock shall be
listed on the New York Stock Exchange or any other national securities exchange
the Company will, if permitted by the rules of such exchange, list and keep
listed so long as the Common Stock shall be so listed on such exchange, all
Common Stock issuable upon conversion of the Securities.
Section 15.9. Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or extent
or calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture
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provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered upon the conversion of
any Security and the Trustee and any other conversion agent make no
representations with respect thereto. Subject to the provisions of Section 8.1,
neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or cash upon the surrender
of any Security for the purpose of conversion or to comply with any of the
duties, responsibilities or covenants of the Company contained in this Article.
Without limiting the generality of the foregoing, neither the Trustee nor any
conversion agent shall be under any responsibility to determine the correctness
of any provisions contained in any supplemental indenture entered into pursuant
to Section 15.6 relating either to the kind or amount of shares of stock or
securities or property (including cash) receivable by Securityholders upon the
conversion of their Securities after any event referred to in such Section 15.6
or to any adjustment to be made with respect thereto, but, subject to the
provisions of Section 8.1, may accept as conclusive evidence of the correctness
of any such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
Section 15.10. Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock that would require an adjustment in the Conversion
Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to all or substantially
all the holders of its Common Stock of rights or warrants to subscribe for
or purchase any share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the Common Stock of
the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value,
or from no par value to par value), or of any consolidation or merger to
which the Company is a party and for which approval of any shareholders of
the Company is required, or of the sale or transfer of all or substantially
all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
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the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Securities at his address appearing on the Security register provided
for in Section 2.5 of this Indenture, as promptly as possible but in any event
at least fifteen (15) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, or rights or warrants are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become effective
or occur, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
ARTICLE XVI.
REPURCHASE OF SECURITIES AT
OPTION OF THE HOLDER UPON CHANGE IN CONTROL
Section 16.1. Right to Require Repurchase. In the event that a Change in
Control (as hereinafter defined) shall occur, then each holder shall have the
right, at the holder's option, to require the Company to repurchase, and upon
the exercise of such right the Company shall repurchase, all of such holder's
Securities, or any portion of the principal amount thereof that is an integral
multiple of $1,000 (provided that no single Security may be repurchased in part
unless the portion of the principal amount of such Security to be outstanding
after such repurchase is equal to $1,000 or an integral multiple of $1,000), on
the date (the "Repurchase Date") that is 30 days after the date of the Company
Notice (as defined in Section 16.2) for cash at a purchase price equal to 100%
of the principal amount (the "Repurchase Price") plus interest accrued and
unpaid interest to, but excluding, the Repurchase Date. Whenever in this
Indenture there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Indenture shall not be
construed as excluding the Repurchase Price in those provisions of this
Indenture when such express mention is not made.
Section 16.2. Notices: Method of Exercising Repurchase Right, Etc.
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(a) Unless the Company shall have theretofore called for redemption
all of the outstanding Securities pursuant to Article III, on or before the
15th day after the occurrence of a Change in Control, the Company or, at
the written request of the Company on or before the 10th day after receipt
of such request, the Trustee shall give to all holders of Securities notice
(the "Company Notice") of the occurrence of the Change in Control and of
the repurchase right set forth herein arising as a result thereof. The
Company shall also deliver a copy of such notice of a repurchase right to
the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a holder must follow to
exercise a repurchase right,
(5) that on the Repurchase Date the Repurchase Price will become
due and payable upon each such Security designated by the holder to be
repurchased, and that interest thereon shall cease to accrue on and
after said date,
(6) the Conversion Price, the date on which the right to convert
the Securities to be repurchased will terminate and the places where
such Securities may be surrendered for conversion, and
(7) the place or places where such Securities are to be
surrendered for payment of the Repurchase Price and accrued interest,
if any.
No failure of the Company to give the foregoing notices or defect therein
shall limit any holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article are
inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a holder shall deliver to the
Trustee or any paying agent on or before the 30th day after the date of the
Company Notice (i) written notice of the holder's exercise of such right,
which notice shall set forth the name of the holder, the principal amount
of the Securities to be repurchased (and, if any Security is
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to be repurchased in part, the serial number thereof, the portion of the
principal amount thereof to be repurchased and the name of the Person in
which the portion thereof to remain outstanding after such repurchase is to
be registered) and a statement that an election to exercise the repurchase
right is being made thereby, and (ii) the Securities with respect to which
the repurchase right is being exercised.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the
Trustee or the paying agent the Repurchase Price in cash, for payment to
the holder on the Repurchase Date, together with accrued and unpaid
interest to, but excluding, the Repurchase Date payable with respect to the
Securities as to which the repurchase right has been exercised.
(d) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest from the Repurchase Date at the rate of __% per annum, and each
Security shall remain convertible into Common Stock until the principal of
such Security (or portion thereof, as the case may be) shall have been paid
or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the holder of
such Security without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized
denomination in aggregate principal amount equal to and in exchange for the
portion of the principal of the Security so surrendered that was not
repurchased.
(f) Any holder that has delivered to the Trustee its written notice
exercising its right to require the Company to repurchase its Securities
upon a Change in Control shall have the right to withdraw such notice at
any time prior to the close of business on the Repurchase Date by delivery
of a written notice of withdrawal to the Trustee prior to the close of
business on such date. A Security in respect of which a holder is
exercising its option to require repurchase upon a Change in Control may be
converted into Common Stock in accordance with Article XV only if such
holder withdraws its notice in accordance with the preceding sentence.
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Section 16.3. Certain Definitions. For purposes of this Article XVI,
(a) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3 promulgated by the Commission pursuant to the Exchange Act;
and
(b) the term "Person" shall include any syndicate or group which
would be deemed to be a "person" under Section 13(d)(3) of the Exchange
Act.
Section 16.4. Change in Control. A "Change in Control" shall be deemed to
have occurred at such time after the original issuance of the Securities as:
(a) any Person (other than the Company, any subsidiary of the
Company, or any entity Controlled (as defined below) by the foregoing, or
any employee benefit plan of the Company or any such subsidiary) is or
becomes the beneficial owner, directly or indirectly, through a purchase or
other acquisition transaction or series of transactions (other than a
merger or consolidation involving the Company), of shares of capital stock
of the Company entitling such Person to exercise in excess of 35% of the
total voting power of all shares of capital stock of the Company entitled
to vote generally in the election of directors;
(b) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of the assets of the Company as, or
substantially as, an entirety to another Person (other than (i) any such
transaction pursuant to which the holders of the Common Stock immediately
prior to such transaction have, directly or indirectly, shares of capital
stock of the continuing or surviving corporation immediately after such
transaction which entitle such holders to exercise in excess of 50% of the
total voting power of all shares of capital stock of the continuing or
surviving corporation entitled to vote generally in the election of
directors and (ii) any merger (1) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or (2) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of common stock and separate series of common
stock carrying substantially the same relative rights as the Common Stock);
or
(c) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the two-year period immediately preceding such change
(together with (i) any other director whose election by the Board of
Directors of
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<PAGE>
the Company or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority of the directors then
in office either who were directors at the beginning of such period or
whose election or nomination for election was previously so approved and
(ii) the two directors designated from time to time to serve on the Board
of Directors by the holders of the Junior Subordinated Notes and the
Warrants.) cease for any reason to constitute a majority of the directors
then in office.
Section 16.5. Consolidation, Merger, Etc. In the case of any
reclassification, change, consolidation, merger, combination, sale or conveyance
to which Section 15.6 applies, in which the Common Stock of the Company is
changed or exchanged as a result into the right to receive shares of stock and
other securities or property or assets (including cash) which includes shares of
Common Stock of the Company or common stock of another person that are, or upon
issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such shares of stock and other securities, property and assets (including
cash) (as determined by the Company, which determination shall be conclusive and
binding), then the person formed by such consolidation or resulting from such
merger or combination or which acquires the properties or
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<PAGE>
assets (including cash) of the Company, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture (which shall comply with the
Trust Indenture Act as in force at the date of execution of such supplemental
indenture) modifying the provisions of this Indenture relating to the right of
holders of the Securities to cause the Company to repurchase the Securities
following a Change in Control, including, without limitation, the applicable
provisions of this Article XVI and the definitions of the Common Stock and
Change in Control, as appropriate, and such other related definitions set forth
herein as determined in good faith by the Company (which determination shall be
conclusive and binding), to make such provisions apply to the common stock and
the issuer thereof if different from the Company and Common Stock of the Company
(in lieu of the Company and the Common Stock of the Company).
ARTICLE XVII.
MISCELLANEOUS PROVISIONS
Section 17.1. Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
Section 17.2. Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 17.3. Addresses for Notices, Etc. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Securities on the Company shall be deemed to
have been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to System Software Associates, Inc., 500 West Madison Street, 32nd
Floor, Chicago, Illinois 60661, Attn: Chief Financial Officer. Any notice,
direction, request or demand hereunder to or upon the Trustee shall be deemed to
have been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office, which office is, at the date
as of which this Indenture is dated, located at [_____________________].
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
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<PAGE>
Any notice or communication mailed to a Securityholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Security register and shall be sufficiently given to him if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4. Governing Law. This Indenture and each Security shall be
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of the State of New
York.
Section 17.5. Evidence of Compliance with Conditions Precedent Certificates
to Trustee. Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, and an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statement or opinion contained in such certificate or opinion is
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 17.6. Legal Holidays. In any case where the date of maturity of
interest on or principal of the Securities or the date fixed for redemption or
repurchase of any Security will not be a Business Day, then payment of such
interest on or principal of the Securities need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the date of maturity or the date fixed for redemption or
repurchase, and no interest shall accrue for the period from and after such
date.
Section 17.7. Trust Indenture Act. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act.
If any
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<PAGE>
provision hereof limits, qualifies or conflicts with another provision hereof
which is required to be included in an indenture qualified under the Trust
Indenture Act, such required provision shall control.
Section 17.8. No Security Interest Created. Nothing in this Indenture or in
the Securities, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction where property of
the Company or its subsidiaries is located.
Section 17.9. Benefits of Indenture. Nothing in this Indenture or in the
Securities, expressed or implied, shall give to any Person, other than the
parties hereto, any paying agent, any authenticating agent, any custodian, any
conversion agent, any Security registrar and their successors hereunder, the
holders of Securities and the holders of Senior Indebtedness, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 17.10. Table of Contents, Headings, Etc. The table of contents and
the titles and headings of the articles and sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 17.11. Authenticating Agent. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Securities in connection
with the original issuance thereof and transfers and exchanges of Securities
hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3, 15.2 and 16.2, as
fully to all intents and purposes as though the authenticating agent had been
expressly authorized by this Indenture and those Sections to authenticate and
deliver Securities. For all purposes of this Indenture, the authentication and
delivery of Securities by the authenticating agent shall be deemed to be
authentication and delivery of such Securities "by the Trustee" and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent shall be deemed to satisfy any requirement hereunder or in
the Securities for the Trustee's certificate of authentication. Such
authenticating agent shall at all times be a person eligible to serve as trustee
hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise
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<PAGE>
eligible under this Section 17.11, without the execution or filing of any paper
or any further act on the part of the parties hereto or the authenticating agent
or such successor corporation.
Any authenticating agent may at any time resign by giving written notice of
resignation to the Trustee and to the Company. The Trustee may at any time
terminate the agency of any authenticating agent by giving written notice of
termination to such authenticating agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
authenticating agent shall cease to be eligible under this Section, the Trustee
shall either promptly appoint a successor authenticating agent or itself assume
the duties and obligations of the former authenticating agent under this
Indenture, and upon such appointment of a successor authenticating agent, if
made, shall give written notice of such appointment of a successor
authenticating agent to the Company and shall mail notice of such appointment of
a successor authenticating agent to all holders of Securities as the names and
addresses of such holders appear on the Security register.
The Trustee agrees to pay to the authenticating agent from time to time
reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11 shall
be applicable to any authenticating agent.
Section 17.12. Execution in Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
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<PAGE>
System Software Associates, Inc. hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed, all as of the date first written above.
SYSTEM SOFTWARE ASSOCIATES, INC.
By:
--------------------------
Name:
Title:
Attest:
- ---------------------------------
Title:
HARRIS TRUST & SAVINGS BANK, as
---------------------------
Trustee
By:
--------------------------
Name:
Title:
Attest:
- ---------------------------------
Title:
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<PAGE>
EXHIBIT A
[FORM OF NOTE]
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
___% CONVERTIBLE SUBORDINATED NOTE DUE 2002
No. ___
System Software Associates, Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (herein called the "Company"),
which term includes any successor corporation under the Indenture referred to on
the reverse hereof, for value received hereby promises to pay to
________________________________ or registered assigns, the principal sum of
[__________ ($__________)] on August 1, 2002 at the office or agency of the
Company maintained for that purpose in Chicago, Illinois or, at the option of
the holder of this Note, at the Corporate Trust Office, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, semi-annually
on February 15 and August 15 of each year, commencing February 15, 1998, on said
principal sum at said office or agency, in like coin or currency, at the rate
per annum of ___%, from the date of this Note, until payment of said principal
sum has been made or duly provided for. The interest payable on this Note
pursuant to the Indenture on any February 15 or August 15 will be paid to the
person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on the record date, which shall be the February 1 or
August 1 (whether or not a Business Day) next preceding such February 15 or
August 15, as provided in the Indenture provided that any such interest not
punctually paid or duly provided for shall be payable as provided in the
Indenture. Interest may, at the option of the Company, be paid by check mailed
to the registered address of such person; provided that with respect to any
holder of Notes with an aggregate principal amount equal to or in excess of
$[5,000,000], interest may be paid by wire transfer as more fully specified in
the Indenture.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on the Notes to the
prior payment in full of all Senior Indebtedness, as defined in the Indenture,
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall be deemed to be a contract made under the laws of the State
of New York, and for all purposes shall be construed in accordance with and
governed by the laws of said State.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have
<PAGE>
been manually signed by the Trustee or a duly authorized authenticating agent
under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Dated: SYSTEM SOFTWARE ASSOCIATES, INC.
By:
-----------------------------
[SEAL] Attest:
-------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named Indenture.
__________________________, as Trustee
By:
------------------------------------------
Authorized Signatory
By:
------------------------------------------
As Authenticating Agent (if different from Trustee)
-2-
<PAGE>
[FORM OF REVERSE OF NOTE]
[_________________________]
___% CONVERTIBLE SUBORDINATED NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the Company,
designated as its ___% Convertible Subordinated Notes due 2002 (herein called
the "Notes"), limited to the aggregate principal amount of $90,000,000
($103,500,000 if the over-allotment option is exercised in full) issued or to be
issued under and pursuant to an indenture dated as of August __, 1997 (herein
called the "Indenture"), between the Company and [___________________], as
trustee (herein called the "Trustee"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Notes at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Notes; provided, however, that no such supplemental indenture
shall (i) extend the fixed maturity of any Note, or reduce the rate or extend
the time of payment of interest thereon, or reduce the principal amount thereof
or premium, if any, thereon, or reduce any amount payable on redemption thereof,
or impair the right of any of the holders of the Notes to institute suit for the
payment thereof, or make the principal thereof or interest or premium, if any,
thereon payable in any coin or currency other than that provided in the Note, or
modify the provisions of the Indenture with respect to the subordination of the
Notes in a manner adverse to the holders of the Notes in any material respect,
or change the obligation of the Company to repurchase any Note upon the
occurrence of a Change in Control in a manner adverse to the holder of the
Notes, or impair the right to convert the Notes into Common Stock in any
material respect, without the consent of the holder of each Note so affected or
(ii) reduce the aforesaid percentage of Notes, the holders of which are required
to consent to any such supplemental indenture, without the consent of the
holders of all Notes then outstanding. It is also provided in the Indenture that
the holders of a majority in aggregate principal amount of the Notes at the time
outstanding may on behalf of the holders of all of the Notes waive any past
default
<PAGE>
or Event of Default under the Indenture and its consequences, except a default
in the payment of interest or any premium on or the principal of any of the
Notes, a default in the payment of redemption price pursuant to Article III or
repurchase price pursuant to Article XVI or a failure by the Company to convert
any Notes into Common Stock of the Company. Any such consent or waiver by the
holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Note and any Notes which may be issued in exchange or substitute hereof,
irrespective of whether or not any notation thereof is made upon this Note or
such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, expressly subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness of the Company, as
defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the place, at the respective times, at the rate and in the coin
or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes are issuable in registered form without coupons in minimum
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
August 1, 2000. At any time on or after August 1, 2000, and prior to maturity
the Notes may be redeemed at the option of the Company from time to time, as a
whole or in part, upon mailing a notice of such redemption not less than 15 nor
more than 60 days before the date fixed for redemption to the holders of Notes
at their last registered addresses, all as provided in the Indenture,
-2-
<PAGE>
at the following optional redemption prices (expressed as percentages of the
principal amount), together in each case with accrued interest to, but
excluding, the date fixed for redemption.
If redeemed during the 12-month period beginning August 1:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000............ _______%
2001............ _______
</TABLE>
and 100% at August 1, 2002; provided that if the date fixed for redemption is on
February 15 or August 15, then the semi-annual payment of interest becoming due
on such date shall be paid to the holder of record of the Note on the next
preceding February 1 or August 1, respectively.
The Notes are not subject to redemption through the operation of any
sinking fund.
If a Change in Control (as defined in the Indenture) occurs prior to
maturity, the holder of this Note shall have the right, in accordance with the
provisions of the Indenture, to require the Company to repurchase this Note or
any portion of the principal amount hereof that is an integral multiple of
$1,000 for cash at a Repurchase Price equal to 100% of the principal amount plus
accrued and unpaid interest to, but excluding, the Repurchase Date; provided
that if such Repurchase Date is February 15 or August 15, then the semi-annual
payment of interest becoming due on such date shall be paid to the holder of
record of the Note on the next preceding February 1 or August 1, respectively.
Within 15 days after the occurrence of a Change in Control, the Company is
obligated to give all holders of record of Notes notice of the occurrence of
such Change in Control and of the repurchase right arising as a result thereof.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time prior to the close of business on the maturity
date, subject to prior redemption or repurchase, or, as to all or any portion
hereof called for redemption, prior to the close of business on the fifth
Business Day preceding the date fixed for redemption (unless the Company shall
default in payment due upon redemption thereof), to convert the principal hereof
or any portion of such principal which is $1,000 or an integral multiple
thereof, into that number of shares of the Company's Common Stock, as said
shares shall be constituted at the date of conversion, obtained by dividing the
principal amount of this Note or portion thereof to be converted by the
Conversion Price of $_____ or such Conversion Price as adjusted from time to
time as provided in the Indenture, upon surrender of this Note, together with a
conversion notice as provided in the Indenture, to the Company at the office or
agency of the Company maintained for that purpose in Chicago, Illinois, or at
the option
-3-
<PAGE>
of such holder, the Corporate Trust Office, and, unless the shares issuable on
conversion are to be issued in the same name as this Note, duly endorsed by, or
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the holder or by his duly authorized attorney. No adjustment in
respect of interest or dividends will be made upon any conversion; provided,
however, that if this Note shall be surrendered for conversion during the period
from the close of business on any record date for the payment of interest to the
close of business on the Business Day preceding the interest payment date, this
Note (unless it or the portion being converted shall have been called for
redemption during the period from the close of business on any record date for
the payment of interest to the close of business on the Business Day preceding
the interest payment date) must be accompanied by an amount, in immediately
available funds or other funds acceptable to the Company, equal to the interest
payable on such interest payment date on the principal amount being converted,
provided further however, that in the event this Note or a portion thereof is
called for redemption and the holder elects to convert such Note, the holder
will be entitled to receive interest on such Note for the period from the last
interest payment date through the date of conversion (provided however, that no
such payment need be made if there shall exist at the time of conversion a
default in the payment of interest on the Notes.) No fractional shares will be
issued upon any conversion, but an adjustment in cash will be made, as provided
in the Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Note or Notes for conversion.
Any Notes called for redemption, unless surrendered for conversion on or
before the close of business on the date fixed for redemption, may be deemed to
be purchased from the holder of such Notes at an amount equal to the applicable
redemption price, together with accrued interest to the date fixed for
redemption, by one or more investment bankers or other purchasers who may agree
with the Company to purchase such Notes from the holders thereof and convert
them into Common Stock of the Company and to make payment for such Notes as
aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in Chicago, Illinois, or at the option of the
holder of this Note, at the Corporate Trust Office, a new Note or Notes of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent, any
conversion agent and any Securities registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notation of ownership or other writing
hereon),
-4-
<PAGE>
for the purpose of receiving payment hereof, or on account hereof, for the
conversion hereof and for all other purposes, and neither the Company nor the
Trustee nor any other authenticating agent nor any paying agent nor any other
conversion agent nor any Securities registrar shall be affected by any notice to
the contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Note.
No recourse for the payment of the principal of or any premium or interest
on this Note, or for any claim based hereon or otherwise in respect hereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
-5-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT - ____ Custodian ____
common (Cust) (Minor)
TEN ENT - as tenants by the
entireties
JT TEN - as joint tenants under Uniform Gifts to Minors
with right to Act
survivorship and
not as tenants in -----------------------------
common (State)
Additional abbreviations may also be used
though not in the above list.
<PAGE>
CONVERSION NOTICE
To: [_________________________]
The undersigned registered owner of this Note hereby irrevocably exercises
the option to convert this Note, or the portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of
System Software Associates, Inc. in accordance with the terms of the Indenture
referred to in this Note, and directs that the shares issuable and deliverable
upon such conversion, together with any check in payment for fractional shares
and any Notes representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
[check the appropriate box below and] pay all transfer taxes payable with
respect thereto. Any amount required to be paid to the undersigned on account of
interest accompanies this Note.
Dated:
------------------------
-----------------------------------------
-----------------------------------------
Signature(s)
Signature(s) must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved signature
guarantee medallion program pursuant to
Securities and Exchange Commission Rule
17Ad-15 if shares of Common Stock are to
be issued, or Notes to be delivered,
other than to and in the name of the
registered holder.
-----------------------------------------
Signature Guarantee
<PAGE>
Fill in for registration of shares of
Common Stock if to be issued, and
Notes if to be delivered, other than
to and in the name of the registered
holder:
- -----------------------------------
(Name)
- -----------------------------------
(Street Address)
- -----------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if
less than all): $__________
-------------------------------------
Social Security or Other Taxpayer
Identification Number
-2-
<PAGE>
ASSIGNMENT
For value received _______________ hereby sell(s), assign(s) and transfer(s)
unto
- --------------------------------------------------------------------------------
(Please insert name, social security or other Taxpayer Identification Number of
assignee)
the within Note, and hereby irrevocably constitutes and appoints
- -------------------------------------------------------------------------------
attorney to transfer the said Note on the books of the Company, with full power
of substitution in the premises.
[_] The transferee is an Affiliate of the Company.
Dated:_________________
-------------------------------
-------------------------------
Signature(s)
Signature(s) must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved signature
guarantee medallion program pursuant to
Securities and Exchange Commission Rule
17Ad-15 if shares of Common Stock are to
be issued, or Notes to be delivered,
other than to and in the name of the
registered holder.
-------------------------------
Signature Guarantee
-3-
<PAGE>
OPTION TO ELECT REPURCHASE
UPON A CHANGE IN CONTROL
To: [_________________________]
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from System Software Associates, Inc. (the
"Company") as to the occurrence of a Change in Control with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Note, or the portion thereof (which is $1,000 or an integral
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the repurchase price, together with
accrued interest to, but excluding, such date, to the registered holder hereof.
Dated: _________________
------------------------------
------------------------------
Signature(s)
NOTICE: The above signatures of the
holder(s) hereof must correspond with the
name as written upon the face of the Note
in every particular without alteration,
enlargement or any change whatever.
Principal amount to be repurchased (if
less than all):
$ ___________
-----------------------------------
Social Security or Other Taxpayer
Identification Number
-4-
<PAGE>
Exhibit 12
STATEMENT re: Computation of Ratios
<TABLE>
<CAPTION>
Pro Forma
------------------------
Year Six Months
Six Months Ended Ended
Ended April 30, October 31, April 30,
---------------
1992 1993 1994 1995 1996 1996 1997 1996 1997
Fixed charges: -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense $ 0.9 $ 1.1 $ 2.8 $ 2.2 $ 4.7 $ 1.3 $ 7.3 $11.8 $ 9.6
Approximate portion of rental
expense representative of an
interest factor (1/3 of rent expense) 2.0 2.7 3.0 5.2 8.0 3.9 4.2 8.0 4.2
------------------------------------------------------------------------------------------
Total fixed charges 2.9 3.8 5.8 7.4 12.7 5.2 11.5 19.8 13.8
Income (loss) before income taxes
and minority interest 41.6 35.7 15.4 40.9 (51.4) (10.9) (7.8) (58.5) (10.1)
------------------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interest and total
fixed charges $44.5 $39.5 $21.2 $48.3 $(38.7) $ (5.7) $ 3.7 $(38.7) $ 3.7
Ratio of earnings to fixed charges 15.3 10.4 3.7 6.5 (3.0) (1.1) 0.3 (2.0) 0.3
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 7, 1997, except
as to Notes 6, 7 and 11, which are as of January 29, 1997, relating to the
consolidated financial statements of System Software Associates, Inc. as of
October 31, 1995 and for the two years then ended which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
Price Waterhouse LLP
/s/ Price Waterhouse, LLP
Chicago, Illinois
August 6, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 7, 1997, except as to
Notes 6, 7, and 11 which are as of January 29, 1997, relating to the
consolidated balance sheet of System Software Associates, Inc. and
subsidiaries as of October 31, 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended
included herein and to the reference to our firm under the headings "Selected
Financial Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
August 6, 1997
<PAGE>
Exhibit 99.1
[EXECUTION COPY1
================================================================================
$12,000,000
FLOATING RATE CONVERTIBLE NOTES
Due 2000
NOTE PURCHASE AGREEMENT
dated
March 27, 1997
between
SYSTEM SOFTWARE ASSOCIATES, INC.
and
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. ISSUANCE OF SECURITIES AND RESERVATION OF RESERVED SHARES..................1
2. PURCHASE, SALE AND DELIVERY................................................1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................1
(a) Organization.........................................................1
(b) Capital Stock; Indebtedness; Liens...................................2
(c) Authorization of Agreement...........................................2
(d) Authorization of Notes...............................................2
(e) Authorization of Shares..............................................3
(f) Non-Contravention; No Required Consents..............................3
(g) Litigation...........................................................3
(h) Compliance: Governmental Authorizations..............................4
(i) Financial Statements.................................................4
(j) Absence of Changes...................................................4
(k) Taxes................................................................4
(l) Intellectual Property................................................5
(m) Compliance with ERISA................................................5
(n) No Defaults..........................................................6
(o) SEC Reports..........................................................6
(p) Offering Exemption...................................................6
(q) Use of Proceeds......................................................6
(r) Investment Company...................................................7
(s) Disclosure...........................................................7
(t) No Finders' Fees.....................................................7
(u) Delaware Law; Rights Agreement.......................................7
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................7
(a) Investment Purpose...................................................7
(b) Restricted Securities................................................8
(c) Accredited Investor..................................................8
5. CONDITIONS OF OBLIGATIONS OF THE PURCHASER.................................8
(a) Note.................................................................8
(b) Actions Authorized...................................................8
(c) Consents.............................................................8
(d) Legal Opinion........................................................8
(e) Representations and Warranties; Compliance; No Default...............8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6. TRANSFER OF NOTES......................................................... 9
(a) Restriction on Transfer............................................. 9
(b) Restrictive Legend.................................................. 9
(c) Notice of Transfer.................................................. 9
(d) Removal of Legends..................................................10
7. REGISTRATION OF REGISTRABLE STOCK.........................................10
(a) Shelf Registration..................................................10
(b) Registration Procedures.............................................11
(c) Designation of Underwriter..........................................12
(d) Cooperation by Prospective Sellers..................................12
(e) Expenses............................................................12
(f) Indemnification.....................................................13
8. COVENANTS.................................................................14
(a) Information.........................................................14
(b) Payment of Obligations..............................................15
(c) Conduct of Business and Maintenance of Existence....................16
(d) Compliance with Laws................................................16
(e) Inspection of Property, Books and Records...........................16
(f) Prohibited Transactions.............................................16
1. Survival of Representations. Warranties and Agreements Etc................17
2. MISCELLANEOUS.............................................................17
(a) Entire Agreement....................................................17
(b) Headings............................................................17
(c) Notices.............................................................17
(d) Counterparts........................................................18
(e) Amendments..........................................................18
(f) Assignment..........................................................18
(g) Expenses; Documentary Taxes; Indemnification........................18
(h) CHOICE OF LAW.......................................................19
(i) CONSENT TO JURISDICTION.............................................19
(j) WAIVER OF JURY TRIAL................................................20
</TABLE>
Exhibit A - Exhibit A - Form of Floating Rate Convertible Note Due 2000
Exhibit B - 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 - Exhibit C - Form of Consent of Bank of America National Trust and
Savings Association and American National Bank and Trust Company of
Chicago
Exhibit D - Exhibit D - Form of Opinion of Counsel to the Company
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 27, 1997 between SYSTEM
SOFTWARE ASSOCIATES, INC a Delaware corporation (the "Company"), and
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX(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 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx, 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
<PAGE>
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 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.
2
<PAGE>
(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 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 stockholders 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
3
<PAGE>
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, 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
4
<PAGE>
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 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 proposed 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
5
<PAGE>
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 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.
6
<PAGE>
(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 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
7
<PAGE>
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. The 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.
(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
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<PAGE>
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.
(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
9
<PAGE>
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
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:
(ii) 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
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<PAGE>
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.
(iii) 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
(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
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<PAGE>
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 accountants shall be paid by the Company, provided.
however, that all underwriting discounts and selling commissions applicable to
the Registrable Stock covered by
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<PAGE>
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
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<PAGE>
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
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 stockholders 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
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, copes of each of such reports;
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<PAGE>
(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 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
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<PAGE>
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 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
16
<PAGE>
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 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
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If to the Purchaser:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
with a copy to:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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.
(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
parts 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-ofpocket 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
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<PAGE>
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.
(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
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, this Note Purchase Agreement has been duly
executed by an officer of the parties hereto thereunto duly authorized all on
the date first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Roger Covey
---------------------------------------
Name:
Title: CEO
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
By: /s/ Authorized Officer
---------------------------------------
Name:
Title:
21
<PAGE>
================================================================================
AMENDED AND RESTATED
SECURED CREDIT AGREEMENT
DATED AS OF FEBRUARY 28, 1997
AMONG
SYSTEM SOFTWARE ASSOCIATES, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
BANK OF AMERICA ILLINOIS,
AS ISSUING BANK
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I
DEFINITIONS.............................. 1
1.1 Certain Defined Terms............................................... 1
1.2 Other Interpretive Provisions....................................... 20
1.3 Accounting Principles............................................... 21
ARTICLE II
THE CREDITS.............................. 22
2.1 Amounts and Terms of Commitments.................................... 22
2.2 Loan Accounts....................................................... 22
2.3 Procedure for Borrowing............................................. 23
2.4 Conversion and Continuation Elections............................... 24
2.5 Voluntary Termination or Reduction of Commitments................... 25
2.6 Mandatory Prepayments............................................... 26
2.7 Optional Prepayments................................................ 26
2.8 Make Whole Fee...................................................... 26
2.9 Repayment........................................................... 27
2.10 Interest Rates...................................................... 27
2.11 Commitment Fees..................................................... 28
2.12 Computation of Fees and Interest.................................... 28
2.13 Payments by the Borrower............................................ 28
2.14 Payments by the Banks to the Agent.................................. 29
2.15 Sharing of Payments, Etc............................................ 30
2.16 Security and Guaranty............................................... 30
ARTICLE III
THE LETTERS OF CREDIT.......................... 31
3.1 The Letter of Credit Subfacility.................................... 31
3.2 Issuance, Amendment and Renewal of Letters of
Credit............................................................. 32
3.3 Risk Participations, Drawings and Reimbursements.................... 34
3.4 Repayment of Participations......................................... 36
3.5 Role of the Issuing Bank............................................ 36
3.6 Obligations Absolute................................................ 37
3.7 [RESERVED].......................................................... 38
3.8 Letter of Credit Fees............................................... 38
3.9 Uniform Customs and Practice........................................ 39
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY.................. 39
4.1 Taxes............................................................... 39
4.2 Illegality.......................................................... 40
4.3 Increased Costs and Reduction of Return............................. 41
4.4 Funding Losses...................................................... 42
4.5 Inability to Determine Rates........................................ 42
4.6 Certificates of Banks............................................... 43
4.7 Substitution of Banks............................................... 43
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
4.8 Survival............................................................ 43
ARTICLE V
CONDITIONS PRECEDENT........................... 43
5.1 Conditions of Initial Loans......................................... 43
(a) Credit Agreement............................................ 43
(b) Notes....................................................... 43
(c) Warrants.................................................... 44
(d) Resolutions; Incumbency..................................... 44
(e) Organization Documents; Good Standing....................... 44
(f) Legal Opinion............................................... 44
(g) Payment of Fees............................................. 44
(h) Collateral Documents........................................ 44
(i) Certificate................................................. 46
(j) Note Agreement Amendment.................................... 46
(k) Other Documents............................................. 46
5.2 Conditions to All Borrowings and Letters of Credit.................. 46
(a) Notice of Transaction....................................... 47
(b) Continuation of Representations and
Warranties.................................................. 47
(c) No Existing Default......................................... 47
ARTICLE VI
REPRESENTATIONS AND WARRANTIES...................... 47
6.1 Corporate Existence and Power....................................... 47
6.2 Corporate Authorization; No Contravention........................... 48
6.3 Governmental Authorization.......................................... 48
6.4 Binding Effect...................................................... 48
6.5 Litigation.......................................................... 48
6.6 No Default.......................................................... 49
6.7 ERISA Compliance.................................................... 49
6.8 Use of Proceeds; Margin Regulations................................. 50
6.9 Properties.......................................................... 50
6.10 Taxes............................................................... 50
6.11 Financial Condition................................................. 50
6.12 Environmental Matters............................................... 51
6.13 Regulated Entities.................................................. 51
6.14 No Burdensome Restrictions.......................................... 51
6.15 Copyrights, Patents, Trademarks and Licenses, etc................... 51
6.16 Subsidiaries........................................................ 52
6.17 Insurance........................................................... 52
6.18 Deposit Accounts, Etc............................................... 52
6.19 Collateral Documents................................................ 52
6.20 Solvency............................................................ 52
6.21 Full Disclosure..................................................... 53
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE VII
AFFIRMATIVE COVENANTS.......................... 53
7.1 Financial Statements................................................ 53
7.2 Certificates; Other Information..................................... 55
7.3 Notices............................................................. 56
7.4 Preservation of Corporate Existence, Etc............................ 57
7.5 Maintenance of Property............................................. 57
7.6 Insurance........................................................... 57
7.7 Payment of Obligations.............................................. 57
7.8 Compliance with Laws................................................ 58
7.9 Compliance with ERISA............................................... 58
7.10 Inspection of Property and Books and Records........................ 58
7.11 Environmental Laws.................................................. 59
7.12 Use of Proceeds..................................................... 59
7.13 Further Assurances.................................................. 59
7.14 Most Favored Lender Provision....................................... 59
ARTICLE VIII
NEGATIVE COVENANTS.......................... 60
8.1 Limitation on Liens................................................. 60
8.2 Disposition of Assets............................................... 61
8.3 Consolidations and Mergers.......................................... 62
8.4 Loans and Investments............................................... 62
8.5 Limitation on Indebtedness.......................................... 64
8.6 Transactions with Affiliates........................................ 64
8.7 Use of Proceeds..................................................... 64
8.8 Contingent Obligations.............................................. 65
8.9 Lease Obligations................................................... 65
8.10 Restricted Payments................................................. 65
8.11 Asset Acquisitions.................................................. 65
8.12 Deposit Accounts.................................................... 66
8.13 ERISA............................................................... 66
8.14 Change in Business.................................................. 66
8.15 Accounting Changes.................................................. 66
ARTICLE IX
FINANCIAL COVENANTS........................... 66
9.1 Consolidated Net Worth............................................. 67
9.2 Cash Balances....................................................... 67
9.3 Capital Expenditures................................................ 67
ARTICLE X
EVENTS OF DEFAULT............................ 67
10.1 Event of Default................................................... 67
(a) Non-Payment................................................. 67
(b) Representation or Warranty.................................. 67
(c) Specific Defaults........................................... 67
(d) Other Defaults.............................................. 67
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
(e) Cross-Default................................................... 67
(f) Insolvency; Voluntary Proceedings............................... 68
(g) Involuntary Proceedings......................................... 68
(h) ERISA........................................................... 68
(i) Monetary Judgments.............................................. 69
(j) Non-Monetary Judgments.......................................... 69
(k) Change of Control............................................... 69
(l) Collateral...................................................... 69
10.2 Remedies............................................................ 69
10.3 Rights Not Exclusive................................................ 70
ARTICLE XI
THE AGENT............................ 70
11.1 Appointment and Authorization...................................... 70
11.2 Delegation of Duties............................................... 71
11.3 Liability of Agent................................................. 71
11.4 Reliance by Agent.................................................. 71
11.5 Notice of Default.................................................. 72
11.6 Credit Decision.................................................... 72
11.7 Indemnification of Agent........................................... 73
11.8 Agent in Individual Capacity....................................... 73
11.9 Successor Agent.................................................... 74
11.10 Withholding Tax.................................................... 74
ARTICLE XII
MISCELLANEOUS.......................... 76
12.1 Amendments and Waivers............................................. 76
12.2 Notices............................................................ 77
12.3 No Waiver; Cumulative Remedies..................................... 78
12.4 Costs and Expenses................................................. 78
12.5 Borrower Indemnification........................................... 79
12.6 Marshalling Payments Set Aside..................................... 79
12.7 Successors and Assigns............................................. 80
12.8 Assignments, Participations, etc................................... 80
12.9 Confidentiality.................................................... 82
12.10 Set-off............................................................ 82
12.11 Automatic Debits of Fees........................................... 83
12.12 Notification of Addresses, Lending Offices, Etc.................... 83
12.13 Counterparts....................................................... 83
12.14 Severability....................................................... 83
12.15 No Third Parties Benefited......................................... 83
12.16 Governing Law and Jurisdiction..................................... 84
12.17 Entire Agreement................................................... 84
12.18 Reaffirmation and Restatement...................................... 84
</TABLE>
-iv-
<PAGE>
SCHEDULES
Schedule 1.1 Original Financial Covenants
Schedule 2.1 Commitments
Schedule 3.3 Existing BAI Letters of Credit
Schedule 6.5 Litigation
Schedule 6.7 ERISA
Schedule 6.9 Real Property
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.16 Subsidiaries and Minority Interests
Schedule 6.17 Insurance Matters
Schedule 6.18 Deposit Accounts etc.
Schedule 8.1 Permitted Liens
Schedule 8.5 Permitted Indebtedness
Schedule 8.8 Contingent Obligations
Schedule 12.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Borrower's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
Exhibit G Collateral Agency Agreement
Exhibit H Format for Management Reports
Exhibit I Form of Warrant
-v-
<PAGE>
AMENDED AND RESTATED
SECURED CREDIT AGREEMENT
------------------------
This CREDIT AGREEMENT is entered into as of February 28, 1997, among System
Software Associates, Inc., a Delaware corporation (the "Borrower"), the several
--------
financial institutions from time to time party to this Agreement (collectively,
the "Banks," and individually, a "Bank"), and Bank of America National Trust and
----- ----
Savings Association, as agent for the Banks, and Bank of America Illinois, as
letter of credit issuing bank.
WHEREAS, the Banks have agreed to make available to the Borrower a
revolving credit facility with letter of credit subfacility upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Certain Defined Terms. The following terms have the following
---------------------
meanings:
"Affiliate" means, as to any Person, any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common
control with, such Person, other than a Subsidiary of such Person. A
Person shall be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract, or otherwise.
Without limitation, any director, executive officer or beneficial owner of
10% or more of the equity of a Person shall for the purposes of this
Agreement, be deemed to control such Person.
"Agent" means BofA in its capacity as agent for the Banks hereunder,
-----
and any successor agent arising under Section 11.9.
------------
"Agent-Related Persons" means BofA and any successor agent arising
---------------------
under Section 11.9 and BAI and any successor letter of credit issuing bank
------------
hereunder, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
<PAGE>
"Agent's Payment Office" means the address for payments set forth on
----------------------
Schedule 12.2 or such other address as the Agent may from time to time
-------------
specify.
"Agreement" means this Credit Agreement.
---------
"ANB" means American National Bank and Trust Company of Chicago, a
---
national banking association, and its successors and assigns.
"Applicable Margin" or "Applicable Fee," as the case may be, shall
----------------- --------------
mean a margin or fee as follows: the Applicable Margin for purposes of
Base Rate Loans is 1.00%; subject to the proviso set forth in subsection
------- ----------
2.3(a), the Applicable Margin for purposes of Offshore Rate Loans is 2.50%;
------
and pursuant to Section 2.11, after the Revolver Date the Applicable Fee
------------
for purposes of the Commitment is 0.40%; and the Applicable Fee for
purposes of Letters of Credit is 2.00%.
"Assignee" has the meaning specified in subsection 12.8(a).
-------- ------------------
"Attorney Costs" means and includes all fees and disbursements of any
--------------
law firm or other external counsel and, without duplication, the allocated
cost of internal legal services and all disbursements of internal counsel.
"BAI" means Bank of America Illinois, an Illinois state banking
---
association, and its successors and assigns.
"Bank" has the meaning specified in the introductory clause hereto.
----
References to the "Banks" shall include BAI, in its capacity as Issuing
Bank; for purposes of clarification only, to the extent that BAI may have
any rights or obligations in addition to those of the Banks due to its
status as Issuing Bank, its status as such will be specifically referenced.
"Bankruptcy Code" means title 11 of the United States Code.
---------------
"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 BofA in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above,
or below such announced rate.)
-2-
<PAGE>
Any change in the reference rate announced by BofA shall take effect
at the opening of business on the day specified in the public announcement
of such change.
"Base Rate Loan" means a Loan or an L/C Advance that bears interest
--------------
based on the Base Rate.
"BofA" means Bank of America National Trust and Savings Association, a
----
national banking association, and its successors and assigns.
"Borrowing" means a borrowing hereunder consisting of Loans of the
---------
same Type made to the Borrower on the same day by the Banks under Article
-------
II, and, other than in the case of Base Rate Loans, having the same
--
Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
--------------
Section 2.3.
-----------
"Borrower" has the meaning specified in the introductory clause.
--------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in Chicago or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means such a day on which dealings are carried on in
the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Capital Expenditure" means, for any period, the capital expenditures
-------------------
(which shall include all capitalized software expenditures) of the Borrower
and its Subsidiaries for such period, as the same are (or would in
accordance with GAAP be) set forth in the consolidated statement of cash
flows of the Borrower and its Subsidiaries for such period.
"Cash Collateralize" means to pledge and deposit with or deliver to
------------------
the Agent, for the benefit of the Agent, the Issuing Bank and the Banks, as
collateral for the L/C Obligations, cash or deposit account balances
pursuant to documentation in form and substance satisfactory to the Agent
and the Issuing Bank (which documents are hereby consented to by the
Banks). Derivatives of such term shall have corresponding meaning. Cash
collateral shall be maintained in blocked, non-interest bearing deposit
accounts at BofA.
-3-
<PAGE>
"Change of Control" shall be deemed to have occurred at such time
-----------------
after the date hereof as (i) any person or group of persons (within the
meaning of Section 13 or 14 of the Exchange Act) shall acquire at any time
beneficial ownership of more than 25% of the fully diluted common stock of
the Borrower or (ii) individuals who as of the date hereof constitute the
Borrower's Board of Directors (together with any new director whose
election by the Borrower'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 for
election was previously so approved), for any reason, cease to constitute a
majority of the directors at any time then in office.
"Closing Date" means the date on which all conditions precedent set
------------
forth in Section 5.1 are satisfied or waived by all Banks (or, in the case
-----------
of subsection 5.1(g), waived by the Person entitled to receive such
-----------------
payment).
"Code" means the Internal Revenue Code of 1986 as amended from time to
----
time, and regulations promulgated thereunder.
"Collateral" has the meaning specified in the Collateral Agency
-----------
Agreement.
"Collateral Agency Agreement" shall mean that certain Collateral
---------------------------
Agency Agreement attached hereto as Exhibit G, as the same may from time to
---------
time be amended, modified or supplemented.
"Collateral Agent" means BofA when acting in its capacity as
----------------
Collateral Agent under any of the Collateral Documents, and any successor
Collateral Agent appointed pursuant to the terms of the Collateral Agency
Agreement.
"Collateral Documents" has the meaning specified in the Collateral
--------------------
Agency Agreement.
"Commitment", as to each Bank, has the meaning specified in Section
---------- -------
2.1.
---
"Commitment Fee" has the meaning specified in Section 2.11.
-------------- ------------
"Compliance Certificate" means a certificate substantially in the form
----------------------
of Exhibit C.
---------
"Computation Date" has the meaning specified in subsection 2.5(a).
---------------- -----------------
-4-
<PAGE>
"Consolidated Cash Balances" means the consolidated cash balances of
--------------------------
the Borrower and its Subsidiaries.
"Consolidated Liabilities" means all consolidated liabilities of the
------------------------
Borrower and its Subsidiaries.
"Consolidated Net Worth" means the consolidated shareholders' equity
----------------------
of the Borrower and its Subsidiaries.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument
-------------------
(other than any Letter of Credit) issued for the account of that Person or
as to which that Person is otherwise liable for reimbursement of drawings
or payments; (c) to purchase any materials, supplies or other property
from, or to obtain the services of, another Person if the relevant contract
or other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered, or (d) in respect of any Swap Contract. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in
respect of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof, and in the case of other Contingent Obligations, shall be equal to
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such
-5-
<PAGE>
Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section
---------------------------- -------
2.4, the Borrower (a) converts Loans of one Type to another Type, or (b)
---
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Default" means any event or circumstance which, with the giving of
-------
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Disposition" means the sale, assignment, lease, transfer,
-----------
contribution, conveyance, issuance or other disposition of, or granting of
options, warrants or other rights with respect to, any assets of the
Borrower or any Subsidiary; provided, that the term "Disposition" shall not
--------
include (i) the first $100,000 of Net Proceeds received with respect to any
sale, assignment, lease, transfer, contribution, conveyance, issuance or
other disposition during any fiscal year of the Borrower and thereafter any
individual sale, assignment, lease, transfer, contribution, conveyance,
issuance or other disposition the Net Proceeds from which do not exceed
$1,000, (ii) the sale or lease of that certain condominium unit owned by
the Borrower the address of which is 195 North Harbor Drive, Unit 2802,
Chicago, Illinois, (iii) the sale of the sales and customer service assets
of the Borrower's Barcelona office, the net proceeds of which shall range
from U.S. 1,000,000 to 1,750,000 (such net proceeds to be payable in two or
three annual installments) or (iv) the licensing and sale of software in
the ordinary course of business.
"Dollar Equivalent" means, at any time: (a) as to any amount
-----------------
denominated in Dollars, the amount thereof at such time; and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in
Dollars as determined by the Agent on the last Business Day of the
immediately preceding calendar month on the basis of the Spot Rate on such
day for the purchase of Dollars with such Offshore Currency, provided, that
--------
prior to the Revolver Date, the Dollar Equivalent Amount of the Existing
BAI Letters of Credit denominated in an Offshore Currency shall be
determined as of the Business Day immediately preceding the Closing Date.
"Dollars", "dollars" and "$" each mean lawful money of the United
------- ------- -
States and "Dollar" means one of such Dollars.
------
-6-
<PAGE>
"Domestic Subsidiary" means any Subsidiary which is organized under
-------------------
the laws of the United States of America or under the laws of any state
therein.
"Eligible Assignee" means (a) a commercial bank organized under the
-----------------
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, provided that such bank is acting
through a branch or agency located in the United States or (c) a Person
that is primarily engaged in the business of commercial banking and that is
(i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank
is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
--------------------
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
------------------
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
-----
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
-----------
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which
it was a substantial employer (as defined in Section 4001(a)(2) of ERISA)
or a cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the
Borrower or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice
of intent to
-7-
<PAGE>
terminate, the treatment of a Plan amendment as a termination under Section
4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or condition
which might reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the imposition
of any liability under Title IV of ERISA, other than PBGC premiums due but
not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the
-----------------------------
definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances specified
----------------
in Section 10.1.
------------
"Event of Loss" means, with respect to any property, any of the
-------------
following: : (a) any loss, destruction or damage of such property; or (b)
any actual condemnation, seizure or taking, by exercise of the power of
eminent domain or otherwise, of such property, or confiscation of such
property or the requisition of the use of such property.
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended from time to time, and regulations promulgated thereunder.
"Existing BAI Letters of Credit" means the letters of credit described
------------------------------
in Schedule 3.3, the form and content of which the Banks hereby acknowledge
------------
to be acceptable.
"Existing Credit Agreement" means that certain Credit Agreement dated
-------------------------
as of June 19, 1995 among the Borrower, certain of its Subsidiaries, the
Agent, the Issuing Bank and the Banks.
"Existing Loans" means any "Loan" (as such term is defined in the
--------------
Existing Credit Agreement) outstanding under the Existing Credit Agreement
on the Closing Date.
"FDIC" means the Federal Deposit Insurance Corporation, and any
----
Governmental Authority succeeding to any of its principal functions.
"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
-8-
<PAGE>
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
Agent 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 Agent.
"FRB" means the Board of Governors of the Federal Reserve System, and
---
any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the Closing Date.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Grantor" has the meaning specified in the Collateral Agency
-------
Agreement.
"Guarantor" means any Person who executes and delivers to the
---------
Collateral Agent a Guaranty.
"Guaranty" has the meaning specified in the Collateral Agency
--------
Agreement.
"Guaranty Obligation" has the meaning specified in the definition of
-------------------
"Contingent Obligation."
"Honor Date" has the meaning specified in subsection 3.3(b).
---------- -----------------
"Inactive Subsidiaries" means those Subsidiaries of the Borrower
---------------------
which do not own or lease any assets in excess of $10,000 or conduct any
business.
"Indebtedness" of any Person means, without duplication, (a) all
------------
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price
-9-
<PAGE>
of property or services (other than trade payables entered into in the
ordinary course of business on ordinary terms); (c) all non-contingent
reimbursement or payment obligations with respect to Surety Instruments;
(d) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to
property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations with respect to
capital leases; (g) all Swap Contracts; (h) all indebtedness referred to in
clauses (a) through (g) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including accounts and contracts rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; and (i) all Guaranty
Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (a) through (g) above. The amount of any
Indebtedness arising under clause (g) above shall be deemed to equal 10% of
the notional amount of all Swap Contracts.
"Indemnified Liabilities" has the meaning specified in Section 12.5.
----------------------- ------------
"Indemnified Person" has the meaning specified in Section 12.5.
------------------ ------------
"Independent Auditor" has the meaning specified in subsection 7.1(a).
------------------- -----------------
"Insolvency Proceeding" means (a) any case, action or proceeding
---------------------
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each case (a) and (b) undertaken
under U.S. Federal, State or foreign law, including the Bankruptcy Code.
"Intercompany Revolving Demand Note" has the meaning specified in the
----------------------------------
Collateral Agency Agreement.
"Interest Payment Date" means, as to any Offshore Rate Loan, the
---------------------
last day of each Interest Period applicable to such Loan and, as to any
Base Rate Loan, the last Business Day of
-10-
<PAGE>
each calendar month and each date such Loan is converted into another Type
of Loan or prepaid pursuant to Section 2.6(b), provided, however, that if
-------------- -------- -------
any Interest Period for an Offshore Rate Loan exceeds one month, the date
that falls one month after the beginning of such Interest Period and after
each Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
---------------
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Borrower in its Notice of
Borrowing or Notice of Conversion/Continuation;
provided that:
--------
(a) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(b) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(c) no Interest Period for any Loan shall extend beyond the
Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental
---
Authority succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in subsection 3.1(a).
------------- -----------------
"Issue" means, with respect to any Letter of Credit, (a) to
-----
incorporate the Existing BAI Letters of Credit into this Agreement, or (b)
to issue or to extend the expiry of, or to renew or increase the amount of,
such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance"
have corresponding meanings.
"Issuing Bank" means BAI in its capacity as issuer of one or more
------------
Letters of Credit hereunder, together with any
-11-
<PAGE>
replacement letter of credit issuer arising under subsection 11.1(b) or
------------------
Section 11.9.
------------
"L/C Advance" means each Bank's participation in any L/C Borrowing in
-----------
accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for amendment of
-------------------------
outstanding standby or commercial documentary letters of credit as shall at
any time be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Application" means an application form for issuances of standby
---------------
or commercial documentary letters of credit as shall at any time be in use
at the Issuing Bank, as the Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a drawing
-------------
under any Letter of Credit which shall not have been reimbursed on the date
when made nor converted into a Borrowing of Loans under subsection 3.3(c).
-----------------
"L/C Commitment" means the commitment of the Issuing Bank to Issue,
--------------
and the commitment of the Banks severally to participate, in Letters of
Credit (including the Existing BAI Letters of Credit) from time to time
Issued or outstanding under Article III; provided, however, that (i) the
----------- -------- -------
aggregate amount of L/C Obligations at any one time outstanding shall at no
time exceed the lesser of the combined Commitments or $5,000,000; (ii) the
L/C Commitment is a part of the combined Commitments, rather than a
separate, independent commitment; (iii) in no event prior to the Revolver
Date shall the L/C Commitment exceed the Dollar Equivalent amount of the
Existing BAI Letters of Credit; and (iv) in no event shall any Letter of
Credit be Issued during the period from the Closing Date to the Revolver
Date.
"L/C Obligations" means at any time the sum of (a) the aggregate
---------------
undrawn Dollar Equivalent amount of all Letters of Credit then outstanding,
plus (b) the Dollar Equivalent amount of all unreimbursed drawings under
all Letters of Credit, including all outstanding L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
---------------------
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Bank's
standard form documents for letter of credit issuances.
"Lending Office" means, as to any Bank, the office or offices of such
--------------
Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 12.2, or such
-------------
other office or offices
-12-
<PAGE>
as such Bank may from time to time notify the Borrower and the Agent.
"Letter Agreement" has the meaning specified in Section 6.11(b).
---------------- ----------------
"Letters of Credit" means the Existing BAI Letters of Credit and any
-----------------
letters of credit (whether standby letters of credit or commercial
documentary letters of credit) Issued by the Issuing Bank pursuant to
Article III.
-----------
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the UCC or any comparable
law) and any contingent or other agreement to provide any of the foregoing,
but not including the interest of a lessor under an operating lease.
"Loan" means the Existing Loans and an extension of credit by a Bank
----
to the Borrower under Article II and Article III, in the form of a
---------- -----------
Revolving Loan or L/C Advance and may be a Base Rate Loan or an Offshore
Rate Loan (each, a "Type" of Loan).
----
"Loan Documents" means this Agreement, any Notes, the L/C-Related
--------------
Documents, the Collateral Documents, the Warrants, the Letter Agreement and
all other agreements, instruments and documents required by the terms of
any such agreement to be delivered to the Agent, any Bank or the Collateral
Agent in connection therewith.
"Majority Banks" means at any time of determination Banks holding at
--------------
least 66-2/3% of the then aggregate unpaid Obligations, or, if no such
Obligations are then outstanding, Banks then having at least 66-2/3% of the
Commitments, provided, however, where (i) there is more than one Bank, and
-------- -------
(ii) if one Bank holds at least 66 2/3% of the then outstanding Obligations
(or if not Obligations are then outstanding, if one Bank holds at least 66
2/3% of the Commitments), then "Majority Banks" shall mean that Bank and at
least one other Bank.
"Margin Stock" means "margin stock" as such term is defined in
------------
Regulation G, T, U or X of the FRB.
-13-
<PAGE>
"Material Adverse Effect" means (a) a material adverse change in, or a
-----------------------
material adverse effect upon, the current or future operations, business,
properties or condition (financial or otherwise) of the Borrower and its
Subsidiaries on a consolidated basis; (b) a material impairment of the
ability of any Obligor to perform any of its material obligations under any
Loan Document and to avoid any Event of Default; or (c) a material adverse
effect upon (i) the legality, validity, binding effect or enforceability
against any Obligor of any Loan Document or (ii) the perfection or priority
of any Lien granted under any of the Collateral Documents.
"Minimum Tranche" means, in respect of Loans comprising part of the
---------------
same Borrowing, or to be converted or continued under Section 2.4, (a) in
-----------
the case of Base Rate Loans, $500,000 or any multiple of $100,000 in excess
thereof, and (b) in the case of Offshore Rate Loans, $1,000,000 or any
multiple of $100,000.
"Mortgage" means any Leasehold Mortgage/Deed of Trust delivered to the
--------
Collateral Agent pursuant to Section 5.1(g).
--------------
"Multiemployer Plan" means a "multiemployer plan", within the meaning
------------------
of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate makes, is making, or is obligated to make contributions or,
during the preceding three calendar years, has made, or been obligated to
make, contributions.
"Net Proceeds" shall mean, (a) with respect to any Disposition or
------------
Sale, the aggregate amount of cash and readily marketable cash equivalents
received by the Borrower or any Subsidiary in connection with a Disposition
or Sale minus the sum of (i) reasonable costs and expenses (including costs
of taxes other than income taxes) incurred in connection with such
Disposition or Sale and required to be paid in cash, and (ii) the estimated
income tax to be paid by the Borrower or any Subsidiary in connection with
such Disposition or Sale and (b) with respect to any Event of Loss,
proceeds paid on account of such Event of Loss, net of (i) all money
actually applied to repair or reconstruct the damaged property or property
affected by the condemnation or taking, (ii) all of the costs and expenses
reasonably incurred in connection with the collection of such proceeds,
award or other payments, and (iii) any amounts retained by or paid to
parties having superior rights to such proceeds, awards or other payments.
"Note" means any promissory note executed by the Borrower in favor of
----
a Bank pursuant to subsection 2.2(b), in substantially the form of Exhibit
----------------- -------
F.
-
-14-
<PAGE>
"Note Agreement" means that certain Note Agreement dated as of August
--------------
15, 1993 among the Borrower and certain financial institutions party
thereto, as the same may be amended, modified or supplemented from time to
time.
"Noteholders" has the meaning specified in the Collateral Agency
-----------
Agreement.
"Notice of Borrowing" means a notice in substantially the form of
-------------------
Exhibit A.
---------
"Notice of Conversion/Continuation" means a notice in substantially
---------------------------------
the form of Exhibit B.
---------
"Obligations" means all advances, debts, liabilities, obligations,
-----------
covenants and duties arising under any Loan Document owing by the Borrower
to any Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising.
"Obligor" has the meaning specified in the Collateral Agency
-------
Agreement.
"Offshore Currency" means at any time English pounds sterling, Dutch
-----------------
guilders, French francs, Italian liras, German deutsche marks, Japanese
yen, Australian dollars.
"Offshore Lending Office" means, with respect to each Bank, the office
-----------------------
of such Bank designated as such on Schedule 12.2 hereto.
-------------
"Offshore Rate" means, for any Interest Period, with respect to
-------------
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined by
the Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
-----------------------------
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such
day (whether or not applicable to any Bank) under regulations issued
from time to time by the FRB for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
-15-
<PAGE>
"LIBOR" means the rate of interest per annum (rounded upward to
-----
the next 1/16th of 1%) notified to the Agent by the Reference Bank as
the rate of interest per annum at which dollar deposits in the
approximate amount of the amount of the Loan to be made or continued
as, or converted into, an Offshore Rate Loan by such Reference Bank and
having a maturity comparable to such Interest Period would be offered
to major banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
------------------
Offshore Rate.
"Organization Documents" means, for any corporation, the certificate
----------------------
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Original Financial Covenants" means the financial covenants set forth
----------------------------
on Schedule 1.1 hereto.
------------
"Other Taxes" means any present or future stamp or documentary taxes
-----------
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Participant" has the meaning specified in subsection 12.8(d).
----------- ------------------
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
------------
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or
in the case of a multiple employer plan (as described in Section 4064(a) of
ERISA) has made contributions at any time during the immediately preceding
five (5) plan years.
-16-
<PAGE>
"Permitted Liens" has the meaning specified in Section 8.1.
--------------- -----------
"Person" means an individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, joint
venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
----
ERISA) which the Borrower sponsors or maintains or to which the Borrower
makes, is making, or is obligated to make contributions and includes any
Pension Plan.
"Pledge Agreement (Stock and Intercompany Notes)" has the meaning
-----------------------------------------------
specified in the Collateral Agency Agreement.
"Premium" has the meaning specified in Section 2.8.
------- -----------
"Pro Rata Share" means, as to any Bank at any time, the percentage
--------------
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of such Bank's Commitment divided by the combined Commitments of
all Banks.
"Reference Bank" means BofA or such other Bank as may be elected by
--------------
the Majority Banks.
"Rentals" means as of the date of any determination thereof, all fixed
-------
payments (including all payments which the lessee is obligated to make to
the lessor on termination of the lease or surrender of the property)
payable by the Borrower or a Subsidiary, as lessee or sublessee under a
lease of real or personal property (whether capital or operating) but
exclusive of any amounts required to be paid by the Borrower or a
Subsidiary (whether or not designated as rents or additional rents) on
account of maintenance, repairs, insurance, taxes, assessments,
amortization and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed on the basis of the minimum rents, if
any, required to be paid by the lessee, regardless of sales volume or gross
revenues.
"Replacement Bank" has the meaning specified in Section 4.7.
---------------- -----------
"Reportable Event" means, any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, other than any such event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation of a Governmental Authority, in each
case applicable to or binding
-17-
<PAGE>
upon the Person or any of its property or to which the Person or any of its
property is subject.
"Responsible Officer" means the chief executive officer or the
-------------------
president of the Borrower, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Borrower, or any other officer having substantially the same authority and
responsibility.
"Revolver Date" means the earlier to occur of the date upon which all
-------------
liabilities of the Borrower outstanding under the Note Agreement are paid
in full and the Note Agreement is terminated and the Majority Banks and the
Borrower consent in writing to the making of additional Loans hereunder.
"Sale" means a sale or issuance by the Borrower or any Subsidiary of
----
any equity securities, Subordinated Indebtedness or other Indebtedness of a
type not permitted by Section 8.5 or any sale, issuance or granting by the
-----------
Borrower or any Subsidiary of options, contingent interest rights, warrants
or other rights relating to any such equity securities or Subordinated
Indebtedness or otherwise related in any way to its earnings or performance
(other than pursuant to a Plan of the Borrower or such Subsidiary for the
benefit of its employees).
"SEC" means the Securities and Exchange Commission, or any
---
Governmental Authority succeeding to any of its principal functions.
"Security Agreement" has the meaning specified in the Collateral
------------------
Agency Agreement.
"Senior Notes" means those certain promissory notes issued in
------------
accordance with the Note Agreement.
"Significant Subsidiary" means any Subsidiary which would be a
----------------------
"significant subsidiary" under either clause (a) or clause (b) of the
definition of Significant Subsidiary in Rule 1-02 of Regulation S-X under
the Securities Act of 1933 and the Securities Exchange Act of 1934, as
amended, as such Regulation is in effect on the date hereof.
"Solvent" means, as to any Person at any time, that (a) the fair value
-------
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities)
as such value is established and liabilities evaluated for purposes of
Section 101(31) of the Bankruptcy Code and, in the alternative, for
purposes of the Uniform Fraudulent Transfer
-18-
<PAGE>
Act; (b) the present fair saleable value of the property of such Person is
not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured;
(c) such Person is able to realize upon its property and pay its debts and
other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (d) such
Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital.
"Spot Rate" for a currency means the rate quoted by BofA as the spot
---------
rate for the purchase by BofA of such currency with another currency
through its Foreign Exchange Trading Center #5193, San Francisco,
California (or such other of BofA's offices as BofA may designate from time
to time) at approximately 8:00 a.m. (San Francisco time) on the date two
Business Days prior to the date as of which the foreign exchange
computation is made.
"Subordinated Indebtedness" means Indebtedness of the Borrower the
-------------------------
terms and conditions of which are acceptable to the Majority Banks.
"Subsidiary" of a Person means any corporation, association,
----------
partnership, limited liability company, joint venture or other business
entity of which 50% or more of the voting stock or other equity interests,
is owned or controlled directly or indirectly by the Person, or one or more
of the Subsidiaries of the Person, or a combination thereof. Unless the
context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Borrower.
"Surety Instruments" means all letters of credit (including standby
------------------
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Swap Contract" means any agreement (including any master agreement
-------------
and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward
rate agreement, commodity swap, commodity option, equity or equity index
swap or option, bond option, interest rate option, forward foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
cross-currency rate swap agreement, swap option, currency option or any
other, similar agreement (including any option to enter into any of the
foregoing).
-19-
<PAGE>
"Taxes" means any and all present or future taxes, levies, imposts,
-----
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured
by each Bank's net income by the jurisdiction (or any political subdivision
thereof) under the laws of which such Bank or the Agent, as the case may
be, is organized or maintains a lending office.
"Termination Date" means the earlier to occur of:
----------------
(a) November 1, 1997; or
(b) the date on which the Commitments otherwise terminate in
accordance with the provisions of Sections 2.5 or 10.2 of this
------------ ----
Agreement.
"Type" has the meaning specified in the definition of "Loan."
----
"UCC" means the Uniform Commercial Code, as in effect from time to
---
time in the State of Illinois.
"UCP" has the meaning specified in Section 3.9.
--- -----------
"Unfunded Pension Liability" means the excess of a Plan's benefit
--------------------------
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
------------- ----
"Warrants" means the Warrants issued by the Borrower to a Bank, in
--------
substantially the form of Exhibit I.
---------
"Wholly-Owned Subsidiary" means any corporation, association,
-----------------------
partnership, limited liability company, joint venture or other business
entity of which (other than directors' qualifying shares required by law)
100% of the voting stock or other equity interest of each class having
ordinary voting power, and 100% of the voting stock or other equity
interest of every other class, in each case, at the time as of which any
determination is being made, is owned, beneficially and of record, by the
Borrower, or by one or more of the other Wholly-Owned Subsidiaries, or
both.
-20-
<PAGE>
1.2 Other Interpretive Provisions. (a) The meanings of defined terms are
-----------------------------
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrower
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.3 Accounting Principles. (a) Unless the context otherwise clearly
---------------------
requires, all accounting terms not expressly defined herein
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<PAGE>
shall be construed, and all financial computations required under this Agreement
shall be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Borrower.
ARTICLE II
THE CREDITS
-----------
2.1 Amounts and Terms of Commitments. (a) Each Bank severally agrees, on
--------------------------------
the terms and conditions set forth herein, to maintain the Existing Loans during
the period from the Closing Date to the earlier to occur of the Revolver Date or
the Termination Date. The Borrower acknowledges that the principal amount of
the Existing Loans is $46,400,000.
(b) Each Bank severally agrees, on the terms and conditions set forth
herein, to make loans to the Borrower from time to time on any Business Day
during the period from the Revolver Date to the Termination Date, in an
aggregate principal amount not to exceed at any time outstanding the amount set
forth on Schedule 2.1 (such amount as the same may be reduced under Sections 2.5
------------ ------------
or 2.6, or as a result of one or more assignments under Section 12.8, the Bank's
--- ------------
"Commitment"); provided, however, that, after giving effect to any Borrowing (i)
---------- -------- -------
the aggregate principal amount of all outstanding Loans shall not exceed
$46,400,000, (ii) the aggregate principal amount of all outstanding Loans plus
the aggregate amount of all L/C Obligations shall not at any time exceed the
combined Commitments of all Banks. Within the limits of each Bank's Commitment,
and subject to the other terms and conditions hereof, the Borrower may borrow
under this Section 2.1, prepay under Section 2.6 and reborrow under this Section
----------- ----------- -------
2.1.
- ---
2.2 Loan Accounts. (a) The Loans made by each Bank and the Letters of
-------------
Credit Issued by the Issuing Bank shall be evidenced by one or more loan
accounts or records maintained by such Bank or Issuing Bank in the ordinary
course of business. The loan accounts or records maintained by the Agent, the
Issuing Bank and each Bank shall be conclusive absent manifest error of the
amount of the Loans made by the Banks to the Borrower and the Letters of Credit
Issued for the account of the Borrower and the interest and principal payments
thereon. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the Loans
made by such Bank may be evidenced by Notes, as a
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<PAGE>
supplement to loan accounts. Each such Bank may endorse on the schedules annexed
to its Note the date, amount and maturity of each Loan made by it and the amount
of each payment of interest and principal made by the Borrower with respect
thereto. Each such Bank is irrevocably authorized by the Borrower to endorse its
Note(s) and each Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of a Bank to make, or an error in making, a
- -------- -------
notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Borrower hereunder or under any such Note to such Bank.
2.3 Procedure for Borrowing. (a) Each Borrowing of Loans made on and
-----------------------
after the Revolver Date shall be made upon the irrevocable written notice of the
Borrower delivered to the Agent in the form of a Notice of Borrowing (which
notice must be received by the Agent prior to (i) 9:00 a.m. (San Francisco time)
three Business Days prior to the requested Borrowing Date, in the case of
Offshore Rate Loans; and (ii) 8:00 a.m. (San Francisco time) on such Borrowing
Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate amount not less than the Minimum Tranche;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Borrowing;
(D) in the case of Offshore Rate Loans, the duration of the
Interest Period applicable to such Loans included in such notice. If
the Notice of Borrowing fails to specify the duration of the Interest
Period, such Interest Period shall be one month;
(E) the account into which the proceeds of the Borrowing are
to be deposited; and
(F) the specific use to which the proceeds of such Loans
shall be applied (e.g. payroll, operating lease payment, interest
payment);
provided, that, unless the Majority Banks otherwise agree, at such times as the
- --------
Borrower shall fail to comply with any of the Original Financial Covenants (and
it is acknowledged that as of the date hereof the Borrower is not in compliance
with one or more of the Original Financial Covenants) the Borrower may not
request, and the Banks shall be under no obligation to make, Offshore Rate
Loans.
(b) Upon receipt of the Notice of Borrowing, the Agent will promptly
notify each Bank of the information set forth therein
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<PAGE>
and of the amount of such Bank's Pro Rata Share of the Borrowing. The Agent
shall be under no duty to interpret the specific use to which the proceeds of
such Loan are to be applied.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Borrower at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Borrower by the
Agent at such office by crediting the account of the Borrower specified in the
Notice of Borrowing with the aggregate of the amounts made available to the
Agent by the Banks and in like funds as received by the Agent.
(d) After giving effect to any Borrowing, there may not be more than
six (6) different Interest Periods in effect.
2.4 Conversion and Continuation Elections. (a) After the Revolver Date,
-------------------------------------
the Borrower may, upon irrevocable written notice to the Agent in accordance
with subsection 2.4(b):
-----------------
(i) elect, as of any Business Day, in the case of its Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of its Offshore Rate Loans, to convert any such Loans (or any part thereof
in an amount not less than the Minimum Tranche) into Loans of any other
Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any of its Loans having Interest Periods expiring on
such day (or any part thereof in an amount not less than the Minimum
Tranche);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
- --------
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Borrower to continue such Loans as, and convert such Loans into, Offshore
Rate Loans shall terminate.
(b) The Borrower shall deliver a Notice of Conversion/Continuation to
be received by the Agent prior to (i) 9:00 a.m. (San Francisco time) at least
three Business Days in advance of the Conversion/Continuation Date, if the Loans
are to be converted into or continued as Offshore Rate Loans; and (ii) 8:00 a.m.
(San Francisco time) on the Conversion/Continuation Date, if the Loans are to be
converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
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<PAGE>
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Borrower has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or if any Default or Event
of Default then exists, or if the Borrower shall fail to be in Compliance with
any of the Original Financial Covenants (and it is acknowledged that as of the
Closing Date the Borrower is not in compliance with one or more of the Original
Financial Covenants), the Borrower shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Borrower, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Majority Banks otherwise agree, if any Default or Event
of Default then exists, or if the Borrower shall fail to be in compliance with
any of the Original Financial Covenants (and it is acknowledged that as of the
Closing Date the Borrower is not in compliance with one or more of the Original
Financial Covenants), the Borrower may not elect to have a Loan converted into
or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than six (6) different Interest Periods in effect.
2.5 Voluntary Termination or Reduction of Commitments. After the Revolver
-------------------------------------------------
Date the Borrower may, upon not less than five Business Days' prior notice to
the Agent, terminate the Commitments, or permanently reduce the Commitments by
an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000 in
excess thereof; unless, after giving effect thereto and to any prepayments of
------
Loans made on the effective date thereof, the then-outstanding principal amount
of the Loans plus the then-outstanding aggregate amount of the L/C Obligations
would exceed the amount of the combined Commitments then in effect. Once
reduced in
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<PAGE>
accordance with this Section, the Commitments may not be increased.
Any reduction of the Commitments shall be applied to each Bank according to its
Pro Rata Share. All accrued commitment fees to, but not including the effective
date of any reduction or termination of Commitments, shall be paid on the
effective date of such reduction or termination.
2.6 Mandatory Prepayments. If, on any date after the Closing Date, the
---------------------
Borrower or any Subsidiary shall receive any Net Proceeds, the Borrower shall
promptly (i) notify the Collateral Agent thereof, including the amount of Net
Proceeds received by the Borrower or such Subsidiary in respect thereof (and the
amount and other type of consideration so received) and (ii) transfer to the
Collateral Agent such Net Proceeds for distribution by the Collateral Agent in
accordance with Section 4 of the Collateral Agency Agreement. Upon the making
---------
of any mandatory prepayment under this Section 2.6, the Commitment of each Bank
-----------
shall automatically be reduced by an amount equal to such Bank's ratable share
of the aggregate amount of principal repaid, effective as of the earlier of the
date that such prepayment is made or the date by which such prepayment is due
and payable hereunder. All accrued Commitment Fees to, but not including the
effective date of any reduction or termination of Commitments, shall be paid on
the effective date of such reduction or termination.
2.7 Optional Prepayments. Subject to Section 4.4, the Borrower may, at
-------------------- -----------
any time or from time to time, upon irrevocable notice to the Agent, ratably
among the Banks prepay Loans in whole or in part, in minimum amounts of $100,000
or any multiple of $100,000 in excess thereof. The Borrower shall deliver a
notice of prepayment in accordance with Section 12.2 (to be received by the
------------
Agent not later than 9:00 a.m. (San Francisco time) in the case of clause (i)
and 8:00 a.m. (San Francisco time) in the case of clause (ii)) (i) at least
three Business Days in advance of the prepayment date if the Loans to be prepaid
are Offshore Rate Loans in Dollars, and (ii) on the prepayment date if the Loans
to be prepaid are Base Rate Loans. Such notice of prepayment shall specify the
date and amount of such prepayment and whether such prepayment is of Base Rate
Loans, Offshore Rate Loans, or any combination thereof. Such notice shall not
thereafter be revocable by the Borrower and the Agent will promptly notify each
Bank thereof and of such Bank's Pro Rata Share of such prepayment. The Borrower
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 4.4.
- -----------
2.8 Make Whole Fee. If at the time the Borrower repays any principal
--------------
amount outstanding under the Note Agreement, the Borrower pays to the
Noteholders any make-whole payment or other type of premium in addition to such
principal amount (any such payment being referred to as a "Premium"),
concurrently with such payment
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<PAGE>
to the Noteholders the Borrower shall pay to the Agent, for the ratable benefit
of the Banks, an amount equal to the product of (a) the Premium and (b) a ratio
---------- --- -------
of (i) the sum of the aggregate outstanding principal amount of all Loans plus
- -- ----
the aggregate amount of all L/C Obligations to (ii) the aggregate principal
--
amount outstanding under the Note Agreement immediately prior to such repayment.
Concurrently with the payment to the Agent of the amount set forth in the
immediately preceding sentence, the Borrower shall deliver to the Agent a
certificate detailing the calculation of such amount.
2.9 Repayment. The Borrower shall repay to the Agent for the account of
---------
the Banks on the Termination Date the aggregate principal amount of Loans
outstanding on such date and shall Cash Collateralize all L/C Obligations, if
any, outstanding on such date.
2.10 Interest Rates. (a) With respect to each Loan, the Borrower hereby
--------------
promises to pay interest on the unpaid principal amount thereof for the period
commencing on the date of such Loan until such Loan is paid in full, as follows:
(i) While such Loan is a Base Rate Loan, at a rate per annum
equal to the Base Rate from time to time in effect plus the Applicable
Margin for Base Rate Loans then in effect; and
(ii) After the Revolver Date while such Loan is an Offshore Rate
Loan, at a rate per annum equal to the Offshore Rate applicable to such
Interest Period plus the Applicable Margin for Offshore Rate Loans then in
effect.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under Section 2.6 or 2.7 for the portion of the Loans so prepaid and upon
----------- ---
payment (including prepayment) in full thereof and, during the existence of any
Event of Default, interest shall be paid on demand of the Agent at the request
or with the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while any Default
exists and at all times after acceleration, the Borrower shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all of its outstanding Loans, at a rate per
annum which is determined by adding 2% per annum to the rate otherwise in effect
hereunder for such Loans.
(d) Anything herein to the contrary notwithstanding, the obligations
of the Borrower to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the
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<PAGE>
extent (but only to the extent) that contracting for or receiving such payment
by such Bank would be contrary to the provisions of any law applicable to such
Bank limiting the highest rate of interest that may be lawfully contracted for,
charged or received by such Bank; in lieu thereof, during any such period, the
Borrower shall pay such Bank interest at the highest rate permitted by
applicable law.
2.11 Commitment Fees. At all times after the Revolver Date, the Borrower
---------------
shall pay to the Agent for the account of each Bank a commitment fee (the
"Commitment Fee") on the average daily unused portion of such Bank's Commitment,
computed on a monthly basis in arrears on the last Business Day of each calendar
month based upon the daily utilization (including utilization of the L/C
Commitment) for that month as calculated by the Agent, equal to the Applicable
Fee with respect to Commitments per annum. Such commitment fee shall accrue
from the Revolver Date to the Termination Date and shall be due and payable
monthly in arrears on the last Business Day of each calendar month, with the
final payment, if any, to be made on the Termination Date; provided that, in
--------
connection with any reduction or termination of Commitments under Section 2.5
-----------
and 2.6, the accrued commitment fee calculated for the period ending on such
---
date shall also be paid on the date of such reduction or termination, with the
following monthly payment being calculated on the basis of the period from such
reduction or termination date to such monthly payment date. The commitment fees
provided in this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article V are not met.
- ---------
2.12 Computation of Fees and Interest. (a) All computations of interest
--------------------------------
and fees hereunder shall be made on the basis of a 360-day year and actual days
elapsed (which results in more interest being paid than if computed on the basis
of a 365-day year). Interest and fees shall accrue during each period during
which interest or such fees are computed from the first day thereof to the last
day thereof.
(b) Each determination of an interest rate or a Dollar Equivalent
amount by the Agent shall be conclusive and binding on the Borrowers and the
Banks in the absence of manifest error. The Agent will deliver to the Borrower
and the Banks a statement showing the quotations used by the Agent in
determining any interest rate.
2.13 Payments by the Borrower. (a) All payments to be made by the
------------------------
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Agent for the account of the Banks at the Agent's Payment Office, and,
shall be made in dollars and in immediately available funds, no later than 10:00
a.m. (San Francisco time) on the date specified herein. The Agent
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<PAGE>
will promptly distribute to each Bank its Pro Rata Share (or other applicable
share as expressly provided herein) of such principal, interest, fees or other
amounts, in like funds as received. Any payment received by the Agent later than
10:00 a.m. (San Francisco time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(c) Unless the Agent receives notice from the Borrower prior to the
date on which any payment is due to the Banks that the Borrower will not make
such payment in full as and when required, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date in immediately
available funds and the Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Bank on such due date an amount equal
to the amount then due such Bank. If and to the extent the Borrower has not
made such payment in full to the Agent, each Bank shall repay to the Agent on
demand such amount distributed to such Bank, together with interest thereon at
the Federal Funds Rate for each day from the date such amount is distributed to
such Bank until the date repaid.
2.14 Payments by the Banks to the Agent. (a) Unless the Agent receives
----------------------------------
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Revolver Date, at least one Business Day prior to the date
of such Borrowing, in the case of Offshore Rate Loans, or 9:00 a.m. (San
Francisco time) on the date of such Borrowing, in the case of Base Rate Loans,
that such Bank will not make available as and when required hereunder to the
Agent for the account of the Borrower the amount of that Bank's Pro Rata Share
of the Borrowing, the Agent may assume that each Bank has made such amount
available to the Agent in immediately available funds on the Borrowing Date and
the Agent may (but shall not be so required), in reliance upon such assumption,
make available to the Borrower on such date a corresponding amount. If and to
the extent any Bank shall not have made its full amount available to the Agent
in immediately available funds and the Agent in such circumstances has made
available to the Borrower such amount, that Bank shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Bank with respect to amounts owing under
this subsection 2.14(a) shall be conclusive, absent manifest error. If such
------------------
amount is so made available, such payment to the Agent shall constitute such
Bank's Loan on the date
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<PAGE>
of Borrowing for all purposes of this Agreement. If such amount is not made
available to the Agent on the Business Day following the Borrowing Date, the
Agent will notify the Borrower of such failure to fund and, upon demand by the
Agent, the Borrower shall pay such amount to the Agent for the Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.15 Sharing of Payments, Etc. If, other than as expressly provided
-------------------------
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from the other
Banks such participations in the Loans made by them as shall be necessary to
cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
-------- -------
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 12.9) with respect to such
------------
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation. The Agent will keep records (which shall
be conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks and the
Borrower following any such purchases or repayments.
2.16 Security and Guaranty. (a) All obligations of the Borrower under
---------------------
this Agreement, each of the Notes and all other Loan Documents shall be secured
in accordance with the Collateral Documents.
(b) All obligations of the Borrower under this Agreement, each of the Notes
and all other Loan Documents shall be
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<PAGE>
unconditionally guaranteed by the Guarantors pursuant to the Guaranties.
ARTICLE III
-----------
THE LETTERS OF CREDIT
---------------------
3.1 The Letter of Credit Subfacility. (a) On the terms and conditions set
--------------------------------
forth herein (i) the Issuing Bank agrees to maintain outstanding each of the
Existing BAI Letters of Credit during the period from the Closing Date to the
earlier to occur of the expiry date of such Letter of Credit or the Termination
Date and (ii) the Banks severally agree to participate in the Existing BAI
Letters of Credit; provided, however, that (a) in no event shall the aggregate
-------- -------
amount of the L/C Obligations exceed the Dollar Equivalent amount of the
Existing BAI Letters of Credit as of the Business Day immediately preceding the
Closing Date; and (b) in no event shall any Letter of Credit be Issued during
the period from the Closing Date to the Revolver Date.
(b) On the terms and conditions set forth herein (i) the Issuing Bank
agrees, (A) from time to time on any Business Day during the period from the
Revolver Date to the Termination Date to issue Letters of Credit for the
accounts of the Borrower, and to amend or renew Letters of Credit previously
issued by it, in accordance with subsection 3.2(c) and 3.2(d), and (B) to honor
----------------- ------
drafts under the Letters of Credit; and (ii) the Banks severally agree to
participate in Letters of Credit Issued for the accounts of the Borrower;
provided, that the Issuing Bank shall not be obligated to Issue, and no Bank
- --------
shall be obligated to participate in, any Letter of Credit if as of the date of
Issuance of such Letter of Credit (the "Issuance Date") (1) the aggregate amount
-------------
of all L/C Obligations plus the aggregate principal amount of all Loans exceed
the combined Commitments of all Banks, (2) the participation of any Bank in the
aggregate amount of all L/C Obligations plus the aggregate principal amount of
all Loans of such Bank exceeds such Bank's Commitment, or (3) the aggregate
principal amount of L/C Obligations exceeds the L/C Commitment. Within the
foregoing limits, and subject to the other terms and conditions hereof, the
Borrower's ability to obtain Letters of Credit shall be fully revolving, and,
accordingly, the Borrower may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit which have expired or which have been drawn
upon and reimbursed.
(c) The Issuing Bank is under no obligation to Issue any Letter of
Credit if:
(i) any order, judgment or decree of any Governmental Authority
or arbitrator shall by
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<PAGE>
its terms purport to enjoin or restrain the Issuing Bank from
Issuing such Letter of Credit or any Requirement of Law
applicable to the Issuing Bank or any request or directive
(whether or not having the force of law) from any Governmental
Authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing Bank
refrain from, the Issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the Closing
Date, or shall impose upon the Issuing Bank any unreimbursed
loss, cost or expense which was not applicable on the Closing
Date and which the Issuing Bank in good faith deems material to
it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or the Borrower, on or prior to the
Business Day prior to the requested date of Issuance of such
Letter of Credit, that one or more of the applicable conditions
contained in Article V is not then satisfied;
---------
(iii) the expiry date of any requested Letter of
Credit is, or any automatic extension date could be, after the
Termination Date, unless all of the Banks have approved such
expiry date in writing;
(iv) any requested Letter of Credit does not provide
for drafts, or is not otherwise in form and substance acceptable
to the Issuing Bank, or the Issuance of a Letter of Credit shall
violate any applicable policies of the Issuing Bank; or
(v) such Letter of Credit would be issued for the
purpose of supporting the issuance of any letter of credit by any
other Person.
3.2 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter
----------------------------------------------------
of Credit issued after the Revolver Date shall be issued upon the irrevocable
written request of the Borrower received by the Issuing Bank (with a copy sent
to the Agent) at least four Business Days prior to the proposed date of issuance
(or such shorter time as the Issuing Bank may agree to in its sole discretion).
Each such request for issuance of a Letter of Credit
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<PAGE>
shall be by facsimile, confirmed immediately in an original writing, in the form
of an L/C Application, and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the face amount of the Letter of Credit; (ii) the expiry date
of the Letter of Credit; (iii) the name and address of the beneficiary thereof;
(iv) the documents to be presented by the beneficiary of the Letter of Credit in
case of any drawing thereunder; (v) the full text of any certificate to be
presented by the beneficiary in case of any drawing thereunder; and (vi) such
other matters as the Issuing Bank may require.
(b) Promptly following receipt of an L/C Application or L/C Amendment,
the Issuing Bank will confirm with the Agent (by telephone or in writing) that
the Agent has received a copy of such L/C Application or L/C Amendment
Application from the Borrower and, if not, the Issuing Bank will provide the
Agent with a copy thereof. Unless the Issuing Bank has received notice on or
before the Business Day immediately preceding the date the Issuing Bank is to
issue a requested Letter of Credit (A) from the Agent directing the Issuing Bank
not to issue such Letter of Credit because such issuance is not then permitted
under subsection 3.1(a) as a result of the limitations set forth in clauses (1)
-----------------
through (3) thereof or (B) pursuant to subsection 3.1(b); then, subject to the
-----------------
terms and conditions hereof, the Issuing Bank shall, on the requested date,
issue a Letter of Credit for the account of the Borrower in accordance with the
Issuing Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding and
after the Revolver Date but prior to the Termination Date, the Issuing Bank
will, upon the written request of the Borrower received by the Issuing Bank
(with a copy sent by the Borrower to the Agent) at least four days prior to the
proposed date of amendment (or such shorter time as the Issuing Bank may agree
to in its sole discretion), amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be amended; (ii) the nature of the
proposed amendment; and (iii) such other matters as the Issuing Bank may
require. The Issuing Bank shall be under no obligation to amend any Letter of
Credit if: (A) the Issuing Bank would have no obligation at such time to issue
such Letter of Credit in its amended form under the terms of this Agreement; or
(B) the beneficiary of any such Letter of Credit does not accept the proposed
amendment to the Letter of Credit.
(d) The Issuing Bank and the Banks agree that, while a Letter of
Credit is outstanding and after the Revolver Date but prior to the Termination
Date, at the option of, and upon the written request of, the Borrower received
by the Issuing Bank (with
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a copy sent by the Borrower to the Agent) at least four days prior to the
proposed date of notification of renewal (or such shorter time as the Issuing
Bank may agree to in its sole discretion), the Issuing Bank shall be entitled
(with the written consent of the Majority Banks) to authorize the automatic
renewal of any Letter of Credit issued by it. Each such request for renewal of a
Letter of Credit shall be made by facsimile, confirmed immediately in an
original writing, in the form of an L/C Amendment Application, and shall specify
in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to
be renewed; (ii) the revised expiry date of the Letter of Credit; and (iii) such
other matters as the Issuing Bank may require. The Issuing Bank shall be under
no obligation so to renew any Letter of Credit if: (A) the Issuing Bank would
have no obligation at such time to issue or amend such Letter of Credit in its
renewed form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed renewal of the Letter of
Credit.
(e) The Issuing Bank may, at its election (or as required by the Agent
at the direction of the Majority Banks), deliver any notices of termination or
other communications to any Letter of Credit beneficiary or transferee, and take
any other action as necessary or appropriate, at any time and from time to time,
in order to cause the expiry date of such Letter of Credit to be a date not
later than the Termination Date.
(f) This Agreement shall control in the event of any conflict with any
L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent, concurrently or
promptly following its delivery of a Letter of Credit, or amendment to or
renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and
complete copy of each such Letter of Credit or amendment to or renewal of a
Letter of Credit. The Agent will promptly notify the Banks of the Issuance by
the Issuing Bank of any Letter of Credit or any amendment to or renewal of a
Letter of Credit.
3.3 Risk Participations, Drawings and Reimbursements.
------------------------------------------------
(a) Each Bank hereby irrevocably and unconditionally purchases from
the Issuing Bank a participation in the Existing BAI Letters of Credit and each
drawing thereunder and immediately upon the Issuance on or after the date hereof
of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably
and unconditionally agrees to, purchase from the Issuing Bank a participation in
such Letter of Credit and each drawing thereunder, in each case, in an amount
equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively.
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<PAGE>
(b) In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, the Issuing Bank will promptly notify
the Borrower. The Borrower shall reimburse the Issuing Bank prior to 10:00 a.m.
(San Francisco time), on each date that any amount is paid by the Issuing Bank
under any Letter of Credit (each such date, an "Honor Date"), in an amount equal
----------
to the amount so paid by the Issuing Bank. In the event the Borrower fails to
reimburse the Issuing Bank for the full amount of any drawing under any Letter
of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank
will promptlY notify the Agent and the Agent will promptly notify each Bank
thereof, and the Borrower shall be deemed to have requested that Base Rate Loans
in the Dollar Equivalent amount of such draw be made by the Banks to be
disbursed on the Honor Date under such Letter of Credit, subject to the amount
of the unutilized portion of the Commitments and subject to the conditions set
forth in Section 5.2. Any notice given by the Issuing Bank or the Agent pursuant
------------
to this subsection 3.3(b) may be oral if immediately confirmed in writing
-----------------
(including by facsimile); provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
(c) Each Bank shall upon any notice pursuant to subsection 3.3(b)
-----------------
make available to the Agent for the account of the Issuing Bank an amount in
immediately available funds equal to its Pro Rata Share of the Dollar Equivalent
amount of the drawing, whereupon the participating Banks shall (subject to
subsection 3.3(d)) each be deemed to have made a Loan consisting of a Base Rate
- -----------------
Loan to the Borrower in that amount. If any Bank so notified fails to make
available to the Agent for the account of the Issuing Bank the amount of such
Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 noon
(San Francisco time) on the Honor Date, then interest shall accrue on such
Bank's obligation to make such payment, from the Honor Date to the date such
Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in
effect from time to time during such period. The Agent will promptly give
written notice of the occurrence of the Honor Date, but failure of the Agent to
give any such notice on the Honor Date or in sufficient time to enable any Bank
to effect such payment on such date shall not relieve such Bank from its
obligations under this Section 3.3.
-----------
(d) With respect to any unreimbursed drawing that is not converted
into Loans consisting of Base Rate Loans to the Borrower in whole or in part,
because of the Borrower's failure to satisfy the conditions set forth in Section
-------
5.2 or for any other reason, the Borrower shall be deemed to have incurred from
- ---
the Issuing Bank a borrowing in the amount of such drawing, which L/C Borrowing
shall be due and payable on demand (together with interest) and shall bear
interest at a rate per annum equal to the rate then applicable to Base Rate
Loans plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to
subsection 3.3(d) shall be
- ------------------
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<PAGE>
deemed payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Bank in satisfaction of its participation
obligation under this Section 3.3.
-------------
(e) Each Bank's obligation in accordance with this Agreement to make
the Loans or L/C Advances, as contemplated by this Section 3.3, as a result of a
-----------
drawing under a Letter of Credit, shall be absolute and unconditional and
without recourse to the Issuing Bank and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Issuing Bank, the Borrower or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default or an Event of Default; or (iii) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing; provided,
---------
however, that each Bank's obligation to make Loans under this Section 3.3 is
-------------
subject to the conditions set forth in Section 5.2.
------------
3.4 Repayment of Participations.
---------------------------
(a) Upon (and only upon) receipt by the Agent for the account of the
Issuing Bank of immediately available funds from the Borrower (i) in
reimbursement of any payment made by the Issuing Bank under the Letter of Credit
with respect to which any Bank has paid the Agent for the account of the Issuing
Bank for such Bank's participation in the Letter of Credit pursuant to Section
-------
3.3 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in
- ---
the same funds as those received by the Agent for the account of the Issuing
Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing
Bank shall receive the amount of the Pro Rata Share of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time to return
to the Borrower, or to a trustee, receiver, liquidator, custodian, or any
official in any Insolvency Proceeding, any portion of the payments made by the
Borrower to the Agent for the account of the Issuing Bank pursuant to subsection
----------
3.4(a) in reimbursement of a payment made under the Letter of Credit or interest
- ------
or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the
Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so
returned by the Agent or the Issuing Bank plus interest thereon from the date
such demand is made to the date such amounts are returned by such Bank to the
Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate
in effect from time to time.
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<PAGE>
3.5 Role of the Issuing Bank.
------------------------
(a) Each Bank and the Borrower agrees that, in paying any drawing
under a Letter of Credit, the Issuing Bank shall not have any responsibility to
obtain any document (other than any sight draft and certificates expressly
required by the Letter of Credit) or to ascertain or inquire as to the validity
or accuracy of any such document or the authority of the Person executing or
delivering any such document.
(b) No Agent-Related Person nor any of the respective correspondents,
participants or assignees of the Issuing Bank shall be liable to any Bank for:
(i) any action taken or omitted in connection herewith at the request or with
the approval of the Banks (including the Majority Banks, as applicable); (ii)
any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Borrower hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Letter of Credit;
provided, however, that this assumption is not intended to, and shall not,
- --------
preclude the Borrower's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other agreement. No Agent-
Related Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (i) through (vi) of Section 3.6; provided, however,
----------- --------
anything in such clauses to the contrary notwithstanding, that the Borrower may
have a claim against the Issuing Bank, and the Issuing Bank may be liable to the
Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Borrower which the Borrower
proves were caused by the Issuing Bank's willful misconduct or gross negligence
or the Issuing Bank's willful failure to pay under any Letter of Credit after
the presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Bank shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of the Borrower under this
--------------------
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit
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<PAGE>
converted into Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other L/C-
Related Document under all circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Borrower in
respect of any Letter of Credit or any other amendment or waiver of or any
consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or any
other Person, whether in connection with this Agreement, the transactions
contemplated hereby or by the L/C-Related Documents or any unrelated
transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by the Issuing Bank who is a trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of any Letter of Credit, including any
arising in connection with any Insolvency Proceeding; or
(vi) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations of the Borrower in
respect of any Letter of Credit.
3.7 [RESERVED]
----------
3.8 Letter of Credit Fees.
---------------------
(a) The Borrower shall pay to the Agent for the account of each of
the Banks a letter of credit fee with respect to the Letters of Credit equal to
the Applicable Fee then in effect with respect to Letters of Credit per annum of
the average daily maximum
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<PAGE>
Dollar Equivalent amount available to be drawn of the outstanding Letters of
Credit, computed on a quarterly basis in arrears on the last Business Day of
each calendar quarter based upon Letters of Credit outstanding for that quarter
as calculated by the Agent. Such letter of credit fees shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter during
which Letters of Credit are outstanding, commencing on the first such quarterly
date to occur after the Closing Date, through the Termination Date (or such
later date upon which the outstanding Letters of Credit shall expire), with the
final payment to be made on the Termination Date (or such later expiration
date).
(b) The Borrower shall pay to the Issuing Bank a letter of credit
issuance fee for each Letter of Credit Issued by the Issuing Bank thereafter
during such calendar year at a rate equal to the rate then customarily charged
by the Issuing Bank, of which rate the Issuing Bank shall notify the Borrower in
writing with a copy to the Agent. Such Letter of Credit issuance fee shall be
due and payable on each date of Issuance of a Letter of Credit.
(c) Notwithstanding subsection (a) of this Section, while any Default
exists and at all times after acceleration, the Borrower shall pay a letter of
credit fee (after as well as before entry of judgment thereon to the extent
permitted by law) on the average daily maximum amount available to be drawn of
the outstanding Letters of Credit, at a rate per annum which is determined by
adding 2% per annum to the rate otherwise in effect hereunder for such Letters
of Credit.
3.9 Uniform Customs and Practice. The Uniform Customs and Practice for
----------------------------
Documentary Credits as published by the International Chamber of Commerce
("UCP") most recently at the time of issuance of any Letter of Credit shall
---
(unless otherwise expressly provided in the Letters of Credit) apply to the
Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.1 Taxes. (a) With the sole exception of withholding taxes withheld from
-----
interest payments paid to the Banks pursuant to Section 11.10, any and all
-------------
payments by the Borrower to each Bank or the Agent under this Agreement and any
other Loan Document shall be made free and clear of, and without deduction or
withholding for any Taxes. In addition, the Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each Bank, the
Issuing Bank and the Agent for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section) arising in
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<PAGE>
connection with this Agreement or any other Loan Document paid by the Bank, the
Issuing Bank or the Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto.
Payment under this indemnification shall be made within 30 days after the date
the Bank, the Issuing Bank or the Agent makes written demand therefor.
(c) With the sole exception of withholding taxes withheld from
interest payments paid to the Banks pursuant to Section 11.10, if the Borrower
-------------
shall be required by law to deduct or withhold any Taxes or Other Taxes from or
in respect of any sum payable hereunder to any Bank, the Issuing Bank or the
Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
such Bank, the Issuing Bank or the Agent, as the case may be, receives an
amount equal to the sum it would have received had no such deductions or
withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Borrower shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, all additional
amounts which the respective Bank specifies in a written invoice delivered
to the Borrower as necessary to preserve the gross revenue the Bank would
have received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(e) If the Borrower is required to pay additional amounts to any Bank
or the Agent pursuant to subsection (c) of this Section, then such Bank shall
use reasonable efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Borrower which may thereafter accrue, if such change
in the judgment of such Bank is not otherwise disadvantageous to such Bank.
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<PAGE>
4.2 Illegality. (a) If any Bank determines that the introduction of any
----------
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Borrower through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and the Borrower that the
circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore
Rate Loan, the Borrower shall, upon receipt of notice of such fact and demand
from such Bank (with a copy to the Agent), prepay in full such Offshore Rate
Loans of that Bank then outstanding, together with interest accrued thereon and
amounts required under Section 4.4, either on the last day of the Interest
------------
Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate
Loans to such day, or within five (5) Business Days after receipt of such
notice, if the Bank may not lawfully continue to maintain such Offshore Rate
Loan.
(c) If the obligation of any Bank to make or maintain Offshore Rate
Loans has been so terminated or suspended, the Borrower may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section, the
affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
4.3 Increased Costs and Reduction of Return. (a) If any Bank determines
----------------------------------------
that, due to either (i) the introduction of or any change (other than any change
by way of imposition of or increase in reserve requirements included in the
calculation of the Offshore Rate or in respect of the assessment rate payable by
any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation of
any law or regulation or (ii) the compliance by that Bank with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the cost to such Bank
of agreeing to make or making, funding or maintaining any Offshore Rate Loans or
participating in Letters of Credit, or, in the case of the Issuing Bank, any
increase in the cost to the Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then the Borrower
shall be liable for, and
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<PAGE>
shall from time to time, upon demand (with a copy of such demand to be sent to
the Agent), pay to the Agent for the account of such Bank, additional amounts as
are sufficient to compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank
and (taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy and such Bank's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitment, loans, credits or obligations under this Agreement, then, upon
demand of such Bank to the Borrower through the Agent, the Borrower shall pay to
the Bank, from time to time as specified by the Bank, additional amounts
sufficient to compensate the Bank for such increase.
4.4 Funding Losses. The Borrower shall reimburse each Bank and hold each
--------------
Bank harmless from any reasonable, direct and supportable loss or expense which
the Bank has sustained or incurred as a consequence of:
(a) the failure of the Borrower to make on a timely basis any payment
of principal of any Offshore Rate Loan;
(b) the failure of the Borrower to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of the Borrower to make any prepayment in accordance
with any notice delivered under Section 2.5;
-----------
(d) the prepayment or other payment (including after acceleration
thereof) of an Offshore Rate Loan on a day that is not the last day of the
relevant Interest Period; or
(e) the automatic conversion under Section 2.4 of any Offshore Rate
-----------
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any actual, supportable loss or expense arising from the liquidation
or reemployment of funds obtained by it to maintain its Offshore Rate Loans or
from fees payable to terminate the deposits from which such funds were obtained.
For purposes of calculating
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<PAGE>
amounts payable by the Borrower to the Banks under this Section and under
subsection 4.3(a), each Offshore Rate Loan made by a Bank (and each related
- ------------------
reserve, special deposit or similar requirement) shall be funded at the LIBOR
used in determining the Offshore Rate for such Offshore Rate Loan by a matching
deposit or other borrowing in the interbank eurodollar market for a comparable
amount and for a comparable period, whether or not such Offshore Rate Loan is in
fact so funded.
4.5 Inability to Determine Rates. If the Agent reasonably determines that
----------------------------
adequate and reasonable means do not exist for determining the Offshore Rate for
any requested Interest Period with respect to a proposed Offshore Rate Loan, or
that the Offshore Rate applicable pursuant to subsection 2.10(a) for any
------------------
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Banks of funding such Loan due to
costs or other charges of the nature described in Section 4.3, the Agent will
------------
promptly so notify the Borrower and each Bank. Thereafter, the obligation of the
Banks to make or maintain Offshore Rate Loans hereunder shall be suspended until
the Agent revokes such notice in writing. Upon receipt of such notice, the
Borrower may revoke any Notice of Borrowing or Notice of Conversion/Continuation
then submitted by them. If the Borrower does not revoke such Notice, the Banks
shall make, convert or continue the Loans, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made, converted or continued as Base Rate Loans instead of
Offshore Rate Loans.
4.6 Certificates of Banks. Any Bank claiming reimbursement or
---------------------
compensation under this Article IV shall deliver to the Borrower (with a copy to
----------
the Agent) written notice thereof setting forth in reasonable detail the amount
payable to the Bank hereunder and such certified invoice shall be conclusive and
binding on the Borrower in the absence of manifest error.
4.7 Substitution of Banks. Upon the receipt by the Borrower from any Bank
---------------------
(an "Affected Bank") of a claim for compensation under Section 4.3, the Borrower
------------- -----------
may: (i) request the Agent to use its best efforts to obtain a replacement bank
or financial institution satisfactory to the Borrower to acquire and assume all
or a ratable part of all of such Affected Bank's Loans and Commitment (a
"Replacement Bank"); (ii) request one more of the other Banks to acquire and
- -----------------
assume all or part of such Affected Bank's Loans and Commitment; or (iii)
designate a Replacement Bank. Any such designation of a Replacement Bank under
clause (i) or (iii) shall be subject to the prior written consent of the Agent
(which consent shall not be unreasonably withheld).
4.8 Survival. The agreements and obligations of the Borrower in this
--------
Article IV shall survive the payment of all other Obligations.
- ----------
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<PAGE>
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.1 Conditions of Initial Loans. The effectiveness of this Agreement and
---------------------------
obligation of each Bank to make Loans hereunder is subject to the condition that
the Agent have received each of the following, in form and substance
satisfactory to the Agent and each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement. This Agreement executed by each party thereto;
----------------
(b) Notes. The Notes executed by the Borrower;
------
(c) Warrants. The Warrants issued by the Borrower;
--------
(d) Resolutions; Incumbency.
-----------------------
(i) Copies of the resolutions of the board of directors of the
Borrower authorizing the transactions contemplated hereby, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Borrower; and
(ii) A certificate of the Secretary or Assistant Secretary of
the Borrower certifying the names and true signatures of the officers of
the Borrower authorized to execute, deliver and perform, as applicable,
this Agreement, and all other Loan Documents (including notices of the
Borrower pursuant to Section 2.3) to be delivered by it hereunder;
-----------
(e) Organization Documents; Good Standing. Each of the following
-------------------------------------
documents:
(i) the articles or certificate of incorporation and the bylaws
of the Borrower as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the Borrower as of the Closing Date;
and
(ii) a good standing certificate and, if applicable, tax good
standing certificate for the Borrower from the Secretary of State (or
similar, applicable Governmental Authority) of its jurisdiction of
incorporation and each jurisdiction where the Borrower is qualified to do
business as a foreign corporation, each dated as of a recent date;
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<PAGE>
(f) Legal Opinion. An opinion of Sachnoff & Weaver LTD, counsel to
-------------
the Borrower, as to certain legal matters, substantially in the form of Exhibit
-------
D;
- -
(g) Payment of Fees. Evidence of payment by the Borrower of all
---------------
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date;
(h) Collateral Documents. Executed copies of each of the following
--------------------
Collateral Documents (each capitalized term used in this Section 5.1(h) and not
--------------
otherwise defined in this Agreement shall have the meaning set forth in the
Collateral Agency Agreement):
(i) the Collateral Agency Agreement, executed by each of the
Grantors, together with such amendments thereto to reflect the agreements
of the parties hereto regarding "Obligations" hereunder as may be
reasonably requested by the Agent and each Bank;
(ii) the Pledge Agreement (Stock and Intercompany Notes),
executed by the Borrower and certain Grantors, together with the following:
(A) each of the Intercompany Revolving Demand Notes,
endorsed in blank, identified on Attachment 2 to the Pledge Agreement
(Stock and Intercompany Notes); and
(B) each of the certificates evidencing the Pledged Shares,
together with undated stock powers executed in blank, identified on
Attachment 2 to the Pledge Agreement (Stock and Intercompany Notes);
(iii) separate Pledge Agreements (Deposit Accounts) for each of
the Borrower and certain Grantors with respect to certain bank accounts
maintained by such parties;
(iv) the Security Agreement, executed by each of the Borrower
and certain Grantors, together with U.C.C. Financing Statements, as defined
in and required under the Security Agreement;
(v) the Guaranty, executed by certain Grantors;
(vi) except to the extent otherwise consented to by the Banks in
a letter dated as of February 28, 1997, Foreign Pledge Agreements with
respect to the stock or other evidence of beneficial ownership interest of
each Subsidiary (other than a Domestic Subsidiary) required by the Majority
Banks, together in each instance, with opinions of foreign counsel to
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<PAGE>
the Grantors, in form and substance reasonably acceptable to the Collateral
Agent and each Bank, addressing the enforceability and, if applicable,
perfection of such pledges;
(vii) UCC, tax lien and judgment searches with respect to the
Borrower and certain Grantors for the locations of their respective chief
executive office and where inventory, equipment or books and records are
kept;
(viii) a certified copy of the Borrower's credit and collection
policy and procedures;
(ix) except to the extent otherwise consented to by the Banks in
a letter dated as of February 28, 1997, consents to assignments for
security purposes of certain material contracts including, without
limitation, the following:
(A) Master Agreement of Lease, between the Borrower and
M&SD Financial Services, a Division of Electronic Data Systems
Corporation, dated June 27, 1996;
(B) International Business Machines Corp. Customer
Agreement; and
(C) Lease line commitment letter made by the Borrower and
Forsythe/McArthur Associates, Inc. dated January 2, 1996, as amended;
(x) certified copies of each of the real property leases of the
Borrower and its Domestic Subsidiaries;
(xi) except to the extent otherwise consented to by the Banks in a
letter dated as of February 28, 1997, with respect to each of the leased
real properties of the Borrower and its Domestic Subsidiaries, a Statement
and Consent of Landlord, in form and substance acceptable to the Agent and
the Banks;
(xii) certificates of insurance as required pursuant to the Security
Agreement, with the endorsements called for therein; and
(xiii) Such other approvals, opinions, documents or materials as the
Agent may request in respect of the Collateral Documents;
(i) Certificate. A certificate signed by a Responsible Officer, dated
-----------
as of the Closing Date, stating that:
(i) the representations and warranties contained in Article VI
----------
are true and correct on and as of such date, as though made on and as of
such date; and
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<PAGE>
(ii) no Default or Event of Default then exists;
(j) Note Agreement Amendment. A copy of a duly executed and delivered
------------------------
amendment to the Note Agreement, in form and substance acceptable to the Agent
and each Bank, certified by the Secretary or Assistant Secretary of the
Borrower; and
(k) Other Documents. Such other approvals, opinions, documents or
---------------
materials as the Agent or any Bank may reasonably request.
5.2 Conditions to All Borrowings and Letters of Credit. On or after the
--------------------------------------------------
Revolver Date, the obligation of each Bank to make any Loan to be made by it or
to continue or convert any Loan under Section 2.4 or of the Issuing Bank to
-----------
issue any Letters of Credit or amend an outstanding Letter of Credit so as to
extend its expiry date is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Conversion/Continuation
Date:
(a) Notice of Transaction. The Agent shall have received a Notice of
---------------------
Borrowing or a Notice of Conversion/ Continuation or the Issuing Bank shall have
received the L/C Application or the L/C Amendment Application, as applicable;
(b) Continuation of Representations and Warranties. The
----------------------------------------------
representations and warranties in Article VI hereof and in each other Loan
----------
Document shall be true and correct on and as of such Borrowing Date,
Conversion/Continuation Date, Issuance Date or date of extension, as the case
may be, with the same effect as if made on and as of such date (except to the
extent such representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier date); and
(c) No Existing Default. No Default or Event of Default shall exist
-------------------
or shall result from such Borrowing, continuation or conversion, Issuance or
extension.
Each Notice of Borrowing and Notice of Conversion/Continuation and L/C
Application or L/C Amendment Application submitted by the Borrower hereunder
shall constitute a representation and warranty by it hereunder, as of the date
of each such notice or application and as of each Borrowing Date,
Conversion/Continuation Date or Issuance Date or date of extension, as
applicable, that the conditions in this Section 5.2 are satisfied.
-----------
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<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Agent and each Bank that:
6.1 Corporate Existence and Power. Each of the Borrower and each of its
-----------------------------
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the failure to
do so could not reasonably be expected to have a Material Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution, delivery
-----------------------------------------
and performance by the Borrower of this Agreement and each other Loan Document
to which it is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of the Borrower's Organization
Documents;
(b) conflict in any material respect with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing any
Contractual Obligation to which the Borrower is a party or any order,
injunction, writ or decree of any Governmental Authority to which the Borrower
or its property is subject; or
(c) violate any Requirement of Law.
6.3 Governmental Authorization. To the best of its knowledge, no
--------------------------
approval, consent, exemption, authorization, or other
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<PAGE>
action by, or notice to, or filing with, any Governmental Authority is necessary
or required in connection with the execution, delivery or performance by, or
enforcement against, the Borrower of the Agreement or any other Loan Document.
6.4 Binding Effect. This Agreement and each other Loan Document to which
--------------
the Borrower is a party constitute the legal, valid and binding obligations of
the Borrower to the extent it is a party thereto, enforceable against the
Borrower in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.
6.5 Litigation. Except as specifically disclosed in Schedule 6.5, there
---------- ------------
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Borrower, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Borrower, or its
Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Borrower or its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
6.6 No Default. No Default or Event of Default exists or would result
----------
from the incurring of any Obligations by the Borrower or from the grant or
perfection of the Liens of the Collateral Agent on the Collateral. As of the
Closing Date, neither the Borrower nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under subsection 10.1(e).
------------------
6.7 ERISA Compliance. Except as specifically disclosed in Schedule 6.7:
---------------- ------------
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal
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<PAGE>
or state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
neither the Borrower nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to
-----------------------------------
be used solely for the purposes set forth in and permitted by Section 7.12 and
------------
Section 8.7. Neither the Borrower nor any Subsidiary is generally engaged in
- -----------
the business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.9 Properties. The Borrower and each Subsidiary have good record and
----------
marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, (i) the
property of the Borrower and its Subsidiaries is subject to no Liens, other than
Permitted Liens and (ii) the postal address of each parcel of real property
owned or leased by the Borrower or its Subsidiaries which is located within the
United States of America is listed on Schedule 6.9 hereto.
------------
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<PAGE>
6.10 Taxes. The Borrower and its Subsidiaries have filed all Federal and
-----
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Borrower
or any Subsidiary that would, if made, have a Material Adverse Effect.
6.11 Financial Condition. (a) The audited consolidated financial
-------------------
statements of the Borrower and its Subsidiaries for the fiscal years ending
October 31, 1996 and October 31, 1995 delivered to the Agent and the Banks as of
January 29, 1997, and the unaudited consolidated financial statements of the
Borrower and its Subsidiaries for the fiscal quarters ending January 31, 1996,
April 30, 1996 and July 31, 1996 (as restated in Borrower's press release dated
January 7, 1997), together in each case with the related consolidated statements
of income or operations, shareholders' equity and cash flows for the fiscal year
ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein;
(ii) fairly present the financial condition of the Borrower and
its Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in Schedule 6.11, show
-------------
all material indebtedness and other liabilities, direct or contingent, of
the Borrower and its consolidated Subsidiaries as of the Closing Date,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since October 31, 1996, except to the extent disclosed in the
Waiver and Amendment dated September 16, 1996, the Waiver and Amendment dated
January 7, 1997 and the Letter dated January 29, 1997 between the Borrower and
the Banks (the "Letter Agreement") (and if extended, any extensions thereof)
----------------
there has been no Material Adverse Effect.
6.12 Environmental Matters. The Borrower conducts in the ordinary course
---------------------
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Borrower has reasonably concluded that, except as specifically
disclosed in Schedule 6.12, such Environmental Laws and Environmental Claims
-------------
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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<PAGE>
6.13 Regulated Entities. None of the Borrower, any Person controlling the
------------------
Borrower, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. The Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
6.14 No Burdensome Restrictions. Neither the Borrower nor any Subsidiary
--------------------------
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
6.15 Copyrights, Patents, Trademarks and Licenses, etc. The Borrower or
-------------------------------------------------
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Borrower or any
Subsidiary infringes upon any rights held by any other Person. Except as
specifically disclosed in Schedule 6.5, no claim or litigation regarding any of
------------
the foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Borrower, proposed, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
6.16 Subsidiaries. The Borrower has no Subsidiaries other than those
------------
specifically disclosed in part (a) of Schedule 6.16 hereto and has no equity
-------------
investments in any other corporation or entity other than those specifically
disclosed in part (b) of Schedule 6.16. All Inactive Subsidiaries are
-------------
designated as "Inactive" on Schedule 6.16. Each Subsidiary which is organized
-------------
under the laws of the United States of America or the laws of any State therein
and which is not an Inactive Subsidiary has duly executed and delivered to the
Collateral Agent a Guaranty.
6.17 Insurance. Except as specifically disclosed in Schedule 6.17, the
--------- -------------
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such
amounts, with such deductibles and covering such risks as are required by the
Collateral Documents or otherwise customarily carried by companies engaged in
similar businesses and owning similar properties in localities where the
Borrower or such Subsidiary operates.
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<PAGE>
6.18 Deposit Accounts, Etc. As of the Closing Date, Schedule 6.18 sets
--------------------- -------------
forth a complete list of all deposit accounts, bank accounts, brokerage accounts
and other investment accounts for the account of the Borrower and its Domestic
Subsidiaries (whether held in the name of the Borrower or such Subsidiary or
through a designee) which are in the United States.
6.19 Collateral Documents. (a) The provisions of each of the Collateral
--------------------
Documents are effective to create in favor of the Collateral Agent, a legal,
valid and enforceable first priority security interest in all right, title and
interest of the Borrower and its Subsidiaries in the collateral described
therein; and financing statements have been filed in the offices in all of the
jurisdictions listed in the schedule to the Security Agreement.
(b) All representations and warranties of the Borrower and any of its
Subsidiaries party thereto contained in the Collateral Documents are true and
correct in all material respect.
6.20 Solvency. As of the Closing Date and as of any date prior to the
--------
Closing Date on which the Borrower or any Guarantor granted any Lien or
otherwise delivered any Collateral to the Collateral Agent, each of the Borrower
and each such Guarantor is and was Solvent.
6.21 Full Disclosure. None of the representations or warranties made by
---------------
the Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Borrower to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
7.1 Financial Statements. The Borrower shall deliver to the Agent, in
--------------------
form and detail satisfactory to the Agent and the
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<PAGE>
Majority Banks, with sufficient copies for each Bank (and the Agent, in turn,
shall promptly deliver to the Banks):
(a) as soon as available, but not later than ninety days after the
end of each fiscal year, a copy of the audited consolidated, and unaudited
consolidating, balance sheet of the Borrower and its Subsidiaries as at the end
of such fiscal year and the related consolidated and consolidating statements of
income or operations, shareholders' equity and cash flows for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
and accompanied in the case of the consolidated financial statements by the
opinion of KPMG Peat Marwick or another nationally-recognized independent public
accounting firm ("Independent Auditor") which report shall state that such
-------------------
consolidated financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years. Such opinion shall not be qualified or limited because of a
restricted or limited examination by the Independent Auditor of any material
portion of the Borrower's or any Subsidiary's records and shall be delivered to
the Agent pursuant to a reliance agreement between the Agent and Banks and such
Independent Auditor in form and substance satisfactory to the Agent;
(b) as soon as available, but not later than forty-five days after
the end of each fiscal quarter of each fiscal year (commencing with the fiscal
quarter ended January 31, 1997), a copy of the unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as of the end
of such quarter and the related consolidated and consolidating statements of
income, shareholders' equity and cash flows for the period commencing on the
first day and ending on the last day of such quarter, and certified by a
Responsible Officer as fairly presenting, in accordance with GAAP (subject to
ordinary, good faith year-end audit adjustments), the financial position and the
results of operations of the Borrower and the Subsidiaries;
(c) As soon as available, but in any event within ninety (90) days
after the beginning of each fiscal year of the Borrower, a copy of the plan
(including a projected closing consolidated balance sheet, income statement and
funds flow statements) of the Borrower for each quarter of such fiscal year;
(d) Concurrent with the delivery to the Agent of the financial
statements pursuant to the foregoing clauses (a) and (b), (i) a management
----------- ---
report, in the format of Exhibit H or such other form as shall be acceptable to
---------
the borrower and the Majority Banks and (ii) a detailed listing of all
intercompany loans then outstanding between the Borrower and its Subsidiaries;
(e) By the close of business on Tuesday of each calendar week of each
fiscal quarter (or, in the case of any fiscal quarter
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<PAGE>
which ends on a day other than Friday, Saturday or Sunday, by the close of
business on the second Business Day after the end of such fiscal quarter), a
report, in the format reasonably acceptable to the Banks, showing as of the end
of the immediately preceding calendar week (or portion thereof occurring during
such fiscal quarter), total cash receipts, total cash disbursements and
Consolidated Cash Balances of the Borrower and its Subsidiaries on a
consolidated basis for the portion of such calendar week which falls within such
fiscal quarter.
(f) By the close of business on Tuesday of each week, a report
setting forth, in form and detail reasonably acceptable to the Agent and the
Banks, the status of the Borrower's efforts to obtain equity and/or debt
refinancing for the Obligations ;
(g) As soon as available, but in any event within twenty days after
the end of each calendar month, a report setting forth, in form and detail
acceptable to the Agent and the Banks, the aggregate of domestic and foreign
receivables of the Borrower and its Subsidiaries, net of the following:
(i) all receivables more than 90 days past due;
(ii) all receivables (x) owing by an account debtor who shall
have failed to pay 50% or more of the aggregate amount then owed by such
account debtor under all accounts receivable owed to the Borrower or any
Subsidiary within 90 days after the respective due date thereof, or (y) is
an affiliate of the Borrower or, (z) is subject to any bankruptcy,
insolvency or similar proceeding;
(iii) all future dated receivables owing more than zero days but
less than 90 days after the sale of the goods or performance of the
services giving rise to such receivables; and
(iv) all future dated receivables owing more than 90 days after
the sale of the goods or performance of the services giving rise to such
receivables; and
(h) Concurrently with the delivery to the Agent of the report
pursuant to the foregoing clause (g), a report setting forth, in form and detail
---------
acceptable to the Agent and the Banks, the status of the Borrower's deliveries
pursuant to Section 5.1 which the Agent and the Banks have agreed may be
-----------
delivered after the Closing Date.
7.2 Certificates; Other Information. The Borrower shall furnish to the
-------------------------------
Agent, with sufficient copies for each Bank (and the Agent, in turn, shall
promptly deliver to the Banks):
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<PAGE>
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a), a certificate of the Independent Auditor
-----------------
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a Compliance Certificate executed by
------------------ ---
a Responsible Officer;
(c) promptly, but in any event within 10 days of the filing thereof
with the SEC, copies of all financial statements and reports that the Borrower
sends to its shareholders, and copies of all financial statements and regular,
periodical or special reports (including Forms 10K, 10Q, 8K, S-1 and S-3) that
the Borrower or any Subsidiary may make to, or file with, the SEC;
(d) concurrently with the delivery of any reports, documents, or
other information furnished to the Noteholders which is otherwise not furnished
to the Banks pursuant to this Agreement, a copy of all such reports, documents
and other information so furnished to the Noteholders; and
(e) promptly, such additional information regarding the business,
financial or corporate affairs of the Borrower or any Subsidiary as the Agent,
at the reasonable request of any Bank, may from time to time request.
7.3 Notices. The Borrower shall promptly notify the Agent (who shall, in
-------
turn, promptly notify the Banks):
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or is likely to result in a
Material Adverse Effect, including (i) breach or non-performance of, or any
default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii)
any dispute, litigation, investigation, proceeding or suspension between the
Borrower or any Subsidiary and any Governmental Authority; or (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting the Borrower or any Subsidiary, including pursuant to any applicable
Environmental Laws;
(c) of the occurrence of any of the following events affecting the
Borrower or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent (who shall, in turn, promptly notify the Banks)
a copy of any notice with respect to such event that is filed with a
Governmental
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<PAGE>
Authority and any notice delivered by a Governmental Authority to the Borrower
or any ERISA Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of
any Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Borrower or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability; and
(d) of any material change in accounting policies or financial
reporting practices by the Borrower or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Borrower or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under subsection 7.3(a) shall describe with particularity any and all clauses or
----------------
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.4 Preservation of Corporate Existence, Etc. The Borrower shall, and
----------------------------------------
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business except in connection with
transactions permitted by Section 8.3 and sales of assets permitted by Section
----------- -------
8.2;
- ---
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
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<PAGE>
7.5 Maintenance of Property. The Borrower shall maintain, and shall cause
-----------------------
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted, except as permitted by Section 8.2. The Borrower and each
-----------
Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities.
7.6 Insurance. In addition to insurance requirements set forth in the
---------
Collateral Documents, the Borrower shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
7.7 Payment of Obligations. The Borrower shall, and shall cause each
----------------------
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property; and
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
7.8 Compliance with Laws. The Borrower shall comply, and shall cause each
--------------------
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA. The Borrower shall, and shall cause each of
---------------------
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
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<PAGE>
7.10 Inspection of Property and Books and Records. The Borrower shall
--------------------------------------------
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Borrower and such Subsidiary. The
Borrower shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Agent or any Bank to visit
and inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective directors, officers, and independent public accountants, at
such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Borrower; provided,
--------
however, when an Event of Default exists the Agent or any Bank may do any of the
- -------
foregoing at the expense of the Borrower at any time during normal business
hours and without advance notice. Representatives and independent contractors
of the Agent and the Banks shall be bound by the provisions of Section 12.9. If
------------
the Agent or any Bank has a duty or obligation under applicable laws,
regulations or legal requirements to disclose any report or findings made as a
result of, or in connection with, any such inspection, the Agent or such Bank
may make such a disclosure to the Borrower or any other party. The Borrower
also understands and agrees that the Agent and each Bank makes no representation
or warranty to the Borrower or any other party regarding the truth, accuracy or
completeness of any such report or findings that may be disclosed. The Borrower
also understands that depending on the results of any inspection by the Agent or
any Bank and disclosed to the Borrower, the Borrower may have a legal obligation
to notify one or more environmental agencies of the results, that such reporting
requirements are site-specific, and are to be evaluated by the Borrower without
advice or assistance from the Agent or such Bank.
7.11 Environmental Laws. The Borrower shall, and shall cause each
------------------
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
7.12 Use of Proceeds. The Borrower shall use the proceeds of the Loans for
---------------
working capital and other general corporate purposes not in contravention of any
Requirement of Law or of any Loan Document.
7.13 Further Assurances. (a) The Borrower shall ensure that all written
------------------
information, exhibits and reports furnished to the Agent do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state any material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made, and will
promptly disclose to the Agent and correct any defect or error
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<PAGE>
that may be discovered therein or in any Loan Document or in the execution,
acknowledgement or recordation thereof.
(b) Promptly upon request by the Agent, the Borrower shall (and
shall cause any of its Subsidiaries to) do, execute, acknowledge, deliver,
record, re-record, file, re-file, register and re-register, any and all such
further acts, deeds, conveyances, security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates,
assurances and other instruments the Agent may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
or any other Loan Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the properties, rights or interests covered by any
of the Collateral Documents, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the Liens
intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Agent, the rights granted
or now or hereafter intended to be granted to the Banks under any Loan Document
or under any other document executed in connection therewith.
7.14 Most Favored Lender Provision. Concurrently with the furnishing to
-----------------------------
the Noteholders of any additional benefit (whether in the form of compensation,
enhancement, collateral security, covenant, default, or other benefit) not
provided to the Banks (in any capacity including, without limitation, as lenders
hereunder or as holders of warrants for equity in the Borrower) as at the date
of this Agreement, the Borrower shall furnish to the Banks any and all such
additional proportionate benefits pursuant to documentation reasonably
acceptable to the Banks.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.1 Limitation on Liens. The Borrower shall not, and shall not suffer or
-------------------
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
---------
Liens"):
- -----
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<PAGE>
(a) any Lien existing on property of the Borrower or any Subsidiary
on the Closing Date and set forth in Schedule 8.1 securing Indebtedness
------------
outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 7.7, provided that no notice of
-----------
lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Borrower or its Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Borrower and its
Subsidiaries do not exceed $500,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower and its
Subsidiaries;
(i) Liens securing obligations in respect of capital leases on assets
subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided
--------
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<PAGE>
that, except as is otherwise contemplated by the Collateral Documents, (i) such
- ----
deposit account is not a dedicated cash collateral account and is not subject to
restrictions against access by the Borrower or any Subsidiary in excess of those
set forth by regulations promulgated by the FRB, and (ii) such deposit account
is not intended by the Borrower or any Subsidiary to provide collateral to the
depository institution; and
(k) Liens (i) existing on property at the time of its acquisition by
the Borrower or a Subsidiary and not created in contemplation thereof, whether
or not the Indebtedness secured by such Lien is assumed by the Borrower or such
Subsidiary or (ii) existing on property of a corporation at the time such
corporation is merged into or consolidated with or is acquired by, or
substantially all of its assets are acquired by, the Borrower or a Subsidiary
and not created in contemplation thereof; provided, that such Liens do not
--------
extend to other property of the Borrower or any Subsidiary and that the
aggregate principal amount of Indebtedness secured by each such Lien does not
exceed 100% of the lesser of the cost or fair market value (at the time of
acquisition or completion of construction) of the property subject thereto; and
provided further, that after giving effect to the acquisition of the assets
- -------- -------
subject to such Liens, no Default or Event of Default would exist.
8.2 Disposition of Assets. The Borrower shall not, and shall not suffer
---------------------
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory (including the sale or licensing of
computer software products of the Borrower or any Subsidiary), or used, worn-out
or surplus equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment; and
(c) dispositions not otherwise permitted hereunder which are made for
fair market value; provided, that (i) after giving effect to any such
--------
disposition, no Default or Event of Default would exist, (ii) the assets which
are subject to such disposition do not include accounts or notes receivable and
(iii) the Net Proceeds of such disposition are applied to the extent required in
accordance with Section 2.6.
-----------
8.3 Consolidations and Mergers. The Borrower shall not, and shall not
--------------------------
suffer or permit any Subsidiary to, merge, consolidate
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<PAGE>
with or into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to or in favor of any Person,
except:
(a) any Subsidiary may merge with the Borrower, provided that the
Borrower shall be the continuing or surviving corporation, or with any one or
more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation;
(b) any Subsidiary may convey all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Borrower or another Wholly-
Owned Subsidiary; provided, that no consideration is paid by the Borrower in
--------
exchange for such conveyance; and
(c) in connection with any investment permitted by subsection 8.4(d).
-----------------
8.4 Loans and Investments. The Borrower shall not purchase or acquire, or
---------------------
suffer or permit any Subsidiary to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest, or any obligations or other
securities of, or any interest in, any Person (including, without limitation,
Subsidiaries), or create any Subsidiaries not in existence on the Closing Date,
or make or commit to make any advance, loan, extension of credit or capital
contribution to or any other investment in, any Person including any Affiliate
of the Borrower, except for:
(a) investments in cash equivalents, short term marketable securities
and such other securities as may be consented to in writing by the Majority
Banks;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale, license or lease of goods or services in
the ordinary course of business;
(c) extensions of credit by the Borrower to any of its Wholly-Owned
Subsidiaries existing on the Closing Date or by any of its Wholly-Owned
Subsidiaries to another of its Wholly-Owned Subsidiaries existing on the Closing
Date; provided, that (i) all such extensions of credit are evidenced by
--------
Intercompany Revolving Demand Notes duly executed by the respective Wholly-Owned
Subsidiary, (ii) such Intercompany Notes are delivered to the Agent in
accordance with the Pledge Agreement (Stock and Intercompany Notes) and (iii)
the aggregate principal Dollar Equivalent amount of such extensions of credit to
all Wholly-Owned Subsidiaries shall not exceed at any time $67,000,000;
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<PAGE>
(d) at any time following delivery by the Borrower of the financial
statements required pursuant to subsection 7.1(b) with respect to the Borrower's
-----------------
fiscal quarter ending January 31, 1997, investments in the equity of any Person
organized under the laws of the United States or the laws of any State therein;
provided, that (i) all of the consideration for such investments shall consist
- --------
of equity securities of the Borrower, (ii) no Default or Event of Default shall
have occurred and be continuing or shall result therefrom and (iii) the Borrower
shall deliver to the Agent a pro forma Compliance Certificate dated as of the
last day of the most recent fiscal quarter for which the Borrower has delivered
to the Agent the financial statements pursuant to subsection 7.1(b) showing that
-----------------
if such investment had occurred on the last day of such fiscal quarter no
Default or Event of Default would have resulted therefrom;
(e) capital contributions by the Borrower in any of its Subsidiaries
consisting of the reclassification of amounts owed by any such Subsidiary to the
Borrower to the extent necessary to maintain such Subsidiary in compliance with
all minimum capitalization requirements under the laws of the jurisdiction where
such Subsidiary is incorporated or is qualified to do business; and
(f) the creation of Subsidiaries organized under the laws of the
United States or the laws of any State therein to undertake acquisitions
permitted by Section 8.11 and subsection 8.4(d); provided, that the net capital
------------ ---------------- --------
investment by the Borrower in any such Subsidiary shall not exceed $25,000.
8.5 Limitation on Indebtedness. (a) The Borrower shall not, and shall not
--------------------------
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement;
(ii) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 8.8;
-----------
(iii) Indebtedness existing on the Closing Date and set forth in
Schedule 8.5;
- ------------
(iv) Indebtedness incurred in connection with leases permitted
pursuant to Section 8.9;
-----------
(v) Indebtedness permitted by subsection 8.4(c); and
-----------------
(vi) Subordinated Indebtedness.
(b) Except as otherwise provided for herein, the Borrower shall not,
and shall not suffer or permit any Subsidiary
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<PAGE>
to, directly or indirectly, declare, order, pay, make or set apart any sum for
(by way of defeasance or otherwise) any payment or prepayment of principal of,
or premium, if any, on, any Subordinated Indebtedness, the Senior Notes or any
other Indebtedness; provided, that the Borrower may continue to make regularly
--------
scheduled principal and interest payments on the Senior Notes and the other
Indebtedness.
8.6 Transactions with Affiliates. The Borrower shall not, and shall not
----------------------------
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
8.7 Use of Proceeds. The Borrower shall not, and shall not suffer or
---------------
permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Borrower or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act or (v) for
any other purpose prohibited by the Loan Agreements.
8.8 Contingent Obligations. The Borrower shall not, and shall not suffer
----------------------
or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Swap Contracts entered into in the ordinary course of business as
bona fide hedging transactions, involving an aggregate notional Dollar
Equivalent amount not exceeding $35,000,000 at any one time outstanding.
(c) Contingent Obligations existing as of the Closing Date and listed
in Schedule 8.8.
------------
8.9 Lease Obligations. The Borrower shall not, and shall not suffer or
-----------------
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Borrower and of Subsidiaries in existence on the
Closing Date and any renewal, extension or refinancing thereof; and
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<PAGE>
(b) operating leases entered into by the Borrower or any Subsidiary
after the Closing Date in the ordinary course of business; provided, that on the
--------
date upon which such operating lease is entered into and after giving effect
thereto the aggregate Rentals for all operating leases of the Borrower and its
Subsidiaries due within any twelve month period succeeding such date shall not
exceed at any time $26,400,000.
8.10 Restricted Payments. The Borrower shall not, and shall not suffer or
-------------------
permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding; except
to:
(a) declare and make dividend payments or other distributions
payable solely in its common stock; and
(b) in the case of any Subsidiary, declare and make divided payments
or other distributions to the Borrower or any other Subsidiary.
8.11 Asset Acquisitions. The Borrower shall not, and shall not suffer or
------------------
permit any Subsidiary to, purchase or otherwise acquire assets except in the
ordinary course of business; provided, that at any time following delivery by
--------
the Borrower of the financial statements required pursuant to subsection 7.1(b)
-----------------
with respect to the Borrower's fiscal quarter ending January 31, 1997, the
Borrower or Subsidiary may purchase or acquire assets subject to compliance with
each of the following conditions: (i) all of the consideration for such
acquisition shall consist of equity securities of the Borrower, (ii) no Default
or Event of Default shall have occurred and be continuing or shall result
therefrom and (iii) the Borrower shall have delivered to the Agent a pro forma
Compliance Certificate dated as of the most recent fiscal quarter for which the
Borrower has delivered to the Agent the financial statements pursuant to
subsection 7.1(b) showing that if such acquisition had occurred on the last day
- -----------------
of such fiscal quarter no Default or Event of Default would have resulted
therefrom.
8.12 Deposit Accounts. The Borrower shall not, and shall not permit any
----------------
Domestic Subsidiary to, create, establish or maintain for its account (whether
held in the name of the Borrower or through its designee) any deposit accounts,
bank accounts, brokerage accounts or other investment accounts in the United
States except for those accounts set forth on Schedule 6.18.
-------------
8.13 ERISA. The Borrower shall not, and shall not suffer or permit any of
-----
its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with
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respect to any Plan which has resulted or could reasonably be expected to result
in liability of the Borrower; or (b) engage in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
8.14 Change in Business. The Borrower shall not, and shall not suffer or
------------------
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Borrower and its
Subsidiaries on the date hereof.
8.15 Accounting Changes. The Borrower shall not, and shall not suffer or
------------------
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Borrower or of any Subsidiary.
ARTICLE IX
FINANCIAL COVENANTS
-------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
9.1 Consolidated Net Worth. The Borrower shall not permit its
----------------------
Consolidated Net Worth as of the last day of any fiscal quarter of the Borrower
to be less than $103,000,000.
9.2 Cash Balances. The Borrower shall not permit its Consolidated Cash
-------------
Balances as of the last Business Day of any calendar week and as of the last day
of each fiscal quarter to be less than $6,000,000.
9.3 Capital Expenditures. The Borrower shall not permit its Capital
--------------------
Expenditures during any fiscal quarter of the Borrower to exceed $16,000,000.
ARTICLE X
EVENTS OF DEFAULT
-----------------
10.1 Event of Default. Any of the following shall constitute an "Event of
---------------- --------
Default":
- -------
(a) Non-Payment. The Borrower fails to pay, (i) when and as
-----------
required to be paid herein, any amount of principal of any Loan or of any L/C
Obligation, or (ii) within five (5) days after
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<PAGE>
the same becomes due, any interest, fee or any other amount payable hereunder or
under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by
--------------------------
the Borrower or any Subsidiary made herein, in any other Loan Document, or which
is contained in any certificate, document or financial or other statement by the
Borrower, any Subsidiary, or any Responsible Officer, furnished at any time
under this Agreement, or in or under any other Loan Document, is incorrect in
any material respect on or as of the date made or deemed made; or
(c) Specific Defaults. The Borrower fails to perform or observe any
-----------------
term, covenant or agreement contained in any of Section 7.1, 7.2, 7.3 or 7.10 or
----------- --- --- ----
in Articles VIII or IX; or
------------- --
(d) Other Defaults. The Borrower fails to perform or observe any
--------------
other term or covenant contained in this Agreement or any other Loan Document,
and such default shall continue unremedied for a period of 20 days after the
earlier of (i) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to the Borrower by the Agent or any Bank; or
(e) Cross-Default. The Borrower or any Subsidiary (i) fails to make
-------------
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $1,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) Insolvency; Voluntary Proceedings. The Borrower or any
---------------------------------
Significant Subsidiary (i) admits in writing its inability to pay its debts as
they become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) voluntarily ceases to conduct its business in the
ordinary course;
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<PAGE>
(iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes
any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
-----------------------
Proceeding is commenced or filed against the Borrower or any Significant
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Borrower's or any
Significant Subsidiary's properties, and any such proceeding or petition shall
not be dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) the Borrower or any Significant
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Borrower or any
Significant Subsidiary acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its property or
business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
-----
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $250,000;
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $250,000; or (iii) the Borrower or any ERISA Affiliate shall
fail to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$250,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments,
------------------
non-interlocutory orders, decrees or arbitration awards is entered against the
Borrower or any Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $250,000 or more, and the same shall remain
unsatisfied, unvacated and without application to stay pending appeal for a
period of 15 Business Days after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
----------------------
decree is entered against the Borrower or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and the same shall
remain unsatisfied, unvacated and without application to stay pending appeal for
a period of 15 Business Days after the entry thereof; or
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<PAGE>
(k) Change of Control. There occurs any Change of Control; or
-----------------
(l) Collateral.
----------
(i) any material provision of any Collateral Document shall for
any reason cease to be valid and binding on or enforceable against the
Borrower or any Subsidiary party thereto or the Borrower or any Subsidiary
shall so state in writing or bring an action to limit its obligations or
liabilities thereunder; or
(ii) any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest in
any material item of Collateral purported to be covered thereby or such
security interest shall for any reason cease to be a perfected and first
priority security interest subject only to Permitted Liens.
10.2 Remedies. If any Event of Default occurs, the Agent shall, at the
--------
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of the Issuing Bank to issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) require the maximum aggregate amount that is or at any time
thereafter may become available for drawing under any outstanding Letters of
Credit to be Cash Collateralized, and declare the unpaid principal amount of all
outstanding Loans, all interest accrued and unpaid thereon, and all other
amounts owing or payable hereunder or under any other Loan Document to be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower;
and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents (including the
Collateral Documents) or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
- -------- -------
(f) or (g) of Section 10.1 (in the case of clause (i) of subsection (g) upon the
------------
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid
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shall automatically become due and payable without further act of the Agent, the
Issuing Bank or any Bank.
10.3 Rights Not Exclusive. The rights provided for in this Agreement and
--------------------
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE XI
THE AGENT
---------
11.1 Appointment and Authorization. (a) Each Bank hereby irrevocably
-----------------------------
(subject to Section 11.9) appoints, designates and authorizes the Agent to take
------------
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities (it being acknowledged that additional duties and obligations
of the Collateral Agent are set forth in the Collateral Agency Agreement),
except those expressly set forth herein, nor shall the Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent.
(b) The Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Agent may agree at the request of
the Majority Lenders to act for such Issuing Bank with respect thereto;
provided, however, that the Issuing Bank shall have all of the benefits and
- -------- -------
immunities (i) provided to the Agent in this Article XI with respect to any acts
----------
taken or omissions suffered by the Issuing Bank in connection with Letters of
Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent", as used in this Article XI, included the Issuing Bank with
----------
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
11.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be
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entitled to advice of counsel concerning all matters pertaining to such duties.
11.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
------------------
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Borrower or any Subsidiary or
Affiliate of the Borrower, or any officer thereof, contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or for the value of
or title to any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrower or any of the Borrower's Subsidiaries or
Affiliates.
11.4 Reliance by Agent. (a) The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Banks as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Majority Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.1, each Bank that has executed this Agreement shall be
-----------
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval,
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acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Bank.
11.5 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Banks, unless the Agent shall have
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will inform the Banks and the Borrower of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Banks in
accordance with Article X; provided, however, that unless and until the Agent
--------- -------- -------
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
11.6 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries, the value of and title to any Collateral and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower and its Subsidiaries which may come into the
possession of any of the Agent-Related Persons.
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11.7 Indemnification of Agent. Whether or not the transactions
------------------------
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
-------- -------
that no Bank shall be liable for the payment to the Agent-Related Persons of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking
in this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
11.8 Agent in Individual Capacity. BofA and its Affiliates may make loans
----------------------------
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Borrower or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Borrower or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to its Loans, if any, BofA shall have the same
rights and powers under this Agreement as any other Bank and may exercise the
same as though it were not the Agent, and the terms "Bank" and "Banks" include
BAI in its individual capacity.
11.9 Successor Agent. The Agent may, and at the request of the Majority
---------------
Banks shall, resign as Agent upon 30 days' notice to the Banks and the Borrower.
If the Agent resigns under this Agreement, the Majority Banks shall appoint from
among the Banks a successor agent for the Banks subject, at such times as no
Default or Event of Default shall be continuing, to the Borrower's reasonable
consent. If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with the Banks
and the Borrower, at such times as no Default or Event of Default shall be
continuing, a successor agent from among the Banks. Upon the acceptance of its
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appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article XI and Sections 12.4 and 12.5
---------- ------------- ----
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is 30 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the duties of the
Agent hereunder until such time, if any, as the Majority Banks appoint a
successor agent as provided for above. Notwithstanding the foregoing, however,
BofA may not be removed as the Agent at the request of the Majority Banks unless
BAI shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant
to documentation in form and substance reasonably satisfactory to BofA.
11.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
---------------
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS
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Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of the Borrower to such Bank, such Bank
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Bank. To the extent of
such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of the Borrower to
such Bank, such Bank agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered, was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Amendments and Waivers. (a) No amendment or waiver of any provision
----------------------
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed
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by the Majority Banks (or by the Agent at the written request of the Majority
Banks) and the Borrower and acknowledged by the Agent, and then any such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that such waiver, amendment, or
-------- -------
consent shall, unless in writing and signed by all the Banks and the Borrower
and acknowledged by the Agent, do any of the following:
(i) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 10.2);
------------
(ii) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
(iii) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (z) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(v) amend this Section, or Section 2.15, or any provision herein
------------
providing for consent or other action by all Banks;
and, provided further, that (x) no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Issuing Bank in addition to the Majority Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Bank
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (y) no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Majority Banks or
all the Banks, as the case may be, affect the rights or duties of the Agent
under this Agreement or any other Loan Document, and (z) the Fee Letters may be
amended, or rights or privileges thereunder waived, in a writing executed by the
parties thereto.
(b) In the event that any Person to whom the Borrower or any Subsidiary is
indebted has previously or shall hereafter impose upon the Borrower or any
Subsidiary any additional or more restrictive covenant or obligation than is
imposed upon the Borrower or any Subsidiary by this Agreement, or the Borrower
or any Subsidiary has granted or hereafter grants any such Person an additional
or more favorable covenant or right than exists under this Agreement, this
Agreement shall be deemed to be amended automatically to incorporate such
additional or more restrictive right, obligation or covenant, and the Borrower
shall promptly so
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notify the Agent, the Issuing Bank and each Bank and provide a copy thereof to
the Agent, the Issuing Bank and each Bank.
12.2 Notices. (a) All notices, requests and other communications shall
-------
be in writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Borrower by
facsimile (i) shall be immediately confirmed by a telephone call and (ii) shall
be followed promptly by delivery of a hard copy original thereof) and mailed,
faxed or delivered, in the case of the Borrower, to the address or facsimile
number set forth on its signature page hereto and, in the case of the Agent and
the Banks, to the address or facsimile number specified for notices on Schedule
--------
12.2; or, as directed to the Borrower or the Agent, to such other address as
- ----
shall be designated by such party in a written notice to the other parties, and
as directed to any other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II, III or XI shall not be effective until actually
--------------- --
received by the Agent, and notices pursuant to Article III to the Issuing Bank
-----------
shall not be effective until actually received by the Issuing Bank at the
address specified for the "Issuing Bank" on Schedule 11.2.
-------------
(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrower. The Agent and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person previously authorized
by the Borrower to give such notice and the Agent and the Banks shall not have
any liability to the Borrower or other Person on account of any action taken or
not taken by the Agent or the Banks in reliance upon such telephonic or
facsimile notice. The obligation of the Borrower to repay the Loans and L/C
Obligations shall not be affected in any way or to any extent by any failure by
the Agent and the Banks to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Agent and the Banks of a confirmation
which is at variance with the terms understood by the Agent and the Banks to be
contained in the telephonic or facsimile notice.
12.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or
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further exercise thereof or the exercise of any other right, remedy, power or
privilege.
12.4 Costs and Expenses. The Borrower shall:
------------------
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent) within
five Business Days after demand (subject to subsection 5.1(g)) for all
-----------------
supportable and direct costs and expenses incurred by BofA (including in its
capacity as Agent) in connection with the development, preparation, delivery,
administration (including, without limitation, monitoring the Collateral) and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
Attorney Costs incurred by BofA (including in its capacity as Agent) with
respect thereto;
(b) pay or reimburse the Agent and each Bank within five Business Day
after demand (subject to subsection 5.1(g)) for all direct costs and expenses
-----------------
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as Agent) within
five Business Days after demand (subject to subsection 5.1(g)) for all appraisal
-----------------
(including the allocated cost of internal appraisal services), audit,
environmental inspection and review (including the allocated cost of such
internal services), search and filing costs, fees and expenses, incurred or
sustained by BofA (including in its capacity as Agent) in connection with the
matters referred to under subsections (a) and (b) of this Section.
----------- --- ---
12.5 Borrower Indemnification. Whether or not the transactions
------------------------
contemplated hereby are consummated, the Borrower shall indemnify and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all direct liabilities,
- -------------------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or replacement of any Bank)
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be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or Letters of Credit or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that the
----------------------- --------
Borrower shall have no obligation hereunder to any Indemnified Person with
respect to liabilities resulting solely from the gross negligence or willful
misfeasance or nonfeasance of such Indemnified Person. The agreements in this
Section shall survive payment of all other Obligations.
12.6 Marshalling Payments Set Aside. Neither the Agent nor the Banks
------------------------------
shall be under any obligation to marshall any assets in favor of the Borrower or
any other Person or against or in payment of any or all of the Obligations. To
the extent that any Borrower makes a payment to the Agent or the Banks, or the
Agent or the Banks exercise their right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Agent or such Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred, and (b) each Bank
severally agrees to pay to the Agent upon demand its pro rata share of any
amount so recovered from or repaid by the Agent.
12.7 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that (a) the Borrower may not assign or transfer
any of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank, (b) the Agent may only assign or transfer
its rights and obligations under this Agreement in accordance with Section 11.9
------------
and (c) the Banks may only assign or transfer their respective rights and
obligations under this Agreement in accordance with Section 12.8.
------------
12.8 Assignments, Participations, etc. (a) Any Bank may, with the
---------------------------------
written consent of the Agent, the Issuing Bank and, at such times as no Default
or Event of Default shall be continuing, the Borrower, which consent shall not
be unreasonably withheld, at any time assign and delegate to one or more
Eligible Assignees
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(provided that no written consent of the Agent or the Issuing Bank shall be
required in connection with any assignment and delegation by a Bank to an
Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all,
--------
any ratable part of all, of the Loans, the Commitments, the L/C Obligations and
the other rights and obligations of such Bank hereunder, in a minimum amount of
$10,000,000; provided, however, that the Borrower and the Agent may continue to
-------- -------
deal solely and directly with such Bank in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Borrower and the Agent by such Bank and
the Assignee; (ii) such Bank and its Assignee shall have delivered to the
Borrower and the Agent an Assignment and Acceptance in the form of Exhibit E
---------
("Assignment and Acceptance") together with any Note or Notes subject to such
-------------------------
assignment and (iii) the assignor Bank or Assignee has paid to the Agent a
processing fee in the amount of $3,500.
(b) From and after the date that the Agent receives the Borrower's
consent (if so required), and notifies the assignor Bank that it has received
(and provided its consent with respect to) an executed Assignment and Acceptance
and payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Bank under the Loan Documents, and (ii) the
assignor Bank shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents.
(c) After receiving the Borrower's consent (if so required), and
within five Business Days after its receipt of notice by the Agent that it has
received an executed Assignment and Acceptance and payment of the processing
fee, (and provided that it consents to such assignment in accordance with
subsection 12.8(a)), the Borrower shall execute and deliver to the Agent, new
- ------------------
Notes evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Commitment retained by the
assignor Bank (such Notes to be in exchange for, but not in payment of, the
Notes held by such Bank). Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this Agreement shall
be deemed to be amended to the extent, but only to the extent, necessary to
reflect the addition of the Assignee and the resulting adjustment of the
Commitments arising therefrom. The Commitment allocated to each Assignee shall
reduce such Commitments of the assigning Bank pro tanto.
--- -----
-81-
<PAGE>
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "Participant") participating
-----------
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
- -------- -------
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Borrower, the
Agent and the Issuing Bank shall continue to deal solely and directly with the
originating Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Bank
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement and the Note held by it in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
12.9 Confidentiality. The Agent, the Issuing Bank and each Bank agree to
---------------
take and to cause its Affiliates to take normal and reasonable precautions and
exercise due care to maintain the confidentiality of all information identified
in writing as "confidential" or "secret" by the Borrower and provided to it by
the Borrower or any Subsidiary, or by the Agent on such Borrower's or
Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by a Bank, or (ii)
was or becomes available on a non-confidential basis from a source other than
the Borrower or any Subsidiary, provided that such source is not bound by a
confidentiality agreement with the
-82-
<PAGE>
Borrower known to the Bank; provided, that any Bank may disclose such
--------
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates provided that such Affiliates agree in writing to keep such
information confidential to the same extent required by the Banks hereunder;
provided further, that with respect to the foregoing clauses (B), (C), (D) and
- -------- -------
(E), the respective Bank shall give prompt notice of such disclosure to the
Borrower.
12.10 Set-off. In addition to any rights and remedies of the Banks
-------
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Borrower against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank shall upon exercising
its set-off rights to notify the Borrower and the Agent after any such set-off
and application made by such Bank; provided, however, that the failure to give
-------- -------
such notice shall not affect the validity of such set-off and application.
12.11 Automatic Debits of Fees. With respect to any fee, or any other
------------------------
cost or expense (excluding Attorney Costs) due and payable to the Agent, the
Issuing Bank or BofA under the Loan Documents, the Borrower hereby authorizes
BofA to debit with timely notice to the Borrower a prearranged deposit account
of the Borrower with BofA or any Affiliate of BofA in an amount such that the
aggregate amount debited from all such deposit accounts does not exceed such fee
or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount of
-83-
<PAGE>
the fee or other cost or expense then due, such debits will be reversed (in
whole or in part, in BofA's sole discretion) and such amount not debited shall
be deemed to be unpaid. No such debit under this Section shall be deemed a set-
off.
12.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall
------------------------------------------------
notify the Agent and the Borrower in writing of any changes in the address to
which notices to the Bank should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Agent shall
reasonably request.
12.13 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
12.14 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
12.15 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Borrower, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
12.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND OTHER LOAN
------------------------------
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
--------------------
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
-84-
<PAGE>
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS.
12.17 Entire Agreement. This Agreement, together with the other Loan
----------------
Documents, embodies the entire agreement and understanding among the Borrower,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof (including, without limitation, the Existing Credit
Agreement, the Waiver and Amendment dated September 16, 1996, and the Waiver and
Amendment dated January 7, 1997); it being understood that all waivers granted
in such prior agreements shall continue in full force and effect for the period
specified in such waivers.
12.18 Reaffirmation and Restatement. This Agreement constitutes an
-----------------------------
amendment and restatement of the Existing Credit Agreement and the Indebtedness
evidenced by the Existing Credit Agreement, is continuing Indebtedness, and
nothing herein shall be deemed to constitute a payment, settlement or novation
of the Indebtedness evidenced by the Existing Credit Agreement, or to release or
otherwise adversely affect any Lien, mortgage or security interest securing such
Indebtedness or any rights the Agent or the Banks against any guarantor, surety
or other party primarily or secondarily liable for such Indebtedness.
-85-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Joseph J. Skadra
----------------------------
Title: Chief Financial Officer
-------------------------
Address:
500 West Madison, 32nd Floor
Chicago, IL 60661
Facsimile No.: (312) 641-3737
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Judith L. Kramer
----------------------------
Title: Vice President
-------------------------
BANK OF AMERICA ILLINOIS,
as Issuing Bank
By: /s/ Leslie Reuter
----------------------------
Title: Attorney-in-Fact
-------------------------
BANK OF AMERICA ILLINOIS,
as a Bank
By: /s/ Leslie Reuter
----------------------------
Title: Attorney-in-Fact
-------------------------
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By: /s/ Darren M. Snyder
----------------------------
Title: Assistant Vice President
-------------------------
Amended and Restated
Secured Credit Agreement - Signature Page
<PAGE>
SCHEDULE 1.1
------------
Original Financial Covenants
A. Net Worth. The Borrower shall not permit at any time its Consolidated
---------
Net Worth to be less than $143,000,000 plus the sum of 50% of its Consolidated
----
Net Income (without reduction for any losses) as of the end of each fiscal
quarter ending after July 31, 1996.
B. Fixed Charge Ratio. The Borrower shall not permit at any time the
------------------
ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for
the most recently completed four fiscal quarters to be less than 3.5 to 1.0.
C. Indebtedness Ratio. The Borrower shall not permit at any time the
------------------
ratio of (a) Consolidated Indebtedness (but excluding any sums which arise under
clause (g) of the definition of "Indebtedness") to (b) Consolidated Total
Capitalization as in effect at the end of the fiscal quarter then most recently
ended to be more than .60 to 1.00.
D. Senior Indebtedness Ratio. The Borrower shall not permit at any time
-------------------------
the ratio of (a) Consolidated Senior Indebtedness (but excluding any sums which
arise under clause (g) of the definition of "Indebtedness") to (b) Consolidated
Total Capitalization as in effect at the end of the fiscal quarter then most
recently ended to be more than .40 to 1.00.
E. Quick Ratio. The Borrower shall not permit its Quick Ratio at any
-----------
time to be less than 1.0:1.0. For purposes hereof, "Quick Ratio" means, at any
time, the ratio of (a) the sum of (i) (x) cash balances maintained by the
Borrower and its Subsidiaries minus (y) any proceeds of Loans which are
-----
maintained in deposit accounts with the Agent or any Agent-Related Person, plus
----
(ii) the lesser of (x) the Dollar Equivalent amount of all accounts receivables
of the Borrower and its Subsidiaries less any write-offs in accordance with GAAP
or (y) the product of nine and the amount of cash balances referenced in clause
(a)(i) above to (b) the sum of (i) consolidated current liabilities of the
Borrower and its Subsidiaries plus (ii) without double counting, the aggregate
----
principal Dollar Equivalent amount of all Loans outstanding hereunder other than
proceeds of Loans which are maintained in deposit accounts with the Agent or any
Agent-Related Person.
For purposes of this schedule the following terms shall have the following
definitions:
"Consolidated Indebtedness" means the total consolidated Indebtedness
-------------------------
of the Borrower and the Subsidiaries plus (without duplication) the undrawn
face amount of all outstanding letters of credit issued for the account of
the Borrower or any Subsidiary.
<PAGE>
"Consolidated Income Available for Fixed Charges" means, for any
-----------------------------------------------
period, the sum of (i) Consolidated Net Income, plus (to the extent
deducted in determining Consolidated Net Income), (ii) all provisions for
any Federal, state, or other income taxes made by the Borrower and its
Subsidiaries during such period and (iii) Fixed Charges.
"Consolidated Net Income" means, for any period, the consolidated net
-----------------------
income (or deficit) of the Borrower and its Subsidiaries after deducting,
without duplication, all operating expenses, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other
proper deductions, all determined in accordance with GAAP and after
deducting portions of income properly attributable to outstanding minority
interests, if any, in Subsidiaries; provided, however, that there shall be
excluded (i) any income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary or merges into or consolidates with the
Borrower or a Subsidiary, (ii) the income (or deficit) of any Person (other
than a Subsidiary) in which the Borrower or any Subsidiary has any
ownership interest (except that any such income actually received by the
Borrower or such Subsidiary in the form of cash dividends or similar
distributions shall be included without limitation), (iii) any gains or
losses, or other income, properly classified as extraordinary in accordance
with GAAP, (iv) any gains or losses, or other income, characterized as non-
recurring in the financial statements delivered pursuant to Section 7.1 of
-----------
the Agreement, (v) any gain resulting from the sale of fixed or capital
assets other than in the ordinary course of business, (vi) any portion of
the net income of a Subsidiary which for any reason cannot be distributed
as a cash dividend, and (vi) any gains resulting from the reappraisal,
revaluation or write-up of assets.
"Consolidated Net Worth" means the sum of consolidated stockholders'
----------------------
equity of the Borrower and its Subsidiaries determined in accordance with
GAAP, less, the sum of all goodwill, trade names, trademarks, patents,
organization expense, unamortized debt discount and expense and other
similar intangibles properly classified as such in accordance with GAAP,
which are incurred subsequent to August 15, 1993 and for which the Borrower
would not be entitled to a deduction for federal income tax purposes.
"Consolidated Senior Indebtedness" means Consolidated Indebtedness
--------------------------------
less Subordinated Indebtedness.
"Consolidated Total Capitalization" means the sum of Consolidated Net
---------------------------------
Worth and Consolidated Indebtedness.
"Fixed Charges" means, for any period, the sum of (i) interest expense
-------------
(including the interest component of Rentals under capital leases),
amortization of debt discount and expense on Indebtedness of the Borrower
and its Subsidiaries during such period plus (ii) one-third of Rentals
under operating leases.
<PAGE>
"Spot Rate" for a currency means the rate quoted by BofA as the spot
---------
for the purchase by BofA of such currency with another currency through its
Foreign Exchange Trading Center #5193, San Francisco, California (or such
other of BofA's offices as BofA may designate from time to time) at
approximately 8:00 a.m. (San Francisco time) on the date two Business Days
prior to the date as of which the foreign exchange computation is made.
<PAGE>
SCHEDULE 2.1
------------
COMMITMENTS
-----------
AND PRO RATA SHARES
-------------------
<TABLE>
<CAPTION>
Bank Commitment Pro Rata Share
- ------------------- ----------------- ---------------
<S> <C> <C>
Bank of America Illinois 50% of the sum of 50%
$46,400,000 (as to
Loans) and the Dollar
Equivalent amount of
the Existing BAI
Letters of Credit
American National Bank 50% of the sum of
and Trust Company of $46,400,000 (as to 50%
Chicago Loans) and the Dollar
Equivalent amount of
the Existing BAI
Letters of Credit
TOTAL The sum of $46,400,000 100%
(as to Loans) and the
Dollar Equivalent
amount of the Existing
BAI Letters of Credit
</TABLE>
<PAGE>
SCHEDULE 12.2
-------------
OFFSHORE AND DOMESTIC LENDING OFFICES,
--------------------------------------
ADDRESSES FOR NOTICES
---------------------
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as Agent
For Borrowing notices and
Notices of Conversion/Continuation
Agency Administrative Services #5596
1455 Market Street, 13th Floor
San Francisco, California 94103
Attention: Blanca Vinje
Telephone: (415) 436-2783
Facsimile: (415) 436-2700
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
Agency Management #10831
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Dietmar Schiel
Telephone: (415) 436-2769
Facsimile: (415) 436-3425
BANK OF AMERICA ILLINOIS,
- ------------------------
as Issuing Bank and as a Bank
Domestic and Offshore Lending Office:
Bank of America Illinois
200 West Jackson
Chicago, Illinois 60697
Attention: Lynn Themelis
Telephone: (312) 828-3809
Facsimile: (312) 974-9626
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
Bank of America NT&SA
The Mid-Cap Technology Div. #5974
530 Lytton Avenue, 2nd Floor
Palo Alto, California 94301-1539
Attention: Cecilia Person
Telephone: (415) 853-4688
Facsimile: (415) 853-4687
with a copy to:
Bank of America NT&SA
<PAGE>
Special Assets Group 4346
333 S. Beaudry Avenue; 9th Floor
Los Angeles, California 90017
Attention: Leslie Reuter
Telephone: (213) 345-7921
Facsimile: (213) 345-9644
<PAGE>
AMERICAN NATIONAL BANK AND
- --------------------------
TRUST COMPANY OF CHICAGO
------------------------
as a bank
Domestic and Offshore Lending Office:
American National Bank and
Trust Company of Chicago
33 North LaSalle Street
Chicago, IL 60690
Attention: Paul Carlisle
Vice President
Telephone: (312) 661-6173
Facsimile: (312) 661-3566
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
American National Bank and
Trust Company of Chicago
33 North LaSalle Street
Chicago, IL 60690
Attention: Paul Carlisle
Vice President
Telephone: (312) 661-6173
Facsimile: (312) 661-3566
<PAGE>
EXHIBIT A
FORM OF NOTICE OF BORROWING
---------------------------
Date: ________________, 199__
To: Bank of America National Trust and Savings Association as Agent for the
Banks parties to the Credit Agreement dated as of February 28, 1997 (as
extended, renewed, amended or restated from time to time, the "Credit
------
Agreement") among System Software Associates, Inc., Bank of America
---------
Illinois, as Issuing Lender, certain Banks which are signatories thereto
and Bank of America National Trust and Savings Association, as Agent.
Ladies and Gentlemen:
The undersigned, System Software Associates, Inc., refers to the Credit
Agreement, the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.3 of the Credit
-----------
Agreement, of the Borrowing specified below:
1. The aggregate amount of the proposed Borrowing is
$ _____________________.
2. The Business Day of the proposed Borrowing is
_____________________, 19___.
3. The Borrowing is to be comprised of $___________ of [Base Rate]
[Offshore Rate] Loans.
4. In the case of an Offshore Rate Loan, the duration of the Interest
Period shall be [_____ months].
5. The account into which the proceeds of the Borrowing are to be
deposited is: _________. */-
6. The proceeds of the Borrowing will be used for the following
purpose:_________________________________________.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the
__________________
*/- To the extent the account is not maintained with the Agent appropriate wire
transfer information needs to be included.
<PAGE>
proposed Borrowing, before and after giving effect thereto and to the
application of the proceeds therefrom:
(a) the Revolver Date has occurred;
(b) the representations and warranties contained in Article VI of the
Credit Agreement and in each other Loan Document are true and correct as
though made on and as of such date (except to the extent such
representations and warranties relate to an earlier date, in which case
they are true and correct as of such date);
(c) no Default or Event of Default has occurred and is continuing, or
would result from such proposed Borrowing; and
(d) The proposed Borrowing will not cause the aggregate principal
amount of all outstanding Loans to exceed the combined Commitments of the
Banks.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: __________________________________
Title: _______________________________
-2-
<PAGE>
EXHIBIT B
FORM OF NOTICE OF CONVERSION/CONTINUATION
-----------------------------------------
Date:________________, 199__
To: Bank of America National Trust and Savings Association, as Agent for the
Banks parties to the Credit Agreement dated as of February 28, 1997 (as
extended, renewed, amended or restated from time to time, the "Credit
------
Agreement") among System Software Associates, Inc., Bank of America
---------
Illinois, as Issuing Lender, certain Banks which are signatories thereto
and Bank of America National Trust and Savings Association, as Agent
Ladies and Gentlemen:
The undersigned, System Software Associates, Inc., refers to the Credit
Agreement, the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.4 of the Credit
-----------
Agreement, of the [conversion] [continuation] of the Loans specified herein,
that:
1. The Conversion/Continuation Date is ____________, 19__.
2. The aggregate amount of the Loans to be [converted] [continued] is
$______________.
3. The Loans are to be [converted into] [continued as] [Offshore
Rate] [Base Rate] Loans.
4. In the case of an Offshore Rate Loan, the duration of the Interest
Period for the Loans included in the [conversion] [continuation] shall be
[____ months].
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the proposed Conversion/Continuation Date,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the Revolver Date has occurred;
(b) the representations and warranties contained in Article VI of the
Credit Agreement and in each other Loan Document are true and correct as
though made on and as of such date (except to the extent such
representations and
<PAGE>
warranties relate to an earlier date, in which case they are true and
correct as of such date);
(c) no Default or Event of Default has occurred and is continuing, or
would result from such proposed [conversion] [continuation]; and
(d) the proposed [conversion][continuation] will not cause the
aggregate principal amount of all outstanding Loans to exceed the combined
Commitments of the Banks.
SYSTEM SOFTWARE ASSOCIATES,INC.
By: __________________________
Title: _______________________
-2-
<PAGE>
EXHIBIT C
SYSTEM SOFTWARE ASSOCIATES, INC.
FORM OF COMPLIANCE CERTIFICATE
------------------------------
Financial
Statement Date: ____________, 199_
Reference is made to that certain Credit Agreement dated as of February 28,
1996 (as extended, renewed, amended or restated from time to time, the "Credit
------
Agreement") among System Software Associates, Inc., a Delaware corporation (the
- ---------
"Company"), Bank of America Illinois, as issuing lender (the "Issuing Lender"),
-------
the financial institutions from time to time parties to this Credit Agreement
(the "Banks") and Bank of America National Trust and Savings Association, as
-----
agent for the Banks (in such capacity, the "Agent"). Unless otherwise defined
-----
herein, capitalized terms used herein have the respective meanings assigned to
them in the Credit Agreement.
The undersigned Responsible Officer of the Company, hereby certifies as of
the date hereof that he/she is the __________________ of the Company, and that,
as such, he/she is authorized to execute and deliver this Certificate to the
Banks and the Agent on the behalf of the Company and its Subsidiaries, and that:
[1. Attached as Schedule 1 hereto are (a) a true and correct copy of the
----------
audited consolidated balance sheet of the Company as at the end of the fiscal
year ended _______________, 199_ and (b) the related consolidated statements of
income or operations, shareholders' equity and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year and accompanied by the opinion of Price Waterhouse or another
nationally-recognized certified independent public accounting firm (the
"Independent Auditor") which report states that such consolidated financial
-------------------
statements are complete and correct and have been prepared in accordance with
GAAP, and fairly present, in all material respects, the financial position of
the Company and its consolidated Subsidiaries for the periods indicated and on a
basis consistent with prior periods.]
[1. Attached as Schedule 1 hereto are (a) a true and correct copy of the
----------
unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries as of the end of the fiscal quarter ended __________, 199__, and
(b) the related unaudited consolidated statements of income, shareholders'
equity, and cash flows for the
<PAGE>
period commencing on the first day and ending on the last day of such quarter,
and certified by a Responsible Officer that such financial statements were
prepared in accordance with GAAP (subject only to ordinary, good faith year-end
audit adjustments and the absence of footnotes) and fairly present, in all
material respects, the financial position and the results of operations of the
Company and its Subsidiaries.]
2. The undersigned has reviewed and is familiar with the terms of the
Credit Agreement and has made, or has caused to be made under his/her
supervision, a detailed review of the transactions and conditions (financial or
otherwise) of the Company during the accounting period covered by the attached
financial statements.
3. To the best of the undersigned's knowledge:
(a) the representations and warranties contained in Article VI of the
Credit Agreement and in each other Loan Document are true and correct as
though made on and as of such date (except to the extent such
representations and warranties relate to an earlier date, in which case
they are true and correct as of such date);
(b) no Default or Event of Default has occurred and is continuing, or
would result from such proposed Borrowing; and
4. The financial covenant analyses and information set forth on Schedule
--------
2 attached hereto are true and accurate on and as of the date of this
- -
Certificate (the "Computation Date").
----------------
[5. The financial covenant analyses and information set forth on Schedule
--------
3 attached hereto are true and accurate on and as of the date of this
- -
Certificate (the "Computation Date").]/1/-
----------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
___________________, 199__.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: ______________________________
Title: ___________________________
___________________
/1/- To be included only when in compliance with all Original Financial
Covenants.
-2-
<PAGE>
SCHEDULE 1
----------
<PAGE>
SCHEDULE 2
----------
8.4 Loans and Investments.
---------------------
(d) Aggregate principal Dollar Equivalent
amount of extensions of credit to
Wholly-Owned Subsidiaries (not to
exceed $67,000,000) $__________
(f) Aggregate net capital investment
to Subsidiaries which acquire equity
or assets of a third party after the
delivery of the 1/31/97 financial
statements (not to exceed $15,000) $__________
8.8 Contingent Obligations
----------------------
(b) Aggregate notional Dollar Equivalent
amount of Swap Contracts (not to
exceed $35,000,000) $__________
8.9 Lease Obligations
-----------------
(b) Aggregate Rentals for all operating
leases due within twelve month period
succeeding Computation Date (not to
exceed $26,400,000) $__________
9.1 Consolidated Net Worth
----------------------
. Consolidated Net Worth (not less
than $103,000,000) $__________
9.2 Cash Balances
-------------
. Consolidated Cash Balances (not
less than $6,000,000) $__________
9.3 Capital Expenditures
--------------------
. Capital Expenditures incurred during
the fiscal quarter ending on the
Computation Date (not to exceed
$16,000,000) $__________
-4-
<PAGE>
SCHEDULE 3
----------
1. Net Worth.
---------
This test shall apply at all times and shall be measured at the end of
each fiscal quarter.
(a) $73,000,000 : $73,000,000
-----------
(b) sum of Consolidated Net Income for
each fiscal quarter ending after
July 31, 1993 (but without reduction
for any net losses occurring during
such quarters): $ _________
(c) 50% of Item 1(b) : $ _________
(d) The sum of Items 1(a) and 1(c) : $ _________
(e) Consolidated Net Worth as of the
Computation Date : $ _________
(f) The amount in Item 1(e) may not be
less than the amount in Item 1(d).
2. Fixed Charge Ratio.
------------------
This ratio shall be measured at the end of each fiscal quarter for the
most recently completed four fiscal quarters then ended.
(a) Consolidated Income Available for
Fixed Charges : $ _________
(b) Fixed Charges : $ _________
(c) The ratio of Item 2(a) to Item 2(b) : :
---- ----
(d) The ratio in Item 2(c) may not be less
than 3.50:1.00.
3. Indebtedness Ratio.
-------------------
This ratio shall be measured at the end of each fiscal quarter for the
fiscal quarter then ended.
(a) Consolidated Indebtedness : $ _________
(b) Consolidated Total Capitalization : $ _________
(c) The ratio of Item 3(a) to Item 3(b) : :
----- ---
-1-
<PAGE>
(d) The ratio in Item 3(c) may not be
greater than .60:1.00.
4. Senior Indebtedness Ratio.
-------------------------
This ratio shall be measured at the end of each fiscal quarter for the
fiscal quarter then ended.
(a) Consolidated Senior Indebtedness : $ _________
(b) Consolidated Total Capitalization : $ _________
(c) The ratio of Item 4(a) to Item 4(b) : :
----- ---
(d) The ratio in Item 4(c) may not be
greater than .40:1.00.
5. Quick Ratio.
-----------
This ratio shall be measured at the end of each fiscal quarter for the
fiscal quarter then ended .
(a) Cash balances maintained by the
Company and its Subsidiaries : $ _________
(b) any proceeds of Loans which are
maintained in deposit accounts with the
Agent or any Agent-Related Person : $ _________
(c) Item 5(a) less Item 5(b) : $ _________
(d) the Dollar Equivalent amount of all
accounts receivables of the Company
and its Subsidiaries : $ _________
(e) any write-offs in accordance with
GAAP : $ _________
(f) Item 5(d) less Item 5(e) : $ _________
(g) The product of 9 and Item 5(c) : $ _________
(h) The lesser of Item 5(f) and Item 5(g) : $ _________
(i) The sum of Items 5(c) and 5(h) : $ _________
(j) consolidated current liabilities of
the Company and its Subsidiaries : $ _________
(k) without double counting, the aggregate
principal Dollar Equivalent amount of
all Loans outstanding : $ _________
-2-
<PAGE>
(l) Item 5(k) less Item 5(b) $ _________
(m) The sum of Items 5(j) and 5(l) : $ _________
(n) The ratio of Item 5(i) to Item 5(m) : :
----- ---
(o) The ratio in Item 5(n) may not be less
than 1.00:1.00.
6. Leverage Ratio
---------------
This ratio shall be measured at the end of each fiscal quarter for the
fiscal quarter then ended for the purpose of calculating interest rates pursuant
to Section 2.10(a)(iii) of the Credit Agreement and letter of credit fees
pursuant to Section 3.8 of the Credit Agreement.
(a) Consolidated Indebtedness : $ _________
(b) the aggregate principal Dollar
Equivalent amount of all Offshore
Currency Loans to the Subsidiary
Borrowers outstanding, the
proceeds of which are maintained
in a deposit account with the Agent
or one of its Affiliates : $ _________
(c) Item 6(a) less Item 6(b) : $ _________
(d) Consolidated Tangible Net Worth : $ _________
(e) The ratio of Item 6(c) to Item 6(d) : $ _________
-3-
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
-------------------------------------------
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and
--------------
Acceptance") dated as of __________, 199__ is made between
- ----------
___________________________ (the "Assignor") and __________________________
--------
(the "Assignee").
--------
RECITALS
--------
WHEREAS, the Assignor is party to that certain Credit Agreement, dated
as of February 28, 1997 (as amended, amended and restated, modified,
supplemented or renewed, the "Credit Agreement") among System Software
----------------
Associates, Inc., a Delaware corporation (the "Company"), Bank of America
-------
Illinois, as issuing lender (the "Issuing Lender"), the several financial
institutions from time to time party thereto (including the Assignor, the
"Banks"), and Bank of America National Trust and Savings Association, as agent
-----
for the Banks (the "Agent"). Any terms defined in the Credit Agreement and not
-----
defined in this Assignment and Acceptance are used herein as defined in the
Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to making Loans (the "Committed Loans") to the Borrowers in an
---------------
aggregate amount not to exceed $__________ (the "Commitment");
----------
WHEREAS, as of the date hereof [the Assignor has Committed Loans
outstanding to the Borrowers in the aggregate principal Dollar Equivalent amount
of $__________] [no Committed Loans are outstanding under the Credit Agreement];
WHEREAS, the Assignor wishes to assign to the Assignee [part of the]
[all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment, [together with a corresponding portion of each of its
outstanding Committed Loans] in an amount equal to $__________ (the "Assigned
--------
Amount") on the terms and subject to the conditions set forth herein and the
- ------
Assignee wishes to accept assignment of such rights and to assume such
obligations from the Assignor on such terms and subject to such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE>
1. Assignment and Acceptance.
-------------------------
(a) Subject to the terms and conditions of this Assignment and
Acceptance, (i) the Assignor hereby sells, transfers and assigns to the
Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from
the Assignor, without recourse and without representation or warranty (except as
provided in this Assignment and Acceptance) __% (the "Assignee's Percentage
---------------------
Share") of (A) the Commitment [and the Committed Loans] of the Assignor and (B)
- -----
all related rights, benefits, obligations, liabilities and indemnities of the
Assignor under and in connection with the Credit Agreement and the Loan
Documents.
[If appropriate, add paragraph specifying payment to Assignor by
Assignee of outstanding principal of, accrued interest on, and fees with respect
to, Committed Loans assigned, including any special payment provisions for
Offshore Currency Loans.]
(b) With effect on and after the Effective Date (as defined in Section
5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to
all of the rights and be obligated to perform all of the obligations of a Bank
under the Credit Agreement, including the requirements concerning
confidentiality and the payment of indemnification, with a Commitment in an
amount equal to the Assigned Amount. The Assignee agrees that it will perform
in accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank. It is the intent
of the parties hereto that the Commitment of the Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Amount and the
Assignor shall relinquish its rights and be released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee; provided, however, the Assignor shall not relinquish its rights under
Sections 12.4 and 12.5 of the Credit Agreement to the extent such rights relate
to the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignee's Commitment will be [$__________].
(d) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignor's Commitment will be [$__________].
-2-
<PAGE>
2. Payments.
--------
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to [$__________]
[plus], representing the Assignee's Pro Rata Share of the principal amount of
all Committed Loans.
(b) The [Assignor] [Assignee] further agrees to pay to the Agent a
processing fee in the amount specified in Section 12.8(a) of the Credit
---------------
Agreement.
3. Reallocation of Payments.
------------------------
Any interest, fees and other payments accrued to the Effective Date with
respect to the Commitment and Committed Loans shall be for the account of the
Assignor. Any interest, fees and other payments accrued on and after the
Effective Date with respect to the Assigned Amount shall be for the account of
the Assignee. Each of the Assignor and the Assignee agrees that it will hold in
trust for the other party any interest, fees and other amounts which it may
receive to which the other party is entitled pursuant to the preceding sentence
and pay to the other party any such amounts which it may receive promptly upon
receipt.
4. Independent Credit Decision.
---------------------------
The Assignee (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements referred to in Section 6.1(a) and (b) of the
Credit Agreement, and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter into
this Assignment and Acceptance; and (b) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Credit Agreement.
5. Effective Date; Notices.
-----------------------
(a) As between the Assignor and the Assignee, the effective date for
this Assignment and Acceptance shall be __________, 199__ (the "Effective
---------
Date"); provided that the following conditions precedent have been satisfied on
--------
or before the Effective Date:
-3-
<PAGE>
(i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;
(ii) the consent of the Company and the Agent required for an
effective assignment of the Assigned Amount by the Assignor to the Assignee
under Section 12.8(a) of the Credit Agreement shall have been duly obtained and
---------------
shall be in full force and effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due to
the Assignor under this Assignment and Acceptance;
(iv) the Assignee shall have complied with all provisions of
Section 12.8(a) of the Credit Agreement;
- ---------------
(v) the processing fee referred to in Section 2(b) hereof and
in Section 12.8(a) of the Credit Agreement shall have been paid to the Agent;
---------------
and
(vi) the Assignor shall have assigned and the Assignee shall
have assumed a percentage equal to the Assignee's Percentage Share of the rights
and obligations of the Assignor under the Credit Agreement (if such agreement
exists).
(b) Promptly following the execution of this Assignment and
Acceptance, the Assignor shall deliver to the Company and the Agent for
acknowledgement by the Agent, a Notice of Assignment substantially in the form
attached hereto as Schedule 1.
----------
[6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AGENT]
-----
(a) The Assignee hereby appoints and authorizes the Assignor to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the Banks pursuant to the terms of
the Credit Agreement.
(b) The Assignee shall assume no duties or obligations held by the
Assignor in its capacity as Agent under the Credit Agreement.]
7. Withholding Tax.
---------------
The Assignee (a) represents and warrants to the Bank, the Agent and the
Company that under applicable law and treaties no tax will be required to be
withheld by the Bank with respect to any payments to be made to the Assignee
hereunder, (b) agrees to furnish (if it is organized under the laws of any
jurisdiction other than the United States or any State thereof) to the Agent and
-4-
<PAGE>
the Company prior to the time that the Agent or Company is required to make any
payment of principal, interest or fees hereunder, duplicate executed originals
of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a
tax treaty that provides for a complete exemption from U.S. federal income
withholding tax on all payments hereunder) and agrees to provide new Forms 4224
or 1001 upon the expiration of any previously delivered form or comparable
statements in accordance with applicable U.S. law and regulations and amendments
thereto, duly executed and completed by the Assignee, and (c) agrees to comply
with all applicable U.S. laws and regulations with regard to such withholding
tax exemption.
8. Representations and Warranties.
------------------------------
(a) The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any Lien or other adverse claim; (ii) it is duly
organized and existing and it has the full power and authority to take, and has
taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder; (iii) no notices to, or consents, authorizations or
approvals of, any Person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Assignment and
Acceptance, and apart from any agreements or undertakings or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
Person is required of it for such execution, delivery or performance; and (iv)
this Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against the Assignor in accordance with the terms hereof, subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors' rights and to
general equitable principles.
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of the Company, or the performance or observance by the Company, of any of its
respective
-5-
<PAGE>
obligations under the Credit Agreement or any other instrument or document
furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly organized
and existing and it has full power and authority to take, and has taken, all
action necessary to execute and deliver this Assignment and Acceptance and any
other documents required or permitted to be executed or delivered by it in
connection with this Assignment and Acceptance, and to fulfill its obligations
hereunder; (ii) no notices to, or consents, authorizations or approvals of, any
Person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Assignment and Acceptance; and apart
from any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; (iii) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the legal,
valid and binding obligation of the Assignee, enforceable against the Assignee
in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles;
and (iv) it is an Eligible Assignee.
9. Further Assurances.
------------------
The Assignor and the Assignee each hereby agree to execute and deliver such
other instruments, and take such other action, as either party may reasonably
request in connection with the transactions contemplated by this Assignment and
Acceptance, including the delivery of any notices or other documents or
instruments to the Company or the Agent, which may be required in connection
with the assignment and assumption contemplated hereby.
10. Miscellaneous.
-------------
(a) Any amendment or waiver of any provision of this Assignment and
Acceptance shall be in writing and signed by the parties hereto. No failure or
delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any set-off or
counterclaim.
-6-
<PAGE>
(c) The Assignor and the Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS. The Assignor and the
Assignee each irrevocably submits to the non-exclusive jurisdiction of any State
or Federal court sitting in Illinois over any suit, action or proceeding arising
out of or relating to this Assignment and Acceptance and irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such Illinois State or Federal court. Each party to this Assignment and
Acceptance hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND
AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER
ORAL OR WRITTEN).
[Other provisions to be added as may be negotiated between the
Assignor and the Assignee, provided that such provisions are not inconsistent
with the Credit Agreement.]
-7-
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:__________________________________________
Title:_______________________________________
By:__________________________________________
Title:_______________________________________
Address:
[ASSIGNEE]
By:__________________________________________
Title:_______________________________________
By:__________________________________________
Title:_______________________________________
Address:
-8-
<PAGE>
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
-----------------------------------
_______________, 19__
Bank of America National Trust
and Savings Association, as Agent
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attn: Agency Management Services #5596
System Software Associates, Inc.
500 West Madison
Chicago, IL 60661
Attn: ___________________________
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of February 28, 1997 (as amended,
amended and restated, modified, supplemented or renewed from time to time the
"Credit Agreement") among System Software Associates, Inc. (the "Company"), Bank
- ----------------- -------
of America Illinois, as issuing lender (the "Issuing Lender"), the Banks
referred to therein and Bank of America National Trust and Savings Association,
as agent for the Banks (the "Agent"). Terms defined in the Credit Agreement are
-----
used herein as therein defined.
1. We hereby give you notice of, and request your consent to, the
assignment by __________________ (the "Assignor") to _______________ (the
--------
"Assignee") of _____% of the right, title and interest of the Assignor in and to
- ---------
the Credit Agreement (including, without limitation, the right, title and
interest of the Assignor in and to the Commitments of the Assignor [and all
outstanding Loans made by the Assignor]) pursuant to the Assignment and
Acceptance Agreement attached hereto (the "Assignment and Acceptance"). Before
-------------------------
giving effect to such assignment the Assignor's Commitment is $ ___________ [and
the aggregate Dollar Equivalent amount of its outstanding Loans is
$_____________].
2. The Assignee agrees that, upon receiving the consent of the Agent and
the Company to such assignment, the Assignee will be bound by the terms of the
Credit Agreement as fully and to the same extent as if the Assignee were the
Bank originally holding such interest in the Credit Agreement.
-1-
<PAGE>
3. The following administrative details apply to the Assignee:
(A) Notice Address:
Assignee name: __________________________
Address: _______________________________
_______________________________
_______________________________
Attention: _____________________________
Telephone: (___) _______________________
Telecopier: (___) ______________________
Telex (Answerback): ____________________
(B) Payment Instructions:
Account No.: ___________________________
At: ___________________________
___________________________
___________________________
Reference: ___________________________
Attention: ___________________________
4. You are entitled to rely upon the representations, warranties and
covenants of each of the Assignor and Assignee contained in the Assignment and
Acceptance.
-2-
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice
of Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[NAME OF ASSIGNOR]
By:_____________________________________________
Title:________________________________
By:_____________________________________________
Title:________________________________
[NAME OF ASSIGNEE]
By:______________________________________________
Title:__________________________________
By:______________________________________________
Title:__________________________________
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: __________________________
Its: _________________________
-3-
<PAGE>
EXHIBIT F
---------
FORM OF AMENDED AND RESTATED PROMISSORY NOTE
--------------------------------------------
$_______________________ February 28, 1997
FOR VALUE RECEIVED, the undersigned, System Software Associates, Inc.,
a Delaware corporation (the "Company"), hereby promises to pay to the order of
-------
___________________ (the "Bank") the principal sum of ____________ Dollars
----
($___________) or, if less, the aggregate unpaid principal amount of all Loans
made by the Bank to the Company pursuant to the Credit Agreement, dated as of
February 28, 1997 (such Credit Agreement, as it may be amended, restated,
supplemented or otherwise modified from time to time, being hereinafter called
the "Credit Agreement"), among the Company, System Software Associates, Inc.,
----------------
the Bank, the other banks parties thereto, Bank of America National Trust and
Savings Association, as Agent for the Banks, and Bank of America Illinois, as
issuing lender (the "Issuing Lender"), on the dates and in the amounts provided
in the Credit Agreement. The Company further promises to pay interest on the
unpaid principal amount of the Loans evidenced hereby from time to time at the
rates, on the dates, and otherwise as provided in the Credit Agreement.
The Bank is authorized to endorse the amount and the date on which
each Loan is made, the maturity date therefor and each payment of principal with
respect thereto on the schedules annexed hereto and made a part hereof, or on
continuations thereof which shall be attached hereto and made a part hereof;
provided, that any failure to endorse such information on such schedule or
continuation thereof shall not in any manner affect any obligation of the
Company under the Credit Agreement and this Promissory Note (the "Note").
----
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
<PAGE>
Terms defined in the Credit Agreement are used herein with their
defined meanings therein unless otherwise defined herein. This Note shall be
governed by, and construed and interpreted in accordance with, the internal laws
of the State of Illinois applicable to contracts made and to be performed
entirely within such State.
This Amended and Restated Revolving Note constitutes a renewal and
restatement of, and a replacement and substitute for, the Revolving Note dated
June 19, 1995 of the undersigned, payable to the order of the Bank in the
original principal amount of Twenty-Five Million and No/100 Dollars
($25,000,000.00) (the "Existing Note"). The indebtedness evidenced by the
Existing Note is continuing indebtedness, and nothing herein shall be deemed to
constitute a payment, settlement or novation of the Existing Note, or to release
or otherwise adversely affect any lien, mortgage, or security interest securing
such indebtedness or any rights of the Bank against any guarantor, surety or
other party primarily or secondarily liable for such indebtedness.
SYSTEM SOFTWARE ASSOCIATES, INC.
By:___________________________
Title: _______________________
By:___________________________
Title: _______________________
-2-
<PAGE>
Schedule A to Note
BASE RATE LOANS AND REPAYMENT OF BASE RATE LOANS
------------------------------------------------
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Amount of
of Date of Base (5)
(1) Base Base Rate Loan Notation
Date Rate Loan Rate Loan Repaid Made By
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
</TABLE>
<PAGE>
Schedule B to Note
OFFSHORE RATE LOANS AND REPAYMENT OF OFFSHORE RATE LOANS
--------------------------------------------------------
<TABLE>
<CAPTION>
(2)
Currency
and (3) (4)
Amount Maturity Amount of
of Date of Offshore (5)
(1) Offshore Offshore Rate Notation
Date Rate Loan Rate Loan Loan Repaid Made By
- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
__________ _________ _________ ___________ _________
</TABLE>
<PAGE>
================================================================================
COLLATERAL AGENCY AGREEMENT
by and among
SYSTEM SOFTWARE ASSOCIATES, INC.,
AND VARIOUS OF ITS SUBSIDIARIES
AS GRANTORS
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Collateral Agent
Dated as of January 15, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS....................................................................... -1-
SECTION I
COMMON TERMS AND INTERPRETATION......................... -1-
SECTION 1.1 Definitions and Usage........................................ -1-
SECTION II
CERTAIN OBLIGATIONS AND DUTIES
OF THE COLLATERAL AGENT AND THE COMPANY..................... -3-
Section 2.1 Appointment as Collateral Agent.............................. -3-
Section 2.2 Actions...................................................... -3-
Section 2.3 Additional Collateral Documents.............................. -5-
SECTION III
ACTIONABLE DEFAULTS; REMEDIES......................... -6-
Section 3.1 Actionable Default........................................... -6-
Section 3.2 Remedies..................................................... -7-
Section 3.3 Right to Initiate Judicial Proceedings, etc.................. -8-
Section 3.4 Appointment of a Receiver.................................... -8-
Section 3.5 Exercise of Powers........................................... -8-
Section 3.6 Control by the Majority Holders.............................. -9-
Section 3.7 Remedies Not Exclusive....................................... -9-
Section 3.8 Waiver of Certain Rights..................................... -10-
Section 3.9 Limitation on Collateral Agent's Duties in Respect of
Collateral................................................... -11-
Section 3.10 Limitation by Law............................................ -11-
Section 3.11 Absolute Rights of Holders................................... -11-
Section 3.12 Priority of Security......................................... -12-
SECTION IV
COLLATERAL ACCOUNT;
CONTROLLED CASH ACCOUNT; APPLICATION OF MONEYS................ -12-
Section 4.1 The Collateral Account....................................... -12-
Section 4.2 Grant of Security Interest; Control of Collateral
Account................................................... -13-
Section 4.3 Investment of Funds Deposited in Collateral
Account................................................... -14-
Section 4.4 Application of Moneys In Collateral Account.................. -14-
Section 4.5 Application of Net Proceeds.................................. -16-
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
SECTION V
AGREEMENTS WITH COLLATERAL AGENT...................... -17-
Section 5.1 Delivery of Debt Agreements.................................. -17-
Section 5.2 Information as to Holders.................................... -17-
Section 5.3 Expenses..................................................... -17-
Section 5.4 Stamp and Other Similar Taxes................................ -19-
Section 5.5 Filing Fees, Excise Taxes etc................................ -19-
Section 5.6 Indemnification.............................................. -19-
Section 5.7 Further Assurances........................................... -21-
Section 5.8 Information Sharing.......................................... -22-
Section 5.9 Dispute Resolution Mechanism for Certain Matters............. -23-
SECTION VI
THE COLLATERAL AGENT.............................. -23-
Section 6.1 Exculpatory Provisions....................................... -23-
Section 6.2 Delegation of Duties......................................... -25-
Section 6.3 Reliance by Collateral Agent................................. -25-
Section 6.4 Limitations on Duties of Collateral Agent.................... -26-
Section 6.5 Moneys To Be Held in Trust................................... -27-
Section 6.6 Resignation and Removal of the Collateral Agent.............. -27-
Section 6.7 Secured Parties in Individual Capacities..................... -28-
SECTION VII
RELEASE OF COLLATERAL............................. -28-
Section 7.1 Conditions to Release........................................ -28-
Section 7.2 Procedure for Release........................................ -29-
Section 7.3 Effective Time of Release.................................... -29-
Section 7.4 Release of Certain Collateral................................ -30-
SECTION VIII
MISCELLANEOUS................................. -31-
Section 8.1 Amendments, Supplements, and Waivers......................... -31-
Section 8.2 Notices...................................................... -33-
Section 8.3 Headings..................................................... -34-
Section 8.4 Severability................................................. -34-
Section 8.5 Intentionally Omitted........................................ -34-
Section 8.6 Dealings With the Company.................................... -34-
Section 8.7 Claims against the Collateral Agent.......................... -35-
Section 8.8 Binding Effect............................................... -35-
Section 8.9 Governing Law and Jurisdiction............................... -35-
Section 8.10 Waiver of Jury Trial........................................ -36-
Section 8.11 Counterparts................................................ -36-
Section 8.12 The Company as Agent for Grantors........................... -36-
Section 8.13 Interest.................................................... -36-
</TABLE>
(ii)
<PAGE>
Schedules
I Glossary
II Noteholder Addresses
III Bank Addresses
Exhibits
A Form of Guaranty
(iii)
<PAGE>
COLLATERAL AGENCY AGREEMENT
---------------------------
COLLATERAL AGENCY AGREEMENT ("Agreement") dated as of January 15, 1997 by
---------
and among SYSTEM SOFTWARE ASSOCIATES, INC, a Delaware corporation ("Company"),
-------
SSA JAPAN CORP., a Delaware corporation ("SSJC"), SSA PACIFIC RIM CORP., a
----
Delaware corporation ("SSPRC"), SYSTEM SOFTWARE ASSOCIATES JAPAN LIMITED
-----
LIABILITY COMPANY, a Delaware limited liability company ("SSAJLLC"), SSA
-------
CARIBBEAN, INC., a Delaware corporation ("SSAC"), and SSA NORTH CENTRAL, INC., a
----
Delaware corporation ("SSANCI") (together with the Company, collectively
------
referred to herein as the "Grantors" and individually as a "Grantor"), the Agent
-------- -------
(such capitalized term and other capitalized terms not otherwise defined herein
have the meanings provided in the "Glossary" as defined below), the Banks, the
Noteholders (as defined in the Glossary) and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, not in its individual capacity but solely as collateral
agent (in such capacity together with its successors and assigns, being herein
referred to as the "Collateral Agent") under this Agreement for the ratable
----------------
benefit of the Secured Parties.
RECITALS
--------
A. The Company is a party to the Finance Agreements pursuant to which the
Company has incurred Obligations.
B. Defaults have occurred under the Finance Agreements and, in connection
with amendments and waivers with respect thereto, the Company has agreed to
furnish and cause Subsidiaries to furnish Collateral to the Collateral Agent for
the benefit of the Secured Parties.
AGREEMENT
---------
NOW, THEREFORE, and for other good and valuable consideration, the receipt
and adequacy of which hereby is acknowledged, the parties hereto agree as
follows:
SECTION I
COMMON TERMS AND INTERPRETATION
-------------------------------
SECTION 1.1 Definitions and Usage.
---------------------
(a) Defined Terms. ALL CAPITALIZED WORDS AND PHRASES, UNLESS DEFINED
-------------
HEREIN, SHALL HAVE THE MEANINGS SPECIFIED IN
-1-
<PAGE>
GLOSSARY OF DEFINITIONS ATTACHED AS SCHEDULE I (THE "GLOSSARY"). Unless
--------
otherwise defined herein or therein, all terms defined in this Agreement shall
have the defined meanings when used in any certificate or other document made or
delivered pursuant hereto. Terms (including uncapitalized terms) not otherwise
defined herein that are defined in the U.C.C. shall have the meanings therein
described.
(b) The Agreement. The words "hereof", "herein", "thereunder" and words
-------------
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Subsection,
Section, Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(c) Certain Common Terms.
--------------------
(i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(d) Performance; Time. Whenever any performance obligation hereunder
-----------------
(other than a payment obligation) shall be stated to be due or required to be
satisfied on a day other than a Business Day, such performance shall be made or
satisfied on the next succeeding Business Day. Whenever any payment obligation
hereunder shall be stated to be due or required to be satisfied on a day other
than a Business Day, such performance shall, unless otherwise expressly provided
herein, be made or satisfied on the next succeeding Business Day. In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding," and the word "through" means "to and including." If any
provision of this Agreement refers to any action taken or to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
interpreted to encompass any and all means, direct or indirect, of taking, or
not taking, such action.
(e) Contracts. Unless otherwise expressly provided herein, references to
---------
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications thereto, but only to the extent
such amendments and other modifications are not prohibited by the terms of any
Debt Agreement.
(f) Laws. References to any statute or regulation are to be construed as
----
including all statutory and regulatory provisions
-2-
<PAGE>
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(g) Captions. The captions and headings of this Agreement are for
--------
convenience of reference only and shall not affect the interpretation of this
Agreement.
(h) Singular and Plural. Words in the singular include the plural and
-------------------
words in the plural include the singular, except as expressly set forth herein.
(i) Controlling Documents. The Credit Agreement and the Note Agreement
---------------------
(the "Finance Agreements") set forth specific duties and obligations and
------------------
respective rights and remedies of the parties thereto. In the event of any
inconsistency between or among this Agreement and any of the Collateral
Documents or the Finance Agreements, this Agreement shall control.
SECTION II
CERTAIN OBLIGATIONS AND DUTIES
OF THE COLLATERAL AGENT AND THE COMPANY
---------------------------------------
Section 2.1 Appointment as Collateral Agent. Each of the Secured Parties
-------------------------------
hereby appoints the Collateral Agent and hereby authorizes the Collateral Agent
to act as agent for the Secured Parties for the purposes of executing and
delivering on their behalf the Collateral Documents, for purposes of perfecting,
enforcing and releasing the Secured Parties' Lien and other rights in respect of
the Collateral, subject, however, to the provisions of this Agreement and the
Collateral Documents.
Section 2.2 Actions.
-------
(a) The Collateral Agent shall take any action permitted or required
hereby, or permitted or otherwise required by the terms of the Finance
Agreements with respect to the Collateral and the Collateral Documents, as
follows:
(i) Authorized Actions.
------------------
(1) The Collateral Agent is authorized and directed on behalf of
all the Secured Parties, without the necessity of any notice to or
further consent from the Secured Parties, from time to time to take
any action with respect to any Collateral or the Collateral Documents
which may be necessary to perfect and maintain perfected the security
interest in and Liens
-3-
<PAGE>
upon the Collateral granted pursuant to the
Collateral Documents.
(2) The Secured Parties authorize the Collateral Agent, in
accordance with Section 7.4, to release any Lien granted to or held by
-----------
the Collateral Agent upon any Collateral (A) upon the occurrence of
the Collateral Agency Agreement Termination Date; (B) constituting
Property sold or to be sold or disposed of as part of or in connection
with any Disposition permitted under both of the Finance Agreements,
as confirmed by the Agent and the Required Noteholders, for their
respective Finance Agreements; (C) constituting Property in which the
Company or any Grantor owned no interest at the time the Lien was
granted or at any time thereafter; (D) constituting Property leased to
the Company or a Grantor under a lease which has expired or been
terminated in a transaction permitted under both of the Finance
Agreements or is about to expire and which has not been, and is not
intended by the Company or such Grantor to be, renewed or extended; or
(E) consisting of an instrument evidencing indebtedness or other debt
instrument, if the indebtedness evidenced thereby has been paid in
full.
(ii) Actions Requiring Prior Approval. Other than as set forth in
--------------------------------
Section 2.2(a)(i) above, the Collateral Agent is not required to take any
-----------------
other actions with respect to the Collateral unless authorized in writing
by the Majority Holders or the Holders, as the case may be, in accordance
with the terms of this Agreement. Upon request by the Collateral Agent at
any time, the Majority Holders will confirm in writing, pursuant to this
Section 2.2(a)(ii), the Collateral Agent's authority to release particular
------------------
types or items of Collateral. Upon the request of all of the Holders, the
Collateral Agent shall release all or any portion of the Collateral from
the Liens created under the Collateral Documents. Notwithstanding the
foregoing, the Collateral Agent shall not take any action which is in
conflict with the provisions of law, this Agreement or the Collateral
Documents or with respect to which the Collateral Agent has not received
adequate security or indemnity as provided in Section 6.3(c). With respect
--------------
to actions taken by the Collateral Agent pursuant to this Section
-------
2.2(a)(ii), the Collateral Agent may at any time request from the Holders
----------
and receive directions from the Majority Holders as to any course of action
with respect to the Collateral Documents or matter relating thereto. Each
of the Secured Parties hereby agrees that the Collateral Agent may act as
the Majority Holders may request or direct and that the
-4-
<PAGE>
Collateral Agent shall have no liability for acting in accordance with such
request or direction (provided such action does not conflict with the
express terms of this Agreement). The Collateral Agent shall give prompt
notice to each of the Holders (and, if no Event of Default has occurred and
is continuing, to the Company) of actions taken pursuant to the
instructions of the Majority Holders; provided, however, that the failure
-------- -------
to give any such notice shall not create any liability on the part of the
Collateral Agent or impair the right of the Collateral Agent to take any
such action or the validity or enforceability under this Agreement of the
action so taken. Except as otherwise provided in this Agreement, directions
given by Majority Holders to the Collateral Agent hereunder shall be
binding on each Secured Party for all purposes.
(b) None of the Secured Parties, other than the Collateral Agent acting at
the direction of the Majority Holders, shall independently enforce any of the
rights and remedies against the Collateral provided under the Collateral
Documents, provided, however, that (1) each Secured Party shall have the right,
under the Collateral Documents, to receive a share of the proceeds of the
Collateral, if any, to the extent and at the time provided in Section 4 hereof
---------
and (2) nothing in this Section 2.2 shall be deemed to impair or impede any
-----------
rights of the Grantors in and to the Collateral as provided herein or in the
other Collateral Documents.
Section 2.3 Additional Collateral Documents. The Company shall with
-------------------------------
reasonable promptness notify the Collateral Agent in the event that any of the
Grantors acquires any interest in any Property in which any of the Grantors is
obligated to grant a Lien to the Collateral Agent under the terms of any Debt
Agreement but which is not covered by a Collateral Document in a manner which
will perfect the Collateral Agent's lien on such Collateral without further act
or deed of the Collateral Agent and, to the extent that such security interest
may be perfected by the execution and/or filing of Collateral Documents, at the
relevant Grantor's sole expense, the Collateral Agent shall immediately prepare
and the relevant Grantor shall execute and deliver to the Collateral Agent, such
Collateral Documents, in form and substance reasonably satisfactory to the
Collateral Agent, as are necessary to perfect the Collateral Agent's lien upon
and security interest in such Collateral. If the signature of the Collateral
Agent is required on any such Collateral Document, the applicable Grantor shall
present such Collateral Document to the Collateral Agent for signature and the
Collateral Agent shall execute such Collateral Document and shall file such
Collateral Document with appropriate public filing and/or recording offices if
such filing and/or recording is required or advisable to perfect or protect the
Collateral Agent's lien upon
-5-
<PAGE>
and security interest in the Collateral subject to such Collateral Document. The
applicable Grantor shall supply the Collateral Agent with an executed copy of
each such Collateral Document and the Collateral Agent shall obtain at Grantor's
expense satisfactory evidence that each such Collateral Document has been
properly filed or recorded, if filing or recording is required under this
Section 2.3.
- -----------
SECTION III
ACTIONABLE DEFAULTS; REMEDIES
-----------------------------
Section 3.1 Actionable Default.
------------------
(a) Upon receipt of a Notice of Actionable Default, the Collateral Agent
shall, within one (1) Business Day thereafter, notify each Holder and the
Grantors in the manner provided in Section 8.2 of this Agreement that an
-----------
Actionable Default exists. Upon receipt of any written directions pursuant to
Section 3.6(a) of this Agreement, the Collateral Agent shall, within one (1)
- --------------
Business Day thereafter, send a copy thereof to each Holder and each Grantor.
(b) The party or parties giving a Notice of Actionable Default (or
successors in interest thereto) or the Majority Holders shall be entitled to
withdraw it by delivering written notice of withdrawal to the Collateral Agent
with a copy to each Grantor (i) before the Collateral Agent takes any action to
exercise any remedy with respect to the Collateral, or (ii) thereafter, if (A)
the Company indemnifies the Secured Parties (in a manner reasonably satisfactory
to the Collateral Agent and the Majority Holders in their sole discretion) with
respect to all reasonable costs and expenses incurred by the Secured Parties in
connection with withdrawing all actions the Collateral Agent has taken to
exercise any remedy or remedies with respect to the Collateral, and (B) the
Majority Holders shall have consented in writing to such withdrawal.
(c) Upon the withdrawal of a Notice of Actionable Default pursuant to the
terms and provisions of Section 3.1(b) of this Agreement, to the extent that
--------------
such Notice of Actionable Default shall have resulted in the exercise of the
rights and remedies provided in this Section 3 or any rights and remedies
---------
provided in any of the Collateral Documents or shall prohibit the Company or any
Grantor from taking certain actions as specified herein, such rights and
remedies shall be suspended, and any exercise thereof by the Collateral Agent
shall cease, and such prohibitions on the Company or Grantor shall not remain in
effect provided that such
-------- ----
-6-
<PAGE>
rights and remedies, and such prohibitions, shall be reinstated upon the giving
of any later Notice of Actionable Default.
(d) If a Notice of Actionable Default has been received, and after such
Notice of Actionable Default has been withdrawn pursuant to the terms of this
Agreement, the Collateral Agent shall with reasonable promptness give notice to
the Grantors of any such notice of withdrawal received from the Majority
Holders, Holder or the Holders, as the case may be.
Section 3.2 Remedies. If and only if the Collateral Agent shall have
--------
received a Notice of Actionable Default and until any such Notice of Actionable
Default shall be withdrawn pursuant to the terms of this Agreement:
(a) upon the direction of the Majority Holders, the Collateral Agent shall
exercise the rights and remedies provided in this Section 3 and the rights and
---------
remedies provided in any of the Collateral Documents; and
(b) the Grantors hereby irrevocably constitute and appoint the Collateral
Agent and any officer or agent thereof, with full power of substitution, as
their true and lawful attorney-in-fact with full power and authority in the name
of the Grantors, or either of them, or in its own name, from time to time in the
Collateral Agent's discretion, upon the Collateral Agent's receipt of a Notice
of Actionable Default, for the purpose of carrying out the terms of this
Agreement and any of the Collateral Documents, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary to accomplish the purposes hereof and thereof and, without limiting
the generality of the foregoing, hereby grant the Collateral Agent the power and
right on behalf of the Grantors, or any of them, without notice to or assent by
any of the Grantors, to the extent permitted by applicable law, to do the
following:
(i) to ask for, demand, sue for, collect, receive and give
acquittance of any and all moneys due or to become due with respect to the
Collateral,
(ii) to receive, take, endorse, complete, assign and deliver any and
all checks, notes, drafts, acceptances, stock transfer forms, documents and
other negotiable and nonnegotiable instruments, documents and chattel paper
taken or received by the Collateral Agent in connection with this Agreement
or any of the Collateral Documents,
(iii) to commence, file, prosecute, defend, settle, compromise or
adjust any claim, suit, action or proceeding with respect to the
Collateral,
-7-
<PAGE>
(iv) to sell, transfer, assign or otherwise deal in or with the
Collateral or any part thereof pursuant to the terms and conditions of this
Agreement and the Collateral Documents, and
(v) to do, at its option and at the expense and for the account of
any of the Grantors, at any time or from time to time, all acts and things
which the Collateral Agent deems reasonably necessary to protect or
preserve the Collateral or to realize upon the Collateral.
Notwithstanding anything contained in this Section 3.2 to the contrary, the
Collateral Agent shall be entitled to exercise such rights and remedies in
respect of the Collateral Documents as specifically provided therein during the
occurrence and continuation of the events specified therefor even if no
unwithdrawn Notice of Actionable Default is then in existence.
Section 3.3 Right to Initiate Judicial Proceedings, etc. If and only if
-------------------------------------------
the Collateral Agent shall have received a Notice of Actionable Default and
during such time as such Notice of Actionable Default shall not have been
withdrawn in accordance with the provisions of Section 3.1(b) hereof, (i) the
--------------
Collateral Agent shall have the right and power to institute and maintain such
suits and proceedings as it may deem appropriate to protect and enforce the
rights vested in it by this Agreement and the Collateral Documents, and (ii) the
Collateral Agent may, either after entry or without entry, proceed by suit or
suits at law or in equity to enforce such rights and to foreclose upon the
Collateral, either judicially or non-judicially, and to sell all or, from time
to time, any of the Collateral under the judgment or decree of a court of
competent jurisdiction.
Section 3.4 Appointment of a Receiver. If and only if the Collateral
-------------------------
Agent shall have received a Notice of Actionable Default and during such time as
such Notice of Actionable Default shall not have been withdrawn in accordance
with the provisions of Section 3.1(b) hereof,and if a receiver of the Collateral
--------------
shall be appointed in a judicial proceeding, Bank of America National Trust and
Savings Association or any Affiliate thereof may be appointed as such receiver,
so long as such appointment does not conflict with, and is subject to, its
obligations under this Agreement. Notwithstanding the appointment of a
receiver, the Collateral Agent shall, to the extent permitted by law, be
entitled to retain possession and control of all cash held by or deposited with
it or its agents or co-trustees pursuant to any provision of this Agreement or
any Collateral Document and such cash shall be applied pursuant to Section 4.4
hereof.
Section 3.5 Exercise of Powers. All of the powers, remedies and rights of
------------------
the Collateral Agent as set forth in this
-8-
<PAGE>
Agreement may be exercised by the Collateral Agent in respect of any Collateral
Document as though set forth at length therein and all the powers, remedies and
rights of the Collateral Agent as set forth in any Collateral Document may be
exercised from time to time as herein and therein provided.
Section 3.6 Control by the Majority Holders.
-------------------------------
(a) Subject to Section 3.6(b) of this Agreement, if the Collateral Agent
--------------
shall have received a Notice of Actionable Default and during the period from
such receipt until such Notice of Actionable Default is withdrawn in accordance
with the provisions of Section 3.1(b) hereof, the Majority Holders shall have
--------------
the right, by an instrument in writing executed and delivered to the Collateral
Agent, to direct the Collateral Agent to exercise, or to refrain from
exercising, any right, remedy or power available to or conferred upon the
Collateral Agent hereunder, and in connection therewith, to direct the time,
method and place of conducting any proceeding for any right or remedy available
to the Collateral Agent, or of exercising any trust or power conferred on the
Collateral Agent, or for the appointment of a receiver, or for the taking of any
other action authorized by this Section 3, provided that the Collateral Agent
---------
shall have received adequate security or indemnity as provided in Section 6.3(c)
--------------
of this Agreement.
(b) The Collateral Agent shall not be obligated to follow any written
directions received pursuant to Section 3.6(a) or Section 3.1(b) of this
-------------- --------------
Agreement to the extent the Collateral Agent has received a written opinion of
its counsel, which counsel shall be chosen by the Collateral Agent in its sole
discretion and which counsel may be an employee of the Collateral Agent, to the
effect that such written directions are in conflict with any provisions of law
or this Agreement; provided, however, under no circumstances shall the
-------- -------
Collateral Agent be liable to any Secured Party or any Grantor for following the
written instructions of the Majority Holders pursuant to Section 2.2(a)(ii) or
------------------
3.6(a) herein.
- ------
(c) Nothing in this Section 3.6 shall impair the right of the Collateral
-----------
Agent in its discretion to take or omit to take any action which is deemed
proper by the Collateral Agent and which is consistent with this Agreement and
not inconsistent with any direction of the Majority Holders; provided, however,
-------- -------
the Collateral Agent shall not be under any obligation, as a result of this
Section 3.6, to take any action which is discretionary with the Collateral Agent
- -----------
under the provisions hereof or under any Collateral Document unless so directed
by the Majority Holders.
Section 3.7 Remedies Not Exclusive.
----------------------
-9-
<PAGE>
(a) No remedy conferred upon or reserved to the Collateral Agent herein or
in the Collateral Documents is intended to be exclusive of any other remedy or
remedies, but every such remedy shall be cumulative and shall be in addition to
every other remedy conferred herein or in any of the Collateral Documents or now
or hereafter existing at law or in equity or by statute.
(b) No delay or omission by the Collateral Agent in the exercise of any
right, remedy or power accruing upon any Actionable Default shall impair any
such right, remedy or power or shall be construed to be a waiver of any such
Actionable Default or an acquiescence therein; and every right, power and remedy
given by this Agreement or any Collateral Document to the Collateral Agent may
be exercised from time to time in accordance herewith or therewith and as often
as may be deemed expedient by the Collateral Agent.
(c) In case the Collateral Agent shall have proceeded to enforce any
right, remedy or power under this Agreement or any Collateral Document and the
proceeding for the enforcement thereof shall have been discontinued or abandoned
for any reason or shall have been determined adversely to the Collateral Agent,
then and in every such case the Grantors, the Collateral Agent and the Holders
shall, subject to any effect of or determination in such proceeding, severally
and respectively be restored to their former positions and rights hereunder and
under such Collateral Document with respect to the Collateral and in all other
respects, and thereafter all rights, remedies and powers of the Collateral Agent
shall continue as though no such proceeding had been taken.
(d) All rights of action and rights to assert claims upon or under this
Agreement and the Collateral Documents may be enforced by the Collateral Agent
without the possession of any Debt Agreement or the production thereof in any
trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Collateral Agent shall be brought in its name as Collateral
Agent and any recovery of judgment shall be held as part of the Collateral.
Section 3.8 Waiver of Certain Rights. If and only if the Collateral Agent
------------------------
shall have received a Notice of Actionable Default and during such time as such
Notice of Actionable Default shall not have been withdrawn in accordance with
the provisions of Section 3.1(b) hereof, the Grantors, to the extent they may
--------------
lawfully do so, on behalf of themselves and all who may claim through or under
them, including, without limitation, any and all subsequent creditors, vendees,
assignees and lienors, expressly waive and release any, every and all rights to
demand or to have any marshalling of the Collateral upon any sale, whether made
under any power of sale granted under the Collateral Documents,
-10-
<PAGE>
pursuant to judicial proceedings, or upon any foreclosure or any enforcement of
this Agreement or the Collateral Documents, and consents and agrees that the
Collateral may at any sale be offered and sold as an entirety or otherwise;
provided such sale is conducted in a commercially reasonable manner. To the
- --------
extent permitted by applicable law and except as otherwise expressly provided in
this Agreement or the Finance Agreements, the Grantors hereby waive presentment,
demand, protest or any notice of any kind in connection with this Agreement, any
Collateral or any Collateral Document.
Section 3.9 Limitation on Collateral Agent's Duties in Respect of
-----------------------------------------------------
Collateral. The Collateral Agent shall not have any duty to the Grantors or the
- ----------
Holders with respect to any Collateral in its possession or control or in the
possession or control of its agent or nominee, any income thereon, or the
preservation of rights against prior parties or any other rights pertaining
thereto, beyond its duties set forth in this Agreement and the Collateral
Documents as to the custody and release of the Collateral and the accounting to
the Grantors and the Holders for moneys received by it hereunder. To the
extent, however, that the Collateral Agent or an agent or nominee of the
Collateral Agent maintains possession or control of any of the Collateral or the
Collateral Documents at any office of any of the Grantors, the Collateral Agent
shall, or shall instruct such agent or nominee to, grant the Grantors the access
to such Collateral or Collateral Documents which the Grantors may require for
the conduct of their respective businesses, as permitted by the Finance
Agreements, so long as the Collateral Agent shall not have received a Notice of
Actionable Default which has not been withdrawn in accordance with Section
-------
3.1(b) of this Agreement.
- ------
Section 3.10 Limitation by Law. All the provisions of this Section 3 are
----------------- ---------
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Agreement invalid or unenforceable in whole or in part.
Section 3.11 Absolute Rights of Holders. Notwithstanding any other
--------------------------
provision of this Agreement or any provision of any Collateral Document, but
subject in all cases to the Finance Agreements, the rights of the Majority
Holders under Section 3.6 hereof and the rights of all parties hereto under the
-----------
Bankruptcy Code, neither the right of each Holder, which is absolute and
unconditional, to receive payments of the Obligations held by such Holder on or
after the due date thereof as therein expressed, to institute suit for the
enforcement of such payment on or after such due date, or to assert its position
and views as a secured creditor in, and to otherwise exercise any right (other
than the right to enforce any Lien on the Collateral, which shall in all
circumstances be exercisable only by the Collateral Agent
-11-
<PAGE>
at the direction of the Majority Holders) it may have in connection with a case
under the Bankruptcy Code in which any of the Grantors is a debtor, nor the
obligation of any of the Grantors, which is also absolute and unconditional, to
pay the Obligations owing by the Company to each Holder at the time and place
expressed in the Debt Agreements shall be impaired or affected without the
consent of such Holder.
Section 3.12 Priority of Security. This Agreement and the Collateral
--------------------
Documents are intended to secure the Obligations as provided herein and therein.
SECTION IV
COLLATERAL ACCOUNT;
-------------------
CONTROLLED CASH ACCOUNT; APPLICATION OF MONEYS
----------------------------------------------
Section 4.1 The Collateral Account; Controlled Cash Account. Upon receipt
-----------------------------------------------
of a Notice of Actionable Default (but not before such time as the first such
notice is received) and at all times thereafter until (i) all Notices of
Actionable Default have been withdrawn in accordance with Section 3.1(b) hereof
--------------
or (ii) this Agreement shall have terminated, there shall be established and
maintained with the Collateral Agent an account which shall be entitled the
"Collateral Account" (herein called the "Collateral Account"); it being
------------------ -- -----
understood (A) that such account may, at the election of the Collateral Agent,
- ----------
consist of the lockbox account established and maintained at ANB pursuant to the
Credit Agreement and (B) that automatically on the giving of a Notice of
Actionable Default, Bank of America National Trust and Savings Association, qua
Collateral Agent, shall have exclusive dominion and control of such lockbox
account for the benefit of the Secured Parties and all amounts therein shall be
applied in accordance with this Agreement. All moneys which are received by the
Collateral Agent with respect to the Collateral after the Collateral Agent shall
have received a Notice of Actionable Default which has not been withdrawn in
accordance with the terms of Section 3.1(b) hereof shall be deposited in the
--------------
Collateral Account and thereafter shall be held, applied and/or disbursed by the
Collateral Agent in accordance with the terms of this Agreement. Subject to
Section 4.5 below, all moneys received by the Collateral Agent with respect to
- -----------
all or any part of the Collateral either (x) prior to Collateral Agent's receipt
------
of a Notice of Actionable Default, or (y) after the withdrawal of all pending
--
Notices of Actionable Default in accordance with the terms of Section 3.1(b)
--------------
hereof and prior to Collateral Agent's receipt of any additional Notice of
Actionable Default, shall be delivered to the Company for the benefit of the
Grantors.
-12-
<PAGE>
Section 4.2 Grant of Security Interest; Control of Collateral Account.
---------------------------------------------------------
(a) To secure the prompt and complete payment, when due, of all
Obligations, the Grantors hereby assign and pledge to the Collateral Agent for
the benefit of the Secured Parties and grant to the Collateral Agent for the
benefit of the Secured Parties a security interest in all of the right, title
and interest of the Grantors, or either of them, in and to the following,
whether presently existing or hereafter arising or acquired (the "Liquid
------
Collateral"): the Collateral Account, all cash deposited therein, all
- ----------
certificates and instruments, if any, from time to time representing the
Collateral Account; all investments from time to time made pursuant to Section
-------
4.3 hereof; all notes, certificates of deposit and other instruments from time
- ---
to time hereafter delivered to or otherwise possessed by the Collateral Agent in
substitution for, or in addition to, any or all of the then existing Liquid
Collateral; all interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the then existing Liquid Collateral; and to the
extent not covered above, all Proceeds of any and all collections, earnings and
accruals with respect to any or all of the foregoing (whether the same are
acquired before or after the commencement of a case under the Bankruptcy Code by
or against any of the Grantors as a debtor).
(b) All right, title and interest in and to the Collateral Account shall
vest in the Collateral Agent, for the benefit of the Secured Parties, and funds
on deposit in the Collateral Account and other Liquid Collateral shall
constitute part of the Collateral. The Collateral Account shall be subject to
the exclusive dominion and control of the Collateral Agent, for the benefit of
the Secured Parties.
Section 4.3 Investment of Funds Deposited in Collateral Account. The
---------------------------------------------------
Collateral Agent shall invest and reinvest moneys on deposit (and, in the
Collateral Agent's reasonable judgment, not required to be disbursed in the next
three (3) Business Days) in the Collateral Account at any time in Cash
Equivalents; provided, however, that in order to provide the Holders with a
-------- -------
perfected security interest therein, each such investment shall be either:
(i) evidenced, or deemed under applicable federal regulations to be
evidenced, by negotiable certificates or instruments or nonnegotiable
certificates or instruments issued in the name of the Collateral Agent,
which (together with any appropriate instruments of transfer) are delivered
to, and held by, the Collateral Agent or an agent thereof
-13-
<PAGE>
(which shall not be any of the Grantors or any of their respective
Affiliates) in California; or
(ii) in book-entry form and issued in the State of California and in
which (in the opinion of independent counsel to the Collateral Agent) the
Collateral Agent shall have a perfected ownership or security interest
which under applicable law shall not be subject to any other ownership or
security interest.
All such investments and the interest and income received thereon and therefrom
and the net proceeds realized on the sale thereof shall be held in the
Collateral Account as part of the Collateral. Nothing herein shall obligate the
Collateral Agent to invest any Collateral in a manner that maximizes the rate of
return thereon or obtain any particular return thereon.
Section 4.4 Application of Moneys In Collateral Account.
-------------------------------------------
(a) (i) Subject to Section 4.1 hereof, all moneys held by the Collateral
-----------
Agent in the Collateral Account shall, to the extent available for distribution,
be distributed by the Collateral Agent on the applicable Distribution Date, as
follows:
FIRST: To the Collateral Agent in an amount up to the Collateral
Agent's Fees which are unpaid as of such Distribution Date, and to any
Secured Party which has theretofore advanced or paid any such Collateral
Agent's Fees in an amount equal to the amount thereof so advanced or paid
by such Secured Party prior to such Distribution Date; provided, however,
-------- -------
that nothing herein is intended to relieve any of the Grantors of their
respective obligations to pay such costs, fees, expenses and liabilities
from funds outside of the Collateral Account;
SECOND: To (A) the Agent, for itself, the Banks and the Issuing Bank;
and (B) the Noteholders, ratably up to and in accordance with their
respective amounts of all unpaid costs and expenses incurred (1) in the
case of the Banks, the Issuing Bank and the Agent, in connection with
performing their respective duties under the Credit Agreement, including
without limitation those related to the administration and enforcement of
the Credit Agreement, and (2) in the case of the Noteholders, in connection
with the administration and enforcement of the Note Agreement;
THIRD: To the Noteholders and the Agent for the benefit of the Banks
and the Issuing Bank, ratably in accordance with the principal and accrued
interest and other Obligations then owing to each of them under the Note
Agreement and the Credit Agreement, respectively; it being
-- -----
-14-
<PAGE>
understood that in the case of outstanding undrawn Letters of Credit, such
----------
Letters of Credit shall, for purposes of calculating the ratable sharing
under this clause THIRD, be deemed to be drawn and unreimbursed;
FOURTH: Any surplus then remaining shall be paid to the Grantors or
their respective successors or assigns.
(b) In the event any of the Obligations are not due and payable on any
Distribution Date, the Company shall be deemed for purposes of the distribution
made on such Distribution Date to have an obligation to make a prepayment of
such Obligation, or, with respect to Letter of Credit Obligations, at the option
of the Majority Banks, to provide cash collateral, in each case, in the amount
of such Obligations. The amount distributed with respect to an obligation to
provide cash collateral for outstanding undrawn Letters of Credit shall (i) be
held by the Collateral Agent subject to the provisions of this Section 4.4(b),
--------------
as cash collateral for such Letters of Credit and (ii) subject to the pro rata
distribution requirements of clause THIRD in Section 4.4(a). The Company shall
--------------
be deemed for purposes of the distribution made on such Distribution Date to
have an obligation to provide cash collateral in an amount equal to the maximum
amount of the outstanding undrawn Letters of Credit. Upon the expiration of, or
draw upon, the last remaining theretofore undrawn Letter of Credit for which
amounts were received or held by the Collateral Agent for the benefit of the
Issuing Bank, any amounts received or held by the Collateral Agent in respect of
undrawn Letters of Credit which expired without having been drawn upon shall be
distributed to the Noteholders and the Agent for the benefit of the Banks and
the Issuing Bank, ratably in accordance with the then remaining unpaid principal
and interest and other Obligations owing to each of them under the Note
Agreement and the Credit Agreement, respectively.
Section 4.5 Application of Net Proceeds. All moneys received or held by
---------------------------
the Collateral Agent as Net Proceeds, shall, to the extent available for
distribution, be distributed by the Collateral Agent, as follows:
FIRST: To the Collateral Agent in an amount up to the Collateral
Agent's Fees which are unpaid as of the date of distribution thereof, and
to any Secured Party which has theretofore advanced or paid any such
Collateral Agent's Fees in an amount equal to the amount thereof so
advanced or paid by such Secured Party prior to such date of distribution;
provided, however, that nothing herein is intended to relieve any of the
-------- -------
Grantors of their respective
-15-
<PAGE>
obligations to pay such costs, fees, expenses and liabilities from funds
outside of the Collateral Account;
SECOND: To (A) the Agent, for itself, the Banks and the Issuing Bank,
and (B) the Noteholders, ratably up to and in accordance with their
respective amounts of all unpaid costs and expenses incurred (1) in the
case of the Banks, the Issuing Bank and the Agent, in connection with
performing their respective duties under the Credit Agreement, including
without limitation those related to the administration and enforcement of
the Credit Agreement, and (2) in the case of the Noteholders, in connection
with the administration and enforcement of the Note Agreement; and
THIRD: To the Noteholders and the Agent for the benefit of the Banks,
ratably in accordance with (i) the principal and accrued interest and other
Obligations under the Note Agreement then owing to each of the Noteholders
and (ii) the Commitments of each of the Banks then in existence under the
Credit Agreement.
SECTION V
AGREEMENTS WITH COLLATERAL AGENT
--------------------------------
Section 5.1 Delivery of Debt Agreements. On the date of this Agreement
---------------------------
the Grantors will deliver to the Collateral Agent true and complete copies of
the Debt Agreements and the Collateral Documents. The Grantors agree that,
promptly upon the execution thereof, the Grantors will deliver to the Collateral
Agent a true and complete copy of any and all other Debt Agreements, Collateral
Documents and all amendments, restatements, modifications or supplements to any
Debt Agreements or Collateral Documents entered into by the Grantors subsequent
to the date of this Agreement. Each of the Agent and the Noteholders agree to
promptly notify the Collateral Agent of each amendment, restatement,
modification or supplement to the Credit Agreement or the Note Agreement,
respectively, executed from time to time after the date hereof.
Section 5.2 Information as to Holders. The Company agrees that it shall
-------------------------
deliver to the Collateral Agent for the benefit of each Holder within thirty
(30) days following the end of each fiscal year of the Company, commencing with
the fiscal year ending October 31, 1996 and from time to time upon the
reasonable request of the Collateral Agent, a list setting forth, with respect
to each of the Finance Agreements, (i) the aggregate principal amount
outstanding thereunder, (ii) the interest rate or rates then in effect
thereunder, (iii) each Bank's Commitment
-16-
<PAGE>
(to the extent known to the Company) the names and mailing addresses of each of
the Banks and the unpaid principal amount thereof owing to each Bank, and (iv)
with respect to the Note Debt, the name and mailing address of each Noteholder
and the principal amount owing to each. The Company will furnish to the
Collateral Agent on the date of this Agreement a list setting forth the name and
address of each party to whom notices must be sent under or with respect to each
of the Finance Agreements, and the Company agrees to furnish promptly to the
Collateral Agent any changes or additions to such list to the extent the Company
acquires knowledge thereof. With respect to information relating to the Note
Agreement and the Note Debt, the Collateral Agent may request verification of
such information from the Noteholders. With respect to information relating to
the Credit Agreement or the Banks, the Collateral Agent may request verification
of such information from the Agent.
Section 5.3 Expenses.
--------
(a) Except as otherwise provided in Section 5.3(b) below, the Company
--------------
shall pay or reimburse the Collateral Agent within five (5) Business Days after
the Company's receipt of demand therefor for all Attorney Costs and out-of-
pocket costs and expenses:
(i) incurred by the Collateral Agent or any of the Secured Parties
in connection with the administration of this Agreement and the other
Collateral Documents or the Finance Agreements and the development,
preparation, delivery, and execution of any amendment, supplement, waiver
or modification of this Agreement or any of the Collateral Documents or the
Finance Agreements and any other documents prepared in connection herewith
or therewith;
(ii) incurred by the Collateral Agent or any of the Secured Parties
in connection with the enforcement, attempted enforcement, or preservation
of any rights or remedies (including in connection with any "workout" or
restructuring regarding the Collateral Documents or the Finance Agreements,
and including in any Insolvency Proceeding or appellate proceeding) under
this Agreement or any Collateral Document or the Finance Agreements; and
(iii) incurred by the Collateral Agent in performing its duties
hereunder.
(b) Demands by the Collateral Agent for payment or reimbursement of any
costs and expenses referred to in this Section 5.3 or any other provision of
-----------
this Agreement or any of the other Collateral Documents or the Finance
Agreements shall be
-17-
<PAGE>
accompanied by a customary invoice which shall, in the discretion of the
Collateral Agent or the Secured Party requesting reimbursement or payment, as
the case may be, be subject to redacting. The Company will not dispute the
payment or reimbursement of costs and expenses incurred by the Collateral Agent
for outside consultants, appraisers, auditors or attorneys provided the
Collateral Agent has engaged and paid such Person in accordance with the same
standards and practices used for engaging and paying professionals for similar
engagements. In the event the Company shall dispute the fact that such a
standard for engagement and payment has been applied, the Company shall so
notify the Collateral Agent and shall nonetheless pay to the Collateral Agent
the amounts due on a timely basis whereupon such amounts will be held in escrow
by the Collateral Agent. A payment deposited into escrow pursuant to this
Section 5.3(b), to the extent it is the full amount owed under Section 5.3(a),
- -------------- --------------
shall be deemed a payment in full of such amount owed under Section 5.3(a). The
--------------
Collateral Agent shall be entitled to apply any such amounts held in escrow if
the Company does not commence the dispute resolution process provided for in
Section 5.9 on or before the thirtieth day after such amounts have been paid to
- -----------
the Collateral Agent. If the Company commences such proceedings within such 30
day period, the disputed amounts held in escrow by the Collateral Agent pursuant
to this Section 5.3(b) shall be disposed of in accordance with the determination
--------------
made in such proceedings.
Section 5.4 Stamp and Other Similar Taxes. The Grantors jointly and
-----------------------------
severally agree to indemnify and hold harmless the Collateral Agent from, and
shall reimburse the Collateral Agent for, any present or future claim for
liability for any stamp or other similar tax and any penalties or interest with
respect thereto, which may be assessed, levied or collected and required to be
paid by any jurisdiction and required to be paid in connection with this
Agreement, any Collateral Document, the Collateral, or the attachment or
perfection of the security interest granted to the Collateral Agent in any
Collateral.
Section 5.5 Filing Fees, Excise Taxes etc. The Grantors jointly and
------------------------------
severally agree to pay or to reimburse the Collateral Agent-Related Persons for
any and all amounts in respect of all search, filing, recording and registration
fees, taxes, excise taxes and other similar imposts which may be payable or
determined to be payable in respect of the execution, delivery, performance,
administration and enforcement of this Agreement and each Collateral Document
and agrees to save the Collateral Agent-Related Persons harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
-18-
<PAGE>
Section 5.6 Indemnification. Subject to the provisions of subsection
---------------
5.6(f) hereof:
(a) The Company shall pay, indemnify, and hold the Collateral Agent-
Related Persons, each Secured Party and their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
------------------
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, reasonable costs, charges, expenses or
disbursements (including Attorney Costs) of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement and any other Collateral Documents or the Finance Agreements,
or the transactions contemplated hereby and thereby, and with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to this Agreement or use of any proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the Company shall
----------------------- --------
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities arising from (i) the gross negligence or willful
misconduct of such Indemnified Person or (ii) to any Secured Party (other than
the Collateral Agent qua "Collateral Agent") for damages, penalties, actions,
judgments or suits owing to or instituted by another Secured Party.
(b) All amounts owing under Sections 5.4, 5.5 and 5.6 shall be paid within
------------ --- ---
30 days after demand. As security for such payments under such Sections, the
Collateral Agent for the benefit of itself and the other Secured Parties shall
have a Lien prior to any other Obligations upon all Collateral and other
property and funds held or collected by the Collateral Agent as part of the
Collateral. The obligations in Sections 5.4, 5.5 and 5.6(a) shall survive
------------ --- ------
payment of all Obligations. However, survival of any of the obligations of the
Company under Sections 5.4, 5.5 and 5.6(a) shall not impair the obligation of
------------ --- ------
the Collateral Agent to release the Collateral upon the terms and conditions set
forth herein as long as no claim under Section 5.4, 5.5 or 5.6 has been
----------- --- ---
asserted. If any such claim is asserted, the Collateral Agent shall maintain a
security interest in Collateral with sufficient value to satisfy such claim, as
reasonably determined by the Collateral Agent.
(c) Each of the Secured Parties agrees to indemnify the Collateral Agent-
Related Persons, ratably in accordance with the amount of the Obligations held
by such Secured Party to the extent not reimbursed by the Company or any Grantor
or out of any Proceeds for any and all Indemnified Liabilities (except to the
extent relating solely to the Finance Agreements), provided, however, (i) that
-------- -------
no such party shall be liable for any of the
-19-
<PAGE>
foregoing to the extent they arise solely from the gross negligence or willful
misconduct of the Collateral Agent-Related Persons and (ii each indemnifying
Secured Party shall have a right of subrogation as against the Company and the
Grantors to the extent of such indemnification which shall be included in the
determination of Obligations owed to it.
(d) To assert an indemnity claim against the Company under this Section
-------
5.6, an Indemnified Person shall notify the Company in writing as soon as
- ---
reasonably practicable under the circumstances (provided that upon the
Collateral Agent's receipt of any service of process which would cause the
Collateral Agent to assert an indemnity claim under this Section 5.6, the
-----------
Collateral Agent shall notify the Company in writing no later than ten (10) days
after receipt of such service of process thereof), stating the facts which
entitle such Indemnified Person to make a claim for indemnification; provided
that the failure to so notify the Company in writing as soon as reasonably
practicable under the circumstances shall void the related indemnity claim (and
thereby proportionately reduce the amount payable in respect thereof) only to
the extent the Company was prejudiced thereby.
(e) The Company shall, at its own cost, expense and risk:
(i) defend all suits, actions or other legal or administrative
proceedings that may be threatened, brought or instituted against such
Indemnified Person on account of any matter or matters described in this
Section 5.6;
-----------
(ii) pay or satisfy any judgment, decree or settlement that may be
tendered against such Indemnified Person in any such suit, action or other
legal or administrative proceeding, provided such Indemnified Person has
given notice in accordance herewith; and
(iii) reimburse such Indemnified Person for any and all reasonable
attorney costs, including, without limitation, all Attorney Costs incurred
in connection with any of the matters described in this Section 5.6 or in
-----------
connection with enforcing the indemnification hereunder, all in accordance
with the provisions of Section 5.3 herein.
-----------
(f) Any law firm selected by the Company to defend an indemnified claim
which is an Indemnified Liability shall be subject to the reasonable approval of
the applicable Indemnified Person, which approval shall not be unreasonably
withheld or delayed; provided that upon thirty (30) days prior written notice,
--------
the Indemnified Person who is the subject of such indemnified claim which is an
Indemnified Liability may elect to defend, using a law firm selected by such
Indemnified Person,
-20-
<PAGE>
subject to the reasonable approval of the Company (which approval shall not be
unreasonably withheld or delayed), any such claim, loss, action, legal or
administrative proceeding at the cost and expense of the Company, if, in the
reasonable judgment of such Indemnified Person:
(i) the defense is not proceeding or being conducted in a
professional manner; or
(ii) there is a conflict of interest between the Indemnified Person
and the Company relating to such lawsuit, action, legal or administrative
hearing.
(g) If any Indemnified Person exercises its right to designate counsel
pursuant to subsection (f), all costs and expenses thereof shall be paid by the
Company in accordance with Section 5.3 herein.
-----------
Section 5.7 Further Assurances.
------------------
(a) The Grantors will promptly disclose to the Collateral Agent and
correct any material defect or error that may be discovered in any material
written information, exhibits or reports furnished to the Holders or the
Collateral Agent or in any Collateral Document or in the execution,
acknowledgement or recordation thereof.
(b) Promptly upon request by the Collateral Agent, the Grantors shall (and
shall cause any of their respective Domestic Subsidiaries to) do, execute,
acknowledge, deliver, record, rerecord, file, refile, register and reregister,
any and all such further acts, deeds, conveyances, security agreements,
mortgages, assignments, estoppel certificates, financing statements and
continuations thereof, termination statements, notices of assignment, transfers,
certificates, assurances and other instruments the Collateral Agent may
reasonably require from time to time in order (i) to grant to the Collateral
Agent a valid and perfected lien in accordance with the Collateral Documents on
the Collateral, (ii) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents, and the liens intended to be
created thereby, and (iii) to convey, grant, assign, transfer, preserve, protect
and confirm to the Collateral Agent the rights granted or now or hereafter
intended to be granted to the Holders or the Collateral Agent under any
Collateral Document.
Section 5.8 Information Sharing. (a) In accordance with the terms and
-------------------
conditions of Section 7.10 of the Credit Agreement, Agent, Banks and their
------------
agents are permitted access to the Grantors' books and records and may make site
visits pursuant to such Sections. For so long as the Credit Agreement is in
effect,
-21-
<PAGE>
each of the Banks and the Agent hereby agree to make available to Noteholders
(who make a request in accordance with this Section) information in its
possession (exclusive of Proprietary Information) obtained from the Company
through such access and site visits within the 12 consecutive calendar month
period most recently ended, provided that the Agent or the relevant Bank
receives a written request for such information from the Noteholders holding at
least twenty five percent (25%) of the principal amount of the outstanding
Notes. Additionally, as long as the Note Agreement is in effect, each Noteholder
agrees to make available information to the Agent and any Bank who specifically
request information (exclusive of Proprietary Information) obtained by such
Noteholder from the Company under Section 6.6 or 6.7 of the Note Agreement
----------- ---
within the 12 consecutive calendar month period most recently ended, provided
such Noteholder receives a written request for such information from the Banks
holding, individually or collectively, at least 25% of the principal amount of
the outstanding Loans (as defined in the Credit Agreement) (or Commitments (as
defined in the Credit Agreement) if no Loans (as defined in the Credit
Agreement) are then outstanding).
(b) Any Secured Party providing information pursuant to this Section shall
not be deemed to be making any representation or warranty regarding the veracity
or completeness of such information, and such party shall not be responsible to
any other Secured Party for the validity, effectiveness, genuineness or
sufficiency thereof. Any Secured Party requesting information pursuant to this
Section shall indemnify, and the Company and the other Grantors shall release,
the Secured Party providing such information, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
costs, charges, expenses or disbursements (including Attorney Costs) of any kind
or nature whatsoever that may be imposed on, incurred by or asserted against the
Secured Party providing such information in any way relating to compliance with
any request under this Section and with respect to any investigation, litigation
or proceeding (including any Insolvency Proceeding or appellate proceeding)
related to compliance with any request under this Section, whether or not the
indemnified Secured Party is a party thereto, provided, however, that no such
-------- -------
indemnifying party shall be liable for any of the foregoing to the extent they
arise solely from the gross negligence or willful misconduct of the indemnified
party. Notwithstanding anything to the contrary in the Finance Agreements, the
Company consents to the information sharing arrangement provided for in this
Section.
Section 5.9 Dispute Resolution Mechanism for Certain Matters. Any
------------------------------------------------
controversy, dispute or claim arising out of or in connection with the
determination of whether the Collateral Agent shall have used its standard
procedures and practices for
-22-
<PAGE>
engaging and paying any professional as provided in Section 5.3 herein, shall be
-----------
settled at the request of any party to this Agreement by final and binding
arbitration conducted at a location determined by an arbitrator in Chicago,
Illinois by and in accordance with the then existing Rules of Practice and
Procedure of Judicial Arbitration & Mediation Services, Inc., and judgment upon
any decision rendered by the arbitrator may be entered by any state or federal
court having jurisdiction. The arbitrator shall determine which is the
prevailing party and the non-prevailing party shall pay the reasonable costs and
expenses, including attorneys' costs and fees, incurred by the parties in
connection with such arbitration.
SECTION VI
THE COLLATERAL AGENT
--------------------
Section 6.1 Exculpatory Provisions.
----------------------
(a) The Collateral Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the Collateral Documents, and
the Collateral Agent shall not by reason of this Agreement or the Collateral
Documents be a trustee for any Holder or have any other fiduciary obligation to
any other Holder (including any obligation under the Trust Indenture Act of
1939, as amended). The Collateral Agent shall not be responsible to any Secured
Party for any recitals, statements, representations or warranties contained in,
or made in connection with any agreement or notes evidencing any of the
Obligations, or the Debt Agreements or in any certificate or other document
referred to or provided for in, or received by any of them, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any of
the Debt Agreements, or any other document referred to therein or any lien under
the Collateral Documents, or the perfection or priority of any such lien or for
any failure by any party to any such agreement to perform any of its respective
obligations under any of the Debt Agreements. None of the Collateral Agent-
Related Persons shall be liable or responsible for any action taken or omitted
to be taken by it or them hereunder or in connection herewith, except for its or
their own gross negligence or willful misconduct. The Collateral Agent shall
not be responsible for insuring the Collateral or for the payment of taxes,
charges, assessments of liens upon the Collateral or otherwise as to the
maintenance of the Collateral.
(b) From time to time, upon request by the Collateral Agent, each of the
Secured Parties will promptly notify the Collateral Agent of the aggregate
amount of the outstanding
-23-
<PAGE>
Obligations owing to each of them as at such date as the Collateral Agent may
specify and of any payment received by them to be applied to the Obligations
owing to them.
(c) Subject to the provisions of the Collateral Documents concerning the
Collateral Agent's duty of care with respect to certificates evidencing the
Pledged Shares in the Collateral Agent's possession, the Collateral Agent shall
not be personally liable for any acts, omissions, errors of judgment or mistakes
of fact or law made, taken or omitted to be made or taken by it in accordance
with this Agreement or any Collateral Document (including, without limitation,
acts, omissions, errors or mistakes with respect to the Collateral), except for
those arising out of or in connection with the Collateral Agent's gross
negligence or willful misconduct. Notwithstanding anything set forth herein to
the contrary, the Collateral Agent shall have a duty of reasonable care with
respect to any "instruments" (as defined in Section 9-105 of the U.C.C.),
documents or other items which are delivered to the Collateral Agent or its
designated representatives as part of the Collateral and are in the Collateral
Agent's or its designated representatives' possession and control.
Section 6.2 Delegation of Duties. The Collateral Agent may perform any
--------------------
duty hereunder either directly or by or through agents, nominees or attorneys-
in-fact, which may include employees or officers of the Company. The Collateral
Agent shall be entitled to advice of counsel concerning all matters pertaining
to such duties.
Section 6.3 Reliance by Collateral Agent.
----------------------------
(a) The Collateral Agent may consult with its counsel, accountants or
other experts in connection with the fulfillment of its duties hereunder, and
the Collateral Agent shall be entitled to rely on the opinion of such counsel,
accountants or other experts in connection with any action taken, omitted to be
taken or suffered by Collateral Agent in fulfilling its duties hereunder.
(b) The Collateral Agent may rely, and shall be fully protected in acting,
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order, bond or other paper or document which it has no
reason to believe to be other than genuine and to have been signed or presented
by the proper party or parties or, in the case of cables, telecopies and
telexes, to have been sent by the proper party or parties, including, for the
purpose of identifying the Majority Holders and the amounts of Obligations, the
Holders thereof and Commitments held by them and the information provided by the
Grantors and the Agent and the Noteholders to the Collateral
-24-
<PAGE>
Agent pursuant to Section 5.2 of this Agreement. In the absence of its gross
-----------
negligence or willful misconduct, the Collateral Agent may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Collateral Agent and
conforming to the requirements of this Agreement or any Collateral Document.
(c) If the Collateral Agent has been requested to take action pursuant to
Section 2.2 or Section 3.6 of this Agreement, the Collateral Agent shall not be
- ----------- -----------
under any obligation to exercise any of the rights vested in the Collateral
Agent by this Agreement or any Collateral Document unless the Collateral Agent
shall have been provided adequate security and indemnity (as and when required
herein) against the costs, expenses and liabilities which may be incurred by it
in compliance with such request or direction, including such reasonable advances
as may be requested by the Collateral Agent.
(d) The Collateral Agent shall treat the Holder of any Note registered
with the Company as the absolute owner thereof for all purposes hereunder and
shall not be affected by any notice to the contrary, whether such Note shall be
past due or not.
(e) Any Person who shall be designated as the duly authorized
representative of one or more Holders to act as such in connection with any
matters pertaining to this Agreement or any Collateral Document or the
Collateral shall present to the Collateral Agent such documents, including,
without limitation, opinions of counsel, as the Collateral Agent may reasonably
request, in order to demonstrate to the Collateral Agent the authority of such
Person to act as the representative of such Holder(s); provided that, unless the
-------- ----
Collateral Agent has received a prior written notice to the contrary from any
Bank, the Collateral Agent may conclusively presume that the Agent is the duly
authorized representative of all Banks.
Section 6.4 Limitations on Duties of Collateral Agent.
-----------------------------------------
(a) The Collateral Agent shall be obliged to perform such duties and only
such duties as are specifically set forth in this Agreement or in any Collateral
Document, and no implied covenants or obligations shall be read into this
Agreement or any Collateral Document against the Collateral Agent. The
Collateral Agent shall, upon receipt of a Notice of Actionable Default and
during such time as such Notice of Actionable Default shall not have been
withdrawn in accordance with the provisions of Section 3.1(b) hereof, exercise
--------------
the rights vested in it by this Agreement or by any Collateral Document, and the
Collateral Agent shall not be liable with respect to any action taken or omitted
by it in
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<PAGE>
accordance with the direction of the Majority Holders pursuant to Section 2.2 or
-----------
3.6 of this Agreement.
- ---
(b) Except as herein otherwise expressly provided, including, without
limitation, upon the written request of the Majority Holders pursuant to Section
-------
2.2 or 3.6 of this Agreement, the Collateral Agent shall not be under any
- --- ---
obligation to take any action which is discretionary with the Collateral Agent
under the provisions hereof or under any Collateral Document. The Collateral
Agent shall furnish to each Holder promptly upon receipt thereof a copy of each
certificate or other paper furnished to the Collateral Agent by any of the
Grantors under or in respect of this Agreement, any Collateral Document or any
of the Collateral, unless by the express terms of any Collateral Document a copy
of the same is required to be furnished by some other Person directly to the
Holders, or the Collateral Agent shall have determined that the same has already
been so furnished; provided, however, that the Collateral Agent shall have no
-------- -------
liability for its inadvertent failure to furnish any such Person with any such
copies and the Collateral Agent shall not be required to furnish copies of
documents which are not material unless reasonably requested to do so by a
Holder.
Section 6.5 Moneys To Be Held in Trust. All moneys received by the
--------------------------
Collateral Agent under or pursuant to any provision of this Agreement or any
Collateral Document shall be held in trust for the purposes for which they were
paid or are held. No other fiduciary duty or relationship is created or
intended between the parties hereto.
Section 6.6 Resignation and Removal of the Collateral Agent.
-----------------------------------------------
(a) The Collateral Agent may resign at any time by giving at least 30
days' written notice thereof to the other Holders and to the Grantors (such
resignation to take effect as hereinafter provided), and the Collateral Agent
may be removed at any time by the Majority Holders. In the event of any such
resignation or removal of the Collateral Agent, the Majority Holders shall
thereupon have the right to appoint a successor Collateral Agent, which
successor Collateral Agent shall, if no Notice of Actionable Default shall have
been given and not withdrawn, be subject to the prior approval of the Grantors,
which approval shall not be unreasonably withheld. If no successor Collateral
Agent shall have been so appointed by the Majority Holders and shall have
accepted such appointment within 30 days after the notice of the intent of the
Collateral Agent to resign, then the retiring Collateral Agent may, on behalf of
the Secured Parties, appoint a successor Collateral Agent. Any successor
Collateral Agent appointed pursuant to this clause (a) shall be either a Holder
or a commercial bank organized under the laws of the
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<PAGE>
United States of America or any state thereof and having a combined capital and
surplus of at least $100,000,000.
(b) Upon the acceptance of any appointment as Collateral Agent hereunder
by a successor Collateral Agent, such successor Collateral Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Collateral Agent, and the retiring or removed
Collateral Agent shall pay over to the successor Collateral Agent all Collateral
and Proceeds thereof which it holds and thereupon be discharged from its duties
and future obligations hereunder. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
Sections 5 and 6 shall continue in effect for its benefit in respect of any
- ---------- -
actions taken or omitted to be taken by it while it was acting as the Collateral
Agent.
Section 6.7 Secured Parties in Individual Capacities. Each of the Secured
----------------------------------------
Parties and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or other
business with the Company and its Subsidiaries and Affiliates as though such
Secured Party were not a "Secured Party" hereunder and without notice to or
consent of the Holders. The Holders acknowledge that, pursuant to such
activities, each Secured Party or its Affiliates may receive information
regarding the Company or its Affiliates (including information that may be
subject to confidentiality obligations in favor of the Company or such
Affiliate) and acknowledge that such Secured Party shall be under no obligation,
except as expressly provided hereunder with respect to information obtained
pursuant to the Debt Agreements, to provide such information to them.
SECTION VII
RELEASE OF COLLATERAL
---------------------
Section 7.1 Conditions to Release.
---------------------
(a) Subject to this Section 7.1(a) and to Section 7.2(a), all of the
-------------- -------------- ---
Collateral shall be released on the date (the "Collateral Agency Agreement
---------------------------
Termination Date") which shall be the earlier of:
- ----------------
(i) the date on which all of the principal, interest, fees, costs and
expenses and indemnities (then determinable) and other Obligations owing
under the Debt Agreements, including, without limitation, all accrued and
unpaid
-27-
<PAGE>
Collateral Agent's Fees, shall have been paid in full (subject to the
survival of indemnities under Section 5.6(b) hereof, under Sections 11.7
--------------
and 12.5 of the Credit Agreement and under the Note Agreement) and the
Commitments of the Banks shall have been terminated pursuant to the terms
of the Credit Agreement and no Letters of Credit shall be outstanding; or
(ii) the date on which (A) the Company shall have received written
instructions from all of the Holders instructing the Company to direct the
Collateral Agent to release the Collateral, and (B) accrued and unpaid
Collateral Agent's Fees shall have been paid in full.
(b) Each of the Collateral Agent and the Holders agrees that it, or its
designated agent, shall promptly provide on the written request of the Company,
payoff letters setting forth the determinable amounts for the items described in
clause (a)(i) above and, upon payment of such amounts, all certificates and
notices to the Collateral Agent required pursuant to Section 7.2(a).
--------------
(c) If any payment or transfer of any interest in property by any Grantor
to the Collateral Agent or any other Secured Party in fulfillment of any
Obligation is rescinded or must at any time (including after the Collateral
Agency Agreement Termination Date) be returned, in whole or in part, by the
Collateral Agent or any other Secured Party to the Company or any other Person,
upon the insolvency, bankruptcy or reorganization of the Company or otherwise,
the provisions of this Agreement and the other Collateral Documents shall be
reinstated with respect to any such payment or transfer, regardless of any prior
return of Collateral or cancellation or termination of any Lien in respect
thereof.
Section 7.2 Procedure for Release. The procedure for release of the
---------------------
Collateral shall be as set forth in Section 7.2(a) or Section 7.4 of this
-------------- -----------
Agreement, as applicable.
(a) Discharge Notice.
----------------
(i) Upon the occurrence of the Collateral Agency Agreement
Termination Date, the Company shall deliver to the Collateral Agent (A) a
Discharge Notice, together with (B) certificates from the Agent and each
Noteholder certifying that one of the events described in Sections
--------
7.1(a)(i) and (ii) have occurred.
--------- ----
(ii) After receipt by the Collateral Agent of a Discharge Notice
certifying that one of the events set forth in Section 7.1(a)(i) or Section
----------------- -------
7.1(a) (ii) of this Agreement has occurred, together with such certificates
------
as
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<PAGE>
are required by Section 7.2(a)(i), the Collateral Agent shall, to the
-----------------
extent requested by the Company, promptly take the actions set forth in
Sections 7.3(a) and (b) of this Agreement.
--------------- ---
(b) Intentionally omitted.
Section 7.3 Effective Time of Release.
-------------------------
(a) In the event that the provisions of Section 7.2 of this Agreement are
-----------
applicable, the Collateral Agent shall promptly release the Collateral effective
with the occurrence of the Collateral Agency Agreement Termination Date. The
Collateral Agent shall promptly notify the Company and the Holders, in the
manner specified in Section 8.2 of this Agreement, on receipt of a Discharge
-----------
Notice.
(b) When the release of any of the Collateral is effective, all right,
title and interest of the Collateral Agent and the Secured Parties in, to and
under such Collateral and the Collateral Documents with respect to such
Collateral shall terminate and shall revert to the Grantors or their respective
successors and assigns, and the estate, right, title and interest of the
Collateral Agent and the Secured Parties therein shall thereupon cease,
terminate and become void. In such case, the Grantors shall deliver to the
Collateral Agent one or more instruments of discharge, satisfaction and release
in form reasonably satisfactory to the Collateral Agent, and, at the cost and
expense of the Company or its successors or assigns, the Collateral Agent shall
execute a discharge, satisfaction or release of such Collateral Documents and
such instruments as are necessary or desirable to terminate and remove of record
any documents constituting public notice of such Collateral Documents and the
Liens and assignments granted thereunder and shall assign and transfer, or cause
to be assigned and transferred, and shall deliver or cause to be delivered to
each of the Grantors, all such property, including all moneys, instruments and
securities of each Grantor, then held by the Collateral Agent. The cancellation
and satisfaction of such Collateral Documents shall be without prejudice to the
rights of the Collateral Agent or any successor Collateral Agent to charge and
be reimbursed for any expenditures which it may thereafter incur in connection
with this Section 7.3.
-----------
Section 7.4 Release of Certain Collateral. To the extent that (a) the
-----------------------------
Majority Holders, at the request of the Company, instruct the release of
specified portions of the Collateral pursuant to Section 2.2 of this Agreement,
-----------
or (b) the security interest in any Collateral granted pursuant to any of the
Collateral Documents is otherwise terminated or released as required by law or
in accordance with the terms thereof upon the
-29-
<PAGE>
Disposition of any part of the Collateral as permitted by such Collateral
Document and both of the Finance Agreements, all right, title and interest of
the Collateral Agent in, to and under such Property and the security interest of
the Collateral Agent therein shall terminate and shall revert to the applicable
Grantor or its successors assigns, and the estate, right, title and interest of
the Collateral Agent therein shall thereupon cease, terminate and become void.
The Company's request for any such release shall be accompanied by a written
certification by the Company, in form reasonably satisfactory to the Collateral
Agent, that, as of the date of such release, no Actionable Default has occurred
and is continuing. Following such request, instructions or other termination or
release, the Collateral Agent shall, upon the written request of the Company,
its successors or assigns and at the cost and expense of such Grantor or its
successors or assigns, execute such instruments and take such other actions as
are necessary to terminate any such security interest and otherwise effectuate
the release of the specified portions of the Collateral from the lien of such
security interest. Such termination and release shall be without prejudice to
the rights of the Collateral Agent or any successor collateral agent to charge
and be reimbursed for any expenditures which it may thereafter incur in
connection with this Section 7.4.
-----------
SECTION VII
MISCELLANEOUS
-------------
Section 8.1 Amendments, Supplements, and Waivers.
------------------------------------
(a) The Collateral Agent, the Majority Holders and the Grantors may, from
time to time, enter into written agreements supplemental hereto for the purpose
of adding to or waiving any provision of this Agreement or any of the Collateral
Documents or amending the definition of any capitalized term used herein or
therein, as such capitalized term is used herein or therein, or changing in any
manner the rights of the Collateral Agent, the Holders or the Grantors hereunder
or thereunder; provided, however, that no such supplemental agreement shall:
-------- -------
(i) amend, modify or waive any provision of Section 7 or this Section
--------- -------
8.1 without the written consent of each Holder;
---
(ii) reduce the percentage specified in the definition of Majority
Holders without the written consent of each of the Holders; or
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<PAGE>
(iii) amend, modify or waive any provision of Section 4.4 of this
-----------
Agreement or the definition of the term Obligations without the written
consent of any Secured Party whose rights would be adversely affected
thereby; provided that this clause (iii) shall not apply to any such
--------
amendment or modification which only adds additional obligations of the
Grantors to the definition of "Obligations"; or
(iv) be effective without the written consent of the Collateral
Agent and the Grantors.
Any such supplemental agreement shall be binding upon the Grantors, the Holders
and the Collateral Agent and their respective successors and assigns. The
Collateral Agent shall not enter into any such supplemental agreement unless it
shall have received a certificate signed by an Authorized Officer of the Company
to the effect that such supplemental agreement will not result in a breach of
any provision or covenant contained in any of the Debt Agreements. Prior to
executing any amendment pursuant to the terms of this Section 8.1(a), the
--------------
Collateral Agent shall be entitled to receive an opinion of counsel to the
effect that the execution of such document is authorized hereunder.
(b) Without the consent of the Holders, the Grantors and the Collateral
Agent, at any time and from time to time, may enter into additional Collateral
Documents or one or more agreements supplemental hereto or to any Collateral
Document, in form satisfactory to the Collateral Agent:
(i) to add to the covenants of the Grantors for the benefit of the
Holders;
(ii) to mortgage, pledge or grant a security interest in favor of
the Collateral Agent as additional security for the Obligations pursuant to
any Collateral Document; or
(iii) to cure any ambiguity, to correct or supplement any provision
herein or in any Collateral Document which may be defective or inconsistent
with any other provision herein or therein; provided, however, that any
-------- -------
such action contemplated in this clause (iii) shall not adversely affect
the interests of the Holders in any manner whatsoever.
(c) Without the consent of the Holders, the Grantors and the Collateral
Agent may, at the direction of the Agent, or any of the Noteholders and at any
time and from time to time, add additional Persons ("Additional Grantors") to
-------------------
this Agreement, or any of the Collateral Documents, and such additional
provisions hereto and thereto as may be necessary or appropriate to effect the
grant by such Additional Grantors of Liens on any assets of
-31-
<PAGE>
such Additional Grantors as additional security for the Obligations.
(d) It shall not be necessary for the consent of the Holders under this
Section 8.1 to approve the particular form of any proposed amendment or
- -----------
supplement, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment or supplement under this Section 8.1 becomes effective
-----------
in accordance with its terms, the Company shall mail to the Collateral Agent,
the Agent and each Holder an executed copy of such amendment. The failure to
give such notice to all Holders, or any defect therein, shall not impair or
affect the validity of an amendment under this Section 8.1.
-----------
Section 8.2 Notices. All notices, demands, requests, consents and other
-------
communications provided for hereunder shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, provided that
any matter transmitted by the Company or any Grantor or to the Company or any
Grantor by facsimile (i) shall be immediately confirmed by a telephone call to
the recipient, and (ii) shall be followed promptly by a hard copy original
thereof) and mailed, faxed or delivered:
(a) if to the Company or any other Grantor, at: 500 West Madison, 32nd
Floor, Chicago, Illinois 60661, Telecopy No. (312) 641-3737, Attention: Chief
Financial Officer, or at such other address as shall be designated by it in a
written notice to the Collateral Agent and the Secured Parties, with a copy
thereof to Sachnoff & Weaver, Ltd., 30 South Wacker Drive, 29th Floor, Chicago,
Illinois 60606-7484, Telecopy No. (312) 207-6400, Attention: William M. Weaver ;
(b) if to the Collateral Agent at: 1455 Market Street, 12th Floor #10831,
San Francisco, CA. 94103, Telecopy No. (415) 436-3425, or at such other address
as shall be designated by it in a written notice to the Company and the Secured
Parties, with a copy to McDermott, Will & Emery, 227 West Monroe Street,
Chicago, Illinois 60606-5096, Telecopy Number: (312) 984-7700, Attention: J.
Robert McMenamin;
(c) if to the Agent to Bank of America National Trust and Savings
Association at 1455 Market Street, 12th Floor, #10831, San Francisco, CA. 94103,
Telecopy No. (415) 436-3425, or at such other address as shall be designated by
the Agent in a written notice to the Company, the Collateral Agent and the
Secured Parties, with a copy to McDermott, Will & Emery, 227 West Monroe Street,
Chicago, Illinois 60606-5096, Telecopy Number: (312) 984-7700, Attention: J.
Robert McMenamin; and
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<PAGE>
(d) if to any Noteholder at the address for such Noteholder set forth on
Schedule II hereto, or at such other address as shall be designated by any
Noteholder in a written notice to the Collateral Agent and the Secured Parties;
and
(e) if to any Bank, at the address set forth for such Bank on Schedule III
attached hereto, or at such other address as shall be designated by the
applicable Bank in a written notice to the Collateral Agent and the Secured
Parties.
All such notices, requests and communications shall, when transmitted by mail,
overnight delivery, or faxed, be effective when received.
The Grantors acknowledge and agree that any agreement of the Collateral Agent
and the Holders in this Section 8.2 herein to receive certain notices by
-----------
telephone and facsimile is solely for the convenience and at the request of the
Grantors. The Collateral Agent and the Holders shall be entitled to rely on the
authority of any Person purporting to be a Person authorized by the Grantors to
give such notice and the Collateral Agent and the Holders shall not have any
liability to the Grantors or other Person on account of any action taken or not
taken by the Collateral Agent or the Holders in reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Obligations shall
not be affected in any way or to any extent by any failure by the Collateral
Agent and the Holders to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Collateral Agent and the Holders of a
confirmation which is at variance with the terms understood by the Collateral
Agent and the Holders to be contained in the telephonic or facsimile notice.
Section 8.3 Headings. Section, subsection and other head ings used in
--------
this Agreement are for convenience only and shall not affect the construction of
this Agreement.
Section 8.4 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction; provided that this Agreement shall be construed so as to
-------- ----
give effect to the intention expressed in Section 3.12 hereof.
------------
Section 8.5 Intentionally Omitted.
---------------------
Section 8.6 Dealings With the Company.
-------------------------
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<PAGE>
(a) Upon any application or demand by any of the Grantors to the
Collateral Agent to take or permit any action under any of the provisions of
this Agreement or any Collateral Document, such Grantor shall furnish to the
Collateral Agent a certificate signed by an Authorized Officer of such Grantor
stating that all conditions precedent, if any, provided for in this Agreement or
any Collateral Document relating to the proposed action have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Agreement or any Collateral Document, relating to such particular application or
demand, no additional certificate or opinion need be furnished.
(b) Any opinion of counsel may be based, insofar as it relates to factual
matters, upon a certificate of Authorized Officers of the applicable Grantor
delivered to the Collateral Agent.
Section 8.7 Claims against the Collateral Agent. Any claims or causes of
-----------------------------------
action which the Holders or the Grantors shall have against the Collateral Agent
shall survive the termination of this Agreement and the release of the
Collateral hereunder.
Section 8.8 Binding Effect.
--------------
(a) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and shall inure to the benefit of the Holders and their
respective successors and assigns, and nothing herein or in any Collateral
Document is intended or shall be construed to give any other Person any right,
remedy or claim under, to or in respect of this Agreement, any Collateral
Document or the Collateral.
(b) The Grantors jointly and severally agree to pay the Collateral Agent's
Fees in accordance with the provisions of Section 5.3 herein. In the event the
-----------
Grantors fail to pay the Collateral Agent's Fees and the Collateral Agent's Fees
cannot be paid out of amounts received in the Collateral Account, each Secured
Party agrees to pay the Collateral Agent's Fees, ratably in accordance with the
proportion of the Obligations held by it.
Section 8.9 Governing Law and Jurisdiction.
------------------------------
(a) THIS AGREEMENT AND THE OTHER COLLATERAL DOCUMENTS SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT
THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS UNDER ANY OF THE COLLATERAL
DOCUMENTS, OR THE REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT OF ANY COLLATERAL
ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER
-34-
<PAGE>
THAN ILLINOIS, PROVIDED THAT THE COLLATERAL AGENT SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY
OTHER COLLATERAL DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS
OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE GRANTORS, THE COLLATERAL AGENT AND
THE HOLDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-
EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GRANTORS, THE COLLATERAL
AGENT AND THE HOLDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON-CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
Section 8.10 Waiver of Jury Trial. THE GRANTORS, THE HOLDERS AND THE
--------------------
COLLATERAL AGENT EACH WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER COLLATERAL DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GRANTORS, THE
HOLDERS AND THE COLLATERAL AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION 8.10 AS TO ANY ACTION, COUNTERCLAIM
------------
OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER COLLATERAL DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER COLLATERAL DOCUMENTS.
Section 8.11 Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
Section 8.12 The Company as Agent for Grantors. Each Grantor hereby
---------------------------------
designates and appoints the Company as the agent of such Grantor, and each
Grantor irrevocably authorizes the Company, to execute and deliver any notice
required hereunder on behalf of such Grantor. Any notice required to be
delivered to any Grantor hereunder shall be deemed delivered to such Grantor
when delivered to the Company in accordance with the terms hereof. The Company
hereby accepts such designation as agent for the Grantors until all Obligations
have been paid in full and
-35-
<PAGE>
this Agreement has been terminated. Each Grantor agrees not to revoke, modify or
withdraw such designation until all Obligations have been paid in full and this
Agreement has been terminated.
Section 8.1 Interest. Any amounts payable to the Collateral Agent or a
--------
Secured Party under this Collateral Agency Agreement or under any of the
Collateral Documents if not paid when due shall bear interest from the date due
until paid in full, at the higher of (i) the rate of interest applicable from
time to time for Base Rate Loans (as defined in the Credit Agreement) under
Section 2.10(c) of the Credit Agreement and (ii) the rate of interest chargeable
for overdue amounts under the Note Agreement. This provision shall survive the
termination of the Finance Agreements.
-36-
<PAGE>
In witness whereof, the parties have executed this Agreement as of the day
hereinabove first written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: _________________________
Its: _________________________
SYSTEM SOFTWARE ASSOCIATES JAPAN
LIMITED LIABILITY COMPANY
By: _________________________
Its: _________________________
SSA JAPAN CORP.
By: _________________________
Its: _________________________
SSA PACIFIC RIM CORP.
By: _________________________
Its: _________________________
SSA NORTH CENTRAL, INC.
By: _________________________
Its: _________________________
SSA CARIBBEAN, INC.
By: _________________________
Its: _________________________
Collateral Agency Agreement
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as Collateral Agent)
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as Agent for BAI and ANB)
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
BANK OF AMERICA ILLINOIS
(individually and as Issuing Bank)
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
Collateral Agency Agreement
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By: ______________________________
Name: ____________________________
Title:____________________________
Collateral Agency Agreement
<PAGE>
Schedule I
Glossary
Collateral Agency Agreement
Schedule I - Glossary
<PAGE>
Schedule II
Noteholder Addresses
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 High Street
Des Moines, IA 50392-0301
Attention: John Cleavenger
Fax: (515) 248-0483
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
1295 State Street
Mail Station F-461
Springfield, MA 01111
Attention: Steven Katz
Fax: (413) 744-6127
in each case with a copy to:
GARDNER, CARTON & DOUGLAS
Quaker Tower, Suite 3400
321 North Clark Street
Chicago, IL 60610-4795
Attention: Wendy Freyer
Dewey B. Crawford
Fax: (312) 644-3381
Collateral Agency Agreement
Schedule II - Noteholder Addresses
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Schedule III
Bank Addresses
If to Bank of America Illinois:
BANK OF AMERICA NT & SA
Special Assets Group 4346
333 S. Beaudry Avenue; 9th Floor
Los Angeles, CA 90017
Attention: Leslie Reuter
FAX: (213) 345-9644
with copies to:
BANK OF AMERICA NT & SA
The Mid-Cap Technology Division
530 Lytton Avenue
Palo Alto, CA 94301
Attention: Cecilia K. Person
FAX: (415) 853-4687
BANK OF AMERICA NT & SA
Legal Department-U.S. Wholesale
555 California, 8th Floor
San Francisco, CA 94104
Attention: Nancy Leventhal, Esq.
FAX: (415) 622-2390
BANK OF AMERICA NT & SA
Agency Management, Unit # 10831
1455 Market Street, 12th FL
San Francisco, CA 94103
Attention: Wendy Young
FAX: (415) 436-3425
If to American National Bank and Trust Company of Chicago:
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
33 North LaSalle Street
Chicago, IL 60690
Attention: Isra Z. Ekbal
Ann Gibson
FAX: (312) 661-3566
Collateral Agency Agreement
Schedule III - Bank Addresses
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EXHIBIT 99.4
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================================================================================
SYSTEM SOFTWARE ASSOCIATES, INC.
AMENDED AND RESTATED
NOTE AGREEMENT
Dated as of February 28, 1997
$26,000,000 Principal Amount
Senior Secured Notes
Due November 1, 1997
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PPN 871839 B*6
===============================================================================
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TABLE OF CONTENTS
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Page
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(S)1. DESCRIPTION OF NOTES AND CLOSING DATE 1
1.1. Description of Notes, Closing Date. 1
(S)2. PREPAYMENT OF NOTES 3
2.1. Optional Prepayments 3
2.2. Mandatory Prepayments 3
2.3. Notice of Prepayments 3
2.4. Surrender of Notes on Prepayment or Exchange 5
2.5. Direct Payment and Deemed Date of Receipt 5
2.6. Allocation of Payments 5
2.7. Payments Due on Saturdays, Sundays and Holidays 5
2.8. Payments by the Company 6
(S)3. REPRESENTATIONS 6
3.1. Representations of the Company 6
3.2. Representations of the Purchasers 13
(S)4. CLOSING CONDITIONS 13
4.1. Representations and Warranties 13
4.2. Legal Opinions 13
4.3. Events of Default 13
4.5. Note Documents 13
4.6. Payment of Fees and Expenses 14
4.7. Amended and Restated Credit Agreement 14
4.8. Proceedings and Documents 14
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(S)5. INTERPRETATION OF AGREEMENT 14
5.1. Certain Terms Defined 14
5.2. Accounting Principles 24
5.3. Valuation Principles 25
5.4. Direct or Indirect Actions 25
5.5. Other Interpretive Provisions 25
(S)6. AFFIRMATIVE COVENANTS 25
6.1. Corporate Existence 25
6.2. Insurance 26
6.3. Taxes 26
6.4. Maintenance of Properties 26
6.5. Maintenance of Records 26
6.6. Financial Information and Reports 27
6.7. Inspection of Properties and Records 29
6.8. ERISA 30
6.9. Compliance with Laws 30
6.10. Acquisition of Notes 31
6.11. Private Placement Number 31
6.12. Proposed Change of Control 31
6.13. Notices 31
6.14. Payment of Obligations 32
6.16. Further Assurances 32
6.17. Most Favored Lender Provision 33
(S)7. NEGATIVE COVENANTS 33
7.1. Consolidated Net Worth 33
7.2. Cash Balances 33
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7.3. Capital Expenditures 33
7.4. Indebtedness 33
7.5. Liens 33
7.6. Restricted Payments 34
7.7. Merger or Consolidation 35
7.8. Sale of Assets 35
7.9. Disposition of Stock of Subsidiaries 36
7.10. Investments 36
7.11. Asset Acquisitions 37
7.12. Deposit Accounts 37
7.13. ERISA 37
7.14. Accounting Changes 37
7.15. Transactions with Affiliates 37
7.16. Nature of Business 37
7.17. Capital 37
7.18. Contingent Obligations 38
7.19. Operating Lease Obligations 38
(S)8. EVENTS OF DEFAULT AND REMEDIES THEREFOR 38
8.1. Nature of Events 38
8.2. Remedies on Default 40
8.3. Annulment of Acceleration of Notes 41
8.4. Other Remedies 41
8.5. Conduct No Waiver; Collection Expenses 41
8.6. Remedies Cumulative 41
8.7. Notice of Default 42
(S)9. AMENDMENTS, WAIVERS AND CONSENTS 42
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9.1. Matters Subject to Modification 42
9.2. Automatic Amendments 42
9.3. Solicitation of Noteholders. 43
9.4. Binding Effect 43
(S)10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT 43
10.1. Form of Notes 43
10.2. Note Register 43
10.3. Issuance of New Notes upon Exchange or Transfer 44
10.4. Replacement of Notes 44
(S)11. MISCELLANEOUS 44
11.1. Expenses 44
11.2. Notices 45
11.3. Reproduction of Documents 45
11.4. Successors and Assigns 46
11.5. Law Governing 46
11.6. Headings 46
11.7. Counterparts 46
11.8. Reliance on and Survival of Provisions 46
11.9. Integration and Severability 46
11.10. Indemnification 46
11.11. No Third Parties Benefited 47
SCHEDULE I
ANNEX 3.1(d) - SUBSIDIARIES
ANNEX 3.1(e) - FINANCIAL STATEMENTS
ANNEX 3.1(g) - LITIGATION
ANNEX 3.1(i) - ERISA
ANNEX 3.1(l) - INTELLECTUAL PROPERTY
ANNEX 3.1(v) - ENVIRONMENTAL COMPLIANCE
ANNEX 3.1(x) - DEPOSIT ACCOUNTS
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ANNEX 7.4 - INDEBTEDNESS
ANNEX 7.5 - LIENS
EXHIBIT A - FORM OF NOTE
EXHIBIT B - FORM OF OPINION OF SACHNOFF & WEAVER
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SYSTEM SOFTWARE ASSOCIATES, INC.
AMENDED AND RESTATED NOTE AGREEMENT
Dated as of February 28, 1997
To Each of the Purchasers
Named in Attached Schedule I
Ladies and Gentlemen:
Reference is made to the Note Agreement dated as of August 15, 1993 (the
"Note Agreement") by and among System Software Associates, Inc., a Delaware
corporation (the "Company"), Principal Mutual Life Insurance Company, and
Massachusetts Mutual Life Insurance Company pursuant to which $30,000,000
aggregate principal amount of the Company's Senior Notes were issued. The Note
Agreement subsequently was amended by the First Amendment to Note Agreement
dated as of October 31, 1994, the Waiver and Second Amendment to Note Agreement
dated as of September 16, 1996 (the "September Waiver"), the Third Amendment to
Note Agreement dated as of September 30, 1996, the Fourth Amendment to Note
Agreement dated as of October 7, 1996, the Fifth Amendment to Note Agreement
dated as of October 25, 1996 and the Waiver and Sixth Amendment to Note
Agreement dated as of January 7, 1997 (the "January Waiver") (collectively, the
"Amendments"). The Note Agreement as amended by the Amendments is hereinafter
referred to as the "Outstanding Agreement" and the 6.23% Senior Notes due
September 15, 1997 and the 6.69% Senior Notes due September 15, 1998, as amended
and modified by the Amendments, are hereinafter referred to as the "Outstanding
Notes." The Company and the Purchasers also entered into a Letter Agreement
dated January 29, 1997 regarding the extension and amendment to the Note
Agreement (the "Letter Agreement"). You are the holders of the Outstanding
Notes in the aggregate principal amount set forth opposite your name in the
attached Schedule I and are sometimes referred to herein individually as a
"Purchaser" and collectively as the "Purchasers". You, together with any
assignee or transferee, are sometimes referred to herein individually as the
"Noteholder" and collectively as the "Noteholders."
The Company agrees with you as follows:
(S)1. DESCRIPTION OF NOTES AND CLOSING DATE
1.1 Description of Notes, Closing Date. You and other creditors of the
Company have heretofore agreed to forbear and/or waive certain Defaults and
Events of Default by the Company, including Defaults or Events of Default under
the Outstanding Agreement. You and such other creditors have also previously
amended the agreements evidencing the Company's Senior Indebtedness, including
the Note Agreement and the Outstanding Notes. Such waivers, forbearances and
amendments were initial steps in a broader amendment of the Company's
outstanding Senior Indebtedness. To effectuate such broader amendment, the
Company and the Noteholders wish to amend and restate the
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Outstanding Agreement to be in the form of this Agreement (the "Agreement"), to
amend the Outstanding Notes to be in substantially the form of Exhibit A (the
"Notes"), to deliver certain guaranty and security documents and to enter into a
collateral agency agreement (such guaranty and security documents and collateral
agency agreement are more specifically defined as "Collateral Documents" in the
Collateral Agency Agreement). Subject to the terms of the Letter Agreement, the
Notes shall bear interest at the Base Rate from time to time in effect plus one
percent (1%) per annum computed on the basis of a 365-day year, payable monthly
on the fifteenth (15th) day of each month and at maturity and shall bear
interest on any overdue principal (including any overdue principal or required
prepayment) (to the extent legally enforceable) on any overdue Make-Whole
Amount, and (to the extent legally enforceable) on any overdue installment of
interest at the Base Rate from time to time in effect plus three percent (3%)
per annum and shall be expressed to mature on November 1, 1997. The term "Notes"
as used herein shall include the singular number as well as the plural.
Anything herein to the contrary notwithstanding, the obligations of the
Company to any Noteholder hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Noteholder would be contrary to the provisions
of any law applicable to such Noteholder limiting the highest rate of interest
that may be lawfully contracted for, charged or received by such Noteholder, in
lieu thereof, during any such period, the Company shall pay such Noteholder
interest at the highest rate permitted by applicable law.
All obligations of the Company under this Agreement, the Notes and all
other Note Documents shall be secured in accordance with the Collateral
Documents. All obligations of the Company under this Agreement, each of the
Notes and all other Note Documents shall be unconditionally guaranteed by the
Guarantors pursuant to the Guaranties.
Subject to the terms and conditions hereof and on the basis of the
representations and warranties contained herein and fulfillment of the
conditions set forth herein, the parties agree that the Outstanding Agreement
shall be amended and restated to be in the form of this Agreement, and the
Outstanding Notes shall be amended and restated to be in the form of the Notes.
This Agreement shall become effective following its execution and delivery
by all of the signatories listed on the signature page hereto and upon
satisfaction of all of the conditions set forth in Section 4 all of which shall
take place no later than Noon, Eastern time on February 28, 1997 or such later
date as you and the Company may mutually agree (the "Closing Date").
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(S)2. PREPAYMENT OF NOTES
2.1. Optional Prepayments. (a) Upon notice as provided in Section 2.3,
the Company may prepay the Notes, in whole or in part, at any time, in an amount
not less than $500,000 or an integral multiple of $100,000 in excess thereof, or
such lesser amount as shall constitute payment in full of the Notes. Each such
prepayment shall be at a price of 100% of the principal amount to be prepaid,
plus interest accrued thereon to the date of prepayment plus the Make-Whole
Amount.
(b) Promptly following the day on which a Change of Control occurs, the
Company, pursuant to the notices provided in Section 2.3(b) and (c), shall offer
to prepay the entire principal amount of the Notes at a price of 100% of the
principal amount thereof, plus interest accrued thereon to the date of
prepayment, plus (i) 1.0% of the principal amount thereof if, after giving
effect to such Change of Control (assuming no prepayment of the Notes), no
Default or Event of Default would exist, or (ii) the greater of 1.0% of the
principal amount or the Make-Whole Amount if, after giving effect to such Change
of Control (assuming no prepayment of the Notes), a Default or Event of Default
would exist.
(c) Any optional prepayment of less than all of the Notes outstanding
pursuant to Section 2.1(a) shall be applied in accordance with Section 2.6 to
reduce the payments at maturity.
2.2. Mandatory Prepayments.
(a) If, on any date after the Closing Date, the Company or any Subsidiary
shall receive any Net Proceeds, the Company shall promptly notify the Collateral
Agent and, as provided in Section 2.3, each Noteholder thereof, such notice to
the Collateral Agent to include the amount of the Net Proceeds and the Company
shall transfer to the Collateral Agent such Net Proceeds for distribution by the
Collateral Agent in accordance with Section 4 of the Collateral Agency Agreement
which upon receipt by the Purchasers shall be applied to pay accrued interest,
principal and the Make-Whole-Amount, if any, on the Notes.
(b) If, on any date after the Closing Date, the Company or any Subsidiary
shall make payment on any Bank Debt other than regularly scheduled interest
payments, the Company shall, upon notice as provided in Section 2.3, prepay the
principal amount of the Notes in an amount equal to the amount so paid on the
Bank Debt together with accrued interest thereon to the date of prepayment plus
the Make-Whole Amount. If the Company or any Subsidiary incurs Indebtedness as
set forth in Section 7.4(c) or raises equity capital as set forth in Section
7.17, the Company shall, upon notice as provided in Section 2.3, prepay all of
the Notes together with accrued interest thereon to the date of prepayment plus
the Make-Whole Amount which prepayment in full at the option of the Company may
be transfered to the Collateral Agent for distribution in accordance with the
Collateral Agency Agreement.
(c) Any mandatory prepayment of less than all the Notes outstanding
pursuant to Sections 2.2(a) or 2.2(b) shall be applied in accordance with
Section 2.6 to reduce the payments at maturity.
2.3. Notice of Prepayments. (a) The Company shall give notice of any
optional prepayment of the Notes pursuant to Section 2.1(a) to each Noteholder
not less than 30 days nor more than 60 days before the date fixed for
prepayment, specifying (i) such date, (ii) the principal amount of the
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Noteholder's Notes to be prepaid on such date, (iii) the Determination Date for
calculating the Make-Whole Amount, (iv) a calculation of the estimated amount of
the Make-Whole Amount showing in detail the method of calculation and (v) the
accrued interest applicable to the prepayment. Such notice shall not thereafter
be revocable by the Company and notice of prepayment having been so given, the
aggregate principal amount of the Notes specified in such notice, together with
the Make-Whole Amount, if any, and accrued interest thereon shall become due and
payable on the prepayment date specified therein.
(b) The Company shall give notice of any offer to prepay the Notes
pursuant to Section 2.1(b) to each Noteholder immediately and in any event not
later than the date of a Change of Control. Such notice shall be certified by an
authorized officer of the Company and shall specify (i) the nature of the Change
of Control and the date on which it is estimated to occur or did occur, (ii)
whether there exists or will exist at the time of the Change of Control and
after giving effect thereto any Default or Event of Default and calculations
setting forth compliance with the covenants in Section 7, (iii) the date fixed
for prepayment which, to the extent practicable, shall be not less than 30 or
more than 45 calendar days after the date of such notice but in any event shall
be not later than one Business Day following the date on which a proposed Change
of Control is expected to occur, (iv) the Determination Date, (v) a calculation
of the estimated amount of the Make-Whole Amount or the 1% premium, as
appropriate, (vi) the accrued interest applicable to the prepayment and (vii)
the date by which any Noteholder that wishes to accept such offer must deliver
notice thereof to the Company which date shall not be later than 10 calendar
days prior to the date fixed for prepayment. Not earlier than 7 calendar days
prior to the date fixed for prepayment, the Company shall give notice to all
Noteholders identifying each holder (and the principal amount of Notes held by
each) who has given notice of acceptance of the Company's offer, and thereafter
any Noteholder may change its response to the Company's offer by notice to such
effect delivered to the Company not less than 3 calendar days prior to the date
fixed for prepayment. The aggregate principal amount of Notes held by
Noteholders who have accepted the Company's offer and not revoked such
acceptance shall become due and payable on the prepayment date.
(c) The Company shall give notice of any mandatory prepayment of the
Notes, pursuant to Section 2.2, to each Noteholder not less than 10 days nor
more than 60 days before the date fixed for prepayment, specifying (i) such
date, (ii) the aggregate principal amount of the Notes to be prepaid on such
date, (iii) the principal amount of each Note held by such holder to be prepaid,
(iv) the Determination Date for calculating the Make-Whole Amount, (v) a
calculation of the estimated Make-Whole Amount showing in detail the method of
calculation, (vi) the accrued interest applicable to the prepayment, (vii) the
amount of Net Proceeds, if applicable, received by the Company or such
Subsidiary in respect thereof (and the amount and other type of consideration so
received), and (viii) that all required consents under the Note Documents have
been obtained. Such notice shall not thereafter be revocable by the Company and
notice of prepayment having been so given, the aggregate principal amount of the
Notes specified in such notice, together with the Make-Whole Amount, if any, and
accrued interest thereon shall become due and payable on the prepayment date
specified therein.
(d) The Company shall give to each Noteholder to be prepaid pursuant to
Section 2.1(a) or (b) or Section 2.2(a) or (b), notice by telecopy, telegram,
telex or other same-day written communication, confirmed by notice delivered by
overnight courier as soon as practicable but in any event no less than 2
Business Days prior to the prepayment date, of the Make-Whole Amount, the Net
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Proceeds, if any, applicable to such prepayment and the details of the
calculations used to determine the amount of such Make-Whole Amount and Net
Proceeds.
2.4. Surrender of Notes on Prepayment or Exchange. Subject to Section
2.5, upon any partial exchange of a Note pursuant to Section 10.3, such Note
shall either, at the option of the Noteholder thereof, (i) be surrendered to the
Company pursuant to Section 10.3 in exchange for a new Note or Notes equal to
the principal amount remaining unpaid on the surrendered Note, or (ii) be made
available to the Company, at the Company's principal office, for notation
thereon of the portion of the principal so prepaid or exchanged. Subject to
Section 2.5, upon any partial prepayment of a Note pursuant to this Section 2,
such Note may, at the option of the Noteholder thereof, (i) be surrendered to
the Company pursuant to Section 10.3 in exchange for a new Note or Notes equal
to the principal amount remaining unpaid on the surrendered Note, or (ii) be
made available to the Company, at the Company's principal office, for notation
thereon of the portion of the principal so prepaid or exchanged. In case the
entire principal amount of any Note is prepaid, such Note shall be surrendered
to the Company for cancellation and shall not be reissued, and no Note shall be
issued in lieu of such Note. No Note shall be issued in lieu of a Note the
entire principal amount of which has been prepaid.
2.5. Direct Payment and Deemed Date of Receipt. Notwithstanding any other
provision contained in the Notes or this Agreement, the Company will pay all
sums becoming due on each Note held by you or any subsequent Institutional
Holder by wire transfer of immediately available funds to such account as you or
such subsequent Institutional Holder have designated in Schedule I, or as you or
such subsequent Institutional Holder may otherwise designate by notice to the
Company, in each case without presentment and without notations being made
thereon, except that any such Note so paid or prepaid in full shall be
surrendered to the Company for cancellation. Any wire transfer shall identify
such payment in the manner set forth in Schedule I and shall identify the
payment as principal, Make-Whole Amount, if any, and/or interest. You and any
subsequent Institutional Holder of a Note to which this Section 2.5 applies
agree that, before selling or otherwise transferring any such Note, you or it
will make a notation thereon of the aggregate amount of all payments of
principal theretofore made and of the date to which interest has been paid and,
upon written request of the Company, will provide a copy of such notations to
the Company. Any payment made pursuant to this Section 2.5 shall be deemed
received on the payment date only if received before 11:00 A.M., Chicago time.
Payments received after 11:00 A.M., Chicago time, shall be deemed received on
the next succeeding business day.
2.6. Allocation of Payments. In the case of a prepayment pursuant to
Section 2.1(a), Section 2.2(a) or Section 2.2(b), if less than the entire
principal amount of the Notes outstanding is to be paid, the Company will
prorate the aggregate principal amount to be paid among the outstanding Notes in
proportion to the unpaid principal amounts thereof.
2.7. Payments Due on Saturdays, Sundays and Holidays. In any case where
the date of any required prepayment of the Notes or any interest payment date on
the Notes or the date fixed for any other payment of any Note or exchange of any
Note is a day other than a Business Day, then such payment, prepayment or
exchange need not be made on such date but may be made on the next succeeding
Business Day, with interest payable to the actual date of payment.
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2.8. Payments by the Company. All payments or prepayments to be made by
the Company shall be made without set-off, recoupment or counterclaim.
(S)3. REPRESENTATIONS
3.1. Representations of the Company. As an inducement to, and as part of
the consideration for, your purchase of the Notes pursuant to this Agreement,
the Company represents and warrants to you as follows:
(a) Corporate Organization. The Company (i) is a solvent corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (ii) has all requisite corporate power and authority to own and
operate its assets and properties, to carry on its business as now conducted and
as presently proposed to be conducted, (iii) to execute, deliver and perform its
obligations under this Agreement, the Notes and the Note Documents, (iv) has all
governmental licenses, authorizations, consents and approvals to own its assets,
and (v) is in compliance with all Requirements of Law, except to the extent that
the failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(b) Binding Effect. This Agreement and each Note Document to which the
Company, and its Subsidiaries, are parties constitute the legal, valid and
binding obligations of the Company, and each of its Subsidiaries, to the extent
that they are parties thereto, enforceable against the Company, and each of its
Subsidiaries, in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
(c) Qualification to Do Business. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by it
or the character of its properties owned or leased makes such qualification or
licensing necessary, except for jurisdictions, individually or in the aggregate,
where the failure to be so licensed or qualified could not be reasonably
expected to have a Material Adverse Effect.
(d) Subsidiaries. The Company has no Subsidiaries, and has no equity
investments in any other corporation or entity, except those listed in the
attached Annex 3.1(d), which correctly sets forth the jurisdiction of
incorporation and the percentage of the outstanding Voting Stock or equivalent
interest of each Subsidiary which is owned, of record or beneficially, by the
Company and/or one or more Subsidiaries. All Inactive Subsidiaries are
designated as "Inactive" on Annex 3.1(d). Each Subsidiary which is organized
under the laws of the United States of America or the laws of any State therein
and which is not an Inactive Subsidiary has duly executed and delivered to the
Collateral Agent a Guaranty. Each Subsidiary has been duly organized and is
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization and is duly licensed or qualified and in good
standing as a foreign corporation in each other jurisdiction where the nature of
the business transacted by it or the character of its properties owned or leased
makes such qualification or licensing necessary, except for jurisdictions,
individually or in the aggregate, where the failure to be so licensed or
qualified could not be reasonably expected to have a Material Adverse Effect.
Each Subsidiary has full corporate power and authority to own and operate its
properties and to carry on its business as now conducted
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and as presently proposed to be conducted, and is in compliance with all
Requirements of Law, except for instances, individually or in the aggregate,
where the failure to have such power and authority could not be reasonably
expected to have a Material Adverse Effect. The Company and each Subsidiary have
good and marketable title to all of the shares they purport to own of the
capital stock of each Subsidiary, free and clear in each case of any Lien,
except as otherwise disclosed in the attached Annex 7.5, and all such shares
have been duly issued and are fully paid and nonassessable.
(e) Financial Statements. The consolidated audited balance sheets of the
Company and its Subsidiaries as of October 31, 1996, 1995, 1994, 1993, 1992, and
the related consolidated audited statements of income, changes in stockholders'
equity and cash flows for the years then ended, accompanied by the report and
unqualified opinion of Price Waterhouse as to 1993 - 1995 and KPMG Peat Marwick
as to 1996, independent public accountants, copies of which have heretofore been
delivered to you, were prepared in accordance with GAAP consistently applied
throughout the periods involved (except as otherwise noted therein, and except
that the financial statements as of October 31, 1989, 1988, 1987, and 1986 have
not been restated to take into account the effects of the American Institute of
Certified Public Accountants Statement of Position No. 91-1, Software
Recognition) and present fairly the consolidated financial position of the
Company and its Subsidiaries as of such dates and their consolidated results of
operations and cash flows for the years then ended. The unaudited consolidated
balance sheets of the Company and its Subsidiaries as of January 31, 1997, and
the related unaudited consolidated statements of income, changes in
stockholders' equity, and cash flows for the three months ended January 31,
1997, copies of which have heretofore been delivered to you, were prepared in
accordance with GAAP consistently applied throughout the period covered thereby,
and present fairly the consolidated financial position of the Company and its
Subsidiaries as of such date and the consolidated results of their operations
and changes in their cash flows for the period then ended. Except as
specifically disclosed in Annex 3.1(e), all of the audited and unaudited
financial statements referenced herein show all material Indebtedness and other
liabilities, direct or contingent, of the Company and its consolidated
Subsidiaries as of the Closing Date, including liabilities for taxes, material
commitments and contingent liabilities. Since October 31, 1996, there has been
no Material Adverse Effect.
(f) No Contingent Liabilities or Adverse Changes. Neither the Company nor
any Subsidiary has any contingent liabilities which, individually or in the
aggregate, are material to the Company and its Subsidiaries taken as a whole,
other than as indicated in the most recent audited financial statements
described in the foregoing paragraph (e) of this Section 3.1 (or the footnotes
thereto). Except as set forth in the most recent unaudited financial statements
referred to in the foregoing paragraph (e) of this Section 3.1 (or the footnotes
thereto) or the September Waiver, the January Waiver and the Letter Agreement,
there have been no changes in the condition, financial or otherwise, of the
Company and its Subsidiaries except changes occurring in the ordinary course of
business, none of which, individually or in the aggregate, have had a Material
Adverse Effect.
(g) Litigation. Except as specifically disclosed in Annex 3.1(g), there
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Company, or its
Subsidiaries or any of their respective properties which:
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(i) purport to affect or pertain to this Agreement or any other Note
Document, or any of the transactions contemplated hereby or thereby; or
(ii) if determined adversely to the Company or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of this Agreement or
any Note Document, or directing that the transactions provided for herein or
therein not be consummated as herein or therein provided.
(h) Compliance with Law. (i) Neither the Company nor any Subsidiary is:
(x) in default with respect to any order, writ, injunction or decree of any
court to which it is a named party; or (y) in default under any law, rule,
regulation, ordinance or order relating to its or their respective businesses,
the sanctions and penalties resulting from which defaults described in clauses
(x) and (y) might reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any Subsidiary nor any Affiliate of the Company is an
entity defined as a "designated national" within the meaning of the Foreign
Assets Control Regulations, 31 C.F.R. Chapter V, or is in violation of, any
Federal statute or Presidential Executive Order, or any rules or regulations of
any department, agency or administrative body promulgated under any such statute
or Order, concerning trade or other relations with any foreign country or any
citizen or national thereof or the ownership or operation of any property and no
restriction or prohibition under any such statute, Order, rule or regulation has
a Material Adverse Effect.
(i) ERISA. Neither the Company nor any Subsidiary or ERISA Affiliate
maintains, contributes to, or otherwise participates in a Plan which is a
defined benefit plan, as defined in Section 3(35) of ERISA, or a Multiemployer
Plan. Based upon Purchaser's representation in Section 3.2 hereof, neither the
purchase of the Notes by you nor the consummation of any of the other
transactions contemplated by this Agreement is or will constitute a "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA. Each Plan, as most recently amended, including amendments to any trust
agreement, group annuity or insurance contract, or other governing instrument,
is the subject of a favorable determination by the Internal Revenue Service with
respect to its qualification under Section 401(a) of the Code.
Except as specifically disclosed in Annex 3.1(i):
(i) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best
knowledge of the Company, nothing has occurred which would cause the loss
of such qualification. The Company and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and
no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to
any Plan.
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(ii) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably
be expected to result in a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected
to result in a Material Adverse Effect.
(iii) No ERISA Event has occurred or is reasonably expected to occur;
(ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the
Company nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension
Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result
in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c)
of ERISA.
(j) Title to Properties. The Company and each Subsidiary have good,
sufficient, marketable, and legal title to all of the property and assets
reflected in the most recent audited consolidated balance sheet described in the
foregoing paragraph (e) of this Section 3.1 or subsequently acquired by the
Company or any Subsidiary (except as sold or otherwise disposed of in the
ordinary course of business in accordance with the terms hereof), free from all
Liens or defects in title except those permitted by Section 7.5.
(k) Leases. The Company and its Subsidiaries enjoy peaceful and
undisturbed possession under all leases under which they are a lessee or are
operating, except for leases the termination of which, individually or in the
aggregate, will not have a Material Adverse Effect.
(l) Franchises, Patents, Trademarks and Other Rights. The Company and its
Subsidiaries have all franchises, permits, licenses and other authority
necessary to carry on their businesses as now being conducted and are not in
default thereunder, except for such franchises, permits, licenses or other
authority and defaults which, individually and in the aggregate, do not and will
not have a Material Adverse Effect. The Company and its Subsidiaries own or
possess all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing necessary for the present
conduct of their businesses, without any known conflict with the rights of
others which might have, individually or in the aggregate, a Material Adverse
Effect. The Company or its Subsidiaries own or are licensed or otherwise have
the right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights that are
reasonably necessary for the operation of their respective businesses, without
conflict with the rights of any other Person. To the best knowledge of the
Company, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Company or any Subsidiary infringes upon any rights held by any
other Person. Except as specifically disclosed in Annex 3.1(l), no claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Company,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
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(m) Authorization. This Agreement, the Note Documents and the Notes have
been duly authorized on the part of the Company and its Subsidiaries (which are
parties thereto) and the Agreement and the Note Documents do, and the Notes when
issued will, constitute the legal, valid and binding obligations of the Company
and its Subsidiaries (which are parties thereto), enforceable in accordance with
their terms, except to the extent that enforcement of the Notes may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application relating to or affecting the enforcement of the rights of
creditors or by equitable principles, regardless of whether enforcement is
sought in equity or at law. The issuance of the Notes and compliance by the
Company and its Subsidiaries with all of the provisions of this Agreement, the
Note Documents and of the Notes (i) are within the corporate powers of the
Company and its Subsidiaries, (ii) have been duly authorized by proper corporate
action, (iii) are legal and will not violate any provisions of any law or
regulation or order of any court, governmental authority or agency, or
contravene the terms of any of the Company's or its Subsidiaries' Organic
Documents; and (iv) will not result in any breach of any of the provisions of,
or constitute a default under, or result in the creation of any Lien on any
property of the Company or any Subsidiary under the provisions of, any charter
document, by-law, loan agreement, order, injunction, writ or decree of any
Governmental Authority or other agreement or instrument to which the Company or
any Subsidiary is a party or by which any of them or their property may be
bound, or (v) violate any Requirement of Law. To the best of the Company's
knowledge, no approval, consent, exemption, authorization, or other action by,
or notice to, or filing with, any Governmental Authority is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Company or its Subsidiaries of the Agreement or any
Note Document other than filing of financing statements to perfect the Liens
created thereby.
(n) No Defaults. No Default or Event of Default has occurred and is
continuing nor would result from the liabilities evidenced by the Notes or from
the grant or perfection of the Liens of the Collateral Documents. Neither the
Company nor any Subsidiary is in default under (i) any charter document, by-law
or loan agreement to which it is a party or (ii) any other agreement to which it
is a party or by which it or its property may be bound, except, in the case of
this clause (ii) for defaults which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(o) Governmental Consent. Neither the nature of the Company or any
Subsidiary, their respective businesses or properties, nor any relationship
between the Company or any Subsidiary and any other Person, nor any
circumstances in connection with the offer, issue, sale or delivery of the Notes
is such as to require a consent, approval, exemption, or authorization of, or
other action by, or notice to, withholding of objection on the part of, or
filing, registration or qualification with, any Governmental Authority on the
part of the Company or any Subsidiary in connection with the execution,
delivery, or performance by, or enforcement against, the Company of this
Agreement or any Note Document, or the offer, issue, sale or delivery of the
Notes or the Warrants.
(p) Taxes. All income tax returns and all other material tax return and
reports required to be filed by the Company or any Subsidiary in any
jurisdiction have been filed, and all taxes, assessments, fees and other
governmental charges levied or imposed upon the Company or any Subsidiary, or
upon any of their respective properties, income or assets, income or franchises,
which are due and payable,
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have been paid timely or within appropriate extension periods or contested in
good faith by appropriate proceedings, the collection thereof has been stayed by
the applicable governmental authority during the period of the contest and with
respect to which adequate reserves have been established in accordance with
GAAP, except for such filings and nonpayments which, individually and in the
aggregate, do not and will not have a Material Adverse Effect. The Company does
not know of any proposed additional tax assessment against it or any Subsidiary
for which adequate provision has not been made on its books. There is no
proposed tax assessment against the Company or any Subsidiary that would, if
made, have a Material Adverse Effect. The statute of limitations with respect to
Federal income tax liability of the Company and its Subsidiaries has expired for
all taxable years up to and including the taxable year ended October 31, 1993
(except with respect to utilization of tax loss carryforwards) and no material
controversy in respect of additional taxes due since such date is pending or, to
the Company's knowledge, threatened. The provisions for taxes on the books of
the Company and each Subsidiary are adequate for all open years and for the
current fiscal period.
(q) Status under Certain Statutes. Neither the Company nor any Subsidiary
is: (i) a "public utility company" or a "holding company," or an "affiliate" or
a "subsidiary company" of a "holding company," or an "affiliate" of such a
"subsidiary company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or (ii) a "public utility" as defined in the
Federal Power Act, as amended, or (iii) an "investment company" or an
"affiliated person" thereof, as such terms are defined in the Investment Company
Act of 1940, as amended.
(r) Private Offering. Neither the Company nor Alex. Brown & Sons
Incorporated (the only Person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering of the Outstanding
Notes or any similar security of the Company) has offered any of the Outstanding
Notes or any similar security of the Company for sale to, or solicited offers to
buy any thereof from, or otherwise approached or negotiated with respect thereto
with, any prospective purchaser, other than institutional investors, each of
whom was offered all or a portion of the Notes at private sale for investment.
Neither the Company nor anyone acting on its authorization will offer the Notes
or any part thereof or any similar securities for issue or sale to, or solicit
any offer to acquire any of the same from, anyone so as to bring the issuance
and sale of the Notes within the provisions of Section 5 of the Securities Act.
(s) Effect of Other Instruments. Neither the Company nor any Subsidiary
is bound by any agreement or instrument or subject to any charter or other
corporate restriction which has a Material Adverse Effect.
(t) Condition of Property. All of the Facilities of the Company and its
Subsidiaries are in sound operating condition and repair except for Facilities
being repaired in the ordinary course of business or Facilities which
individually or in the aggregate are not material to the Company and its
Subsidiaries, taken as a whole.
(u) Books and Records. The Company and each of its Subsidiaries (i)
maintain books, records and accounts in reasonable detail which accurately and
fairly reflect their respective transactions and business affairs, and (ii)
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's general or specific authorization and to permit preparation of
financial statements in accordance with GAAP.
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(v) Environmental Compliance. The Company conducts in the ordinary course
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that, except as specifically
disclosed in Annex 3.1(v), the operations of the Company and each Subsidiary
(including, without limitation, all operations and conditions at or in the
Facilities) comply in all material respects with all Environmental Laws; the
Company and each Subsidiary have obtained all permits under Environmental Laws
necessary to their respective operations, and all such permits are in full force
and effect, and the Company and each Subsidiary are in compliance with all
material terms and conditions of such permits, except, in each of the foregoing
cases, for permits the lack or loss of which, or the failure to comply with
which, could not reasonably be expected to have a Material Adverse Effect; and
neither the Company nor any Subsidiary has any liability (contingent or
otherwise) in connection with any Release of any Hazardous Materials by the
Company or any of its Subsidiaries or the existence of any Hazardous Material
on, under or about any Facility that could give rise to an Environmental Claim
that could reasonably be expected to have a Material Adverse Effect.
(w) No Burdensome Restrictions. Neither the Company nor any Subsidiary is
a party to or bound by any contractual obligation, or subject to any restriction
in any Organic Document, or any Requirement of Law, which could reasonably be
expected to have a Material Adverse Effect.
(x) Deposit Accounts, Etc. As of the Closing Date, Annex 3.1(x) sets
forth a complete list of all deposit accounts, bank accounts, brokerage accounts
and other investment accounts for the account of the Company and its
Subsidiaries (whether held in the name of the Company or through its designees)
in the United States.
(y) Collateral Documents. (i) The provisions of each of the Collateral
Documents are effective to create in favor of the Collateral Agent, a legal,
valid and enforceable first priority security interest in all right, title and
interest of the Company and its Subsidiaries in the collateral described therein
and (ii) all representations and warranties of the Company and any of its
Subsidiaries party thereto contained in the Collateral Documents are true and
correct in all material respects.
(z) Solvency. As of the Closing Date and as of any date prior to the
Closing Date on which the Company or any Guarantor granted any Lien or otherwise
delivered any Collateral to the Collateral Agent, each of the Company and each
such Guarantor is and was Solvent.
(aa) Full Disclosure. Neither the Confidential Private Placement
Memorandum dated June 1993 (including the attachments and enclosures), the
financial statements referred to in paragraph (e) of this Section 3.1, this
Agreement, the Note Documents, nor any representation or warranty or other
statement or document (including the offering and disclosure materials delivered
by or on behalf of the Company to the Noteholders prior to the Closing Date)
furnished by the Company or any Subsidiary to you in connection with the Note
Documents and of the issuance of the Notes, taken together, as of the date made
or given, contain any untrue statement of a material fact or omit a material
fact necessary to make the statements contained therein or herein not misleading
in light of the circumstances under which they were made. There is no fact
(exclusive of general economic, political or social conditions or trends)
particular to the Company or any Subsidiary and known by the Company
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or any Subsidiary which the Company has not disclosed to you in writing and
which has or, so far as the Company can now foresee, will have, a Material
Adverse Effect.
(bb) The representations and warranties of the Company and its Subsidiaries
contained in the Loan Documents are true and correct.
3.2. Representations of the Purchasers. You represent, and in entering
into this Agreement the Company understands, that you are acquiring the Notes
for your own account and not with a view to any distribution thereof; provided
that the disposition of your property shall at all times be and remain within
your control, subject, however, to compliance with Federal securities laws. You
acknowledge that the Notes have not been registered under the Securities Act and
you understand that the Notes must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. You have been advised that the Company does not
contemplate registering, and is not legally required to register, the Notes
under the Securities Act.
You further represent that no part of the funds used by you to purchase the
Notes constituted assets allocated to any separate account. As used herein, the
term "separate account" has the meaning assigned to it in ERISA.
(S)4. CLOSING CONDITIONS
Your obligations under this Agreement shall be subject to the performance
by the Company of its agreements hereunder, which are to be performed at or
prior to the time of delivery of the Notes, and to the following conditions to
be satisfied on or before the Closing Date:
4.1. Representations and Warranties. The representations and warranties
of the Company, and each of its Subsidiaries, contained in this Agreement, the
Note Documents or otherwise made in writing in connection herewith shall be true
and correct on or as of the Closing Date and the Company shall have delivered to
you a certificate to such effect, dated the Closing Date and executed by the
president, the chief financial officer or the chief accounting officer of the
Company.
4.2. Legal Opinions. You shall have received from Sachnoff & Weaver,
Ltd., counsel for the Company as to certain legal matters, their opinion, dated
such Closing Date, in form and substance satisfactory to you and covering
substantially the matters set forth or provided in the attached Exhibit B.
4.3. Events of Default. No Default or Event of Default shall have
occurred and be continuing on the Closing Date and the Company shall have
delivered to you a certificate to such effect, dated the Closing Date and
executed by the president, the chief financial officer or the chief accounting
officer of the Company.
4.4. Warrants. Execution and delivery of the Warrants and the related
Registration Rights Agreement in form and substance satisfactory to you and your
special counsel.
4.5. Note Documents. Execution and delivery of Note Documents by all
parties thereto.
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4.6. Payment of Fees and Expenses. The Company shall have paid all
reasonable accrued and unpaid fees, expenses, costs and charges, including the
reasonable fees and expenses of Gardner, Carton & Douglas, your special counsel,
incurred by you through the Closing Date and incident to the proceedings in
connection with, and transactions contemplated by, this Agreement and the Notes.
4.7. Amended and Restated Credit Agreement. Evidence satisfactory to you
and your counsel of the simultaneous execution and delivery of the Credit
Agreement on terms satisfactory to you.
4.8. Proceedings and Documents. All proceedings taken in connection with
the transactions contemplated by this Agreement and the Note Documents
(including the Warrants), and all documents necessary to the consummation of
such transactions shall be satisfactory in form and substance to you and your
special counsel, and you and your special counsel shall have received copies
(executed or certified as may be appropriate) of all legal documents or
proceedings which you and they may reasonably request, including, but not
limited to executed copies of each of the Collateral Documents and the Loan
Documents.
(S)5. INTERPRETATION OF AGREEMENT
5.1. Certain Terms Defined. The terms hereinafter set forth when used in
this Agreement shall have the following meanings:
Agent - has the meaning specified in the Collateral Agency Agreement.
Affiliate - Any Person (other than a Subsidiary) (i) who is a director or
executive officer of the Company or any Subsidiary, (ii) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the Company, (iii) which beneficially owns or
holds securities representing 5% or more of the combined voting power of the
Voting Stock of the Company or any Subsidiary or (iv) securities representing 5%
or more of the combined voting power of the Voting Stock (or in the case of a
Person which is not a corporation, 5% or more of the equity) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Without limitation,
any director, executive officer or beneficial owner of 10% or more of the equity
of a Person shall for the purposes of this Agreement, be deemed to control such
Person.
Agreement - As defined in Section 1.1 herein.
Attorney Costs - All fees and disbursements of any law firm or other
external counsel and, without duplication, the allocated cost of internal legal
services and all disbursements of internal counsel.
Bank Debt - means the obligations of the Company and its Subsidiaries in
favor of the Banks pursuant to the Credit Agreement and the Loan Documents (as
defined in the Collateral Agency Agreement).
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Banks - has the meaning specified in the Collateral Agency Agreement.
Base Rate - 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 BofA in San Francisco, California, as
its "reference rate." (The "reference rate" is a rate set by BofA based upon
various factors including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.). Any change
in the reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
Bankruptcy Code - means Title 11 of the United States Code.
BofA - means Bank of America National Trust and Savings Association, a
national banking association, and its successors and assigns.
Business Day - Any day, other than Saturday, Sunday or a legal holiday or
any other day on which banking institutions in the United States of America
generally are authorized by law to close.
Capital Expenditures - For any period, the capital expenditures (which
shall include all capitalized software expenditures) of the Company and its
Subsidiaries for such period, as the same are (or would in accordance with GAAP
be) set forth in the consolidated statement of cash flows of the Company and its
Subsidiaries for such period.
Capital Lease - Any lease the obligation for Rentals with respect to which,
in accordance with GAAP, would be required to be capitalized on a balance sheet
of the lessee or for which the amount of the asset and liability thereunder, as
if so capitalized, would be required to be disclosed in a note to such balance
sheet.
Change of Control - shall be deemed to have occurred at such time after the
date hereof as (i) the acquisition, through purchase or otherwise (including the
agreement to act in concert), by any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) who is or becomes a "beneficial owner"
(as such term is defined in Rule 13d-3 under the Exchange Act) of shares of
Voting Stock of the Company representing more than 25% of the fully diluted
Voting Stock of the Company, (ii) the entering into by the Company of an
agreement providing for or contemplating an acquisition described in clause (i),
(iii) individuals constituting a majority of the board of directors of the
Company are elected directors other than by stockholders of the Company acting
upon the recommendation of the board of directors, or (iv) individuals who as of
the date hereof constitute the Company's Board of Directors (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 for
election was previously so approved), for any reason, cease to constitute a
majority of the directors at any time then in office.
Closing Date - As defined in Section 1.1 herein.
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Code - The Internal Revenue Code of 1986, as amended and regulations
promulgated thereunder.
Collateral - has the meaning specified in the Collateral Agency Agreement.
Collateral Agency Agreement - shall mean that certain Collateral Agency
Agreement, dated as of January 15, 1997, by and among the Company, its various
subsidiaries, and Bank of America National Trust & Savings Association, as the
same may from time to time be amended, modified or supplemented.
Collateral Agent - is defined in the Collateral Agency Agreement.
Collateral Documents - has the meaning specified in the Collateral Agency
Agreement.
Compliance Certificate - is defined in the Credit Agreement.
Consolidated Net Income - means, for any period, the consolidated net
income (or deficit) of the Company and its Subsidiaries after deducting, without
duplication, all operating expenses, provisions for all taxes and reserves
(including reserves for deferred income taxes) and all other proper deductions,
all determined in accordance with GAAP and after deducting portions of income
properly attributable to outstanding minority interests, if any, in
Subsidiaries; provided, however, that there shall be excluded (i) any income (or
deficit) of any Person accrued prior to the date it becomes a Subsidiary or
merges into or consolidates with the Company or a Subsidiary, (ii) the income
(or deficit) of any Person (other than a Subsidiary) in which the Company or any
Subsidiary has any ownership interest (except that any such income actually
received by the Company or such Subsidiary in the form of cash dividends or
similar distributions shall be included without limitation), (iii) any gains or
losses, or other income, properly classified as extraordinary in accordance with
GAAP, (iv) any gains or losses, or other income, characterized as non-recurring
in the financial statements delivered pursuant to Section 6, (v) any gain
resulting from the sale of fixed or capital assets other than in the ordinary
course of business; (vi) any portion of the net income of a Subsidiary which for
any reason cannot be distributed as a cash dividend; and (vii) any gains
resulting from the reappraisal, revaluation or write-up of assets.
Consolidated Net Worth - The sum of consolidated stockholders' equity of
the Company and its Subsidiaries determined in accordance with GAAP.
Contingent Obligation - means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss
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in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any
Surety Instrument (other than any Letter of Credit) issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings or payments; or (c) to purchase any materials, supplies or other
property from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other property is
ever made or tendered, or such services are ever performed or tendered, or (d)
in respect of any Swap Contract. The amount of any Contingent Obligation shall,
in the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and in the case of other
Contingent Obligations, shall be equal to the maximum reasonably anticipated
liability in respect thereof.
Credit Agreement - means that certain Amended and Restated Secured Credit
Agreement dated as of February 28, 1997 among the Company, Bank of America
National Trust & Savings Association, Bank of America Illinois, and certain
financial institutions that are parties thereto, as the same may be amended,
modified, amended, supplemented from time to time in accordance therewith and
herewith.
Default - Any event which, with the lapse of time or the giving of notice,
or both, would (if not cured or otherwise remedied during such time) become an
Event of Default.
Determination Date - The day 3 Business Days before the date fixed for a
prepayment pursuant to Section 2.3(a), (b) or (c) or the date of declaration
pursuant to Section 8.2 herein.
Dollar Equivalent - has the meaning specified in the Credit Agreement.
Environmental Claim - Any claim, demand, abatement order, notice of
violation, or other order by any Governmental Authority or any Person for any
damage, including, without limitation, personal injury (including sickness,
disease or death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, resulting from or based upon (i) the
existence of a Release (whether sudden or non-sudden or accidental or non-
accidental) of, or exposure to, any Hazardous Material in, into or onto the
environment at, in, by, from or related to any Facility, (ii) the use, handling,
transportation, storage, treatment or disposal of Hazardous Materials in
connection with the operation of any Facility, or (iii) the violation, or
alleged violation, of any statutes, ordinances, orders, rules, regulations,
permits, Environmental Law, licenses or authorizations of or from any
Governmental Authority, agency or court relating to environmental matters
connected with the Facilities.
Environmental Laws - All federal, state or local laws, statutes, common law
duties, requests, licenses, authorizations, and permits of, and agreements with,
any Governmental Authorities, relating to environmental matters, including,
without limitation, those relating to (i) fines, orders, injunctions, penalties,
damages, contribution, cost recovery compensation, losses or injuries resulting
from the Release or threatened Release of Hazardous Materials and to the
generation, use, storage, transportation, or disposal of Hazardous Materials, in
any manner applicable to the Company or any of
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its Subsidiaries or any or their respective properties, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et
seq.), and (ii) environmental protection, including, without limitation, the
National Environmental Policy Act (42 U.S.C. (S) 4321 et seq.), and comparable
state laws, each as amended or supplemented, and any similar or analogous local,
state and federal statutes and regulations promulgated pursuant thereto, each as
in effect as of the date of determination.
ERISA - The Employee Retirement Income Security Act of 1974, as amended
from time to time, and regulations promulgated thereunder, and any successor
statute.
ERISA Affiliate - Any trade or business (whether or not incorporated) under
common control with the Company within the meaning of Section 414(b) or (c) of
the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).
ERISA Event - means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Company or any ERISA Affiliate.
Event of Default - As defined in Section 8.1 herein.
Exchange Act - The Securities Exchange Act of 1934, as amended from time to
time, and regulations promulgated thereunder.
Facilities - Any and all real property (including, without limitation, all
buildings, fixtures or other improvements located thereon) now, or heretofore,
owned, leased, operated or used (under permit or otherwise) by the Company or
any of its Subsidiaries or any of their respective predecessors.
Federal Funds Rate - 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
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"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 Agent 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 Agent.
GAAP - means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the Closing Date.
Governmental Authority - means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
Guarantor - Any Person who executes and delivers to the Collateral Agent a
Guaranty.
Guaranty - has the meaning specified in the Collateral Agency Agreement.
Guaranty Obligation - has the meaning specified in the definition of
"Contingent Obligation."
Hazardous Materials - (i) Any chemical, material or substance defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous waste," "hazardous waste," or
"toxic substances" or words of similar import under any applicable Environmental
Laws; (ii) any oil, petroleum or petroleum derived substance, any drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, any flammable substances or explosives,
any radioactive materials, any hazardous wastes or substances, any toxic wastes
or substances or any other materials or pollutants that (a) pose a hazard to any
property of Company or any of its Subsidiaries or to Persons on or about such
property or (b) cause such property to be in violation of any Environmental
Laws; (iii) friable asbestos, urea formaldehyde foam insulation, electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million; and (iv) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority.
Inactive Subsidiaries - means those Subsidiaries of the Company which do
not own or lease any assets in excess of $10,000 or conduct any business.
Indebtedness - For any Person, without duplication, (a) all indebtedness
for borrowed money; (b) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business on ordinary terms); (c) all non-
contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
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with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligations with respect to Capital Leases; (g)
all Swap Contracts; (h) obligations of any general partnership or joint venture
in which such person is a general partner or a party; (i) all indebtedness
referred to in clauses (a) through (h) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and contracts
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; and (j) all Guaranty Obligations in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (a) through (h) above. The amount of any Indebtedness arising under
clause (g) above shall be deemed to equal 10% of the notional amount of all Swap
Contracts.
Indemnified Liabilities - has the meaning specified in Section 11.10
herein.
Indemnified Person - has the meaning specified in Section 11.10 herein.
Independent Auditor - has the meaning specified in Section 6.6(b) herein.
Insolvency Proceeding - has the meaning specified in the Collateral Agency
Agreement.
Institutional Holder - Any bank, trust company, insurance company, pension
fund, mutual fund or other similar financial institution, including, without
limiting the foregoing, any "qualified institutional buyer" within the meaning
of Rule 144A under the Securities Act, which is or becomes a Noteholder of any
Note.
Investment - Any investment, directly or indirectly, in any Person, whether
by means of share purchase (from such Person or a shareholder of such Person),
capital contribution, loan, advance, extension of credit or other similar means;
provided, however, that "Investments" shall not mean or include investments in
property to be used or consumed in the ordinary course of business.
IRS - means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
Letter of Credit - has the meaning specified in the Credit Agreement.
Lien - has the meaning specified in the Collateral Agency Agreement.
Loan Documents - has the meaning specified in the Collateral Agency
Agreement.
Make-Whole Amount - As of any Determination Date, to the extent that the
Reinvestment Yield on such Determination Date is lower than 6.69%, the excess of
(a) the present value of the principal and interest payments to be foregone by
any prepayment (exclusive of accrued interest on such Notes through the date of
prepayment) on such Notes to be prepaid (taking into account the manner of
application of such prepayment required by Section 2.1(c) or 2.2(c), determined
by discounting (semi-
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annually on the basis of a 360-day year composed of twelve 30-day months), such
payments at a rate that is equal to the Reinvestment Yield over (b) the
aggregate principal amount of such Notes then to be paid or prepaid. To the
extent that the Reinvestment Yield on any Determination Date is equal to or
higher than the 6.69%, Make-Whole Amount is zero. Notwithstanding the foregoing,
the Company and the Purchasers acknowledge that in accordance with the Letter
Agreement, the Company shall be entitled to reduce (but not below zero) its
aggregate cumulative obligation for Make-Whole Amounts by $70,000 representing
the amount to the equalization payment previously paid by the Company pro rata
to the Purchasers pursuant to the Letter Agreement.
Material Adverse Effect - (i) A material adverse change in, or a material
adverse effect upon, the current or future business, properties, assets, results
of operations or condition, financial or otherwise, of the Company and its
Subsidiaries, on a consolidated basis, (ii) the impairment of the ability of any
Obligor to perform its obligations under this Agreement, the Notes or any Note
Document and to avoid any Event of Default, (iii) the impairment of the ability
of the Noteholders to enforce such obligations; or (iv) a material adverse
effect upon the perfection or priority of any Lien granted under any of the
Collateral Documents.
Multiemployer Plan - A "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate is, or ever has,
contributed or to which the Company or any ERISA Affiliate has, or ever has had,
an obligation to contribute.
Net Proceeds - has the meaning specified in the Collateral Agency
Agreement.
Note Documents - has the meaning specified in the Collateral Agency
Agreement and shall also include the Warrants, the Registration Rights Agreement
and the Letter Agreement.
Noteholders - has the meaning specified in the Collateral Agency Agreement.
Notes - As defined in Section 1.1 herein.
Obligor - has the meaning specified in the Collateral Agency Agreement.
Organic Documents - has the meaning specified in the Collateral Agency
Agreement.
PBGC - means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
Permitted Liens - has the meaning specified in Section 7.5 herein.
Person - Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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Plan - Any employee pension benefit plan, as defined in Section 3(2) of
ERISA that is not described in Section 4(b) of ERISA and that has been
established by or contributed to or is maintained by the Company or any
Subsidiary.
Pledge Agreement (Stock and Intercompany Notes) - has the meaning specified
in the Collateral Agency Agreement.
Reinvestment Yield - The sum of (i) 0.50% plus (ii) the yield as set forth
on page "USD" of the Bloomberg Financial Markets Service (or other on-the-run
service acceptable to the Noteholders of not less than a majority in principal
amount of the outstanding Notes) at 10:00 A.M. (Chicago time) on the
Determination Date for actively traded U.S. Treasury securities having a
maturity equal to the Weighted Average Life to Maturity of the Notes then being
prepaid or paid as of the date of prepayment or payment, rounded to the nearest
month, or if such yields shall not be reported as of such time or the yields
reported as of such time are not ascertainable in accordance with the preceding
clause, then the arithmetic mean of the yields published in the statistical
release designated H.15(519) of the Board of Governors of the Federal Reserve
System under the caption "U.S. Government Securities--Treasury Constant
Maturities" (the "statistical release") for the maturity corresponding to the
remaining Weighted Average Life to Maturity of the Notes then being prepaid or
paid as of the date of such prepayment or payment rounded to the nearest month.
For purposes of calculating the Reinvestment Yield, the most recent weekly
statistical release published prior to the applicable Determination Date shall
be used. If no maturity exactly corresponding to such rounded Weighted Average
Life to Maturity shall appear therein, yields for the two most closely
corresponding published maturities (one of which occurs prior and the other
subsequent to the Weighted Average Life to Maturity) shall be calculated
pursuant to the foregoing sentence and the Reinvestment Yield shall be
interpolated from such yields on a straight-line basis (rounding in each of such
relevant periods, to the nearest month).
Release - Any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment (including, without limitation,
the abandonment or disposal of any barrels, containers or other closed
receptacles containing any Hazardous Materials), or into or out of any Facility,
including the movement of any Hazardous Material through the air, soil, surface
water, groundwater or property.
Rentals - As of the date of any determination thereof, all fixed payments
(including all payments which the lessee is obligated to make to the lessor on
termination of the lease or surrender of the property) payable by the Company or
a Subsidiary, as lessee or sublessee under a lease of real or personal property
(whether capital or operating), but exclusive of any amounts required to be paid
by the Company or a Subsidiary (whether or not designated as rents or additional
rents) on account of maintenance, repairs, insurance, taxes, assessments,
amortization and similar charges. Fixed rents under any so-called "percentage
leases" shall be computed on the basis of the minimum rents, if any, required to
be paid by the lessee, regardless of sales volume or gross revenues.
Reportable Event - means, any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, other than any such event for which the
30-day notice requirement under ERISA has been waived in regulations issued by
the PBGC.
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Requirement of Law - has the meaning specified in the Collateral Agency
Agreement.
Responsible Officer - means the chief executive officer or the president of
the Company, or any other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial officer or the treasurer of the Company, or any other officer
having substantially the same authority and responsibility.
Restricted Investment - Any of the following Investments by the Company or
a Subsidiary:
(i) Investments in property to be used or consumed in the
ordinary course of business;
(ii) Investments in U.S. Treasury obligations maturing within
one year from date of acquisition;
(iii) Investments in certificates of deposit rated not less than
A by Standard & Poor's Corporation or the equivalent by Moody's
Investors Service, Inc. of banks having capital surplus of at least
$250 million and maturing within one year from date of acquisition;
and
(iv) Investments in commercial paper rated not less than A1 by
Standard & Poor's Corporation or P1 by Moody's Investors Service, Inc.
and maturing within 270 days from the date of creation.
SEC - means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
Securities Act - The Securities Act of 1933, as amended, and as it may be
further amended from time to time.
Senior Indebtedness - Any Indebtedness of the Company and its Subsidiaries
other than Subordinated Indebtedness.
Solvent - means, as to any Person at any time, that (a) the fair value of
the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the
property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to realize upon its property and pay its debts
and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
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Subordinated Indebtedness - Any Indebtedness of the Company which by its
terms is expressly subordinate in right of payment to the payment of the Notes.
Subsidiary - of a Person means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which 50%
or more of the Voting Stock or other equity interests, is owned or controlled
directly or indirectly by the Person, or one or more of the Subsidiaries of the
Person, or a combination thereof. Unless the context otherwise clearly
requires, references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
Surety Instruments - has the meaning specified in the Credit Agreement.
Swap Contract - has the meaning specified in the Credit Agreement.
Unfunded Pension Liability - means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
Voting Stock - Capital stock of any class of a corporation having power to
vote for the election of members of the board of directors of such corporation,
or persons performing similar functions.
Warrants - Means the Warrants issued by the Company to a Noteholder.
Weighted Average Life to Maturity - As applied to any payment or prepayment
of principal of the Notes, at any date, the number of years obtained by dividing
(a) the principal amount of the Notes to be paid or prepaid into (b) the sum of
the products obtained by multiplying (i) the amount of the then remaining
payment at final maturity, forgone by virtue of such payment or prepayment, by
(ii) the number of years (calculated to the nearest 1/12th) which would have
elapsed between September 15, 1998 and the date of the making of such required
payment or prepayment of principal.
Wholly-Owned Subsidiary - has the meaning specified in the Collateral
Agency Agreement.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein. Terms that are referred to herein as defined in the
Collateral Agency Agreement or the Credit Agreement shall have those meanings
specified in the Collateral Agency Agreement or the Credit Agreement, as the
case may be.
5.2. Accounting Principles. (a) Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with (and
references elsewhere in this Agreement to GAAP shall mean) GAAP.
(b) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Company.
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5.3. Valuation Principles. Except where indicated expressly to the
contrary by the use of terms such as "fair value," "fair market value" or
"market value," each asset, each liability and each capital item of any Person,
and any quantity derivable by a computation involving any of such assets,
liabilities or capital items, shall be taken at the net book value thereof for
all purposes of this Agreement. "Net book value" with respect to any asset,
liability or capital item of any Person shall mean the amount at which the same
is recorded or, in accordance with GAAP, should have been recorded in the books
of account of such Person, as reduced by any reserves which have been or, in
accordance with GAAP, should have been set aside with respect thereto, but in
every case (whether or not permitted in accordance with GAAP) without giving
effect to any write-up, write-down or write-off (other than any write-down or
write-off the entire amount of which was charged to Consolidated Net Income or
to a reserve which was a charge to Consolidated Net Income) relating thereto
which was made after the date of this Agreement.
5.4. Direct or Indirect Actions. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
5.5. Other Interpretive Provisions.
(a) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Note Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(b) This Agreement and the other Note Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(c) This Agreement and the other Note Documents are the result of
negotiations among and have been reviewed by counsel to the Company and the
other parties, and are the products of all parties.
(S)6. AFFIRMATIVE COVENANTS
The Company agrees that for so long as any amount remains unpaid on any
Note:
6.1. Corporate Existence.
(a) The Company shall maintain and preserve, and will cause each
Subsidiary to maintain and preserve, its corporate existence and good standing
under the laws of its state or jurisdiction of incorporation and right to carry
on its business and use, and shall and shall cause each Subsidiary to use, its
best efforts to maintain, preserve, renew and extend all of its rights, powers,
privileges and franchises
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necessary to the proper conduct of its business; provided, however, that the
foregoing shall not prevent any transaction permitted by Section 7.7 or Section
7.8.
(b) The Company shall, and shall cause each Subsidiary to, use reasonable
efforts, in the ordinary course of business, to preserve its business
organization and goodwill; and
(c) The Company shall, and shall cause each Subsidiary to, preserve or
renew all of its registered patents, trademarks, trade names and service marks,
the non-preservation of which could reasonably be expected to have a Material
Adverse Effect.
6.2. Insurance. In addition to the insurance requirements set forth in
any Collateral Document, the Company shall, and shall cause each Subsidiary to,
maintain insurance coverage with respect to its properties and business against
loss or damage, with financially sound and reputable insurers with such
deductibles and against such risks as are required by law or sound business
practice and are customary for Persons engaged in the same or similar businesses
and owning and operating similar properties as the Company and its Subsidiaries
in such forms and amounts as are customarily carried under similar circumstances
by such other Persons.
6.3. Taxes. The Company shall pay and discharge when due, and will cause
each Subsidiary to pay and discharge when due, all taxes, assessments and
governmental charges or levies imposed upon it or its property or assets, or
upon properties leased by it (but only to the extent required to do so by the
applicable lease), other than taxes which individually and in the aggregate are
not material in amount or the non-payment of which would not have a Material
Adverse Effect, provided that neither the Company nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim, the payment of
which is being contested in good faith and by proper proceedings that will stay
the forfeiture or sale of any property and with respect to which adequate
reserves are maintained in accordance with GAAP.
6.4. Maintenance of Properties. The Company shall maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties (whether owned in fee or a leasehold interest) in good repair and
working order, ordinary wear and tear excepted, and from time to time will make
all necessary repairs, replacements, renewals and additions, except as permitted
by Section 7.8. The Company and each Subsidiary shall use no less than the
standard of care typical in the industry in the operation and maintenance of its
Facilities.
6.5. Maintenance of Records. The Company shall keep, and will cause each
Subsidiary to keep, at all times proper books of record and account in which
full, true and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such Subsidiary, in
accordance with GAAP consistently applied throughout the period involved (except
for such changes as are disclosed in such financial statements or in the notes
thereto and concurred in by the independent certified public accountants), and
the Company will, and will cause each Subsidiary to, provide reasonable
protection against loss or damage to such books of record and account.
6.6. Financial Information and Reports. The Company shall furnish to the
Securities Valuation Office of the National Association of Insurance
Commissioners, 195 Broadway, New York, New York 10007, a copy of the financial
statements referred to in Section 6.6(b) as soon as they are
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available. The Company shall furnish to you and to any other Institutional
Holder (in duplicate if you or such other holder so request) the following:
(a) As soon as available and in any event within 45 days after the end of
each of the quarterly accounting periods of each fiscal year of the Company
commencing with the Company's fiscal quarter ending January 31, 1997, the
unaudited consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such period and consolidated and consolidating
statements of income of the Company and its Subsidiaries for the periods
beginning on the first day of such quarterly accounting period and ending on the
last day of such quarter, and consolidated and consolidating statements of cash
flows beginning on the first day of such fiscal year and ending in each case on
the date of such balance sheet, setting forth in comparative form (x) the
corresponding consolidated and consolidating statements of income and
shareholders' equity for the corresponding periods of the preceding fiscal year,
(y) the corresponding consolidated and consolidating statements of cash flows
for the corresponding year to date period of the preceding fiscal year and (z)
consolidated and consolidating balance sheets as of the end of the preceding
fiscal year, all in reasonable detail prepared in accordance with GAAP
consistently applied throughout the period involved (except for changes
disclosed in such financial statements or in the notes thereto) and certified by
the chief financial officer or chief accounting officer of the Company (i)
outlining the basis of presentation, and (ii) stating that the information
presented in such statements presents fairly the financial position of the
Company and its Subsidiaries and the results of operations for the period,
subject to customary year-end audit adjustments;
(b) As soon as available and in any event within 90 days after the last
day of each fiscal year, commencing with the Company's fiscal year ending
October 31, 1997, a copy of the audited consolidated and unaudited consolidating
balance sheets of the Company and its Subsidiaries as of the end of such fiscal
year and the related consolidated and consolidating statements of income or
operations, changes in stockholders' equity, cash flows for such fiscal year, in
each case setting forth in comparative form figures for the preceding fiscal
year, all in reasonable detail, prepared in accordance with GAAP consistently
applied throughout the period involved (except for changes disclosed in such
financial statements or in the notes thereto) and accompanied in the case of the
consolidated financial statements by a report unqualified as to scope of audit
and unqualified as to going concern as to the consolidated balance sheet and the
related consolidated statements of income, changes in stockholders' equity and
cash flows of KPMG Peat Marwick or any other firm of independent public
accountants of recognized national standing ("Independent Auditor") selected by
the Company to the effect that such consolidated financial statements have been
prepared in conformity with GAAP applied on a basis consistent with prior years
and present fairly, in all material respects, the financial position of the
Company and its Subsidiaries and that the examination of such financial
statements by such accounting firm has been made in accordance with generally
accepted auditing standards. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Company's or any Subsidiary's records and shall be
delivered to the Noteholders pursuant to a reliance agreement between the
Noteholders and such Independent Auditor in form and substance satisfactory to
the Noteholders;
(c) Together with the financial statements delivered pursuant to
paragraphs (a) and (b) of this Section 6.6, (i) a management's discussion and
analysis of the financial condition and results of operations for the periods
reported upon by such financial statements, which discussion and analysis
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shall satisfy the requirements of Item 303 of Securities and Exchange Commission
Regulation S-K, (ii) a certificate of the chief financial officer or chief
accounting officer, (x) to the effect that such officer has re-examined the
terms and provisions of this Agreement and that at the date of such certificate,
during the periods covered by such financial reports and as of the end of such
periods, the Company is not, or was not, in default in the fulfillment of any of
the terms, covenants, provisions and conditions of this Agreement and that no
Default or Event of Default is occurring or has occurred as of the date of such
certificate, during such periods and as of the end of such periods, or if the
signer is aware of any Default or Event of Default, such officer shall disclose
in such statement the nature thereof, its period of existence and what action,
if any, the Company has taken or proposes to take with respect thereto, and (y)
stating whether the Company is in compliance with Sections 7.1 through 7.3 and
setting forth, in sufficient detail, the information and computations required
to establish whether or not the Company was in compliance with the requirements
of Sections 7.1 through 7.3 during the periods covered by the financial reports
then being furnished and as of the end of such periods; and (iii) a detailed
listing of all intercompany loans then outstanding between the Company and its
Subsidiaries;
(d) Together with the financial reports delivered pursuant to paragraph
(b) of this Section 6.6, a certificate of the Independent Auditor stating that
in making the examination necessary for expressing an opinion on such financial
statements, no knowledge was obtained that there is in existence or has occurred
any Default or Event of Default hereunder (the occurrence of which is
ascertainable by accountants in the course of normal audit procedures) or, if
such accountants shall have obtained knowledge of any such Default or Event of
Default, describing the nature thereof and the length of time it has existed;
(e) Promptly after the Company obtains knowledge thereof, notice of any
litigation or any governmental proceeding threatened in writing or pending
against the Company or any Subsidiary in which liability might reasonably be
expected to exceed $250,000 or which might reasonably be expected to otherwise
have a Material Adverse Effect;
(f) Promptly, but in any event within 10 days of the filing thereof with
the SEC, copies of each financial statement, notice, report and proxy statement
which the Company sends to its stockholders; copies of all financial statements
and each registration statement and regular, special or periodic report
(including but not limited to Forms 8-K, 10-K, 10-Q, S-1 and S-3), that the
Company or any Subsidiary may make to, or file with, the SEC, and any other
similar or successor agency of the Federal government administering the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as amended;
without duplication, copies of each report (other than reports relating solely
to the issuance of, or transactions by others involving, its securities)
relating to the Company or its securities which the Company may file with any
securities exchange on which any of the Company's securities may be registered;
copies of any orders in any material proceedings to which the Company or any of
its Subsidiaries is a party, issued by any governmental agency, Federal or
state, having jurisdiction over the Company or any of its Subsidiaries; and,
except at such times as the Company is a reporting company under Section 13 or
15(d) of the Exchange Act or has complied with the requirements for the
exemption from registration under the Exchange Act set forth in Rule 12g-3-2(b),
such financial or other information as any prospective purchaser of the Notes
may reasonably determine is required to permit such Noteholder to comply with
the requirements of Rule 144A under the Securities Act in connection with the
resale by it of the Notes;
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(g) As soon as available, a copy of each other report submitted to the
Company or any Subsidiary by independent accountants retained by the Company or
any Subsidiary in connection with any interim or special audit made by them of
the books of the Company or any Subsidiary;
(h) Promptly following any change in the composition of the Company's
Subsidiaries from that set forth in Annex 3.1(d), as theretofore updated
pursuant to this paragraph, an updated list setting forth the information
specified in Annex 3.1(d);
(i) As soon as available, but in any event within ninety (90) days after
the beginning of each fiscal year of the Company, a copy of the business and
financial plan (including a projected closing consolidated balance sheet, income
statement and funds flow statements) of the Company for each quarter of such
fiscal year;
(j) By the close of business on Tuesday of each calendar week of each
fiscal quarter (or, in the case of any fiscal quarter which ends on a day other
than Friday, Saturday or Sunday, by the close of business on the second Business
Day after the end of such fiscal quarter), a report, in the format provided to
the Banks at the September 11, 1996 meeting between the Company and the Banks,
showing as of the end of the immediately preceding calendar week (or portion
thereof occurring during such fiscal quarter), total cash receipts and total
cash disbursements of the Company and its Subsidiaries on a consolidated basis
for the portion of such calendar week which falls within such fiscal quarter.
(k) As soon as available, a copy of each final management letter submitted
to the Company or any Subsidiary by independent accountants;
(l) Promptly such additional information as you or such other
Institutional Holder of the Notes may reasonably request concerning the Company
and its Subsidiaries; and
(m) The Company shall simultaneously furnish to the Noteholders any
documents delivered to the Banks or the Agent.
6.7. Inspection of Properties and Records. The Company shall allow, and
shall cause each Subsidiary to allow, any representative of you or any other
Institutional Holder, so long as you or such other Institutional Holder holds
any Note, to visit and inspect any of its properties, to examine its corporate,
financial and operating records, and make copies thereof or abstracts therefrom,
and to discuss its affairs, finances and accounts with its directors, officers
and its independent public accountants all at such reasonable times during
normal business hours and as often as may be reasonably desired, upon reasonable
advance notice to the Company; provided, however, when an Event of Default
exists any representative of you or any other Institutional Holder may do any of
the foregoing at the expense of the Company at any time during normal business
hours and without advance notice. The Company shall have the right to schedule
any meetings with its accountants, provided that you or any other Institutional
Holder shall have the right to exclude all Company representatives from such
meetings.
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6.8. ERISA.
(a) The Company shall and shall cause each of its ERISA Affiliates to:
(i) have all assumptions and methods used to determine the
actuarial valuation of employee benefits, both vested and unvested, under
each Plan of the Company or any ERISA Affiliate, and each such Plan,
whether now existing or adopted after the date hereof, comply in all
material respects with ERISA, the Code and any other federal or state law;
(ii) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and
(iii) make all required contributions to any Plan subject to Section
412 of the Code.
(b) The Company shall not at any time permit any Plan established,
maintained or contributed to by it or any Subsidiary in the United States or
ERISA Affiliate to:
(i) engage in any "prohibited transaction" as such term is defined
in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated under circumstances which are likely to result in
the imposition of a lien on the property of the Company or any such
Subsidiary pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in clauses (i), (ii) or (iii) above is
likely to subject the Company or any Subsidiary or ERISA Affiliate to
liabilities which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(c) The Company shall furnish you or any other Institutional Holder a copy
of the annual report of each Plan (Form 5500) required to be filed with the
Internal Revenue Service no later than 45 days after the date such report has
been filed with the Internal Revenue Service.
(d) Promptly upon obtaining knowledge of the occurrence thereof, the
Company will give you and each other Institutional Holder notice of (i) a
Reportable Event with respect to any Plan; (ii) the institution of any steps by
the Company, any Subsidiary, any ERISA Affiliate, the PBGC or any other Person
to terminate any Plan; (iii) the institution of any steps by the Company, any
Subsidiary, or any ERISA Affiliate to withdraw from any Plan; (iv) a prohibited
transaction in connection with any Plan; (v) any material increase in the
contingent liability of the Company or any Subsidiary with respect to any post-
retirement welfare liability; or (vi) the taking of any action by the IRS, the
Department of Labor or the PBGC with respect to any of the foregoing which, in
any of the events specified above, could reasonably be expected to result in a
Material Adverse Effect.
6.9. Compliance with Laws. (a) The Company shall comply, and shall cause
each Subsidiary to comply, with all Requirements of Law (including Environmental
Laws and the Federal Fair Labor
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Standards Act); provided, however, that the Company and its Subsidiaries shall
not be required to comply with Requirements of Law (other than Environmental
Laws) the validity or applicability of which are being contested in good faith
and by appropriate proceedings and as to which the Company has established
adequate reserves on its books.
(b) Promptly upon the occurrence thereof, the Company will give you and
each other Institutional Holder notice of the institution of any proceedings
against the Company or any Subsidiary, or the receipt of notice of any
Environmental Claim, which if determined adversely might reasonably be expected
to have a Material Adverse Effect.
6.10. Acquisition of Notes. Neither the Company nor any Subsidiary or
Affiliate, directly or indirectly, will repurchase or offer to repurchase any
Notes unless the offer is made to repurchase Notes pro rata from all Noteholders
at the same time and on the same terms. The Company shall forthwith cancel any
Notes in any manner or at any time acquired by the Company or any Subsidiary or
Affiliate and such Notes shall not be deemed to be outstanding for any of the
purposes of this Agreement or the Notes.
6.11. Private Placement Number. The Company consents to the filing of
copies of this Agreement with Standard & Poor's Corporation to obtain a private
placement number and with the National Association of Insurance Commissioners.
6.12. Proposed Change of Control. Promptly following the day on which the
Company first learns of a proposed Change of Control, the Company shall provide
information to each Noteholder regarding the nature and details of such proposed
Change of Control.
6.13. Notices. The Company shall promptly notify each Noteholder:
(a) of the occurrence of any Default or Event of Default and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or is likely to result in a Material
Adverse Effect, including: (i) breach or non-performance of, or any default
under, a contractual obligation of the Company or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between the Company
or any Subsidiary and any Governmental Authority; or (iii) the commencement of,
or any material development in, any litigation or proceeding affecting the
Company or any Subsidiary, including pursuant to any applicable Environmental
Laws;
(c) of the occurrence of any of the following events affecting the Company
or any ERISA Affiliate (but in no event more than 10 days after such event), and
deliver to each Noteholder a copy of any notice with respect to such event that
is filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Company or any ERISA Affiliate with respect to
such event: (i) an ERISA Event; (ii) material increase in the Unfunded Pension
Liability of any Pension Plan; (iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the Company or
any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability; and
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(d) of any material change in accounting policies or financial reporting
practices by the Company or any of its consolidated Subsidiaries or any material
inquiry or objection made by the Independent Auditors.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
hereunder shall describe with particularity any and all clauses or provisions of
this Agreement or any Note Document that have been breached or violated.
6.14. Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including: (i) all tax
liabilities, assessments and governmental charges or levies upon it or its
properties or assets, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary; (ii) all lawful claims which, if
unpaid, would by law become a Lien upon its property; and (iii) all
Indebtedness, as and when due and payable, but subject to any subordination
provisions contained in any instrument or agreement evidencing such
Indebtedness.
6.15. Letter Agreement. The Company shall comply with all of the terms of
the Letter Agreement on a timely basis.
6.16. Further Assurances.
(a) The Company shall ensure that all written information, exhibits and
reports furnished to the Noteholders do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and will promptly
disclose to the Noteholders and correct any defect or error that may be
discovered therein or in any Note Document or in the execution, acknowledgment
or recordation thereof.
(b) Promptly upon request by the Noteholders, the Company shall (and shall
cause any of its Subsidiaries to) do, execute, acknowledge, deliver, record, re-
record, file, re-file, register and re-register, any and all such further acts,
deeds, conveyances, security agreements, mortgages, assignments, estoppel
certificates, financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances and other
instruments that the Noteholders may reasonably require from time to time in
order:
(i) to carry out more effectively the purposes of this Agreement or
any Note Documents,
(ii) to subject to the Liens created by any Collateral Document any
of the properties, rights or interests covered by any Collateral Document,
(iii) to perfect and maintain the validity, effectiveness and
priority of any Collateral Document and the Liens intended to be created
thereby, and
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(iv) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm to each Noteholder, the rights granted or now or
hereafter intended to be granted to the Noteholder under any Note Document
or under any other document executed in connection therewith.
6.17. Most Favored Lender Provision. Concurrently with the furnishing to
the Agent or the Banks of any additional benefit (whether in the form of
compensation, enhancement, collateral security, covenant, default, or other
benefit) not provided to the Purchasers (in any capacity including, without
limitation, as purchasers hereunder or as holders of warrants for equity in the
Company) as at the date of this Agreement, the Company shall furnish to the
Purchasers any and all such additional proportionate benefits pursuant to
documentation reasonably acceptable to the Purchasers.
(S)7. NEGATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on any
Note:
7.1. Consolidated Net Worth. The Company shall not permit its
Consolidated Net Worth as of the last day of any fiscal quarter of the Company
to be less than $103,000,000.
7.2. Cash Balances. The Company shall not permit its Consolidated Cash
Balances as of the last Business Day of each calendar week to be less than
$6,000,000.
7.3. Capital Expenditures. The Company shall not permit its Capital
Expenditures during any fiscal quarter of the Company to exceed $16,000,000.
7.4. Indebtedness. The Company shall not, and will not permit any
Subsidiary to, permit to exist, create, assume, incur or otherwise be or become
liable for, directly or indirectly, any Indebtedness other than:
(a) the Notes;
(b) Indebtedness of the Company and its Subsidiaries in the form and as
existing on the date hereof and described in the attached Annex 7.4;
(c) additional Indebtedness of the Company or any Subsidiary of
$100,000,000 or more incurred in one transaction the Net Proceeds of which are
used to make a mandatory prepayment of all of the Notes pursuant to Section
2.2(b); and
(d) Indebtedness otherwise permitted by Sections 7.10(c) and 7.18 hereof.
7.5. Liens. The Company shall not, and shall not permit any Subsidiary
to, create, assume, or incur, or permit to exist, directly or indirectly, any
Lien upon or with respect to its properties or assets, whether now owned or
hereafter acquired except for the following ("Permitted Liens"):
(a) Liens existing on property of the Company or any Subsidiary on the
Closing Date that are described in attached Annex 7.5 securing Indebtedness
outstanding on such date;
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(b) Liens created under the Collateral Documents;
(c) Liens for taxes, assessments or governmental charges not then due and
delinquent or which remain payable without penalty provided that no notice of
lien has been filed or recorded under the Code or the validity of which is being
contested in good faith and as to which the Company has established adequate
reserves on its books;
(d) Liens arising in connection with court proceedings, or judgment or
judicial attachment liens, provided the execution of such Liens is effectively
stayed and such Liens are being contested in good faith and as to which the
Company has established adequate reserves on its books all such Liens in the
aggregate at any time outstanding for the Company and its Subsidiaries do not
exceed $500,000;
(e) Protective filings under the Uniform Commercial Code in connection
with true leases, defects in title and Liens arising in the ordinary course of
business and not incurred in connection with the borrowing of money, including
encumbrances in the nature of zoning restrictions, easements, rights and
restrictions of record on the use of real property, landlord's and lessor's
liens in the ordinary course of business, which in the aggregate do not
materially interfere with the conduct of the business of the Company and its
Subsidiaries taken as a whole or materially impair the value of the property
subject thereto for the purpose of such business;
(f) Liens (i) existing on property at the time of its acquisition by the
Company or a Subsidiary and not created in contemplation thereof, whether or not
the Indebtedness secured by such Lien is assumed by the Company or such
Subsidiary or (ii) existing on property created substantially contemporaneously
with the date of acquisition or completion of construction thereof to secure or
provide for all or a portion of the purchase price or cost of construction of
such property or (iii) existing on property of a corporation at the time such
corporation is merged into or consolidated with or is acquired by, or
substantially all of its assets are acquired by, the Company or a Subsidiary and
not created in contemplation thereof; provided that such Liens do not extend to
other property of the Company or any Subsidiary and that the aggregate principal
amount of Indebtedness secured by each such Lien does not exceed 100% of the
lesser of the cost or fair market value (at the time of acquisition or
completion of construction) of the property subject thereto; and provided
further, that after giving effect to the acquisition of the assets subject to
such Liens, no Default or Event of Default would exist;
(g) Carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
and
(h) Liens (other than any Lien imposed by ERISA) consisting of pledges or
deposits required in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other social security legislation.
7.6. Restricted Payments. Except as hereinafter provided, the Company
shall not and shall not permit any Subsidiary to:
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(a) declare or pay any dividends or distributions, either in cash or
property, on any shares of the Company's or any Subsidiary's capital stock of
any class (except dividends or other distributions payable solely in shares of
common stock of the Company or such Subsidiary);
(b) directly or indirectly, or through any Subsidiary, purchase, redeem or
retire any shares of the Company's or any Subsidiary's capital stock of any
class or any warrants, rights or options to purchase or acquire any shares of
such capital stock;
(c) make any other payment or distribution, either directly or indirectly
or through any Subsidiary, in respect of the Company's or any Subsidiary's
capital stock; or
(d) Except as otherwise provided for herein, the Company shall not, and
shall not suffer or permit any Subsidiary to, directly or indirectly, declare,
order, pay, make or set apart any sum for (by way of defeasance or otherwise)
any payment or prepayment of principal of, or premium, if any, on, any Bank Debt
or any other Indebtedness; provided, that the Company may continue to make
regularly scheduled principal and interest payments on the Bank Debt and any
other Indebtedness permitted hereby.
7.7. Merger or Consolidation. The Company shall not, and shall not
permit any Subsidiary to, merge or consolidate with, or into, or sell, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge into the Company or another Wholly-Owned
Subsidiary so long as the Company or the Wholly-Owned Subsidiary is the
surviving corporation; or
(b) any Subsidiary may sell, transfer, convey, or lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
any part of its assets (whether now owned or hereafter acquired) to the Company
or to another Wholly-Owned Subsidiary; provided, that no consideration is paid
by the Company or such Wholly-Owned Subsidiary in exchange for such conveyance.
7.8. Sale of Assets.
The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, sell, lease, assign, convey, transfer or otherwise dispose of any
assets or property (including accounts and notes receivable, with or without
recourse, and capital stock of a Subsidiary) in one or a series of transactions
(other than in the ordinary course of business or as permitted by Section 7.7)
except:
(i) dispositions of inventory (including the sale or licensing of
computer software products of the Company or any Subsidiary), or used,
worn-out or surplus equipment, all in the ordinary course of business;
(ii) the sale of not more than $100,000 in the aggregate worth of
equipment to the extent that such equipment is exchanged for credit against
the purchase price of similar replacement equipment, or the proceeds of
such sale are reasonably promptly applied to the purchase price of such
replacement equipment;
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(iii) the sale of that certain condominium unit owned by the Borrower
the address of which is 195 Harbor Drive, Unit 2802, Chicago, Illinois; and
(iv) the sale of the sales and customer service assets of the
Borrower's Barcelona, Spain office provided the net proceeds therefrom do
not exceed U.S. $1,750,000 and are payable in one or more annual
installments.
Notwithstanding anything in the foregoing to the contrary, the Company will
not, and will not permit any Subsidiary to, sell or discount any accounts
receivable.
7.7. Disposition of Stock of Subsidiaries. The Company shall not permit
any Subsidiary to issue or sell the capital stock of a Subsidiary, or any
warrants, rights or options to purchase, or securities convertible into or
exchangeable for, such capital stock, to any Person other than the Company or
another Wholly-Owned Subsidiary. The Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of (other than to the Company
or another Wholly-Owned Subsidiary) any capital stock (including any warrants,
rights or options to purchase, or securities convertible into or exchangeable
for, capital stock) or Indebtedness of any Subsidiary.
7.10. Investments. The Company shall not, and shall not permit any
Subsidiary to make any Investments, except:
(a) Restricted Investments;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale, license or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries existing on the Closing Date or by any of its Wholly-Owned
Subsidiaries to another of its Wholly-Owned Subsidiaries existing on the Closing
Date; provided, that (i) all such extensions of credit are evidenced by
Intercompany Revolving Demand Notes duly executed by the respective Wholly-Owned
Subsidiary, (ii) such Intercompany Notes are delivered to the Agent in
accordance with the Pledge Agreement (Stock and Intercompany Notes) and (iii)
the aggregate principal dollar equivalent amount of such extensions of credit to
all Wholly-Owned Subsidiaries shall not exceed at any time $67,000,000;
(d) at any time following delivery by the Company of the financial
statements required pursuant to Section 6.6(a) with respect to the Company's
fiscal quarter ending January 31, 1997, Investments in the equity of any Person
organized under the laws of the United States or the laws of any State therein;
provided, that (i) all of the consideration for such Investments shall consist
of equity securities of the Company, (ii) no Default or Event of Default shall
have occurred and be continuing or shall result therefrom and (iii) the Company
shall deliver to the Noteholders a pro forma Compliance Certificate dated as of
the last day of the most recent fiscal quarter for which the Company has
delivered to the Noteholders the financial statements pursuant to Section 6.6(a)
showing that if such Investment had occurred on the last day of such fiscal
quarter no Default or Event of Default would have resulted therefrom;
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(e) capital contributions by the Company in any of its Subsidiaries
consisting of the reclassification of amounts owed by any such Subsidiary to the
Company to the extent necessary to maintain such Subsidiary in compliance with
all minimum capitalization requirements under the laws of the jurisdiction where
such Subsidiary is incorporated or is qualified to do business; and
(f) the creation of Subsidiaries organized under the laws of the United
States or the laws of any State therein to undertake acquisitions permitted by
Section 7.11 or this Section 7.10(d); provided, that the net capital Investment
by the Company in any such Subsidiary shall not exceed $25,000.
7.11. Asset Acquisitions. The Company shall not, and shall not suffer or
permit any Subsidiary to, purchase or otherwise acquire assets except in the
ordinary course of business; provided, that at any time following delivery by
the Company of the financial statements required pursuant to Section 6.6(a) with
respect to the Company's fiscal quarter ending January 31, 1997, acquisitions of
assets of any Person; provided, further, that (i) all of the consideration for
such acquisition shall consist of equity securities of the Company, (ii) no
Default or Event of Default shall have occurred and be continuing or shall
result therefrom and (iii) the Company shall deliver to the Noteholders a pro
forma Compliance Certificate dated as of the most recent fiscal quarter for
which the Company has delivered to the Noteholders the financial statements
pursuant to Section 6.6(a) showing that if such acquisition had occurred on the
last day of such fiscal quarter no Default or Event of Default would have
resulted therefrom.
7.12. Deposit Accounts. The Company shall not create, establish or
maintain for its account (whether held in the name of the Company or through its
designee) any deposit accounts, bank accounts, brokerage accounts or other
investment accounts in the United States except for those accounts set forth on
Annex 3.1(x).
7.13. ERISA. The Company shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in liability of the Company;
or (b) engage in a transaction that could be subject to Section 4069 or 4212(c)
of ERISA.
7.14. Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
7.15. Transactions with Affiliates. The Company shall not, and shall not
permit any Subsidiary to, enter into any transaction (including the furnishing
of goods or services) with an Affiliate except in the ordinary course of
business as presently conducted and on terms and conditions no less favorable to
the Company or such Subsidiary than would be obtained in a comparable arm's-
length transaction with a Person not an Affiliate.
7.16. Nature of Business. The Company shall not, and shall not permit
any Subsidiary to, engage in any new business if, as a result thereof, the
general nature of the business then to be engaged in by the Company and its
Subsidiaries, taken as a whole, would be substantially different from the
general nature of the businesses engaged in by the Company and its Subsidiaries
as of the Closing Date.
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7.17. Capital. The Company shall not and shall not permit any Subsidiary
to issue or sell any capital stock of the Company or any Subsidiary or any
warrants, rights or options to purchase, or securities convertible into or
exchangeable for such capital stock (collectively, an "Offering") unless such
Offering yields proceeds to the Company or the Subsidiary of $100,000,000 or
more and such proceeds are used to make a mandatory prepayment of all of the
Notes pursuant to Section 2.2(b) or the Warrants or as permitted pursuant to
Section 7.10(d) hereof or pursuant to employee benefit plans previously entered
into in the ordinary course of business covering not more than five percent of
the outstanding common stock on a fully diluted basis.
7.18. Contingent Obligations. The Company shall not, and shall not suffer
or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except;
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Swap Contracts entered into in the ordinary course of business as
bona fide hedging transactions, involving an aggregate notional Dollar
Equivalent amount not exceeding $35,000,000 at any one time outstanding.
7.19. Operating Lease Obligations. The Company shall not, and shall not
suffer or permit any Subsidiary to, create or suffer to exist any operating
lease obligations for the payment of rent for any property under lease or
agreement to lease, except for:
(a) operating leases of the Borrower and of Subsidiaries in existence on
the Closing Date and any renewal or extension thereof; and
(b) operating leases entered into by the Borrower or any Subsidiary after
the Closing Date in the ordinary course of business; provided, that on the date
upon which such operating lease is entered into and after giving effect thereto
the aggregate Rentals for all operating leases of the Borrower and its
Subsidiaries due within any twelve month period succeeding such date shall not
exceed at any time $26,400,000.
(S)8. EVENTS OF DEFAULT AND REMEDIES THEREFOR(S)
8.1. Nature of Events. An "Event of Default" shall exist if any one or
more of the following occurs:
(a) The Company fails to pay when and as required to be paid herein, any
amount of principal of any of the Notes or the Make-Whole Amount thereon, if
any;
(b) The Company fails to pay within five (5) days after the same becomes
due, any interest, fee, or other amount payable on any of the Notes or under
this Agreement or any Note Document;
(c) An Event of Default as defined in the Credit Agreement occurs and is
continuing;
(d) The Company or any Subsidiary (i) fails to make any payment in
respect of any Indebtedness or Contingent Obligation having an aggregate
principal amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement)
38
<PAGE>
of more than $1,000,000 when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure continues after
the applicable grace or notice period, if any, specified in the relevant
document on the date of such failure; or (ii) fails to perform or observe any
other condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation, and such failure continues after the applicable grace or
notice period, if any, specified in the relevant document on the date of such
failure if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded;
(e) Any default in the observance of any covenant or agreement contained
in Sections 7.1 through 7.19 or Section 8.7;
(f) Any default in the observance or performance of any other term or
covenant contained in this Agreement or any Note Document, which is not remedied
within 20 days following the earlier to occur of (i) the day on which a
Responsible Officer of the Company knew or reasonably should have known of such
default or (ii) the day on which written notice thereof is given to the Company
by any Noteholder;
(g) Any representation or warranty made by the Company or any Subsidiary
in this Agreement or in any Note Document, or which is contained in any
certificate, document or financial or other statement by the Company, any
Subsidiary, or any Responsible Officer, provided at any time in connection with
the issuance of the Notes or pursuant to this Agreement, or in or under any Note
Document, is incorrect in any material respect on or as of the date made or
deemed made;
(h) Any judgment, writ or warrant of attachment or any similar process or
any settlement in an aggregate amount in excess of $250,000 shall be entered or
filed against or agreed to by the Company or any Subsidiary or against any
property or assets of either or any non-monetary judgment, order or decree is
entered against the Company or any Subsidiary which does or would reasonably be
expected to have a Material Adverse Effect and any of the foregoing shall remain
unpaid, unvacated, unbonded or unstayed (through appeal or otherwise) for a
period of 15 Business Days after entry thereof or agreement thereto;
(i) An ERISA Event shall occur with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of the Company under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $250,000, the
aggregate amount of Unfunded Pension Liability among all Pension Plans at any
time exceeds $250,000, or the Company or any ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multiemployer Plan in an aggregate amount in excess of $250,000;
(j) There occurs any Change of Control;
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<PAGE>
(k) Any material provision of any Note Document shall for any reason
cease to be valid and binding on or enforceable against the Company or any
Subsidiary party thereto or the Company or any Subsidiary shall so state in
writing or bring an action to limit its obligations or liabilities thereunder;
or
(l) Any Collateral Document shall for any reason (other than pursuant to
the terms thereof) cease to create a valid security interest in any material
item of Collateral purported to be covered thereby or such security interest
shall for any reason cease to be a perfected and first priority security
interest subject only to Permitted Liens.
(m) The Company or any Subsidiary shall:
(i) generally not pay its debts as they become due or admit in
writing its inability to pay its debts generally as they become due;
(ii) file a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Bankruptcy Code, or any similar
(domestic or foreign) applicable bankruptcy or insolvency law, as now or in
the future amended (herein collectively called "Bankruptcy Laws"); file an
answer or other pleading admitting or failing to deny the material
allegations of such a petition; fail to file, within the time allowed for
such purpose, an answer or other pleading denying or otherwise
controverting the material allegations of such a petition; or file an
answer or other pleading seeking, consenting to or acquiescing in relief
provided for under the Bankruptcy Laws;
(iii) make an assignment of all or a substantial part of its property
for the benefit of its creditors;
(iv) seek or consent to or acquiesce in the appointment of a
receiver, liquidator, custodian or trustee of it or for all or a
substantial part of its property;
(v) be finally adjudicated a bankrupt or insolvent;
(vi) be subject to the entry of a court order, which shall not be
vacated, set aside or stayed within 60 days from the date of entry, (A)
appointing a receiver, liquidator, custodian or trustee of it or for all or
a substantial part of its property, or (B) for relief pursuant to an
involuntary case brought under, or effecting an arrangement in, bankruptcy
or (C) for a reorganization pursuant to the Bankruptcy Laws or (D) for any
other judicial modification or alteration of the rights of creditors; or
(vii) be subject to the assumption of custody or sequestration by a
court of competent jurisdiction of all or a substantial part of its
property, which custody or sequestration shall not be suspended or
terminated within 60 days from its inception.
8.2. Remedies on Default. When any Event of Default described in
paragraphs (a) through (l) of Section 8.1 has occurred and is continuing, the
Noteholders of at least 25% in aggregate principal amount of the Notes then
outstanding may, by notice to the Company, declare the entire
40
<PAGE>
principal, together with the Make-Whole Amount (to the extent permitted by law),
all interest accrued on all Notes to be, and such Notes shall thereupon become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Company; and
exercise all rights and remedies available to it under this Agreement, the Note
Documents, or applicable law. Notwithstanding the foregoing, when any Event of
Default described in paragraphs (a) or (b) of Section 8.1 has occurred and is
continuing, (i) any Noteholder may by notice to the Company declare the entire
principal, together with the Make-Whole Amount (to the extent permitted by law),
and all interest accrued on the Notes then held by such Noteholder to be, and
such Notes shall thereupon become immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company and (ii) where any Event of Default
described in paragraph (m) of Section 8.1 has occurred, then the entire
principal, together with the Make-Whole Amount (to the extent permitted by law)
and all interest accrued on all outstanding Notes shall immediately become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Company. Upon the Notes or any
of them becoming due and payable as aforesaid, the Company will forthwith pay to
the Noteholders of such Notes the entire principal of and interest accrued on
such Notes, plus the Make-Whole Amount which shall be calculated on the
Determination Date.
8.3. Annulment of Acceleration of Notes. The provisions of Section 8.2
are subject to the condition that if the principal of and accrued interest on
the Notes have been declared immediately due and payable by reason of the
occurrence of any Event of Default described in paragraphs (a) through (l)
inclusive, of Section 8.1, the Noteholder or Noteholders of 70% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, provided that (i) at the time such declaration is annulled and
rescinded no judgment or decree has been entered for the payment of any monies
due pursuant to the Notes or this Agreement, (ii) all arrears of interest upon
all the Notes and all other sums payable under the Notes and under this
Agreement (except any principal, interest or premium on the Notes which has
become due and payable solely by reason of such declaration under Section 8.2)
shall have been duly paid and (iii) each and every Default or Event of Default
shall have been cured or waived; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent Default or Event of
Default or impair any right consequent thereto.
8.4. Other Remedies. If any Event of Default shall be continuing, any
Noteholder may enforce its rights by suit in equity, by action at law, or by any
other appropriate proceedings, whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in this
Agreement, and may enforce the payment of any Note held by such Noteholder and
any of its other legal or equitable rights. During the continuance of an Event
of Default, the Noteholders shall have all rights as set forth in and subject to
the Collateral Agency Agreement and the Note Documents.
8.5. Conduct No Waiver; Collection Expenses. No course of dealing on
the part of any Noteholder, nor any delay or failure on the part of any
Noteholder to exercise any of its rights, remedies, powers or privileges
hereunder or under any Note Documents, nor any single or partial exercise of any
right, remedy, power, or privilege hereunder or under any Note Documents shall
operate as a waiver of such rights or otherwise preclude or prejudice such
Noteholder's rights, powers and remedies. If the Company fails to pay, when
due, the principal of, or the interest on, any Note, or fails
41
<PAGE>
to comply with any other provision of this Agreement or under any Note Documents
the Company will pay to each Noteholder, to the extent permitted by law, on
demand, such further amounts as shall be sufficient to cover the cost and
expenses, including but not limited to reasonable attorneys' fees, incurred by
such Noteholders in collecting any sums due on the Notes or in otherwise
enforcing any of their rights.
8.6. Remedies Cumulative. No rights or remedies provided for in this
Agreement or the Note Documents are intended to be exclusive of any other right
or remedy, and every right and remedy shall be cumulative and in addition to
every other right, power, privilege, or remedy given under this Agreement or the
Note Documents or now or hereafter existing as provided by law or in equity, or
under any other instrument, document, or agreement now existing or hereafter
arising. Every right and remedy given by this Agreement and the Note Documents
as provided by law or in equity, or under any other instrument, document, or
agreement now existing or hereafter arising to any Noteholder may be exercised
from time to time and as often as may be deemed expedient by such Noteholder, as
the case may be.
8.7. Notice of Default. With respect to Defaults, Events of Default or
claimed defaults, the Company shall give the following notices:
(a) The Company promptly, but in any event within 5 days after the day on
which an executive officer of the Company first obtains knowledge thereof, shall
furnish to each Noteholder written notice of the occurrence of a Default or an
Event of Default. Such notice shall specify the nature of such default, the
period of existence thereof and what action the Company has taken or is taking
or proposes to take with respect thereto.
(b) If the holder of any Note or of any other evidence of Indebtedness of
the Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default, the Company shall forthwith give written notice
thereof to each Noteholder of the then outstanding Notes, describing the notice
or action and the nature of the claimed default.
(S) AMENDMENTS, WAIVERS AND CONSENTS
9.1. Matters Subject to Modification. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the Noteholder or Noteholders of at least 70% in
aggregate principal amount of outstanding Notes; provided, however, that,
without the written consent of the Noteholder or Noteholders of all of the Notes
then outstanding, no such waiver, modification, alteration or amendment shall be
effective which will (i) change the time of payment (including any required
prepayment) of the principal of or the interest on any Note, (ii) reduce the
principal amount thereof or the premium, if any, or change the rate of interest
thereon, (iii) change any provision of any instrument affecting the preferences
between Noteholders or between the Noteholders and other creditors of the
Company, or (iv) change any of the provisions of Section 8.2, Section 8.3 or
this Section 9.
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<PAGE>
For the purpose of determining whether Noteholders of the requisite
principal amount of Notes have made or concurred in any waiver, consent,
approval, notice or other communication under this Agreement, Notes held in the
name of, or owned beneficially by, the Company, any Subsidiary or any Affiliate
thereof, shall not be deemed outstanding.
9.2. Automatic Amendments. In the event that (i) any Person to whom the
Company or any Subsidiary is indebted has previously or shall hereafter impose
upon the Company or any Subsidiary any additional or more restrictive covenant
or obligation than is imposed upon the Company or any Subsidiary by this
Agreement or (ii) the Company or any Subsidiary has granted or hereafter grants
to any such Person an additional or more favorable covenant or right than exists
under this Agreement, this Agreement shall be deemed to be amended automatically
to incorporate such additional or more restrictive right, obligation or
covenant, and the Company shall promptly so notify each Noteholder and provide a
copy thereof to each Noteholder; provided, however, that any subsequent waiver,
release, or relaxation of any such covenant or obligation by such Person shall
not impact this Agreement.
9.3. Solicitation of Noteholders. The Company shall not, directly or
indirectly, solicit, request or negotiate for or with respect to any proposed
waiver or amendment of any of the provisions of this Agreement, the Note
Documents or the Notes unless each Noteholder (irrespective of the amount of
Notes then owned by it) shall concurrently be informed thereof by the Company
and shall be afforded the opportunity of considering the same and shall be
supplied by the Company with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and correct copies of
any waiver or consent effected pursuant to the provisions of this Section 9
shall be delivered by the Company to each Noteholder of outstanding Notes
forthwith following the date on which the same shall have been executed and
delivered by the Noteholder or Noteholders of the requisite percentage of
outstanding Notes. The Company will not, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, to any Noteholder as consideration for or as an inducement to
the entering into by any Noteholder of any waiver or amendment of any of the
terms and provisions of this Agreement or the Note Documents unless such
remuneration is concurrently paid, on the same terms, ratably to each Noteholder
of the then outstanding Notes.
9.4. Binding Effect. Subject to the last sentence of this Section 9.4,
any amendment or waiver shall apply equally to all Noteholders and shall be
binding upon them, upon each future holder of any Note and upon the Company
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right related thereto. Any consent
made by a Noteholder that has transferred or has agreed to transfer its Notes to
the Company, any Subsidiary or any Affiliate thereof and has provided or has
agreed to provide such written consent as a condition to such transfer shall be
void and of no force and effect except solely as to such Noteholder, and any
amendments effected or waivers granted or to be effected or granted that would
not have been or would not be so effected or granted but for such consent (and
the consents of all other Noteholders that were acquired under the same or
similar conditions) shall be void and of no force and effect retroactive to the
date such amendment or waiver initially took or takes effect, except solely as
to such Noteholder.
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<PAGE>
(S)10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
10.1. Form of Notes. Each Note delivered under this Agreement will be in
the form of one fully registered Note in the form attached as Exhibit A. The
Notes are issuable only in fully registered form and in denominations of at
least $100,000 (or the remaining outstanding balance thereof, if less than
$100,000).
10.2. Note Register. The Company shall cause to be kept at its principal
office a register (the "Note Register") for the registration and transfer of the
Notes. The names and addresses of the Noteholders, the transfer thereof and the
names and addresses of the transferees of the Notes shall be registered in the
Note Register. The Company may deem and treat the person in whose name a Note is
so registered as the holder and owner thereof for all purposes and shall not be
affected by any notice to the contrary, until due presentment of such Note for
registration of transfer as provided in this Section 10.
10.3. Issuance of New Notes upon Exchange or Transfer. Upon surrender for
exchange or registration of transfer of any Note at the office of the Company
designated for notices in accordance with Section 11.2, the Company shall
execute and deliver, at its expense, one or more new Notes of the same series of
any authorized denominations requested by the holder of the surrendered Note,
each dated the date to which interest has been paid on the Notes so surrendered
(or, if no interest has been paid, the date of such surrendered Note), but in
the same aggregate unpaid principal amount as such surrendered Note, and
registered in the name of such person or persons as shall be designated in
writing by such holder. Every Note surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or by his attorney duly authorized in
writing. The Company may condition its issuance of any new Note in connection
with a transfer by any Person on compliance with Section 3.2, by Institutional
Holders on compliance with Section 2.5 and on the payment to the Company of a
sum sufficient to cover any stamp tax or other governmental charge imposed in
respect of such transfer.
10.4. Replacement of Notes. Upon receipt of evidence satisfactory to the
Company of the loss, theft, mutilation or destruction of any Note, and in the
case of any such loss, theft or destruction upon delivery of a bond of indemnity
in such form and amount as shall be reasonably satisfactory to the Company or in
the event of such mutilation upon surrender and cancellation of the Note, the
Company, without charge to the Noteholder thereof, will make and deliver a new
Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note. If
any such lost, stolen or destroyed Note is owned by you or any other
Institutional Holder, then the affidavit of an authorized officer of such owner
setting forth the fact of such loss, theft or destruction and of its ownership
of the Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof, and no further indemnity shall be required as a
condition to the execution and delivery of a new Note, other than a written
agreement of such owner (in form reasonably satisfactory to the Company) to
indemnify the Company.
(S)11. MISCELLANEOUS
11.1. Expenses. Whether or not the purchase of Notes herein contemplated
shall be consummated, the Company agrees to pay directly within five (5)
Business Days after demand all
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<PAGE>
reasonable expenses in connection with the development, preparation, execution,
administration and delivery of this Agreement and the Note Documents and the
transactions contemplated by this Agreement, including, but not limited to, out-
of-pocket expenses, filing fees of Standard & Poor's Corporation in connection
with obtaining a private placement number, charges and disbursements of special
counsel, photocopying and printing costs and charges for shipping the Notes,
adequately insured, to you at your home office or at such other address as you
may designate, and all similar expenses (including reasonable Attorney Costs)
relating to any amendments, supplements, modifications, waivers or consents in
connection with this Agreement, the Notes or the Note Documents, including, but
not limited to, any such amendments, supplements, modifications, waivers or
consents resulting from any work-out, renegotiation or restructuring relating to
the performance by the Company of its obligations under this Agreement, the
Notes or the Note Documents or in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies under this Agreement, the
Notes, the Note Documents or the Collateral Agency Agreement. The Company also
agrees that it will pay and save you harmless against any and all liability with
respect to stamp and other documentary taxes, if any, which may be payable, or
which may be determined to be payable in connection with the execution and
delivery of this Agreement or the Notes (but not in connection with a transfer
of any Notes), whether or not any Notes are then outstanding. The obligations of
the Company under this Section 11.1 shall survive the retirement of the Notes.
11.2. Notices. (a) All notices, requests and other communications shall
be in writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Company by
facsimile (i) shall be immediately confirmed by a telephone call and (ii) shall
be followed promptly by delivery of a hard copy original thereof) and mailed,
faxed or delivered, in the case of the Company, to the address or facsimile
number set forth on its signature page hereto and, in the case of the
Noteholders, to the address or facsimile number specified for notices on
Schedule I; or, as directed to the Company or the Noteholders, to such other
address as shall be designated by such party in a written notice to the other
parties.
(b) All such notices, requests and communications shall, when transmitted
by overnight delivery, or faxed, be effective when delivered for overnight
(next-day) delivery, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery; except that notices pursuant
to Section 2 shall not be effective until actually received by the Noteholders.
(c) Any agreement of the Noteholders herein to receive certain notices by
facsimile is solely for the convenience and at the request of the Company. The
Noteholders shall be entitled to rely on the authority of any Person purporting
to be a Person previously authorized by the Company to give such notice and the
Noteholders shall not have any liability to the Company or other Person on
account of any action taken or not taken by the Noteholders in reliance upon
such facsimile notice. The obligation of the Company to repay the Notes shall
not be affected in any way or to any extent by any failure by any Noteholder to
receive written confirmation of any facsimile notice or the receipt by any
Noteholder of a confirmation which is at variance with the terms understood by
any Noteholder to be contained in the facsimile notice.
11.3. Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed,
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(ii) documents received by you at the closing of the purchase of the Notes
(except the Notes themselves), and (iii) financial statements, certificates and
other information previously or hereafter furnished to you, may be reproduced by
you by any photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process, and you may destroy any original document
so reproduced. The Company agrees and stipulates that any such reproduction
which is legible shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and that any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence; provided that
nothing herein contained shall preclude the Company from objecting to the
admission of any reproduction on the basis that such reproduction is not
accurate, has been altered or is otherwise incomplete.
11.4. Successors and Assigns. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns, except that the Company may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Noteholder.
11.5. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
11.6. Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
11.7. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart or reproduction thereof permitted by Section
11.3.
11.8. Reliance on and Survival of Provisions. All covenants,
representations and warranties made by the Company herein and in any Note
Document and in any certificates delivered pursuant to this Agreement or any
Note Document, whether or not in connection with a closing, (i) shall be deemed
to have been relied upon by you, notwithstanding any investigation heretofore or
hereafter made by you or on your behalf and (ii) shall survive the delivery of
this Agreement and the Notes.
11.9. Integration and Severability. This Agreement, the Notes and the
Note Documents embody the entire agreement and understanding between you and the
Company, and supersede all prior or contemporaneous agreements and
understandings, verbal or written, relating to the subject matter hereof (except
the Letter Agreement and the waivers under the Outstanding Agreement). In case
any one or more of the provisions contained in this Agreement, any Note
Documents or in any Note, or application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained in this Agreement, the Note Documents and in any
Note, and any other application thereof, shall not in any way be affected or
impaired thereby.
11.10. Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Company shall indemnify and hold each Noteholder and
each of its respective
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officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all direct liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Notes) be imposed on, incurred by or asserted against any such
Person in any way relating to or arising out of this Agreement or any document
contemplated by or referred to herein, or the transactions contemplated hereby,
or any action taken or omitted by any such Person under or in connection with
any of the foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding) related
to or arising out of this Agreement, the Notes, or the Note Documents or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that the Company shall have no obligation hereunder to any Indemnified
Person with respect to liabilities resulting solely from the gross negligence or
willful misfeasance or nonfeasance of such Indemnified Person. The agreements in
this Section shall survive payment of all other Notes.
11.11. No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company and the
Noteholders, and their permitted successors and assigns, and no other Person
shall be a direct or indirect legal beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or the Note
Documents.
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IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed and delivered by their respective officer or officers
thereunto duly authorized.
SYSTEM SOFTWARE
ASSOCIATES, INC.
By: /s/ Joseph J. Skadra
--------------------------
Name: Joseph J. Skadra
------------------------
Title: Chief Financial Officer
-----------------------
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By: /s/ John D. Cleavenger
--------------------------
Name: John D. Cleavenger
------------------------
By: /s/ Kent T. Kelsey
--------------------------
Name: Kent T. Kelsey
------------------------
Authorized Signatories
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Mark A. Ahmed
--------------------------
Name: Mark A. Ahmed
------------------------
Title: Managing Director
-----------------------
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SCHEDULE I
----------
PRINCIPAL AMOUNT OF NOTES TO BE PURCHASED
-----------------------------------------
Principal Amount of Notes
-------------------------
Name and Address of Noteholder
- ------------------------------
Principal Mutual Life Insurance $17,500,000
Company
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department --
Securities Division
Address for all communications is as above, except notices of payment and
written confirmations of wire or inter-bank transfers, which shall be addressed
to:
Principal Mutual Life Insurance
Company
711 High Street
Des Moines, Iowa 50392-0810
Attn: Investment Department -
Accounting and Treasury
All payments are to be by bank wire transfer of immediately available funds to:
Norwest Bank Iowa, N.A.
7th & Walnut Streets
Des Moines, Iowa 50309
Account No. 014752
Each wire transfer shall identify such payment as "System Software
Associates, Inc., Senior Notes" and specify the amount of principal,
interest and/or Make Whole Amount and the due date of the payment being
made.
Taxpayer ID # 42-0127290
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SCHEDULE I
----------
PRINCIPAL AMOUNT OF NOTES TO BE PURCHASED
-----------------------------------------
Principal Amount of Notes
-------------------------
Name and Address of Noteholder
- ------------------------------
Massachusetts Mutual Life $8,500,000
Insurance Company
1295 State Street
Springfield, MA 01111
Attention: Securities Investment Division
Address for all communications is as above, except notices of payment and
written confirmations of wire or inter-bank transfers, which shall be addressed
to:
Massachusetts Mutual Life
Insurance Company
1295 State Street
Springfield, MA 01111
Attention: Securities Custody and
Collection Department, E381
All payments are to be by bank wire transfer of immediately available funds to:
Chemical Bank
ABA No. 021-000128
Institutional Client Services
4 New York Plaza - 4th Floor
New York, NY 10004-2413
Account No. 325-009-317
Each wire transfer shall identify such payment as "System Software
Associates, Inc. Senior Notes" and specify the amount of principal,
interest and/or Make-Whole Amount and the due date of the payment being
made.
Taxpayer ID # 04-159-0850
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EXHIBIT A
---------
SYSTEM SOFTWARE ASSOCIATES, INC.
SENIOR NOTE
Due November 1, 1997
_____________
THIS NOTE MAY BE SUBJECT TO A HOME OFFICE PAYMENT AGREEMENT AND
ACCORDINGLY ANY PROSPECTIVE NOTEHOLDER SHOULD FIRST VERIFY THE UNPAID PRINCIPAL
AMOUNT WITH THE COMPANY.
_____________
Registered Note No. R-____ February ___, 1997
$____________________
SYSTEM SOFTWARE ASSOCIATES, INC., a Delaware corporation (the
"Company), for value received, promises to pay to or
registered assigns, on November 1, 1997, the principal amount of
Million Dollars ($ ) plus the Make-Whole Amount, if any, and to pay
interest (computed on the basis of a 365-day year) on the principal amount from
time to time remaining unpaid hereon at the Base Rate from time to time in
effect plus one percent (1%) per annum from the date hereof until maturity,
payable monthly on the fifteenth (15th) day of each month, commencing March 15,
1997, and at maturity, and to pay interest on overdue principal, Make-Whole
Amount and (to the extent legally enforceable) on any overdue installment of
interest at the Base Rate from time to time in effect plus three percent (3%)
per annum until paid. Notwithstanding the foregoing, this Note shall bear
interest in accordance with the terms of the Letter Agreement. Payments of the
principal of, the Make-Whole Amount, if any, and interest on this Note shall be
made in lawful money of the United States of America in the manner and at the
place provided in Section 2.5 of the Note Agreement hereinafter defined.
This Note is issued under and pursuant to the terms and provisions of
the Amended and Restated Note Agreement, dated as of February 28, 1997, entered
into by the Company with the Noteholders named in Schedule I thereto (the "Note
Agreement"), and this Note and any holder hereof are entitled to all of the
benefits provided for by such Note Agreement or referred to therein. Reference
is made to the Note Agreement for a statement of such benefits and definitions
of terms used herein.
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This Note is secured by and entitled to the benefits of the Collateral
Documents.
As provided in the Note Agreement, upon surrender of this Note for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder hereof or its attorney duly
authorized in writing, a new Note for a like unpaid principal amount will be
issued to, and registered in the name of, the transferee upon the payment of the
taxes or other governmental charges, if any, that may be imposed in connection
therewith. The Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
This Note may be declared due prior to its expressed maturity date,
voluntary prepayments may be made hereon and certain mandatory prepayments and
offers to prepay are required to be made all in the events, on the terms and in
the manner as provided in the Note Agreement. Such prepayments include optional
and mandatory prepayments with a Make-Whole Amount.
Should the Indebtedness represented by this Note or any part thereof
be collected in any proceeding provided for in the Note Agreement or be placed
in the hands of attorneys for collection, the Company agrees to pay, in addition
to the principal, Make-Whole Amount, if any, and interest due and payable
hereon, all costs of collecting this Note, including reasonable attorneys' fees
and expenses.
This Note and the Note Agreement are governed by and construed in
accordance with the laws of the State of Illinois.
SYSTEM SOFTWARE
ASSOCIATES, INC.
By:___________________
Its:__________________
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