<PAGE>
$90,000,000 SUBJECT TO COMPLETION,
DATED AUGUST 19, 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 18, 1997, the last sale price of the
Common Stock as reported on the Nasdaq National Market was $13.00 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 has applied to list the
Notes on the Nasdaq SmallCap Market under the symbol "SSAXG." The Notes will be
represented by a Global Security registered in the name of a nominee of The
Depository Trust Company, as Depository, and will be available for purchase in
denominations of $1,000 and any integral multiple thereof.
The Notes will not be redeemable at the option of the Company prior to August
15, 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 8.
-----------
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.
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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, the Company 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.
RECENT DEVELOPMENTS
On August 19, 1997, the Company issued a press release announcing its
revenues, operating income and net income for the period ended July 31, 1997.
For the three months ended July 31, 1997, the Company reported that total
revenues increased 58.6% to $114.7 million, over total revenues of $72.3
million recorded during the three months ended July 31, 1996. Operating income
increased to $9.8 million in the third quarter of 1997, as compared to the
operating loss of $(34.1) million in the third quarter of 1996. Net income for
the three months ended July 31, 1997 was $3.3 million, an improvement of $23.6
million over the net loss of $(20.3) million during the same period in 1996.
For the nine months ended July 31, 1997, the Company reported that total
revenues increased 31.8% to $305.0 million, from $231.4 million in the
corresponding period in 1996. Operating income improved by $53.2 million to
$9.1 million for the first nine months of 1997, from an operating loss of
$(44.1) million for the same period in 1996. Net loss for the nine months ended
July 31, 1997 was $(1.6) million, an improvement of $25.5 million over the net
loss of $(27.1) million during the same period in 1996.
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 15, 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 15, 2000.
Thereafter, the Notes
4
<PAGE>
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 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
5
<PAGE>
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.
Book Entry...................... The Notes will be represented by a Global
Security registered in the name of a nominee
of The Depository Trust Company, as
Depository, and will be available for
purchase in denominations of $1,000 and any
integral multiple thereof.
Trading......................... The Company has applied to list the Notes on
the Nasdaq SmallCap Market under the symbol
"SSAXG." 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.
6
<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.
7
<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.
8
<PAGE>
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 respect 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.
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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.
17
<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 and executive officers 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.
18
<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 13.00 8.06
</TABLE>
--------
(1) Fourth Quarter through August 18, 1997
On August 18, 1997, the last reported sale price for the Common Stock was
$13.00.
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.
19
<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.
20
<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.
21
<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
during the prior three fiscal years, principally for 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.
22
<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>
23
<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.
24
<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.
25
<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
26
<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>
27
<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
28
<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.
29
<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.
30
<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.
31
<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."
In connection with the Recapitalization, the Company will enter into an
Employment Agreement with Mr. Covey. The agreement does not have a specified
term but provides base salary continuation for eighteen months in the event of
termination. The Employment Agreement will provide for a base salary of
$600,000 and the opportunity to earn an incentive bonus of up to fifty percent
(50%) of base salary based on achievement of certain individual management
objectives and Company financial performance criteria, all as established by
the Board of Directors. In connection with the Employment Agreement the
Company will grant Mr. Covey options to acquire up to 200,000 shares of Common
Stock at an exercise price equal to fair market value on the date of grant.
32
<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 and 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 through the
Depository (as defined below) or at the office of the paying agent, which will
initially be the Trustee. Interest payments for Notes that are not held
through the Depository will be mailed to each Holder's registered address. The
Notes will mature on August 15, 2002.
The Notes will be represented by a Global Security registered in the name of
a nominee of The Depository Trust Company, as Depository. See "--Book Entry,
Delivery and Form." 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
SmallCap 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
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<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 15,
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 15,
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000...........................................................
2001 and thereafter............................................
</TABLE>
35
<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;
36
<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
37
<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).
38
<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
39
<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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<PAGE>
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.
BOOK ENTRY, DELIVERY AND FORM
The Notes will be issued in denominations of $1,000 and integral multiples
thereof and will be issued only in fully registered form. Except under the
circumstances described below, the Notes will be issued in whole or in part in
the form of a Global Security that will be deposited with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC"), or such other
depository as may be subsequently designated (the "Depository"), and
registered in the name of a nominee of the Depository.
So long as the Depository, or its nominee, is the registered owner of a
Global Security, such Depository or such nominee, as the case may be, will be
considered the sole owner of the Notes represented by such Global Security for
all purposes under the Indenture. Payments of principal of and premium, if
any, and any interest on the Notes represented by a Global Security will be
made to the Depository or its nominee, as the case may be, as the holder of
such Global Security. Except as set forth below, owners of beneficial
interests in a Global Security will not be entitled to have any of the
individual Notes represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of any
such Notes and will not be considered the Holders thereof under the Indenture,
including, without limitation, for purposes of consenting to any amendment
thereof or supplement thereto. The laws of some jurisdictions require that
certain purchasers of securities take
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physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed, the Company will issue
individual certificated Notes in exchange for the Global Security in an
aggregate principal amount equal to the principal amount of the Global
Security. In such instance, an owner of a Note represented by a Global
Security will be entitled to physical delivery of individual certificated
Notes for the Note represented by such Global Security and to have such
certificated Notes registered in such owner's name. Individual certificated
Notes so issued will be issued as registered Notes in denominations of $1,000
and integral multiples thereof.
Any person having a beneficial interest in Notes evidenced by a Global
Security shall, as permitted by the terms of the Indenture, be entitled to
have its interest in the Global Security be exchanged for a certificated Note
upon written request to the Trustee and in accordance with the standing
instructions and procedures existing between the Trustee and the Depository.
DTC has confirmed to the Company, the Trustee and the Underwriters the
following information:
1. DTC will act as securities depository for the Global Security. The
Notes will be issued as fully-registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully-registered Global
Security will be issued for the Notes, in the aggregate principal amount of
such issue, and will be deposited with DTC.
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal reserve system, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges in deposited securities through electronic computerized/book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of
its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
3. Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Note
("Beneficial Owners") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Notes, except in the event that
use of the book-entry system for the Notes is discontinued.
4. To facilitate subsequent transfers, all Notes deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Notes with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes; DTC's records
reflect only the identity of
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the Direct Participants to whose accounts such Notes are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
6. Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
8. Principal and interest payments on the Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the date on
which interest is payable in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not
receive payment on such date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
Participant and not of DTC, the Underwriter or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Company or the Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
9. DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Company and the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, certificated Notes are
required to be printed and delivered.
10. The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, certificated Notes will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
None of the Company, the Trustee or any agent for payment on or registration
of transfer or exchange of the Global Security will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in such Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial interests.
CONCERNING THE TRUSTEE
Harris Trust and 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.
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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,
the Company 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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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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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.
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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.
Management Agreement
In connection with the Recapitalization, the Company will enter into a
Management Agreement with Bain Capital under which Bain Capital will provide
management consulting services to the Company on normal and customary rates
based on the actual services provided, in an amount up to $500,000 per year or
such greater amount of services as may be approved by the Board of Directors.
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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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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 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
50
<PAGE>
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. Under recently enacted legislation, the maximum
regular individual U.S. federal income tax rate on capital gains is 20% for
property held for more than 18 months and 28% for property held for more than
one year but not more than 18 months. Capital gains on the sale of property
held for one year or less are subject to U.S. federal income tax at ordinary
income rates. 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.
51
<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 and executive
officers 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.
52
<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 SmallCap 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.
53
<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.
54
<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.
55
<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.............................................................. 8
Use of Proceeds........................................................... 19
Price Range of Common Stock and Dividend Policy........................... 19
Capitalization............................................................ 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 31
Description of Notes...................................................... 33
Description of the Private Offering....................................... 45
Description of Common Stock............................................... 49
Certain Federal Income Tax Considerations................................. 50
Underwriting.............................................................. 52
Incorporation of Certain Documents by Reference........................... 54
Legal Matters............................................................. 55
Experts................................................................... 55
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.
99.6 Employment Agreement between the Company and Roger E. Covey.
</TABLE>
- --------
* Previously filed.
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 3.4
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
OF
SYSTEM SOFTWARE ASSOCIATES, INC.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
[ ], President of System Software Associates, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), in accordance with Section 151 of the Delaware General
-----------
Corporation Law, hereby certifies that:
FIRST: The Certificate of Incorporation of the Corporation authorizes
the issuance of up to 100,000 shares of preferred stock, par value $.01 per
share, in one or more series, with such dividend rate, interest rate,
preferences, relative, participating and special rights, and qualifications,
limitations or restrictions thereof, as may be stated and expressed in a
resolution or resolutions providing for the creation and issuance of any such
series adopted by the Board of Directors of the Corporation (the "Board of
--------
Directors") at the time of issuance of any shares of such series, pursuant to
- ---------
authority expressly vested in the Board of Directors by the Certificate of
Incorporation of the Corporation.
SECOND: The Board of Directors desires, pursuant to its authority
aforesaid, to determine and fix the rights, preferences, privileges and
restrictions relating to a series of preferred stock and the number of shares
constituting, and the designation of, said series of preferred stock.
BE IT RESOLVED, that the Board of Directors hereby fixes and determines the
designation of, the number of shares constituting and the rights, preferences,
privileges and restrictions relating to said series of preferred stock as
follows:
Section 1. Designation and Number. The designation of the first series of
----------------------
the authorized preferred stock, par value $.01 per share, of the Corporation
shall be Series A
<PAGE>
Preferred Stock (the "Series A Preferred Stock"). The number of shares
------------------------
constituting the Series A Preferred Stock shall be 10,000.
Section 2. Dividends.
---------
2A. General Obligation. When, as and if declared by the Board of
------------------
Directors and to the extent permitted by law, the Corporation shall pay
preferential dividends to the holders of the Series A Preferred Stock as
provided in this Section 2. From the date of issuance of each share of Series A
Preferred Stock (a "Series A Preferred Share"), dividends shall accrue and
------------------------
compound annually at the rate of 21% per annum on the Liquidation Price thereof.
Such dividends shall accrue and compound annually whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends, and such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid, or shall be declared with funds irrevocably set apart for payment or shall
be paid through issuance of additional Series A Preferred Shares (as hereinafter
provided), before any cash dividends may be paid with respect to any Junior
Securities. The "date of issuance" of any Series A Preferred Share shall be the
date on which the Corporation initially issues such Series A Preferred Share
regardless of the number of times transfer of such Series A Preferred Share is
made on the stock records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such Series A
Preferred Share.
2B. Dividend Payments. Subject to the limitations set forth in Section
-----------------
2A, dividends on the Series A Preferred Stock shall be payable on each of the
last day of June and December of each year (each such date a "Dividend Payment
----------------
Date"). Of the total dividend payable pursuant to Section 2A with respect to
- ----
each Series A Preferred Share, 7% per annum on the Liquidation Price thereof
shall be payable in cash, and 14% per annum on the Liquidation Price thereof
shall either be payable in cash or, at the option of the Corporation, in whole
or in part in additional Series A Preferred Shares (including fractional shares)
by the issuance and delivery of certificates therefor having a Liquidation Price
equal to the amount of dividends being so satisfied. In the event the
Corporation elects to pay such dividends in the form of additional shares of
Series A Preferred Shares, (a) each such Series A Preferred Share shall be
deemed outstanding on and as of the applicable Dividend Payment Date regardless
of when the certificates therefor are issued and delivered by the Corporation
and (b) the Corporation may, but shall not be obligated to, pay cash in lieu of
any fractional shares issuable in connection with such dividends.
2C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred Stock, such
payment shall be distributed pro rata among the holders thereof based upon the
aggregate accrued but unpaid dividends on the Series A Preferred Shares held by
each such holder.
-2-
<PAGE>
Section 3. Liquidation. Upon any liquidation, dissolution or winding up
-----------
of the Corporation (whether voluntary of involuntary), each holder of Series A
Preferred Stock shall be entitled to be paid, before any distribution or payment
is made upon any Junior Securities, an amount in cash with respect to each
Series A Preferred Share held by such holder equal to the Liquidation Value of
such Series A Preferred Share, and the holders of the Series A Preferred Stock
shall not be entitled to any further payment. If, upon any such liquidation,
dissolution or winding up of the Corporation, the Corporation's assets to be
distributed among the holders of the Series A Preferred Stock are insufficient
to permit payment to such holders of the aggregate amount which they are
entitled to be paid under this Section 3, then the entire assets available to be
distributed to the holders of the Series A Preferred Stock shall be distributed
pro rata among such holders based upon the aggregate Liquidation Value of the
Series A Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Series A Preferred
Stock, but only to the extent of funds of the Corporation legally available for
the payment of dividends. Not less than 20 days prior to the payment date
stated therein, the Corporation shall mail written notice of any such
liquidation, dissolution or winding up to each record holder of Series A
Preferred Stock, setting forth in reasonable detail the amount of proceeds to be
paid with respect to each Series A Preferred Share, each share of Common Stock
and each other equity security of the Corporation in connection with such
liquidation, dissolution or winding up. Whenever the distribution provided for
in this Section 2 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors; provided, however, that in connection
-------- -------
with such distribution, the Board of Directors shall provide the holders of
Series A Preferred Shares (i) written notice of such distribution and the Board
of Directors' good faith determination of the fair market value of such
distribution not less than ten business days prior to such proposed distribution
and (ii) if the holders of a majority of the Series A Preferred Shares shall so
request in writing, the opportunity to be heard by the Board with respect to
such valuation prior to such distribution.
Section 4. Priority of Series A Preferred Stock on Dividends and
-----------------------------------------------------
Redemptions. So long as any Series A Preferred Stock remains outstanding,
- -----------
without the prior written consent of the holders of a majority of the Series A
Preferred Shares then outstanding, the Corporation shall not, nor shall it
permit any Subsidiary to, redeem, purchase or otherwise acquire directly or
indirectly any Junior Securities, nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution upon any Junior
Securities; provided, however, that (i) the Corporation may repurchase or redeem
-------- -------
any Common Stock and any options and warrants to subscribe for, purchase or
otherwise acquire Common Stock originally issued to officers, directors or
employees of the Corporation or its Subsidiaries and (ii) the Corporation may
declare and pay any dividend and make any distributions which are payable solely
in the form of additional Junior Securities.
-3-
<PAGE>
Section 5. Redemptions.
-----------
5A. Optional Redemption. The Corporation may, at its option, at any time
-------------------
and from time to time, redeem all or any portion of the Series A Preferred
Shares then outstanding for cash (each an "Optional Redemption") for which the
-------------------
Corporation shall pay out of funds legally available therefor a price per Series
A Preferred Share equal to the Redemption Price.
5B. Redemption Payments. For each Series A Preferred Share which is to be
-------------------
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay out of funds legally available therefor to the holder of such Series A
Preferred Share (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Series A Preferred Share) an amount
equal to the Redemption Price.
5C. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Series A
Preferred Stock to each record holder thereof not more than 30 nor less than 10
days prior to the date on which such redemption is to be made. In case fewer
than the total number of Series A Preferred Shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed Series A Preferred Shares shall be issued to the holder thereof
without cost to such holder within five business days after surrender of the
certificate representing the redeemed Series A Preferred Shares.
5D. Dividends After Redemption Date. No Series A Preferred Share shall be
-------------------------------
entitled to any dividends accruing after the Redemption Date with respect to
such Series A Preferred Share. On such Redemption Date, all rights of the
holder of such Series A Preferred Share shall cease, and such Series A Preferred
Share shall no longer be deemed to be issued and outstanding.
5E. Special Redemptions.
-------------------
(i) Triggering Events.The holders of the Series A Preferred Stock
-----------------
then outstanding may require the Corporation to redeem all or any portion of the
Series A Preferred Stock owned by such holders for cash at a price per Series A
Preferred Share (payable from funds legally available therefor after
Satisfaction of the Specified Credit Obligations) equal to the Redemption Price
upon the occurrence of (a) a Bankruptcy Triggering Event or (b) a Change of
Control Triggering Event (each, a "Redemption Event"). Each holder of Series A
----------------
Preferred Stock may exercise such right by giving written notice to the
Corporation of such election, on or before the later of: (x) 21 days after
obtaining actual knowledge of a Redemption Event (including without limitation
by the receipt of the Corporation's notice described in the following sentence)
and (y) five days prior to the consummation of the Redemption Event. The
Corporation shall give prompt written notice of a Redemption Event describing in
reasonable detail the material terms and timing thereof to each holder of Series
A Preferred Stock upon the earlier of obtaining knowledge that (a) a Redemption
Event is likely to occur or (b) a Redemption Event has occurred.
-4-
<PAGE>
Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Series A Preferred Shares specified therein on
the later of: (i) the Business Day upon which the Redemption Event occurs or
(ii) the fifth Business Day after the Corporation's receipt of such election(s);
provided, however, that the Corporation shall not be obligated to consummate
- -------- -------
such redemption except to the extent that funds of the Corporation are legally
available for such purpose after Satisfaction of the Specified Credit
Obligations. If the funds of the Corporation legally available for redemption
of the Series A Preferred Shares after Satisfaction of the Specified Credit
Obligations are insufficient to redeem the total number of Series A Preferred
Shares to be redeemed on any Redemption Date, those funds which are available
shall be used to redeem the maximum possible number of Series A Preferred Shares
pro rata among the holders of the Series A Preferred Shares to be redeemed based
upon the aggregate Redemption Price of such Series A Preferred Shares held by
such holder. At any time thereafter when additional funds of the Corporation
are available for the redemption of the Series A Preferred Shares, such funds
shall thereafter be used to redeem the balance of the Series A Preferred Shares
which the Corporation shall have become obligated to redeem on any Redemption
Date but which it has not redeemed.
If any proposed Redemption Event does not occur, all elections for
redemption in connection therewith shall be automatically rescinded, or if there
has been a material change in the terms or the timing of the transaction, any
holder of Series A Preferred Stock may rescind such holder's election for
redemption by delivering written notice thereof to the Corporation prior to the
consummation of the transaction. The Corporation will give prompt notice to all
holders of Series A Preferred Shares of any material change in the terms or
timing of any proposed Redemption Event.
5F. No Reissuance of Series A Preferred Stock. No share or shares of the
-----------------------------------------
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase or otherwise shall be reissued, and all such shares shall be canceled,
retired and shall revert to the status of authorized, but undesignated Preferred
Stock which the Corporation shall be authorized to issue.
Section 6. Other Rights.
------------
In addition to any rights provided by law, without the written consent of
the holders of a majority of the Series A Preferred Shares then outstanding, the
Corporation shall not:
(i) (a) create or issue any additional class or series of its
equity securities ranking senior or pari passu with the Series A Preferred Stock
as to liquidation rights, dividend rights, redemption rights or other rights,
except for Common Stock and options and warrants to subscribe for, purchase or
otherwise acquire Common Stock or (b) other than pursuant to the Warrants, issue
or obligate itself to issue any Series A Preferred Shares (except for such
Shares issued as a dividend-in-kind on the Series A Preferred Shares pursuant to
Section 3B hereof).
-5-
<PAGE>
(ii) amend its Certificate of Incorporation or By-laws so as to
affect adversely the rights and preferences of the holders of Series A Preferred
Shares or otherwise adversely alter the terms of the Series A Preferred Shares.
Section 7. Registration of Transfer. The Corporation shall keep at its
------------------------
principal office a register for the registration of Series A Preferred Stock.
Upon the surrender of any certificate representing Series A Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Series A Preferred Shares represented by the surrendered
certificate. Subject to any stockholder or other agreements between the
Corporation and the holders of Series A Preferred Stock, each such new
certificate shall be registered in such name and shall represent such number of
Series A Preferred Shares as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Series A Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such Series A Preferred Stock represented by the surrendered
certificate.
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Corporation of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing Series A Preferred Stock, and in the
case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation, or, in the case of any such
mutilation upon surrender of such certificate, the Corporation shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of Series A Preferred Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
Section 9. Definitions.
-----------
"Bankruptcy Triggering Event" shall mean (i) any insolvency or bankruptcy
---------------------------
case or proceeding, or any receivership, liquidation, reorganization,
adjustment, composition or other similar case or proceeding in connection
therewith, relative to the Corporation or its creditors, as such, or to its
assets whether voluntary or involuntary (and not dismissed within 60 days), (ii)
any liquidation, dissolution or other winding up of the Corporation whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
(and not dismissed within 60 days), or (iii) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of the Corporation.
"Change of Control Triggering Event" shall mean any transaction or series
----------------------------------
of transactions (including, without limitation, a merger, consolidation, sale of
stock or sale of assets, but excluding any assignment as security for
indebtedness) after which any Person (or
-6-
<PAGE>
group of Persons acting in concert) other than the Fund Investors, their
assignees or affiliates and the Management Investor shall and his transferees
(i) own in excess of 35% of the voting stock of the Corporation (or the Person
into which the Corporation shall have been merged or consolidated), or (ii) have
the right to elect a majority of the members of the Board of Directors, or (iii)
shall have acquired all or substantially all of the consolidated assets of the
Corporation and its Subsidiaries.
"Closing Date" shall mean the first day on which any shares of Series A
------------
Preferred Stock are issued and sold pursuant to the Purchase Agreement.
"Common Stock" shall mean, the Corporation's common stock, par value $.0033
------------
per share.
"Credit Agreement" shall have the meaning provided in the Purchase
----------------
Agreement.
"Fund Investor" shall have the meaning set forth in the Stockholders
-------------
Agreement.
"Junior Securities" shall mean any Common Stock, any options or warrants to
-----------------
subscribe for, purchase or otherwise acquire Common Stock or any other equity
securities of the Corporation which rank junior as to liquidation rights,
dividend rights, redemption rights or other rights to the Series A Preferred
Stock.
"Liquidation Price" shall mean, for each Series A Preferred Share, $13,750.
-----------------
"Liquidation Value" of any Series A Preferred Share (whether issued or
-----------------
purchased pursuant to exercise of the Warrants or issued as a dividend-in-kind
on the Series A Preferred Shares pursuant to Section 2B hereof) as of any
particular date, shall mean the Liquidation Price plus all accrued and unpaid
----
dividends thereon.
"Person" shall mean an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Securities" shall have the meaning provided in the Purchase
-----------------
Agreement.
"Purchase Agreement" shall mean that certain Securities Purchase Agreement
------------------
dated as of August [ ], 1997 by and among the Corporation and the Fund
Investors named therein.
"Redemption Date" shall mean, as to any Series A Preferred Share, the date
---------------
specified in the notice of any redemption at the Corporation's option or at the
holder's option; provided that no such date shall be a Redemption Date unless
--------
the Redemption Price of such Series A Preferred Share is actually paid (or made
available for payment upon surrender by the holder thereof at the Corporation's
principal office of the certificate representing such Series A
-7-
<PAGE>
Preferred Share) in full on such date; provided further that if such amount is
--------
not so fully paid (or made available for payment upon surrender by the holder
thereof at the Corporation's principal office of the certificate representing
such Series A Preferred Share), the Redemption Date shall be the date on which
such amount is fully paid (or made available for payment upon surrender by the
holder thereof at the Corporation's principal office of the certificate
representing such Series A Preferred Share).
"Redemption Price" shall mean, for each Series A Preferred Share, 100% of
----------------
the Liquidation Value thereof.
"Satisfaction of the Specified Credit Obligations" shall mean (a) (i) the
------------------------------------------------
payment in full of all obligations under the Credit Agreement and the
cancellation of all commitments to lend additional amounts under the Credit
Agreement and (ii) the payment in full of the Public Securities or (b) the
consent by the lenders under the Credit Agreement and the holders of the Public
Securities to the redemption of the Series A Preferred Shares.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the manager or managing general partner of such limited
liability company, partnership, association or other business entity.
"Warrants" shall mean the Common Stock and Preferred Stock Warrants of the
--------
Company dated August __, 1997 issued to the Fund Investors pursuant to the
Purchase Agreement.
Section 10. Amendment and Waiver. No amendment, modification or waiver
--------------------
shall be binding or effective with respect to any provision hereof without the
prior written consent of the holders of a majority of the Series A Preferred
Stock outstanding at the time such action is taken; provided that no such action
--------
shall change (a) the rate at which or the manner in which dividends on the
Series A Preferred Stock accrue or the times at which or the manner in which
such dividends are payable or the amount payable on redemption of the Series A
Preferred Stock or the times at which redemption of Series A Preferred Stock is
to occur or (b) the percentage required to approve any change described in
clause (a) above, without the prior written consent of the holders of at least
70% of the Series A Preferred Stock then
-8-
<PAGE>
outstanding; and provided further that no change in the terms of the Series A
----------------
Preferred Stock may be accomplished by merger or consolidation of the
Corporation with another corporation or entity unless the Corporation has
obtained the prior written consent of the holders of the applicable percentage
of the Series A Preferred Stock then outstanding.
Section 11. Notices. Except as otherwise expressly provided hereunder,
-------
all notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any holder of Series A Preferred Shares, at such
holder's address as it appears in the Purchase Agreement (unless otherwise
indicated by any such holder).
Section 12. Adjustment. All numbers and amounts set forth herein which
----------
refer to share prices or amounts or liquidation preference related amounts,
shall be appropriately adjusted (as determined by the Board of Directors) to
reflect any stock splits, stock dividends, combinations of shares and other
recapitalizations affecting the Series A Preferred Stock in accordance herewith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
In witness whereof, said System Software Associates, Inc. has caused this
Certificate to be signed by its President, [ ], and its Secretary,
[ ], this ___ day of August, 1997.
SYSTEM SOFTWARE ASSOCIATES, INC.
By__________________________
Title: President
Attest:
By:________________________
Title: Secretary
<PAGE>
EXHIBIT 4.3
SECURITIES PURCHASE AGREEMENT
Dated as of August [_], 1997
Between
SYSTEM SOFTWARE ASSOCIATES, INC.
as Issuer of the Junior Subordinated Notes and the Warrants,
and
THE PURCHASERS LISTED HEREIN
__________________________________________________________________
$48,400,000 IN AGGREGATE PRINCIPAL AMOUNT
OF
JUNIOR SUBORDINATED NOTES DUE AUGUST 1, 2003
*********************
WARRANTS TO PURCHASE COMMON STOCK AND PREFERRED STOCK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
(iv)
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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EXHIBIT 4.4
JUNIOR SUBORDINATED NOTE
SYSTEM SOFTWARE ASSOCIATES, INC.
THIS SECURITY BEARS ORIGINAL ISSUE DISCOUNT. UPON WRITTEN
REQUEST TO THE CHIEF FINANCIAL OFFICER, SYSTEM SOFTWARE
ASSOCIATES, INC., 500 WEST MADISON, 32nd FLOOR, CHICAGO, IL
60661, INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF
ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY
WILL BE MADE AVAILABLE.
THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1993, AS AMENDED
(THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL THAT SUCH
REGISTRATION UNDER THE ACT IS NOT REQUIRED.
THIS NOTE IS SUBORDINATED TO THE PRIOR PAYMENT AND
SATISFACTION IN CASH OF ALL SENIOR INDEBTEDNESS, AS DEFINED
IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF AUGUST [ ],
1997 AS THE SAME MAY BE AMENDED, MODIFIED, RESTATED OR
SUPPLEMENTED FROM TIME TO TIME (THE "NOTE PURCHASE
AGREEMENT") TO THE EXTENT AND IN THE MANNER PROVIDED IN THE
NOTE PURCHASE AGREEMENT.
$[_________] Chicago, Illinois
August [ ], 1997
FOR VALUE RECEIVED, the undersigned System Software Associates, Inc., a
Delaware corporation (the "Company"), hereby promises to pay to [_________] or
its
<PAGE>
registered assigns (the "Payee"), at 11:00 a.m. (New York time) on the Maturity
Date (as defined in the Note Purchase Agreement) the principal sum of
_________________________ Dollars ($______________) or such lesser principal
amount thereof as may remain outstanding in lawful money of the United States of
America in immediately available funds, and to pay interest from the date hereof
on the principal amount hereof from time to time outstanding, at the election at
the Company, in notes of substantially identical terms to this note or in like
funds, at said office, at a rate or rates per annum, payable on such dates and
under such circumstances as determined pursuant to the terms of the Note
Purchase Agreement.
The Company promises to pay interest, on demand, on any overdue principal
and, to the extent permitted by law, overdue interest from their due dates at a
rate or rates determined as set forth in the Note Purchase Agreement.
The Company hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever, other than as expressly required by the Note
Purchase Agreement. The nonexercise by the holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
The date, amount and interest are applicable to all borrowings evidenced by
this Note and all payments and prepayments of the principal hereof and interest
hereon and the respective records and, prior to any transfer of this Note,
endorsed by the holder on the schedule attached hereto or any continuation
thereof; provided, however, that the failure of the holder hereof to make such a
notation or any error in such a notation shall not in any manner affect the
obligations of the Company to make payments of principal and interest in
accordance with the terms of this Note and the Note Purchase Agreement.
This Note and all obligations of the Company hereunder are subordinated to
the prior payment in full in cash of all Senior Indebtedness (as defined in the
Note Purchase Agreement) on the terms and subject to the provisions set forth in
the Note Purchase Agreement.
This Note is one of the Notes referred to in the Note Purchase Agreement,
which, among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for optional prepayment of
the principal hereof prior to the maturity hereof and prepayment premiums
thereon and for the amendment or waiver of certain provisions of the Note
Purchase Agreement, all upon the terms and conditions therein specified. This
Note shall be construed in accordance with and governed by the laws of the State
of Delaware without giving effect to principles of conflicts of laws.
SYSTEM SOFTWARE ASSOCIATES, INC.
By:_______________________________
Name:
Title:
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EXHIBIT 4.5
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT")
AND APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.
THIS WARRANT WAS ORIGINALLY ISSUED PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT DATED AS OF AUGUST __, 1997 AMONG THE COMPANY AND THE INVESTORS
NAMED THEREIN, AS IN EFFECT FROM TIME TO TIME AND THE TRANSFER OF THIS
WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN SUCH AGREEMENT.
THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO THE
PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST __, 1997
AMONG THE COMPANY AND THE INVESTORS NAMED THEREIN, AS IN EFFECT FROM TIME
TO TIME, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY.
SYSTEM SOFTWARE ASSOCIATES, INC.
COMMON STOCK PURCHASE WARRANT
PREFERRED STOCK PURCHASE WARRANT
Chicago, Illinois
No. August __, 1997
System Software Associates, Inc., a Delaware corporation (the "Company"),
for value received, hereby certifies that , or registered
assigns, is entitled to purchase from the Company the following:
(a) _______________ [Investor % x 19.9% of outstanding Common
Stock] duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock, par value $0.0033 per share (the "Common Stock"), of the
Company at a purchase price per share equal to the Initial Warrant A Price
exercisable at any time or from time to time prior to the Warrant A
Expiration Date, all subject to the terms, conditions and adjustments set
forth below in this Warrant ("Warrant A"); or
(b) _______________[Investor % x 10,000 shares of Preferred
Stock] duly authorized, validly issued, fully paid and nonassessable shares
of Series A Preferred Stock, par value $0.01 per share, having the terms
and provisions set forth in the
<PAGE>
Certificate of Designation (the "Preferred Stock"), at a purchase price per
share equal to the Warrant B Price, exercisable at any time or from time to
time on or after the Warrant B Exercise Date, and prior to the Warrant B
Expiration Date, all subject to the terms and conditions set forth below in
this Warrant ("Warrant B", and collectively with Warrant A, hereinafter
referred to as the "Warrant" or "Warrants").
This Warrant is one of the Warrants (the "Warrants", such term to include
any such warrants issued in substitution therefor) originally issued in
connection with the execution and delivery of the Securities Purchase Agreement
dated as of August __, 1997 (as in effect on the date of this Warrant, the
"Purchase Agreement") among the Company and each of the investors named therein
(the "Purchasers"). Certain capitalized terms used in this Warrant are defined
in Section 17 hereof.
1. EXERCISE OR CASHLESS EXERCISE OF WARRANT A.
1.1. Manner of Exercise or Cashless Exercise; Payment.
1.1.1. Exercise. Warrant A may be exercised by the holder hereof, in
whole or in part (in increments equal to 100,000 shares or, if less, the
remaining number of shares for which Warrant A shall then be exercisable),
during normal business hours on any Business Day on or prior to the Warrant
A Expiration Date, by surrender of this Warrant to the Company at its
office maintained pursuant to Section 16.2(a) hereof, accompanied by a
subscription in substantially the form attached to this Warrant as Exhibit
A (or a reasonable facsimile thereof) duly executed by such holder and
accompanied by payment, (i) in cash by wire transfer of immediately
available funds or by certified or official bank check payable to the order
of the Company, (ii) by delivery to the Company of a principal amount of
Junior Subordinated Notes (including all accrued and unpaid interest
thereon) or (iii) by any combination of such methods (provided that at
least the par value of the shares of Common Stock issuable upon exercise
shall have been paid in cash), in each case in the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving effect
to any adjustment thereof) designated in such subscription by (b) the
Initial Warrant A Price, and such holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) determined as
provided in Sections 2 through 4 hereof.
1.1.2. Cashless Exercise. Warrant A may also be exercised by the
holder hereof, in whole or in part, into shares of Common Stock, during
normal business hours on any Business Day on or prior to the Warrant A
Expiration Date, by surrender of this Warrant to the Company at its office
maintained pursuant to Section 16.2(a) hereof, accompanied by a cashless
exercise notice in substantially the form attached as Exhibit B to this
Warrant (or a reasonable facsimile thereof) duly executed by such holder,
and such holder shall thereupon be entitled to receive a number of duly
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authorized, validly issued, fully paid and nonassessable shares of Common
Stock (or Other Securities) equal to:
(i) an amount equal to:
(a) an amount equal to (x) the number of shares of Common Stock
(or Other Securities) determined as provided in Sections 2
through 4 hereof which such holder would be entitled to
receive upon exercise of Warrant A for the number of shares
of Common Stock designated in such cashless exercise notice
multiplied by (y) the Current Market Price of each such
share of Common Stock (or such Other Securities) so
receivable upon such exercise
minus
(b) an amount equal to (x) the number of shares of Common Stock
(without giving effect to any adjustment thereof) designated
in such cashless exercise notice multiplied by (y) the
Initial Warrant A Price
divided by
(ii) such Current Market Price of each such share of Common Stock (or
Other Securities).
For all purposes of this Warrant (other than this Section 1.1), any
reference herein to the exercise of Warrant A shall be deemed to include a
reference to the cashless exercise of Warrant A into Common Stock (or
other Securities) in accordance with the terms of this Section 1.1.2.
1.2. When Exercise Effective. Each exercise of Warrant A shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 1.1 hereof (and in the case of exercise pursuant to Section 1.1.1,
provided that the holder has paid the consideration required thereby), and at
such time the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be issuable
upon such exercise as provided in Section 1.3 hereof shall be deemed to have
become the holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of Warrant A, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will direct the Company's transfer agent to
issue and deliver in the name of the holder hereof or, subject
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to Section 13 hereof, as such holder (upon payment by such holder of any
applicable transfer taxes) may direct:
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day
next preceding the date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, dated the date hereof and calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment thereof)
to the number of such shares called for on the face of this Warrant
minus the number of such shares designated by the holder upon such
exercise as provided in Section 1.1 hereof.
1.4. Company to Reaffirm Obligations. The Company will, at the time of
each exercise of Warrant A, upon the request of the holder hereof, acknowledge
in writing its continuing obligation to afford to such holder all rights
(including without limitation any rights to registration, pursuant to the
Registration Rights Agreement referred to in Section 12 hereof, of the shares of
Common Stock or Other Securities issued upon such exercise) to which such holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant; provided, however, that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such rights to such holder, if and when so
requested in writing.
2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANT A.
2.1. General; Number of Shares; Warrant Price. The number of shares of
Common Stock which the holder of Warrant A shall be entitled to receive upon
each exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1 hereof, by the fraction of which (a) the numerator is the Initial
Warrant A Price and (b) the denominator is the Warrant A Price in effect on the
date of such exercise. The "Warrant A Price" shall initially be the Initial
Warrant A Price, shall be adjusted and readjusted from time to time as provided
in this Section 2 and, as so adjusted or readjusted, shall remain in effect
until a further adjustment or readjustment thereof is required by this Section
2.
2.2. Adjustment of Warrant Price.
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<PAGE>
2.2.1. Issuance of Additional Shares of Common Stock. Subject to
Section 2.7, in case the Company at any time or from time to time after the
date hereof shall issue or sell Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant
to Section 2.3 or 2.4 hereof) without consideration or for a consideration
per share less than the Warrant A Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.6 hereof,
such Warrant A Price shall be reduced, concurrently with such issue or
sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Warrant A Price by a fraction:
(a) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Warrant A Price; and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale.
2.2.2. Dividends and Distributions. In case the Company at any time
or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including without limitation any
distribution of cash, other or additional stock or other securities or
property or Options, by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement or otherwise) on the
Common Stock, other than a dividend payable in Additional Shares of Common
Stock, then, and in each such case, subject to Section 2.6 hereof, the
Warrant A Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of
securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a
price (calculated to the nearest .001 of a cent) determined by multiplying
such Warrant A Price by a fraction:
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an ex-
dividend basis, on the date prior to the commencement of ex-dividend
trading, less the amount of such dividend or distribution (as
determined in good faith by the Board of Directors of the Company)
applicable to one share of Common Stock; and
(y) the denominator of which shall be such Current Market
Price.
2.3. Treatment of Options and Convertible Securities. Subject to Section
2.7, in case the Company at any time or from time to time after the date hereof
shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities
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entitled to receive, any Options or Convertible Securities, then, and in each
such case, the maximum number of Additional Shares of Common Stock (as set forth
in the instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number the purpose of which is to
protect against dilution) at any time issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date (or, if the Common Stock trades on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading);
provided, however, that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share of such shares
would be less than the Warrant A Price in effect on the date of and immediately
prior to such issue, sale, grant or assumption or immediately prior to the close
of business on such record date (or, if the Common Stock trades on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading),
as the case may be; and provided, further, that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(a) no further adjustment of the Warrant A Price shall be made
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consequent issue or sale of
Convertible Securities or shares of Common Stock;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Warrant A Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have
been exercised, or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Warrant A Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend
trading, as the
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case may be, with respect thereto), and any subsequent adjustments
based thereon, shall, upon (and effective as of) such expiration (or
such cancellation or retirement, as the case may be), be recomputed as
if:
(i) in the case of Options or Convertible Securities, the
only Additional Shares of Common Stock issued or sold were the
Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for the
issue or sale of all such Convertible Securities which were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(ii) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold
upon the exercise of such Options were issued at the time of the
issue, sale, grant or assumption of such Options, and the
consideration received by the Company for the Additional Shares
of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration deemed to have been received by
the Company upon the issue or sale of such Convertible Securities
with respect to which such Options were actually exercised; and
(d) no readjustment pursuant to clause (b) or (c) above (either
individually or cumulatively together with all prior readjustments as
made in respect of such Options or Convertible Securities) shall have
the effect of increasing the Warrant A Price by a proportion (relative
to the Warrant A Price in effect immediately prior to such
readjustment) in excess of the inverse of the aggregate proportional
adjustment thereof made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities.
If the consideration provided for in any Option or the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Security
shall be reduced, or the rate at which any Option is exercisable or any
Convertible Security is convertible into or exchangeable for shares of Common
Stock shall be increased, at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then, effective concur
rently with each such change, the Warrant A Price then in effect shall first be
adjusted to eliminate the effects (if any) of the issuance (or deemed issuance)
of such Option or
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Convertible Security on the Warrant A Price and then readjusted as if such
Option or Convertible Security had been issued on the date of such change with
the terms in effect after such change, but only if as a result of such
adjustment the Warrant A Price then in effect hereunder is thereby reduced.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company
at any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Additional Shares of Common Stock, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Additional Shares of Common Stock), then, and in
each such case, Additional Shares of Common Stock shall be deemed to have been
issued (a) in the case of any such dividend, immediately after the close of
business on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or (b) in the case of any such
subdivision, at the close of business on the day immediately prior to the day
upon which such corporate action becomes effective.
2.5. Adjustments for Combinations, etc. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant A Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased, and the number of shares of Common Stock for which
this Warrant shall be exercisable shall be proportionately decreased as provided
in Section 2.1.
2.6. Minimum Adjustment of Warrant A Price. If the amount of any
adjustment of the Warrant A Price required pursuant to this Section 2 would be
less than one-tenth (1/10) of one percent (1%) of the Warrant A Price in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant A Price.
2.7. Shares Deemed Outstanding. For all purposes of the computations to be
made pursuant to this Section 2, (i) there shall be deemed to be outstanding all
shares of Common Stock issuable (A) pursuant to the exercise of Options
outstanding as of the date of this Warrant granted to employees, directors,
consultants and other persons under any Company stock option, bonus or other
incentive plan and any Options issued after the date of this Warrant to any such
persons under such plans provided that with respect to Options issued after the
date of this Warrant (x) the exercise price of such Options shall equal or
exceed the Market Price of the Company's Common Stock on the date of issuance
and (y) such Options shall not be exercisable in the aggregate for more than
1,000,000 shares, (B) pursuant to the exercise of any other Options and
conversion of Convertible Securities outstanding on the date
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of this Warrant which have an exercise or conversion price equal to or greater
than the Initial Warrant A Price, including without limitation the Warrants, the
Public Securities (as defined in the Purchase Agreement) and Warrants issued as
of March 3, 1997 to certain lenders for an aggregate of 775,000 shares of Common
Stock, (ii) immediately after any Additional Shares of Common Stock are deemed
to have been issued pursuant to Section 2.3 or 2.4 hereof, such Additional
Shares shall be deemed to be outstanding, (iii) treasury shares shall not be
deemed to be outstanding and (iv) notwithstanding anything to the contrary
contained in this Section 2, no adjustment shall be made in the Warrant A Price
upon the issuance of shares of Common Stock pursuant to Options and Convertible
Securities deemed to be outstanding pursuant to clause (i) hereof. Except with
respect to those securities deemed outstanding pursuant to clause (i) of this
Section 2.7, for purposes of calculating adjustments to the Warrant A Price,
there shall be deemed to be outstanding immediately after giving effect to any
issuance of shares of Common Stock, Options or Convertible Securities, all
shares of Common Stock issuable upon the exercise of Options and conversion of
Convertible Securities then outstanding, including without limitation the
Warrants, after giving effect to antidilution provisions contained in all such
outstanding Options and Convertible Securities which cause an adjustment in the
number of shares of Common Stock so issuable.
3. CONSOLIDATION, MERGER, ETC.
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
etc. In case the Company after the date hereof (a) shall consolidate with or
merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation or
merger, the Common Stock, Other Securities or Preferred Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock, Other Securities or
Preferred Stock (other than a capital reorganization or reclassification to the
extent that such capital reorganization or reclassification results in the issue
of Additional Shares of Common Stock for which adjustment in the Warrant A Price
is provided in Section 2.2.1 or 2.2.2 hereof), then, and in the case of each
such transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Warrant A Price or Warrant B
Price, as applicable, in effect at the time of such consummation for all Common
Stock, Other Securities or Preferred Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock, Other
Securities or Preferred Stock issuable upon such exercise prior to such
consummation, the greatest amount of securities, cash or other property to which
such holder would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
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<PAGE>
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 2, 3 and 4 hereof; provided, however, that if a purchase, tender or
exchange offer shall have been made to and accepted by the holders of more than
50% of the outstanding shares of Common Stock, and if the holder of such
Warrants so designates in a notice given to the Company on or before the date
immediately preceding the date of the consummation of such transaction, the
holder of such Warrants shall be entitled to receive the greatest amount of
securities, cash or other property to which such holder would actually have been
entitled as a shareholder if the holder of such Warrants had exercised such
Warrants prior to the expiration of such purchase, tender or exchange offer and
accepted such offer, subject to adjustments (from and after the consummation of
such purchase, tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in Sections 2, 3 and 4 hereof.
3.2. Assumption of Obligations. Notwithstanding anything contained in the
Warrants or in the Purchase Agreement to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) of Section
3.1 hereof unless, prior to the consummation thereof, each person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), (b) the obligations of the
Company under the Registration Rights Agreement and (c) the obligation to
deliver to such holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 3, such holder may be
entitled to receive, and such Person shall have similarly delivered to such
holder an opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including without limitation all
of the provisions of this Section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this Section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the provisions of Section 9 hereof or
by the terms of the Purchase Agreement.
4. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
provisions of Section 2 or 3 hereof are not strictly applicable but the failure
to make any adjustment would not, in the opinion of the holder of this Warrant,
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principles of such Sections, then, in each such
case, at the request of such holder, the Company shall (at the expense of such
holder) appoint a firm of independent investment bankers of recognized national
standing (which shall be completely independent of the Company and shall be
satisfactory to the holder of this Warrant), which shall give their opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 2 and 3
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hereof, necessary to preserve, without dilution, the purchase rights represented
by this Warrant. Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the holder of this Warrant and shall make the adjustments
described therein.
5. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
results in any adjustment of the Warrant A Price or Warrant B Price if the total
number of shares of Common Stock (or Other Securities) or Preferred Stock
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock (or Other Securities) or Preferred
Stock then authorized by the Company's certificate of incorporation and
available for the purpose of issue upon such exercise, and (d) will not issue
any capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value or a sum determined by reference to a formula
based on a published index of interest rates, an interest rate publicly
announced by a financial institution or a similar indicator of interest rates in
respect of participation in dividends and to a fixed sum or percentage of par
value in any such distribution of assets.
6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) or Preferred
Stock issuable upon the exercise of this Warrant, the Company at its expense
will promptly compute such adjustment or readjustment in accordance with the
terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be received by the Company for
any Additional Shares of Common Stock issued or sold or deemed to have been
issued, (b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Warrant A Price in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Section 2 hereof)
on account thereof. The Company will forthwith mail a copy of each such report
to
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each holder of a Warrant and will, upon the written request at any time of any
holder of a Warrant, furnish to such holder a like report setting forth the
Warrant A Price and the Warrant B Price at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its office maintained pursuant to Section 16.2(a) hereof and
will cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
7. EXERCISE OR CASHLESS EXERCISE OF WARRANT B.
7.1. Manner of Exercise or Cashless Exercise; Payment.
7.1.1. Exercise. The holder of this Warrant will furnish at least 30
days' prior written notice to the Company of its intention to exercise
Warrant B (three days' prior written notice in the event that the Warrant B
Exercise Date occurs due to a Change of Control Triggering Event or
Bankruptcy Triggering Event). Such notice, once given shall be
irrevocable. Subject to the Company's repurchase right following the
receipt of such notice, as provided in Section 7.4 hereof, Warrant B may be
exercised by the holder hereof, in whole but not in part, during normal
business hours on any Business Day on or after the Warrant B Exercise Date
and prior to the Warrant B Expiration Date, by surrender of this Warrant to
the Company at its office maintained pursuant to Section 16.2(a) hereof,
accompanied by a subscription in substantially the form attached to this
Warrant as Exhibit A (or a reasonable facsimile thereof) duly executed by
such holder and accompanied by payment, (i) in cash by wire transfer of
immediately available funds, (ii) by certified or official bank check
payable to the order of the Company, (iii) if any Junior Subordinated Notes
shall be outstanding, by delivery to the Company of a principal amount of
such Junior Subordinated Notes (including all accrued and unpaid interest
thereon), or (iv) by any combination of such methods (provided that at
least the par value of the shares of Preferred Stock issuable upon exercise
shall have been paid in cash), in each case in the amount of the Warrant B
Price, and such holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Preferred Stock set forth on the face of this Warrant.
7.1.2. Cashless Exercise. The holder of this Warrant will furnish at
least 30 days' prior written notice to the Company of its intention to
exercise Warrant B (three days' prior written notice in the event that the
Warrant B Exercise Date occurs due to a Change of Control Triggering Event
or a Bankruptcy Triggering Event). Such notice, once given shall be
irrevocable. Subject to the Company's repurchase right following the
receipt of such notice, as provided in Section 7.4 hereof, Warrant B may be
exercised by the holder hereof, in whole but not in part, into shares of
Preferred Stock, during normal business hours on any Business Day on or
after the Warrant B Exercise Date and prior to the Warrant B Expiration
Date, by surrender of this Warrant to the
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Company at its office maintained pursuant to Section 16.2(a) hereof,
accompanied by a cashless exercise notice in substantially the form
attached to this Warrant as Exhibit B (or a reasonable facsimile thereof)
duly executed by such holder, and such holder shall thereupon be entitled
to receive a number of duly authorized, validly issued, fully paid and
nonassessable shares of Preferred Stock equal to (i) the number of shares
of Preferred Stock which the holder would be entitled to receive upon
exercise of Warrant B minus the number of shares of Preferred Stock having
-----
an aggregate Liquidation Price (as defined in the Company's certificate of
designation establishing the Preferred Stock) equal to the Warrant B Price
(which in any event upon such cashless exercise shall result in a number of
shares of Preferred Stock as to all holders of Warrant B having an
aggregate Liquidation Price equal to $117,500,000).
For all purposes of this Warrant (other than this Section 7.1), any
reference herein to the exercise of Warrant B shall be deemed to include a
reference to the cashless exercise of Warrant B into Preferred Stock in
accordance with the terms of this Section 7.1.2.
7.2. When Exercise Effective. Each exercise of Warrant B shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 7.1 hereof (and in the case of exercise pursuant to Section 7.1.1,
provided that the holder has paid the consideration required thereby), and at
such time the Person or Persons in whose name or names any certificate or
certificates for shares of Preferred Stock shall be issuable upon such exercise
as provided in Section 7.3 hereof shall be deemed to have become the holder or
holders of record thereof.
7.3. Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of Warrant B and in any event within five Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof or, subject to Section 13 hereof, as such holder (upon payment
by such holder of any applicable transfer taxes) may direct a certificate or
certificates for the number of duly authorized, validly issued, fully paid and
nonassessable shares of Preferred Stock to which such holder shall be entitled
upon such exercise.
7.4. Company Repurchase Right. At any time on or after the date hereof,
the Company may elect (but shall not be obligated) to exercise its right to
repurchase the Control Rights and Warrant B, in whole but not in part, at the
aggregate repurchase price as to all holders of Warrant B and Control Rights
then outstanding, equal to $117,500,000 (the "Repurchase Price"), and such
election if made shall be irrevocable; provided, however, that if the Company
has received written notice by the holder of such holder's intention to exercise
Warrant B pursuant to Section 7.1.1 or 7.1.2 hereof or to exercise such holder's
Control Rights pursuant to Section 8.2 hereof, the Company shall exercise its
right to repurchase Warrant B and such Control Rights prior to the proposed date
of exercise specified by the
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holder in such notice. The Company will furnish to the holders at least 10 days
prior written notice of its intention to exercise its repurchase right and the
proposed date of such repurchase (the "Repurchase Date"), which notice shall be
irrevocable. On the Repurchase Date, the Company will pay the Repurchase Price
to the holders in cash (by wire transfer or certified bank check), and
contemporaneously with their receipt of such payment, the holders shall
surrender for cancellation the Warrants to the Company at its office maintained
pursuant to Section 16.2(a) hereof.
8. CONTROL RIGHTS. On or after the Control Right Exercise Date, the Required
Warrant Holders shall be entitled to exercise their right to designate for
nomination to the Board of Directors a number of individuals constituting a
majority of the members of the Board of Directors (the "Control Rights"). The
Required Warrant Holders will furnish to the Company 30 days' prior written
notice (three days' prior written notice in the event of a Change in Control
Triggering Event or Bankruptcy Triggering Event) of their intention to exercise
the Control Rights. The Control Rights will remain in effect following the
Control Right Exercise Date until the Control Right Expiration Date. The
Company will use its best efforts to cause those individuals designated by the
Required Warrant Holders to be elected by the stockholders of the Company,
including without limitation its recommendation to the stockholders of the
Company that they vote in favor of the election of such members. Directors
elected upon exercise of the Control Rights by the Required Warrant Holders will
abstain from voting on the Company's repurchase for cash consideration of
Warrant B, subject to their fiduciary duties as directors of the Company.
9. WARRANT A CONSENT RIGHTS. For so long as the original holders own Warrants
representing the right to purchase an aggregate of more than 5% of the Company's
outstanding Common Stock, the Company will not take any of the following actions
without the prior written consent of the Required Warrant Holders:
(a) declare or pay any dividend, redeem any shares of its
capital stock or make any other distribution in respect of equity
securities of the Company, except as permitted under Section 7.9 of
the Purchase Agreement;
(b) incur any indebtedness, except as permitted under Section
7.5 of the Purchase Agreement;
(c) enter into any merger or consolidation or sell, assign,
lease or otherwise transfer any material portion of its assets, except
as permitted under Section 7.10 of the Purchase Agreement;
(d) purchase or acquire the equity or assets of any other
business or entity, except as permitted under Section 7.8 of the
Purchase Agreement;
(e) enter into or amend any partnership or joint venture
agreement;
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(f) make an assignment for the benefit of creditors, subject the
Company or any subsidiary to any proceedings under any bankruptcy or
insolvency law, avail the Company or any subsidiary of the benefit of
any other legislation for the benefit of debtors, or take any steps to
wind up or terminate the Company's existence;
(g) change in any material manner the nature of the Company's
business as conducted on the date hereof, except as permitted under
Section 7.3.1 of the Purchase Agreement;
(h) make any investments in its subsidiaries, except as
permitted under Section 7.8 of the Purchase Agreement; or
(i) agree to do any of the foregoing.
For purposes of this Section 9, the language of the above-referenced provisions
of Section 7 of the Purchase Agreement shall govern the terms of the
restrictions contained herein whether or not (i) any Junior Subordinated Notes
shall be outstanding under the Purchase Agreement or (ii) the Purchase Agreement
shall have been terminated in accordance with its terms.
10. WARRANT A ADDITIONAL RESTRICTIONS. On or after (i) any breach of Section
7.4 of the Purchase Agreement or the occurrence of any event or default pursuant
to Sections 9.1 through 9.3, 9.5 through 9.7 or 9.10 of the Purchase Agreement,
or (ii) any failure by the Company to recruit a new Chief Operating
Officer/President on or before December 31, 1997 mutually satisfactory to the
Company and the Required Fund Investors from time to time party to the
Stockholders Agreement, for so long as the original holders own Warrants
representing the right to purchase an aggregate of more than 5% of the Company's
outstanding Common Stock, the Company will not take any of the following actions
without the prior written consent the Required Warrant Holders:
(a) other than as permitted hereunder, expand the size of the
Company's board of directors or create or expand the size of any
committee thereof;
(b) elect, appoint or remove any chief executive officer, chief
financial officer, chief operating officer or president;
(c) approve the Company's annual budget, capital expenditure
budget, business plans and strategic plan and any amendments thereto,
or expend any amounts not set forth in an annual budget or a capital
expenditure budget approved in accordance with the preceding clause;
or
(d) agree to do any of the foregoing.
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11. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record date of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any issuance of any Common Stock, Convertible Security or
Option by the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place, the time, if
any such time is to be fixed, as of which the holders of record of Common Stock
(or Other Securities) or Preferred Stock shall be entitled to exchange their
shares of Common Stock (or Other Securities) or Preferred Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up and a description in reasonable detail of
the transaction and (iii) the date of such issuance, together with a description
of the security so issued and the consideration received by the Company
therefor. Such notice shall be mailed at least 30 days prior to the date
therein specified.
12. REGISTRATION OF COMMON STOCK AND PREFERRED STOCK. If any shares of Common
Stock or Preferred Stock required to be reserved for purposes of exercise of
this Warrant require registration with or approval of any governmental authority
(including any self regulatory body) under any federal or state law (other than
the Securities Act) before such shares may be issued upon exercise, the Company
will, at its expense and as expeditiously as possible prior to such issuance,
use its best efforts to cause such shares to be duly registered or approved, as
the case may be, in accordance with the terms of the Registration Rights
Agreement. The shares of Common Stock (and Other Securities) and shares of
Preferred Stock issuable upon exercise of this Warrant shall constitute
Registrable Securities (as such
-16-
<PAGE>
term is defined in the Registration Rights Agreement). Each holder of this
Warrant shall be entitled to all of the benefits afforded to a holder of any
such Registrable Securities under the Registration Rights Agreement and such
holder, by its acceptance of this Warrant, agrees to be bound by and to comply
with the terms and conditions of the Registration Rights Agreement applicable to
such holder as a holder of such Registrable Securities.
13. RESTRICTIONS ON TRANSFER.
13.1. Restrictive Legends. Except as otherwise permitted by this
Section 13, each certificate for Common Stock (or Other Securities) and
Preferred Stock issued upon the exercise of any Warrant, each certificate issued
upon the direct or indirect transfer of any such Common Stock (or Other
Securities) and Preferred Stock, all Warrants originally issued pursuant to the
Purchase Agreement and each Warrant issued upon direct or indirect transfer or
in substitution for any Warrant pursuant to Section 16 hereof shall be
transferable only upon satisfaction of the conditions specified in this Section
13 and shall be stamped or otherwise imprinted with legends in substantially the
form required by the Registration Rights Agreement and the Stockholders
Agreement.
13.2. Notice of Proposed Transfer; Opinion of Counsel. Prior to any
transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this Section 13.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
transfer, and (b) shall designate counsel for the holder giving such notice,
which counsel shall be reasonably acceptable to the Company. The holder giving
such notice will submit a copy thereof to the counsel designated in such notice.
Subject to the foregoing, the following provisions shall then apply:
(i) If in the opinion of such counsel (which opinion shall be
reasonably acceptable to the Company), the proposed transfer may be
effected without registration of such Restricted Securities under the
Securities Act, such holder shall thereupon be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered
by such holder to the Company. Each certificate representing such
Restricted Securities issued upon or in connection with such transfer shall
bear the restrictive legends required by Section 13.1 hereof, unless the
related restrictions on transfer provided for in the Registration Rights
Agreement and the Stockholders Agreement shall have ceased and terminated
as to such Restricted Securities pursuant to Section 13.3 hereof.
(ii) If in the opinion of such counsel the proposed transfer may
not legally be effected without registration of such Restricted Securities
under the Securities Act (such opinion to state the basis of the legal
conclusions reached therein), thereafter such holder shall not be entitled
to transfer such Restricted Securities until either (x) receipt
-17-
<PAGE>
by the Company of a further notice from such holder pursuant to the
foregoing provisions of this Section 13.2 and fulfillment of the provisions
of clause (i) above or (y) such Restricted Securities have been effectively
registered under the Securities Act.
Notwithstanding any other provision of this Section 13 or of the
Stockholders Agreement, no opinion of counsel shall be necessary for a transfer
of Restricted Securities by the holder thereof to a subsidiary, shareholder,
partner or other affiliate of such holder, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
the original Purchaser hereof.
13.3. Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when such Restricted
Securities shall have been effectively registered under the Securities Act, or
(b) when, in the opinions of both counsel for the holder thereof and counsel for
the Company, such restrictions are no longer required in order to insure
compliance with the Securities Act or the terms of the Registration Rights
Agreement and the Stockholders Agreement. Whenever such restrictions shall
cease and terminate as to any Restricted Securities, the holder thereof shall be
entitled to receive from the Company, without expense (other than applicable
transfer taxes, if any), new securities of like tenor not bearing the applicable
legends required by Section 13.1 hereof.
14. AVAILABILITY OF INFORMATION. The Company will comply with the reporting
requirements of Sections 13 and 15(d) of the Exchange Act and will comply with
all other public information reporting requirements of the Commission (including
Rule 144 promulgated by the Commission under the Securities Act) from time to
time in effect and relating to the availability of an exemption from the
Securities Act for the sale of any Restricted Securities. The Company will also
cooperate with each holder of any Restricted Securities in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities. The Company will furnish to each holder of
any Warrants, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the Commission.
15. RESERVATION OF STOCK, ETC. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock of each class (or Other Securities) or
Preferred Stock from time to time issuable upon exercise of all Warrants at the
time outstanding. All shares of Common Stock (or Other Securities) or Preferred
Stock issuable upon exercise of any Warrants shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the case of shares,
fully paid and nonassessable with no liability on the part of the holders
thereof.
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<PAGE>
16. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.
16.1. Ownership of Warrants. The Company may treat the person in whose
name any Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 16.2(a) hereof as the owner and holder thereof
for all purposes, notwithstanding any notice to the contrary, except that, if
and when any Warrant is properly assigned in blank, the Company may (but shall
not be obligated to) treat the bearer thereof as the owner of such Warrant for
all purposes, notwithstanding any notice to the contrary. Subject to Section 13
hereof, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
16.2. Office; Transfer and Exchange of Warrants.
(a) The Company will maintain an office (which may be an
agency maintained at a bank) in Chicago, Illinois where notices,
presentations and demands in respect of this Warrant may be made
upon it. Such office shall be maintained at 500 W. Madison,
Chicago, Illinois 60661 until such time as the Company shall
notify the holders of the Warrants of any change of location of
such office within Chicago, Illinois.
(b) The Company shall cause to be kept at its office
maintained pursuant to Section 16.2(a) hereof a register for the
registration and transfer of the Warrants. The names and
addresses of holders of Warrants, the transfers thereof and the
names and addresses of transferees of Warrants shall be
registered in such register. The Person in whose name any Warrant
shall be so registered shall be deemed and treated as the owner
and holder thereof for all purposes of this Warrant, and the
Company shall not be affected by any notice or knowledge to the
contrary.
(c) Upon the surrender of any Warrant, properly endorsed,
for registration of transfer or for exchange at the office of the
Company maintained pursuant to Section 16.2(a) hereof, the
Company at its expense will (subject to compliance with Section
13 hereof, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment
by such holder of any applicable transfer taxes) may direct,
calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock and Preferred Stock called for
on the face or faces of the Warrant or Warrants so surrendered;
provided, however, that any exercise of Warrant A shall be in
increments of 100,000 shares, or if less, the remaining number of
shares for which Warrant A shall then be exercisable, and
provided, further, that no holder of any Warrant
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<PAGE>
shall transfer all of any portion of this Warrant to any
"competitor" of the Company as listed on Schedule 16.2 hereto.
16.3. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than a Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to Section 16.2(a)
hereof, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor and dated the date hereof.
17. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares)
of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4 hereof,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than the shares of
Common Stock issued upon the exercise of Warrants.
Bankruptcy Triggering Event: (i) Any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization, adjustment,
composition or other similar case or proceeding in connection therewith,
relative to the Company or its creditors, as such, or to its assets whether
voluntary or involuntary (and not dismissed within 60 days), (ii) any
liquidation, dissolution or other winding up of the Company whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy (and not
dismissed within 60 days), or (iii) any assignment for the benefit of creditors
or any other marshaling of assets and liabilities of the Company.
Business Day: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in Boston, Massachusetts, New York, New York or
Chicago, Illinois are authorized by law to be closed. Any reference to "days"
(unless Business Days are specified) shall mean calendar days.
Certificate of Designation: The Certificate of Designation filed with the
Secretary of State of the State of Delaware having the terms and provisions set
forth on Exhibit C to the Purchase Agreement.
Change of Control Triggering Event: Any transaction or series of
transactions (including, without limitation, a merger, consolidation, sale of
stock or sale of assets, but excluding any assignment as security for
indebtedness) after which any Person (or group of Persons acting in concert)
other than the Fund Investors, their assignees or affiliates and the Management
Investor (as defined in the Stockholders Agreement) and his permitted
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<PAGE>
Transferees (as defined in the Stockholders Agreement), shall own in excess of
35% of the voting stock of the Company (or the Person into which the Company
shall have been merged or consolidated) or have the right to elect a majority of
the members of the Board of Directors, or shall have acquired all or
substantially all of the consolidated assets of the Company and its
Subsidiaries.
Commission: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such term to
include any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company the holders of
which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
Company: As defined in the introduction to this Warrant, such term to
include any corporation which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3 hereof.
Control Right Exercise Date: The earlier of (i) September 30, 2003 or (ii)
upon the occurrence of any Change of Control Triggering Event or Bankruptcy
Triggering Event.
Control Right Expiration Date: The earliest of (i) August __, 2007, (ii)
the exercise of Warrant A or the Company's repurchase of Warrant B.
Control Rights: As defined in Section 8.2 hereof.
Convertible Securities: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock or other Convertible
Securities.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no class of the Common Stock is then listed or admitted to trading on any
national securities exchange or quoted in the over-the-counter market for any
portion of such 20-day period, the Current Market Price shall be the Market
Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
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<PAGE>
Initial Warrant A Price: An amount equal to the lower of (i) $7.07 (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) or, (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
Subordinated Notes and Warrants]; 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 Junior Notes and Warrants.
Junior Subordinated Notes: The $48,400,000 aggregate principal amount of
Junior Subordinated Notes due 2003 of the Company issued to the Purchasers under
the Purchase Agreement.
Market Price: On any date specified herein, the amount per share of Common
Stock equal to (a) the last sale price of Common Stock, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which Common Stock is then
listed or admitted to trading, or (b) if Common Stock is not then listed or
admitted to trading on any national securities exchange but is designated as a
national market system security by the NASD, the last trading price of Common
Stock on such date, or (c) if there shall have been no trading on such date or
if Common Stock is not so designated, the average of the closing bid and asked
prices of Common Stock on such date as shown by the NASD automated quotation
system, or (d) if Common Stock is not then listed or admitted to trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of the date as of which the determination is to
be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other securities
of the Company or any other Person which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time shall
be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 3 hereof or otherwise.
Person: A corporation, an association, a partnership, an organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency.
Preferred Stock: As defined in the introduction to this Warrant.
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<PAGE>
Purchase Agreement: As defined in the introduction to this Warrant.
Purchasers: As defined in the introduction to this Warrant.
Registration Rights Agreement: The Registration Rights Agreement dated as
of August __, 1997, in the form of Exhibit D to the Purchase Agreement, as from
time to time in effect.
Repurchase Date: As defined in Section 7.4 hereof.
Repurchase Price: As defined in Section 7.4 hereof.
Required Warrant Holders: Holders of a majority of the numbers of
shares of Common Stock issuable upon exercise of Warrant A (giving effect to the
provisions of Sections 2 through 4 hereof).
Restricted Securities: All of the following: (a) any Warrants bearing the
applicable legend or legends referred to in Section 13.1 hereof, (b) any shares
of Common Stock (or Other Securities) or Preferred Stock which have been issued
upon the exercise of Warrants and which are evidenced by a certificate or
certificates bearing the applicable legend or legends referred to in such
Section, (c) unless the context otherwise requires, any shares of Common Stock
(or Other Securities) or Preferred Stock which are at the time issuable upon the
exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend or legends referred to
in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Stockholders Agreement: The Stockholders Agreement dated as of August __,
1997 among the holders of the Warrants, the Company and Roger E. Covey.
Warrant A Expiration Date: The earliest of (i) September __, 2007, (ii)
the date of exercise of Warrant B or the Company's repurchase of Warrant B in
accordance with Section 7.4 hereof following its receipt of notice of exercise
by the holder of Warrant B, or (iii) the holder's exercise of Control Rights in
accordance with Section 8.2 hereof or the Company's repurchase of such Control
Rights in accordance with Section 7.4 hereof following notice of exercise by the
holder of Warrant B.
Warrant A Price: As defined in Section 2.1 hereof.
Warrant B Exercise Date: The earlier of (i) September 30, 2003 or (ii)
upon the occurrence of any Change of Control Triggering Event or Bankruptcy
Triggering Event.
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Warrant B Expiration Date: The earliest of (i) August __, 2007 or (ii) the
exercise of Warrant A.
Warrant B Price: $________ per share ($20,000,000 in the aggregate as to
all shares of Preferred Stock issuable upon exercise by all holders of Warrant
B).
Warrants: As defined in the introduction to this Warrant.
18. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
19. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
20. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing (or in the form of a telex or
telecopy) addressed as hereinafter provided and if either (x) actually delivered
at said address (evidenced in the case of a telex by receipt of the correct
answer back) or (y) in the case of a letter, three Business Days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified: (a) if to any holder of any
Warrant, at the registered address of such holder as set forth in the register
kept at the office of the Company maintained pursuant to Section 16.2(a) hereof;
or (b) if to the Company, to the attention of its President at its office
maintained pursuant to Section 16.2(a) hereof; provided, however, that the
exercise of any Warrant shall be effective in the manner provided in Section 1
hereof.
21. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Company
and the holders of Warrants exercisable for two-thirds (66 2/3%) of the shares
of Common Stock for which the Warrants shall be exercisable at such time;
provided, however, that any such change, waiver, discharge or termination which
- -------- -------
reduces the number of shares of Common Stock or Preferred Stock for which this
Warrant is exercisable or which affects the Initial Warrant A Price, the Warrant
B Price, the Warrant A Exercise Date, the Warrant A Expiration Date, the Warrant
B Exercise Date, the Warrant B Expiration Date, the Control Right Expiration
Date or the definition of "Required Warrant Holders", or which amends this
Section 21, shall be effective unless and until an instrument has been signed in
writing by each
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<PAGE>
holder of Warrants. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware. The section headings in
this Warrant are for purposes of convenience only and shall not constitute a
part hereof.
SYSTEM SOFTWARE ASSOCIATES, INC.
By:________________________
Title:
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<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To [ISSUER]
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, __________ /1/
shares of the [Common Stock] [Preferred Stock] and herewith makes payment of $
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to , whose address is .
Dated: _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
_________________________________
(Street Address)
_________________________________
(City) (State) (Zip Code)
_______________________
/1/ Insert here upon an exercise of Warrant A, the number of shares called for
in clause (a) on the face of this Warrant (or, in the case of a partial
exercise, the portion thereof as to which this Warrant is being exercised), in
either case without making any adjustment for Additional Shares of Common Stock
or any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of this Warrant, may be delivered upon exercise.
Insert here upon an exercise of Warrant B, the number of shares called for in
clause (b) on the face of this Warrant. In the case of a partial exercise of
Warrant A, a new Warrant or Warrants will be issued and delivered, representing
the unexercised portion of Warrant A, to the holder surrendering the Warrant.
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<PAGE>
Exhibit B
---------
FORM OF CASHLESS EXERCISE NOTICE
[To be executed only upon cashless exercise of Warrant]
To [ISSUER]
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant with respect to __________ /1/ shares of the [Common
Stock] [Preferred Stock] which such holder would be entitled to receive upon the
exercise hereof, and requests that the certificates for such shares be issued in
the name of, and delivered to , whose address is .
Dated: _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
_________________________________
(Street Address)
_________________________________
(City) (State) (Zip Code)
________________________
/1/ Insert here upon exercise of Warrant A, the number of shares called
for in clause (a) on the face of this Warrant (or, in the case of a partial
exercise, the portion thereof as to which this Warrant is being exercised), in
either case without making any adjustment for Additional Shares of Common Stock
or any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of this Warrant, may be delivered upon exercise.
Insert here upon an exercise of Warrant B, the number of shares called for in
clause (b) on the face of this Warrant. In the case of a partial exercise of
Warrant A, a new Warrant or Warrants will be issued and delivered, representing
the unexercised portion of Warrant A, to the holder surrendering the Warrant.
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<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right
represented by such Warrant to purchase __________ /1/ shares of Common Stock or
__________ /1/ shares of Preferred Stock, as provided herein, of System Software
Associates, Inc. to which such Warrant relates, and appoints
Attorney to make such transfer on the books of System Software Associates, Inc.
maintained for such purpose, with full power of substitution in the premises.
Dated: _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
_________________________________
(Street Address)
_________________________________
(City) (State) (Zip Code)
Signed in the presence of:
__________________________
__________________________
/1/ Insert here upon exercise of Warrant A, the number of shares called
for in clause (a) on the face of this Warrant (or, in the case of a partial
exercise, the portion thereof as to which this Warrant is being exercised), in
either case without making any adjustment for Additional Shares of Common Stock
or any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of this Warrant, may be delivered upon exercise.
Insert here upon an exercise of Warrant B, the number of shares called for in
clause (b) on the face of this Warrant. In the case of a partial exercise of
Warrant A, a new Warrant or Warrants will be issued and delivered, representing
the unexercised portion of Warrant A, to the holder surrendering the Warrant.
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<PAGE>
EXHIBIT 4.6
________________________________________________________________________________
SYSTEM SOFTWARE ASSOCIATES, INC.
_________________
STOCKHOLDERS AGREEMENT
_________________
DATED AS OF AUGUST __, 1997
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS .................................................................... 2
1.1. Certain Definitions .............................................. 2
-------------------
1.2. Certain Matters of Construction .................................. 6
-------------------------------
2. VOTING AGREEMENT ............................................................... 6
2.1. Board of Directors ............................................... 6
------------------
2.2. Voting of Management Investor's Stock ............................ 8
-------------------------------------
2.3. Period ........................................................... 8
------
2.4. The Company ...................................................... 8
-----------
3. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS ....................................... 9
3.1. Right of First Refusal ........................................... 9
----------------------
3.2. Other Permitted Transfers ........................................ 10
-------------------------
3.3. Period ........................................................... 11
------
3.4. Status in Hands of Certain Transferees ........................... 11
--------------------------------------
4. CO-SALE RIGHTS ................................................................. 12
4.1. Tag Along ........................................................ 12
---------
4.2. Certain Legal Requirements ....................................... 14
--------------------------
4.3. Further Assurances ............................................... 14
------------------
4.4. Closing .......................................................... 15
-------
4.5. Excluded Transactions ............................................ 15
---------------------
4.6. Period ........................................................... 16
------
5. REMEDIES ....................................................................... 16
5.1. Generally ........................................................ 16
---------
5.2. Deposit .......................................................... 16
-------
6. LEGEND ......................................................................... 17
7. AMENDMENT, ETC ................................................................. 17
7.1. No Oral Modifications ............................................ 17
---------------------
7.2. Written Modifications ............................................ 17
---------------------
8. MISCELLANEOUS .................................................................. 18
8.1. Authority; Effect ................................................ 18
-----------------
8.2. Notices .......................................................... 18
-------
</TABLE>
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<TABLE>
<S> <C>
8.3. Binding Effect, etc .............................................. 19
-------------------
8.4. Descriptive Headings ............................................. 19
--------------------
8.5. Counterparts ..................................................... 19
------------
8.6. Severability ..................................................... 19
------------
9. GOVERNING LAW .................................................................. 20
9.1. Governing Law .................................................... 20
-------------
9.2. Consent to Jurisdiction .......................................... 20
-----------------------
9.3. Waiver of Jury Trial ............................................. 21
--------------------
9.4. Reliance ......................................................... 21
--------
</TABLE>
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<PAGE>
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made as of August __, 1997
---------
by and among:
(i) System Software Associates, Inc., a Delaware corporation (the
"Company"),
-------
(ii) each of Bain Capital/SSA Associates (the "Bain Investor"), JMI Equity
Fund III, L.P. and CS Investor, L.L.C. (together with the Bain
Investor, the "Fund Investors," and each a "Fund Investor"), and each
-------------- -------------
of the other Fund Investors from time to time becoming a party hereto
pursuant to the terms hereof, and
(iii) Roger E. Covey, Chief Executive Officer of the Company (the
"Management Investor").
--------------------
Recitals
--------
1. On or about the date hereof, pursuant to a Securities Purchase
Agreement dated as of August [_], 1997, (the "Purchase Agreement"), the Company
------------------
has agreed to issue and the Fund Investors have agreed to purchase $48,400,000
principal amount of the Company's Junior Subordinated Notes due 2003 (the
"Notes") and warrants to purchase ____ shares of the Company's outstanding
-----
common stock, par value $.0033 per share (the "Common Stock") or 10,000 shares
------------
of the Company's Series A Preferred Stock (the "Preferred Stock"), on terms and
---------------
under circumstances described in the Purchase Agreement (the "Warrants").
--------
2. The parties believe that it is in the best interests of the Company,
the Management Investor and the Fund Investors to: (i) provide that certain
shares of Common Stock and Preferred Stock shall be transferable only upon
compliance with the terms hereof; (ii) provide the Fund Investors and the
Management Investor with certain rights and obligations with respect to the
purchase of shares of Common Stock and Preferred Stock under certain
circumstances; (iii) provide for certain rights and obligations with respect to
the election of directors and the voting of the Management Investor's shares of
Common Stock; and (iv) set forth their agreements on certain other matters.
Agreement
---------
Now therefore, in consideration of the foregoing and the mutual agreements
set forth below, the parties hereto, each intending to be legally bound, hereby
agree as follows:
<PAGE>
1. DEFINITIONS. For purposes of this Agreement:
1.1. Certain Definitions. The following terms shall have the
-------------------
following meanings:
1.1.1. "Affiliate" shall mean, with respect to any specified Person,
---------
any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with,
the Person specified. In the case of CS Investor, L.L.C., the term
"Affiliate" shall be deemed to include the lineal descendants of Nicholas
J. Pritzker, deceased, trusts for their benefit and for the benefit of
certain of their spouses, and Persons owned or controlled, directly or
indirectly, by such descendants, trusts and/or Persons.
1.1.2. "Affiliated Fund" shall mean any limited partnership or other
---------------
Person formed for the purpose of investing in other companies or businesses
which is an Affiliate of any Fund Investor.
1.1.3. "Bain Investor" shall have the meaning set forth in the
-------------
recitals hereto.
1.1.4. "Board Observer" shall have the meaning set forth in Section
--------------
2.1.1 hereof.
1.1.5. "Closing Date" shall have the meaning set forth in the
------------
Purchase Agreement.
1.1.6. "Common Stock" shall have the meaning set forth in the
------------
recitals hereto.
1.1.7. "Company" shall have the meaning set forth in the preamble
-------
hereto.
1.1.8. "Control Rights" shall have the meaning set forth in the
--------------
Warrants.
1.1.9. "Distribution Percentage" shall have the meaning set forth in
-----------------------
Section 3.4 hereof.
1.1.10. "Event of Default" shall have the meaning set forth in the
----------------
Purchase Agreement.
1.1.11. "Exchange Act" shall mean Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
-2-
<PAGE>
1.1.12. "First Refusal Period" shall have the meaning set forth in
--------------------
Section 3.1 hereof.
1.1.13. "First Refusal Securities" shall have the meaning set forth
------------------------
in Section 3.1 hereof.
1.1.14. "Fund Designated Directors" shall have the meaning set forth
-------------------------
in Section 2.1 hereof.
1.1.15. "Fund Investor" and "Fund Investors" shall have the meaning
------------- --------------
set forth in the preamble hereto.
1.1.16. "Fund Securities" shall mean all Shares originally issued to
---------------
(or issued upon conversion of or otherwise with respect to Shares
originally issued to) or held by the Fund Investors whenever issued,
including without limitation all Shares issued or issuable pursuant to the
exercise of any Warrants originally issued to or held by the Fund
Investors, whenever issued.
1.1.17. "General Representations" shall mean any general
-----------------------
representations and warranties regarding such matters as the liabilities
(contingent and otherwise), assets, agreements and business of the Company
and its Subsidiaries, the compliance of any Sale with laws and contracts
and the adequacy of disclosure in connection with any Sale.
1.1.18. "Independent Director" shall have the meaning set forth in
--------------------
Section 2.1 hereof.
1.1.19. "Individual Representations" shall mean any representations
--------------------------
and warranties regarding such matters as legal capacity or due organization
of a Participating Seller, a Participating Seller's authority to
participate in a Sale, compliance with laws and agreements applicable to
such Participating Seller and ownership (free and clear of liens, charges,
encumbrances and adverse claims) of Securities to be sold in a Sale.
1.1.20. "Investors" shall mean the Fund Investors and the Management
---------
Investor.
1.1.21. "Management Investor" shall have the meaning set forth in the
-------------------
preamble hereto.
1.1.22. "Management Securities" shall mean all Shares beneficially
---------------------
owned by (or issued upon conversion of or otherwise with respect to Shares
beneficially owned by) or
-3-
<PAGE>
held by the Management Investor, whenever issued, including without
limitation all Shares issued or issuable pursuant to the exercise of any
Options originally issued to or held by the Management Investor, whenever
issued, and all such Options.
1.1.23. "Non-Complying Investor" shall have the meaning set forth in
----------------------
Section 5.2 hereof.
1.1.24. "Note" and "Notes" shall have the meaning set forth in the
---- -----
Purchase Agreement.
1.1.25. "Note Obligations" shall have the meaning set forth in the
----------------
Purchase Agreement.
1.1.26. "Options" shall mean any options or warrants or other rights
-------
to subscribe for, purchase or otherwise acquire Common Stock, other than
rights to acquire Shares pursuant to this Agreement, but shall exclude the
Warrants.
1.1.27. "Participating Seller" shall have the meaning set forth in
--------------------
Section 4.1 hereof.
1.1.28. "Person" shall mean any individual, partnership, corporation,
------
company, association, trust, joint venture, unincorporated organization or
entity, or any government, governmental department or agency or political
subdivision thereof.
1.1.29. "Preferred Stock" shall have the meaning set forth in the
---------------
recitals hereto.
1.1.30. "Proposed Buyer" shall have the meaning set forth in Section
--------------
4.1 hereof.
1.1.31. "Proposed Seller" shall have the meaning set forth in Section
---------------
4.1 hereof.
1.1.32. "Public Offering" shall mean an offering of Securities in
---------------
which the Company proposes to register on Form S-1, S-2 or S-3 (or any
successor form) any Shares for its own or another's account under the
Securities Act.
1.1.33. "Purchase Agreement" shall have the meaning set forth in the
------------------
recitals hereto.
1.1.34. "Required Fund Investors" shall mean the holders of more than
-----------------------
50% of the aggregate principal amount of the Notes then outstanding, if
any, and the holders of
-4-
<PAGE>
more than 50% in number of the Fund Securities then outstanding (with
respect to the Warrants, such number shall be calculated on the basis of
the number of Shares then issuable upon exercise thereof).
1.1.35. "Required Warrant Holders" shall have the meaning set forth
------------------------
in the Warrants.
1.1.36. "Sale" shall have the meaning set forth in Section 4.1
----
hereof.
1.1.37. "Sale Percentage" shall have the meaning set forth in Section
---------------
4.1 hereof.
1.1.38. "Securities" shall mean all Shares and all Options included
----------
in the Management Securities or the Fund Securities.
1.1.39. "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
1.1.40. "Shares" shall mean all shares of Common Stock and Preferred
------
Stock.
1.1.41. "Subsidiary" shall mean any Person of which the Company or
----------
other specified Person now or hereafter shall at the time own directly or
indirectly through a Subsidiary at least a majority of the outstanding
capital stock (or other shares of beneficial interest) entitled to vote
generally or control the Board of Directors.
1.1.42. "Tag Along Notice" shall have the meaning set forth in
----------------
Section 4.1 hereof.
1.1.43. "Tag Along Offerees" shall have the meaning set forth in
------------------
Section 4.1 hereof.
1.1.44. "Transfer" shall have the meaning set forth in Article 3
--------
hereof.
1.1.45. "Transfer Notice" shall have the meaning set forth in Section
---------------
3.1 hereof.
1.1.46. "Voting Default" shall have the meaning set forth in Section
--------------
2.2 hereof.
1.1.47. "Voting Restriction" shall have the meaning set forth in
------------------
Section 2.2 hereof.
-5-
<PAGE>
1.1.48. "Voting Shares" shall mean, with respect to any matter to be
-------------
voted upon, all Shares included in the Securities entitled to vote with
respect to such matter.
1.1.49. "Warrants" shall have the meaning set forth in the recitals
--------
hereto.
1.2. Certain Matters of Construction. In addition to the definitions
-------------------------------
referred to as set forth in Section 1.1:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) References to a Section, Schedule or Exhibit are to a Section of,
or Schedule or Exhibit to, this Agreement;
(c) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined; and
(d) The masculine, feminine and neuter genders shall each include the
other.
2. VOTING AGREEMENT.
2.1. Board of Directors.
------------------
2.1.1. The Company. The Company will (i) cause the Board of
-----------
Directors to consist of exactly seven (7) directors and (ii) nominate and
use its best efforts to elect and to cause to remain as directors on the
Board of Directors two (2) individuals designated by the Required Fund
Investors (the "Fund Designated Directors"), one of which Fund Designated
-------------------------
Directors will be designated by the Bain Investor, and one (1) additional
independent director selected by the Company and reasonably satisfactory to
the Required Fund Investors (the "Independent Director"). One additional
----------- --------
individual designated by the Required Fund Investors shall be entitled to
attend any meetings of the Board of Directors, or to participate in any
meeting of the Board of Directors held by teleconference (the "Board
-----
Observer"), provided that the foregoing right of attendance or
--------
participation shall not in any event include the right to vote on matters
presented to the Board of Directors. The Company shall give the Board
Observer the same advance notice of any proposed meeting or action by
written consent which the Company gives to its Board of Directors.
-6-
<PAGE>
2.1.2. Nominating Committee. The Company will establish and maintain
--------------------
a nominating committee of the Board of Directors and shall use its best
efforts to elect, appoint and designate to such nominating committee (i)
one individual who shall be a Fund Designated Director, (ii) [one
individual who shall be an Independent Director], and (iii) the Management
Investor. The provisions of the Company's by-laws providing for a three-
member nominating committee shall not be modified, amended or terminated
without the consent of the Required Fund Investors.
2.1.3. Insurance. If so requested by the Required Fund Investors at
---------
any time, the Company will use its reasonable best efforts to promptly
obtain officers' and directors' insurance on reasonable terms.
2.1.4. Management Investor. The Management Investor and the Fund
-------------------
Investors hereby agree to cast all votes to which the Management Investor
or the Fund Investors are entitled in respect of the Voting Shares now or
hereafter owned by the Management Investor or the Fund Investors, whether
at any annual or special meeting of stockholders, by written consent or
otherwise, to:
(i) fix the number of directors on the Board of Directors at seven
(7) directors;
(ii) elect as directors of the Company the Fund Designated
Directors, the Independent Director and the Management
Investor; and
(iii) elect as the other members of the Board of Directors such
other individuals as may be recommended by the Board of
Directors of the Company.
2.1.5. Removal; Successors. The Management Investor will not vote
-------------------
any of his voting shares or take any other action to remove any Fund
Designated Director without the consent of the Required Fund Investors,
except for cause in accordance with the By-laws of the Company as in effect
from time to time. In the event any Fund Designated Director shall cease
to serve for any reason, the Required Fund Investors shall have the right
to nominate a successor Fund Designated Director, and the Company and the
Management Investor shall, upon receipt of notice identifying such nominee,
promptly take all action necessary to cause the appointment of such nominee
to the Board of Directors pursuant to the Company's By-laws and Certificate
of Incorporation, each as amended and in effect from time to time, and to
use its best efforts to elect and to cause to remain as a director such
successor Fund Designated Director.
-7-
<PAGE>
2.1.6. Control Rights. In the event that the holders of the Warrants
--------------
exercise the Control Rights as specified in the Warrants, (i) the Company
and the Management Investor agree that they will nominate and use their
best efforts to elect as a majority of the Board of Directors individuals
designated by the Required Warrant Holders, and (ii) the Management
Investor hereby agrees that he will cast all votes to which he is entitled
in respect of the Voting Shares now or hereafter owned by him, whether at
any annual or special meeting of stockholders, by written consent or
otherwise, to elect such directors to the Board of Directors.
2.2. Voting of Management Investor's Stock.
-------------------------------------
2.2.1. Voting Restrictions. In the event that:
-------------------
(i) The Company breaches Section 7.4 of the Purchase Agreement; or
(ii) An Event of Default has occurred pursuant to Sections 9.1
through 9.3, 9.5 through 9.7 or 9.10 of the Purchase
Agreement; or
(iii) The Company fails to recruit a Chief Operating
Officer/President of the Company on or before [December 31,
1997] who is mutually satisfactory to the Company and the
Required Fund Investors (collectively, the "Voting Defaults");
---------------
Then the Management Investor hereby agrees to cast all votes to which the
Management Investor is entitled in respect of the Voting Shares now or
hereafter owned by the Management Investor, whether at any annual or
special meeting, by written consent or otherwise, as directed to the
Management Investor by the Required Fund Investors (the "Voting
------
Restriction").
-----------
2.2.2. Cure. The Voting Restriction shall apply only until all
----
Voting Defaults are cured to the reasonable satisfaction of the Required
Fund Investors, as stated in a written notice from the Required Fund
Investors to the Company and the Management Investor; provided, however,
-------- -------
that upon the subsequent occurrence of any Voting Default, the Voting
Restriction shall be in full force and effect.
2.3. Period. The foregoing provisions of this Section 2 (other than
------
Section 2.1.6) shall expire on the earliest of: (i) the date of termination of
this Agreement or (ii) the date on which less than 10% of the original principal
amount of the Notes and less than 10% of the Warrants
-8-
<PAGE>
outstanding on the Closing Date (calculated with respect to the Warrants on the
basis of the number of Shares then issuable upon exercise thereof) remain
outstanding.
2.4. The Company. The Company agrees not to give effect to any action by
-----------
the Management Investor which is in contravention of this Article 2.
3. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS.
The Management Investor shall not sell, pledge, assign, grant a
participation interest in, encumber or otherwise transfer or dispose of any of
the Management Securities to any other Person, whether directly, indirectly,
voluntarily, involuntarily, by operation of law, pursuant to judicial process
(including, without limitation, divorce decree) or otherwise (a "Transfer"),
--------
except as permitted by this Article 3. Any attempted Transfer of Management
Securities not permitted by this Article 3 shall be null and void, and the
Company shall not in any way give effect to any such impermissible Transfer.
3.1. Right of First Refusal. Except as provided in Section 3.2, the
----------------------
Management Investor may not Transfer any or all of the Management Securities
without complying with this Section 3.1.
3.1.1. Notice. If the Management Investor desires to Transfer
------
Management Securities to any Person, prior to such Transfer, the Management
Investor shall give notice of such offer to the Fund Investors. Such
notice (the "Transfer Notice") shall state the terms and conditions of such
---------------
offer, including the name of the prospective purchaser, the proposed
purchase price per share of such Management Securities, payment terms, the
type of disposition and the number of shares of such Management Securities
to be transferred (the "First Refusal Securities") and any other material
------------------------
terms and conditions of the proposed Transfer.
3.1.2. Exercise. For a period of forty-five (45) days following the
--------
receipt of the Transfer Notice (the "First Refusal Period"), the Fund
--------------------
Investors shall have the right to elect to purchase all (but not less than
all) of the First Refusal Securities specified in the Transfer Notice at
the price and upon the terms set forth in the Transfer Notice. In the
event that the Fund Investors elect to purchase all of the First Refusal
Securities, they shall give written notice, during the First Refusal
Period, to the Management Investor of their election. In the event that
the Fund Investors elect to purchase the First Refusal Securities, the Fund
Investors shall purchase all such First Refusal Securities for such price,
within sixty (60) days after the date the Fund Investors receive the
Transfer Notice.
-9-
<PAGE>
Notwithstanding anything to the contrary in this Section 3.1, in the
event that any of the First Refusal Securities specified in the Transfer
Notice are not purchased by the Fund Investors within such sixty (60) day
period, then the Fund Investors shall have no right to purchase any such
First Refusal Securities, and the Management Investor may, within the sixty
(60) day period following the expiration of the First Refusal Period,
subject to compliance with Article 4, sell the First Refusal Securities
specified in the Transfer Notice to the proposed transferee upon the price
and terms specified in the Transfer Notice; provided, however, that if such
-------- -------
First Refusal Securities are not sold within the sixty (60) day period,
such First Refusal Securities shall again become subject to all the
restrictions set forth in this Article 3. Any Transfer of First Refusal
Securities consummated pursuant to this Section 3.1 shall remain subject to
the provisions of this Agreement, and the intended transferee pursuant to
this Section shall, as a condition to the effectiveness of such Transfer,
execute and deliver to the Company a counterpart of this Agreement, which
shall evidence such transferee's agreement that the shares intended to be
transferred shall continue to be subject to this Agreement to the same
extent as the Management Investor who transferred such First Refusal
Securities.
3.1.3. Closing. The closing of any purchase pursuant to Section 3.1
-------
shall take place as soon as reasonably practicable. At any such closing,
the Management Investor shall deliver the certificates evidencing the
Securities to be sold by the Management Investor, duly endorsed, or with
stock powers or other appropriate instruments duly endorsed, for transfer
with signature guaranteed, free and clear of any liens, encumbrances or
adverse claims, with any stock transfer tax stamps affixed, against
delivery of the applicable consideration. The delivery of a certificate or
certificates by the Management Investor pursuant to this Section 3.1.3
shall be deemed a representation and warranty by such Management Investor
that (i) the Management Investor has full right, title and interest in and
to such Securities; (ii) the Management Investor has all necessary power
and authority and has taken all necessary action to sell such Securities as
contemplated; and (iii) such Securities are free and clear of any and all
liens and encumbrances, other than those imposed by this Agreement.
3.2. Other Permitted Transfers. Notwithstanding the foregoing, the
-------------------------
Management Investor may make the following Transfers of Management Securities
without compliance with Section 3.1 hereof:
3.2.1. Transfers under this Agreement, etc. The Management Investor
-----------------------------------
may Transfer any or all Management Securities: (i) to the Company or any
Subsidiary of the Company in one or more transactions approved by the Board
of Directors of the Company or (ii) to any Fund Investor.
-10-
<PAGE>
3.2.2. De Minimis Transfers. The Management Investor may Transfer up
--------------------
to an aggregate of 300,000 Shares in any twelve-month period (which amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the
Common Stock).
3.2.3. Transfer on Divorce. The Management Investor may Transfer
-------------------
any or all Management Securities to his ex-spouse in the event of a
divorce, provided that such Transfer shall be required by a final, non-
appealable decree of divorce entered by as court of competent jurisdiction
or a settlement agreement entered into by the Management Investor and his
ex-spouse and approved by a court of competent jurisdiction and embodied in
a final, non-appealable decree of divorce; provided, however, that no such
-------- -------
Transfer shall be effective unless (i) the Management Investor shall have
retained the voting rights of such Management Securities and such voting
rights shall remain governed by Article 2 hereof and (ii) such transferee
has delivered to the Company a written acknowledgment and agreement in form
and substance reasonably satisfactory to the Required Fund Investors that
the Management Securities to be received by such transferee are subject to
all of the provisions of this Agreement and that such transferee is bound
hereby and a party thereto to the same extent as the Management Investor.
3.2.4. Transfers to Charities and Children. The Management Investor
-----------------------------------
may Transfer Management Securities to (i) his charitable trust (including
the Tang Research Foundation), (ii) other charitable organizations that
qualify under (S)170(c) of the Internal Revenue Code or (iii) his children;
provided, however, that no such Transfer shall be effective unless (i) the
-------- -------
Management Investor shall have retained the voting rights of such
Management Securities and such voting rights shall remain governed by
Article 2 hereof and (ii) such transferee has delivered to the Company a
written acknowledgment and agreement in form and substance reasonably
satisfactory to the Required Fund Investors that the Management Securities
to be received by such transferee are subject to all of the provisions of
this Agreement and that such transferee is bound hereby and a party thereto
to the same extent as the Management Investor.
3.2.5. Transfers Upon Death. Upon the death of the Management
--------------------
Investor, the Management Securities held by the Management Investor may be
distributed by will or other instrument taking effect at death or by
applicable laws of descent and distribution to such holder's estate,
executors, administrators and personal representatives, and then to such
holder's heirs, legatees or distributees, whether or not such recipients
are children of such holder; provided further, that the estate of the
----------------
Management Investor may sell such number of the Management Securities to an
independent party as may be necessary to
-11-
<PAGE>
prevent such estate from being required to pay any taxes due and payable to
any governmental entity by reason of the death of the Management Investor;
provided further, however, that no such Transfer pursuant to this Section
-------- ------- -------
3.2.5. shall be effective until the recipient has delivered to the Company
a written acknowledgment and agreement in form and substance reasonably
satisfactory to the Required Fund Investors that the Securities to be
received by such recipient are subject to all the provisions of this
Agreement and that such recipient is bound hereby and a party hereto to the
same extent as the Management Investor.
3.3. Period. The foregoing provisions of this Article 3 shall expire on
------
the earliest of (i) the date of termination of this Agreement or (ii) the date
on which the Company shall have satisfied all of the Note Obligations under the
Purchase Agreement and no Notes remain outstanding thereunder.
3.4. Status in Hands of Certain Transferees. Securities Transferred
--------------------------------------
pursuant to and in compliance with Section 3.2.2 and Article 4 hereof shall in
the hands of the Proposed Buyer not constitute Securities for any purpose
hereof. Securities Transferred in compliance with this Agreement in any Public
Offering or under Rule 144 shall in the hands of the recipient not constitute
Securities for any purpose hereof. If any Fund Investor distributes any or all
of its Securities to an Affiliated Fund, a trust established for the benefit of
the partners of an Affiliated Fund or pro rata to such Fund Investor's partners,
participants or other owners (the percentage of all Securities owned by such
Fund Investor so distributed being herein referred to as the "Distribution
------------
Percentage"), then a percentage of all Securities owned by the Management
- ----------
Investor equal to the Distribution Percentage shall no longer constitute Shares
or Securities for any purpose under this Agreement.
4. CO-SALE RIGHTS.
4.1. Tag Along. No holder or holders of Securities (for purposes of this
---------
Article 4, the "Proposed Seller") shall Transfer (for purposes of this Article
---------------
4, a "Sale") any Securities to any other Person (the "Proposed Buyer") except in
---- --------------
the manner and on the terms set forth in this Article 4, and attempted Transfers
in violation of this Article 4 shall be null and void.
4.1.1. Offer. A written notice (the "Tag Along Notice") shall be
----- ----------------
furnished by the Proposed Seller to the Management Investor, if the
Proposed Seller is an Fund Investor, or to each of the Fund Investors, if
the Proposed Seller is the Management Investor (collectively, the "Tag
---
Along Offerees"), at least ten (10) days prior to a Transfer. The Tag
--------------
Along Notice shall include:
-12-
<PAGE>
(a) The principal terms of the proposed Sale insofar as it
relates to the Securities, including the number of Securities to be
purchased from the Proposed Seller, the percentage on a fully-diluted
basis of the total number of Securities held by all holders of
Securities which such number of Securities constitute s (for purposes
of this Article 4, the "Sale Percentage"), the maximum and minimum
---------------
purchase price and the name and address of the Proposed Buyer; and
(b) An offer by the Proposed Seller to include, at the option of
each Tag Along Offeree, in the Sale to the Proposed Buyer such number
of Securities (not in any event to exceed the Sale Percentage of the
total number of Securities held by such Tag Along Offeree) owned by
the Tag Along Offeree determined in accordance with Section 4.1.2
hereof, on the same terms and conditions (subject to all of the
provisions of this Agreement), with respect to each Security Sold, as
the Proposed Seller shall Sell each of its Securities.
4.1.2. Exercise. Each Tag Along Offeree desiring to accept the offer
--------
contained in the Tag Along Notice shall send a written commitment to the
Proposed Seller specifying the number of Securities (not in any event to
exceed the Sale Percentage of the total number of Securities held by such
Tag Along Offeree) which such Tag Along Offeree desires to have included in
the Sale within three (3) days after the effectiveness of the Tag Along
Notice (each, a "Participating Seller"). Each Tag Along Offeree who has not
so accepted such offer shall be deemed to have waived all of his, her, or
its rights with respect to the Sale, and the Proposed Seller and the
Participating Sellers shall thereafter be free to Sell to the Proposed
Buyer, at a price no greater than 120% of the maximum price set forth in
the Tag Along Notice and otherwise on terms not more favorable in any
material respect to them than those set forth in the Tag Along Notice,
without any further obligation to such non-accepting Tag Along Offerees.
If, prior to consummation, the terms of such proposed Sale shall change
with the result that the price shall be greater than 120% of the maximum
price set forth in the Tag Along Notice or the other terms shall be more
favorable in any material respect than as set forth in the Tag Along
Notice, it shall be necessary for a separate Tag Along Notice to have been
furnished, and the terms and provisions of this Article 4 separately
complied with, in order to consummate such proposed Sale pursuant to this
Article 4.
The acceptance of each Participating Seller shall be irrevocable
except as hereinafter provided, and each such Participating Seller shall be
bound and obligated to Sell in the Sale such number of Securities as such
Participating Seller shall have specified in such Participating Seller's
written commitment on the same terms and conditions (subject to all of the
provisions of this Agreement) with respect to each Security sold, as
-13-
<PAGE>
the Proposed Seller shall sell each Security in the Sale, and, in the case
of Options or Warrants, have the opportunity to either (i) exercise such
Options or Warrants (if then exercisable) and participate in such sale as
holders of Common Stock issuable upon such exercise or (ii) upon the
consummation of the Sale, receive in exchange for such Options or Warrants
(to the extent exercisable at the time of such Sale) consideration equal to
the amount (if greater than zero) determined by multiplying (1) the same
amount of consideration per Share received by the holders of the Common
Stock in connection with the Sale less the exercise price per share of such
Option or Warrant by (2) the number of shares of Common Stock represented
by such Option or Warrant. In the event the Proposed Seller shall be unable
(otherwise than by reason of the circumstances described in Section 4.2) to
obtain the inclusion in the Sale of all Securities which the Proposed
Seller and each Participating Seller desire to have included in the Sale
(as evidenced in the case of the Proposed Seller by the Tag Along Notice
and in the case of each Participating Seller by his written commitment),
the number of Securities to be sold in the Sale by the Proposed Seller and
each Participating Seller shall be reduced on a pro rata basis according to
the proportion which the number of Securities which each such Seller
desires to have included in the Sale bears to the total number of
Securities desired by all such Sellers to have included in the Sale;
provided, however, that if the Proposed Seller is one or more Fund
-------- -------
Investors, and such Proposed Seller is advised in good faith by any
managing underwriter of Securities being offered in a Public Offering that
the number of Shares requested to be sold in such Public Offering is
greater than the number of such shares which can be included in such Public
Offering without materially adversely affecting such Public Offering, the
shares to be included in the Public Offering shall be reduced in the
following order and fashion:
(i) First, Securities to be sold by the Management Investor shall be
reduced;
(ii) Second, Securities to be sold by the Fund Investors shall be
reduced.
If at the end of the one hundred twentieth (120th) day following the
date of the effectiveness of the Tag Along Notice the Proposed Seller has
not completed the Sale as provided in the foregoing provisions of this
Section 4.1, each Participating Seller shall be released from his
obligations under his written commitment, the Tag Along Notice shall be
null and void, and it shall be necessary for a separate Tag Along Notice to
have been furnished, and the terms and provisions of this Article 4
separately complied with, in order to consummate such Sale pursuant to this
Article 4, unless the failure to complete such Sale resulted from any
failure by the Tag Along Offeree to comply in any material respect with the
terms of this Article 4.
-14-
<PAGE>
4.2. Certain Legal Requirements. In the event the consideration to be
--------------------------
paid in exchange for Securities in the proposed Sale pursuant to Section 4.1
includes any securities and the receipt thereof by the Fund Investors or the
Management Investor as a Participating Seller would require under applicable law
(i) the registration or qualification of such securities or of any person as a
broker or dealer or agent with respect to such securities or (ii) the provision
to any participant in the Sale of any information other than such information as
would be required under Regulation D of the Securities and Exchange Commission
or similar rule then in effect in an offering made pursuant to said Regulation D
solely to "accredited investors" as defined in said Regulation D, the Proposed
Seller shall be obligated only to use its reasonable best efforts to cause such
requirements to have been complied with to the extent necessary to permit such
Participating Seller to receive such securities. Each Participating Seller
agrees to take such actions as the Proposed Seller shall reasonably request in
order to permit such requirements to have been complied with.
4.3. Further Assurances. Each Participating Seller and each Investor to
------------------
whom the Securities held by such Participating Seller were originally issued,
shall, whether in his capacity as a Participating Seller, stockholder, officer
or director of the Company, or otherwise, take or cause to be taken all such
actions (subject to all the provisions of this Agreement) as may be reasonably
requested in order expeditiously to consummate each Sale pursuant to Section
4.1. Each such Participating Seller or Investor agrees to execute and deliver
such agreements as may be necessary for the Participating Seller to be subject
to the same terms and conditions (subject to all of the provisions of this
Agreement) with respect to each Security sold as the Proposed Seller shall Sell
each Security in the Sale, including, without limitation, an agreement by the
Participating Seller (i) to be subject to such purchase price escrow, indemnity
or adjustment provisions as may apply to Proposed Sellers or Participating
Sellers generally, (ii) to be liable in respect of any Individual
Representations to be given by Proposed Sellers or Participating Sellers in the
Sale (insofar as such Individual Representations relate to such Participating
Seller) and (iii) to be liable in respect of any General Representations to be
given by Proposed Sellers or Participating Sellers in the Sale; provided,
--------
however, that except with respect to Individual Representations, the aggregate
- -------
amount of the liability of each Participating Seller in respect of
representations, warranties and indemnities shall not exceed the lesser of (i)
such Participating Seller's pro rata portion of any such liability, in
accordance with such Participating Seller's portion of the total number of
Securities included in the Sale or (ii) the net proceeds received by such
Participating Seller from the Sale.
4.4. Closing. The closing of a Sale pursuant to Section 4.1 shall take
-------
place at such time and place as the Proposed Seller shall specify by notice to
each Participating Seller. At the closing of any Sale under this Article 4,
each Participating Seller shall deliver the certificates evidencing the
Securities to be sold by such Participating Seller, duly endorsed, or with stock
-15-
<PAGE>
powers or other appropriate instruments duly endorsed, for transfer with
signature guaranteed, free and clear of any liens, encumbrances or adverse
claims, with any stock transfer tax stamps affixed, against delivery of the
applicable consideration.
4.5. Excluded Transactions.
---------------------
4.5.1. Management Investor. Notwithstanding any provisions of
-------------------
this Article 4 to the contrary, no Fund Investor shall have pursuant to the
provisions of this Article 4 any right of participation or otherwise with
respect to any Transfer of Securities by the Management Investor pursuant
to Section 3.2 hereof.
4.5.2. Fund Investor. Notwithstanding any provisions of this
-------------
Article 4 to the contrary, the Management Investor shall have pursuant to
the provisions of this Article 4 no right of participation or otherwise
with respect to any Transfer of Securities by any Fund Investor:
(a) To another Fund Investor or an Affiliated Fund;
(b) To any trust established for the benefit of partners of a
Fund Investor or an Affiliated Fund or pro rata to the partners of a
Fund Investor or an Affiliated Fund; or
(c) To any director, officer or employee of the Company or its
Subsidiaries.
Notwithstanding the foregoing provisions, no Transfer of Securities
pursuant to this Section 4.5.2 shall be effective until the recipient has
delivered to the Company a written acknowledgment and agreement in form and
substance reasonably satisfactory to the Company that all Securities to be
received by such recipient are subject to all of the provisions of this
Agreement and that such recipient is bound hereby and a party hereto to the
same extent as a Fund Investor.
4.6. Period. The foregoing provisions of this Article 4 shall expire on
------
the earliest of: (i) the date of termination of this Agreement or (ii) the date
on which the Company shall have satisfied all of the Note Obligations under the
Purchase Agreement and there shall be no Notes outstanding thereunder.
-16-
<PAGE>
5. REMEDIES.
5.1. Generally. The Company and all holders of Securities shall have all
---------
remedies available at law, in equity or otherwise in the event of any breach or
violation of this Agreement or any default hereunder by the Company or any
holder of Securities. The parties acknowledge and agree that in the event of
any breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
relief) as may be appropriate in the circumstances.
5.2. Deposit. Without limiting the generality of Section 5.1, if any Fund
-------
Investor or the Management Investor (a "Non-Complying Investor") fails to
----------------------
deliver any certificate or certificates evidencing Securities that may be
required to be Transferred pursuant to any provision of this Agreement in
accordance with the terms hereof, the Company or other Person entitled to
purchase or require the Transfer of such securities may, at its option, in
addition to all other remedies it may have, deposit the price for such
Securities with any national bank or trust company having combined capital,
surplus and undivided profits in excess of one hundred million dollars
($100,000,000) and which has agreed to act as escrow agent in the manner
contemplated by this Section 5.2 and shall furnish or make available to all
interested Persons satisfactory evidence of such deposit and thereupon the
Company shall cancel on its books the certificate or certificates representing
such Securities and, in the case of any such Transfer of Securities to a Person
other than the Company issue, in lieu thereof and in the name of such Person, a
new certificate or certificates representing such Securities and thereupon all
of the Non-Complying Investor's rights in and to such Securities shall
terminate. Thereafter, upon delivery to the Company by such Non-Complying
Investor of the certificate or certificates evidencing such Securities (duly
endorsed, or with stock powers or other appropriate instruments of transfer duly
endorsed, for transfer, with signature guaranteed, free and clear of any liens
or encumbrances, and with all applicable stock transfer tax stamps affixed), the
Company shall instruct the escrow agent referred to above to deliver the
purchase price (without any interest from the date of the closing to the date of
such delivery, any such interest to accrue to the Person who deposited the
purchase price for such Securities) to such Non-Complying Investor.
6. LEGEND. Each certificate representing Securities shall have the
following legend endorsed conspicuously thereupon:
"The securities represented by this certificate are subject
to certain restrictions set forth in the Stockholders Agreement
dated as of August __, 1997, as amended and in effect from time
to time, and constitute Securities as defined in
-17-
<PAGE>
such Stockholders Agreement. The Company will furnish a copy of
such agreement to the holder of this certificate without charge
upon written request."
Any person who acquires Securities which are not subject to all or part of
the terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such
Securities.
7. AMENDMENT, ETC.
7.1. No Oral Modifications. This Agreement may not be orally amended,
---------------------
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
7.2. Written Modifications. This Agreement may be amended, modified,
---------------------
extended or terminated, and the provisions hereof may be waived, by an agreement
in writing signed by the Required Fund Investors, the Company and the Management
Investor and each such amendment, modification, extension, termination and
waiver shall be binding upon each party hereto and each holder of Securities
subject hereto; provided, however, that no such amendment, modification,
-------- -------
extension, termination or waiver which adversely affects any holder of Fund
Securities shall be effective unless and until the consent of each Fund Investor
has been obtained regardless of whether such proposed amendment or other
modification equally affects all holders of Securities. In addition, each party
hereto and each holder of Securities subject hereto may waive any of its rights
hereunder by an instrument in writing signed by such party or holder.
8. MISCELLANEOUS.
8.1. Authority; Effect. Each party hereto represents and warrants to and
-----------------
agrees with each other party that the execution and delivery of this Agreement
has been duly authorized on behalf of such party and does not violate any
agreement or other instrument applicable to such party or by which its assets
are bound. This Agreement does not, and shall not be construed to, give rise to
the creation of a partnership among any of the parties hereto, or to constitute
any of such parties members of a joint venture or other association.
8.2. Notices. Notices and other communications provided for in this
-------
Agreement shall be in writing and shall be effective (i) upon actual receipt, if
sent by Federal Express or other bonded courier (charges prepaid), addressed to
the party or parties sought to be charged with notice of
-18-
<PAGE>
the same at the respective addresses set forth or referred to below, subject to
written notice of change of address given by any party to each other party, or
(ii) upon transmission, if sent by telecopy, telex, or similar teletransmission.
If to the Company or the Management Investor, to it at:
c/o System
Software Associates, Inc.
500 West Madison, 32nd Floor
Chicago,IL 60661
Attention: Chief Executive Officer
Telecopier No.: (312) 258-6504
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive Chicago, IL 60606
Attention: William N. Weaver, Jr., Esq.
Telecopier No.: (312) 207-6400
and a copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Mark E. Nunnelly
Telecopier No.: (617) 572-3274
If to the Fund Investors, at their respective addresses as
set forth on Schedule I to the Purchase Agreement.
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: David C. Chapin, Esq.
Telecopier No.: (617) 951-7050
-19-
<PAGE>
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
8.3. Binding Effect, etc. This Agreement constitutes the entire agreement
-------------------
of the parties with respect to its subject matter, supersedes all prior or
contemporaneous oral or written agreements or discussions with respect to such
subject matter, and shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, representatives, and, except as
provided herein, successors and assigns. No provision of this Agreement
providing for the expiration of any provision by lapse of time or upon the
occurrence of specified events or otherwise shall relieve any Person of
liability for breach or violation prior to such expiration.
8.4. Descriptive Headings. The descriptive headings of this Agreement are
--------------------
for convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions hereof.
8.5. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
8.6. Severability. If in any judicial or arbitral proceedings a court or
------------
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to permit the remaining
provisions to be enforced. To the full extent, however, that the provisions of
any applicable law may be waived, they are hereby waived to the end that this
Agreement be deemed to be valid and binding agreement enforceable in accordance
with its terms, and in the event that any provision hereof shall be found to be
invalid or unenforceable, such provision shall be construed by limiting it so as
to be valid and enforceable to the maximum extent consistent with and possible
under applicable law.
9. GOVERNING LAW.
9.1. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
9.2. Consent to Jurisdiction. Each of the parties agrees that all
-----------------------
actions, suits or proceedings arising out of or based upon this Agreement or the
subject matter hereof shall be brought and maintained exclusively in the federal
and state courts of the State of Delaware. Each of the parties hereto by
execution hereof (i) hereby irrevocably submits to the jurisdiction of the
-20-
<PAGE>
federal and state courts in the State of Delaware for the purpose of any action,
suit or proceeding arising out of or based upon this Agreement or the subject
matter hereof and (ii) hereby waives to the extent not prohibited by applicable
law, and agrees not to assert, by way of motion, as a defense or otherwise, in
any such action, suit or proceeding, any claim that he or it is not subject
personally to the jurisdiction of the above-named courts, that he or it is
immune from extraterritorial injunctive relief or other injunctive relief, that
his or its property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in one of the
above-named courts, that any such action, suit or proceeding brought or
maintained in one of the above-named courts should be dismissed on grounds of
forum non convenient, should be transferred to any court other than one of the
- ----- --- ----------
above-named courts, should be stayed by virtue of the pendency of any other
action, suit or proceeding in any court other than one of the above-named
courts, or that this Agreement or the subject matter hereof may not be enforced
in or by any of the above-named courts. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of Delaware, agrees that service of
process by registered or certified mail, return receipt requested, at the
address specified in or pursuant to Section 8.2 is reasonably calculated to give
actual notice and waives and agrees not to assert by way of motion, as a defense
or otherwise, in any such action, suit or proceeding any claim that service of
process made in accordance with Section 8.2 does not constitute good and
sufficient service of process. The provisions of this Section 9.2 shall not
restrict the ability of any party to enforce in any court any judgment obtained
in a federal or state court of the State of Delaware.
9.3. Waiver of Jury Trial. To the extent not prohibited by applicable law
--------------------
which cannot be waived, each of the parties hereto hereby waives, and covenants
that he or it will not assert (whether as plaintiff, defendant, or otherwise),
any right to trial by jury in any forum in respect of any issue, claim, demand,
cause of action, action, suit or proceeding arising out of or based upon this
Agreement or the subject matter hereof, in each case whether now existing or
hereafter arising and whether in contract or tort or otherwise. Any of the
parties hereto may file an original counterpart or a copy of this Section 9.3
with any court as written evidence of the consent of each of the parties hereto
to the waiver of his or its right to trial by jury.
9.4. Reliance. Each of the parties hereto acknowledges that he or it has
--------
been informed by each other party that the provisions of Article 9 constitute a
material inducement upon which such party is relying and will rely in entering
into this Agreement and the transactions contemplated hereby.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: SYSTEM SOFTWARE ASSOCIATES, INC.
By________________________________
Title:
THE MANAGEMENT
INVESTOR:
________________________________
Roger E. Covey
THE FUND INVESTORS: BAIN CAPITAL/SSA ASSOCIATES
By Bain Capital V Mezzanine Fund, L.P.,
a general partner
By Bain Capital V Mezzanine Partners, L.P.,
its general partner
By Bain Capital Investors V, Inc.,
its general partner
By_____________________________
Title:
-22-
<PAGE>
JMI EQUITY FUND III, L.P.
By JMI Equity Associates L.L.C.,
its general partner
By ________________________________
Title:
CS INVESTOR, L.L.C.
By _______________________________
Title:
<PAGE>
EXHIBIT 4.7
-----------
SYSTEM SOFTWARE ASSOCIATES, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of August __, 1997, is among
System Software Associates, Inc., a Delaware corporation (the "Company"), and
-------
the Fund Investors (as defined below).
WHEREAS, contemporaneously with the execution and delivery of this
Agreement (as defined below), the Company and the Fund Investors (as defined
below) are entering into the Securities Purchase Agreement dated as of August
__, 1997 (as amended and in effect from time to time, the "Purchase Agreement")
------------------
pursuant to which the Company is issuing and selling to the Fund Investors, and
the Fund Investors are purchasing from the Company, warrants (the "Warrants") to
--------
purchase ___________ shares of the Company's outstanding Common Stock, par value
$0.0033 per share (the "Common Stock"), or __________ shares of the Company's
------------
Series A Preferred Stock, par value $0.01 per share (the "Preferred Stock"); and
---------------
WHEREAS, it is a condition to the issuance and sale by the Company, and the
purchase by the Fund Investors, of such Warrants pursuant to the Purchase
Agreement that the Company and the Fund Investors enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain terms are used in this
------------------------------------------
Agreement with the specific meanings defined below in this Section 1. Except as
otherwise explicitly specified to the contrary or unless the context clearly
requires otherwise, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation," (e) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect, (f) words in the singular or plural
form include the plural and singular form, respectively, and (g) references to a
particular Person include such Person's successors and assigns to the extent not
prohibited by this Agreement.
<PAGE>
1.1. "1933 Act" means the Securities Act of 1933.
--------
1.2. "1934 Act" means the Securities Exchange Act of 1934.
--------
1.3. "Agreement" means this Registration Rights Agreement, as amended and
---------
in effect from time to time.
1.4. "Board of Directors" means the Board of Directors of the Company.
------------------
1.5. "Common Stock" is defined in the recitals to this Agreement.
------------
1.6. "Company" is defined in the preamble to this Agreement.
-------
1.7. "Company Indemnitees" is defined in Section 2.7(b).
-------------------
1.8. "Form S-3", "Form S-4" and "Form S-8" mean such respective
-------- -------- --------
registration forms in effect on the date hereof (or any successor registration
forms subsequently adopted by the SEC) under the 1933 Act.
1.9. "Fund Holder" means (a) any Person that owns, or has the right to
-----------
acquire, Registrable Securities and (b) any assignee thereof in accordance with
Section 2.9.
1.10. "Fund Holder Indemnitees" is defined in Section 2.7(a).
-----------------------
1.11. "Fund Investor" means each of the investors listed on Exhibit A,
-------------
together with their respective successors and assigns.
1.12. "Indemnitee" means each of the Company Indemnitees and the Fund
----------
Holder Indemnitees.
1.13. "Initiating Fund Holders" is defined in Section 2.1(a).
-----------------------
1.14. "Person" means any present or future natural person or any
------
corporation, association, partnership, limited liability company, joint venture,
joint stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
1.15. "Preferred Stock" is defined in the recitals to this Agreement.
---------------
1.16. "Purchase Agreement" is defined in the recitals to this Agreement.
------------------
1.17. "register," "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement or similar document in
compliance with the 1933
-2-
<PAGE>
Act and the automatic effectiveness, or the declaration or ordering of
effectiveness, of such registration statement or document.
1.18. "Registrable Securities" means (a) all shares of Common Stock or
----------------------
Preferred Stock issued or issuable upon exercise of the Warrants, (b) any shares
of Common Stock or Preferred Stock issued as (or issuable upon the conversion or
exercise of any warrant, option, right or other security which is issued as) a
stock dividend, stock split or other distribution with respect to, or in
exchange for or in replacement of, the shares described in clause (a) above;
provided, however, that any share of Common Stock previously sold to the public
- -------- -------
pursuant to a registered public offering or pursuant to an exemption from the
registration requirements of the 1933 Act shall cease to be a Registrable
Security, unless such share is subsequently acquired by a Fund Investor. For
purposes of this Agreement, the number of Registrable Securities at any time
outstanding shall be the sum of (i) the number of shares of Common Stock or
Preferred Stock then outstanding which are Registrable Securities plus (ii) the
----
number of shares of Common Stock or Preferred Stock which are issuable pursuant
to then exercisable or convertible securities and which upon issuance would be
Registrable Securities.
1.19. "SEC" means the Securities and Exchange Commission.
---
1.20. "Violation" means, with respect to any registration statement which
---------
includes any securities of the Company:
(a) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto;
(b) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading; or
(c) any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law in
connection with any matter relating to such registration statement.
1.21. "Warrants" is defined in the recitals to this Agreement.
--------
-3-
<PAGE>
2. Registration Rights.
-------------------
2.1. Demand Registration.
-------------------
(a) If, at any time the Company shall receive a written request from
the Fund Holders of at least 25% of the Registrable Securities then
outstanding and entitled to registration rights under this Section 2 (the
"Initiating Fund Holders") that the Company effect the registration under
-----------------------
the 1933 Act all or any portion of the Registrable Securities then
outstanding, then the Company shall, within five business days of the
receipt thereof, give written notice of such request to all Fund Holders
and shall, subject to the limitations of this Section 2.1, use its best
efforts to effect such a registration as soon as practicable and in any
event to file within 75 days of the receipt of such request a registration
statement under the 1933 Act covering all the Registrable Securities which
the Fund Holders shall in writing request (within 20 days of receipt of the
notice given by the Company pursuant to this Section 2.1(a)) to be included
in such registration and to use its best efforts to have such registration
statement become effective; provided however, that the Company shall incur
no liability to any Fund Holder for any failure to complete the offering of
the Registrable Securities covered by such registration statement.
(b) If the Initiating Fund Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request
made pursuant to this Section 2.1 and the Company shall include such
information in the written notice referred to in Section 2.1(a). In such
event, the right of any Fund Holder to include its Registrable Securities
in such registration shall be conditioned upon such Fund Holder's
participation in such underwriting and the inclusion of such Fund Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Fund Holders and such
Fund Holder) to the extent provided herein. All Fund Holders proposing to
distribute their securities through such underwriting shall (together with
the Company as provided in Section 2.3(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected
for such underwriting by a majority in interest of the Initiating Fund
Holders, which underwriter or underwriters shall be reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 2.1,
if, in the case of a registration requested pursuant to Section 2.1(a), the
underwriter advises the Initiating Fund Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten,
then the Initiating Fund Holders shall so advise the Company and all Fund
Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and all securities other than Registrable Securities
sought to be included in the underwriting shall first be excluded. To the
extent that further limitation is required, the number of Registrable
Securities that may be included in the underwriting shall be reduced as
follows:
-4-
<PAGE>
(i) first, all Registrable Securities which any Fund Holders
(other than Initiating Fund Holders) seek to include in the
underwriting shall be reduced pro rata among such Fund Holders in
accordance with the number of Registrable Securities then held by each
such Fund Holder; and
(ii) to the extent further limitation is required, all
Registrable Securities which any Initiating Fund Holders seek to
include in the underwriting shall be reduced pro rata among such Fund
Holders in accordance with the number of Registrable Securities then
held by each such Fund Holder.
No Registrable Securities requested by any Fund Holder to be included in a
registration pursuant to Section 2.1(a) shall be excluded from the
underwriting unless all securities other than Registrable Securities are
first excluded.
(c) The Company is obligated to effect only two registrations
pursuant to Section 2.1(a); provided, however, that (i) no registration
-------- -------
pursuant to Section 2.1(a) shall be deemed to be a registration for any
purpose of this sentence if the number of Registrable Securities included
in the underwriting does not equal or exceed 75% of the number of
Registrable Securities proposed by the Fund Holders to be distributed
through such underwriting, and (ii) no registration of Registrable
Securities which shall not have become and remained effective in accordance
with Section 2.3 shall be deemed to be a registration for any purpose of
this sentence; and, provided, further, that the Company will not be
--------
obligated to file a registration statement in accordance with this Section
2.1 within 12 months after the effective date of a previous registration
statement filed in accordance with Sections 2.1 or 2.2.
(d) Each registration requested pursuant to Section 2.1(a) shall be
effected by the filing of a registration statement on Form S-3 (or if such
form is not available, any other form which includes substantially the same
information (other than information which is incorporated by reference) as
would be required to be included in a registration statement on such form
as currently constituted), unless the use of a different form is consented
to by Initiating Fund Holders holding a majority of the Registrable
Securities held by all Initiating Fund Holders. The Company agrees to
include in any such registration statement all information which Fund
Holders of Registrable Securities being registered shall reasonably
request.
2.2. "Piggy-Back" Registration. If the Company proposes to register
------------------------
(including for this purpose a registration effected by the Company for
stockholders other than the Fund Holders) any of its capital stock or other
equity securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration on Form S-8 relating
solely to the sale of securities to participants in a Company stock plan or a
registration on Form S-4 or any successors of such forms), the Company shall, at
such time, promptly give each Fund Holder written notice of such registration.
Upon the written request
-5-
<PAGE>
of any Fund Holder given within 20 days after mailing of such notice by the
Company, the Company shall, subject to the provisions of Section 2.6, use its
best efforts to cause a registration statement covering all of the Registrable
Securities that each such Fund Holder has requested to be registered to become
effective under the 1933 Act. The Company shall be under no obligation to
complete any offering of its securities it proposes to make and shall incur no
liability to any Fund Holder for its failure to do so. No registration effected
pursuant to a request or requests referred to in this Section 2.2 shall be
deemed to have been effected pursuant to Section 2.1.
2.3. Obligations of the Company. Whenever required under this Section 2
--------------------------
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible, prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Fund Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to 180 days or any earlier date on which such Fund Holders have
informed the Company that the distribution of their securities has been
completed; provided, however, that at least five days before filing such
-------- -------
registration statement, the Company will furnish to one counsel selected by the
Fund Holders of Registrable Securities which are to be included in such
registration copies of all such documents proposed to be filed. In addition,
the Company shall:
(a) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement, and use its best efforts to cause each such
amendment and supplement to become effective, as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement; provided, however, that
-------- -------
at least five days before filing each such amendment and supplement, the
Company will furnish to the counsel selected by the Fund Holders of
Registrable Securities which are to be included in such registration copies
of all such documents proposed to be filed;
(b) furnish to the Fund Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(c) use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such states and jurisdictions as shall be reasonably requested
by the Fund Holders, except that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
file a general consent to service of process in any such state or
jurisdiction;
-6-
<PAGE>
(d) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the Fund Holders thereof to consummate the disposition of such Registrable
Securities;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; provided,
--------
however, that each Fund Holder participating in such underwriting shall
-------
also enter into and perform its obligations under such an underwriting
agreement, including furnishing any questionnaire and opinion of counsel
and entering into a lock-up agreement reasonably requested by the managing
underwriter;
(f) notify each Fund Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating to
Registrable Securities covered by such registration statement is required
to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing and promptly file such amendments and supplements which may
be required pursuant to Section 2.3(a) on account of such event and use its
best efforts to cause each such amendment and supplement to become
effective (and upon receipt of any such notification, such Fund Holders
shall immediately cease making offers regarding the Registrable Securities
covered by such registration statement);
(g) furnish, at the request of any Fund Holder requesting
registration of Registrable Securities pursuant to this Section 2, on the
date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 2, if such
Registrable Securities are being sold through underwriters, or, if such
Registrable Securities are not being sold through underwriters, on the date
that the registration statement with respect to such Registrable Securities
becomes effective, (i) an opinion or opinions, dated such date, of the
counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given by company counsel to the
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Fund Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountant of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Fund Holders requesting
registration of Registrable Securities;
-7-
<PAGE>
(h) provide a transfer agent and registrar for all such Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement;
(i) give the Fund Holders of Registrable Securities which are to be
registered under such registration statement and their underwriters, if
any, and their respective accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the SEC, and each amendment thereof or supplement
thereto, and give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Fund Holders and
such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act;
(j) apply for listing and use its best efforts to list the
Registrable Securities being registered on any national securities exchange
on which a class of the Company's equity securities is listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Securities being registered for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc.; and
(k) without in any way limiting the types of registrations to which
this Section 2 shall apply, in the event that the Company shall effect a
"shelf registration" under Rule 415 promulgated under the 1933 Act, the
Company shall take all necessary action, including the filing of post-
effective amendments, to permit the Fund Holders to include their
Registrable Securities in such registration in accordance with the terms of
this Section 2.
Each Fund Holder agrees to furnish to the Company any information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as the Company may reasonably request, which
information is required to effect the registration of the Registrable
Securities.
2.4. Expenses of Demand Registration. All expenses (other than
-------------------------------
underwriting discounts and commissions) relating to Registrable Securities
incurred in connection with each registration, filing or qualification pursuant
to Section 2.1(a), including all registration, filing and qualification fees,
printing and accounting fees, fees and disbursements of counsel for the Company,
and the reasonable fees and disbursements of one counsel for the selling Fund
Holders, shall be borne by the Company; provided, however, that the Company
-------- -------
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 2.1(a) if the registration request is subsequently
withdrawn at any time at the request of the Fund Holders of a majority of the
Registrable Securities to be registered (in which case all participating Fund
Holders shall bear such expenses), unless the Fund Holders of a
-8-
<PAGE>
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 2.1(a); and provided, further, that if
-------- -------
at the time of any such withdrawal the Fund Holders have learned of a material
adverse change in the condition, business or prospects of the Company from that
known to the Fund Holders of a majority of the Registrable Securities then
outstanding at the time of their request that is likely to cause the terms of
the proposed offering to be materially less favorable in the good faith judgment
of a majority in interest of the Fund Holders of Registrable Securities, then
the Fund Holders shall not be required to pay any of such expenses and the right
to one demand registration pursuant to Section 2.1(a) shall not be forfeited.
All underwriting discounts and commissions relating to Registrable Securities
included in any registration effected pursuant to Section 2.1(a) will be borne
and paid ratably by the Fund Holders of such Registrable Securities, and, if
they participate, the Company and any other holders of the Company's securities.
2.5. Expenses of "Piggy-Back" Registration. The Company shall bear and
-------------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to any registration
pursuant to Section 2.2 for each Fund Holder, including all registration, filing
and qualification fees, printing and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for the selling Fund Holders. All underwriting discounts and commissions
relating to Registrable Securities included in any registration effected
pursuant to Section 2.2 will be borne and paid ratably by the Fund Holders of
such Registrable Securities, the Company and, if they participate, any other
holders of the Company's securities.
2.6. Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of securities being issued by the Company, the Company shall not
be required under Section 2.2 to include any of the Fund Holders' securities in
such underwriting unless such Fund Holders accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity, if any, as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the managing
underwriter for the offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that can be successfully offered, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the managing underwriter
believes will not jeopardize the success of the offering. The securities so
included in the offering will be reduced as follows:
(a) first, all securities which shareholders other than the Company
and the Fund Holders seek to include in the offering shall be excluded from
the offering to the extent limitation on the number of shares included in
the underwriting is required; and
(b) to the extent further limitation is required, then:
-9-
<PAGE>
(i) all Registrable Securities which any Fund Holders (other
than Initiating Fund Holders) seek to include in the underwriting
shall be reduced pro rata among such Fund Holders in accordance with
the number of Registrable Securities then held by each such Fund
Holder; and
(ii) to the extent further limitation is required, all
Registrable Securities which any Initiating Fund Holders seek to
include in the underwriting shall be reduced pro rata among such
Initiating Fund Holders in accordance with the number of Registrable
Securities then held by each such Initiating Fund Holder;
2.7. Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 2:
(a) To the extent permitted by applicable law, the Company will
indemnify and hold harmless each Fund Holder, the officers, directors,
partners, agents and employees of each Fund Holder, any underwriter (as
defined in the 1933 Act) for such Fund Holder and each Person, if any, who
controls such Fund Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act (collectively, the "Fund Holder Indemnitees"), against any
-----------------------
losses, claims, damages or liabilities (joint or several) to which any Fund
Holder Indemnitee may become subject under the 1933 Act, the 1934 Act or
any other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any Violation. The Company will reimburse each Fund Holder Indemnitee for
any legal or other expenses reasonably incurred by such Fund Holder
Indemnitee in connection with investigating or defending any such loss,
claim, damage, liability or action. The indemnity agreement contained in
this Section 2.7(a) shall not apply to amounts paid in settlement of any
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to any Fund Holder Indemnitee in
any such case for any such loss, claim, damage, liability or action (i) to
the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of
such Fund Holder Indemnitee or (ii) in the case of a sale directly by a
Fund Holder of Registrable Securities (including a sale of such Registrable
Securities through any underwriter retained by such Fund Holder engaging in
a distribution solely on behalf of such Fund Holder), such untrue statement
or alleged untrue statement or omission or alleged omission was contained
in a preliminary prospectus and corrected in a final or amended prospectus,
and such Fund Holder failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the Registrable
Securities to the Person asserting any such loss, claim, damage or
liability in any case in which such delivery is required by the 1933 Act.
-10-
<PAGE>
(b) To the extent permitted by applicable law, each Fund Holder which
includes any Registrable Securities in any registration statement (i) will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed such registration statement, each Person, if any,
who controls the Company within the meaning of the 1933 Act, each agent and
any underwriter for the Company, and any other Fund Holder or other
stockholder selling securities in such registration statement or any of its
directors, officers, partners, agents or employees or any Person who
controls such Fund Holder or such other stockholder or such underwriter
(collectively, the "Company Indemnitees"), against any losses, claims,
-------------------
damages or liabilities (joint or several) to which any Company Indemnitee
may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished by or on behalf of such Fund Holder expressly for use in
connection with such registration and (ii) will reimburse any legal or
other expenses reasonably incurred by any Company Indemnitee in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the liability of any Fund Holder hereunder
-------- -------
shall be limited to the amount of net proceeds (after deduction of all
underwriters' discounts and commissions paid by such Fund Holder in
connection with the registration in question) received by such Fund Holder
in the offering giving rise to the Violation; and provided, further, that
-------- -------
the indemnity agreement contained in this Section 2.7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of such Fund
Holder (which consent shall not be unreasonably withheld) nor, in the case
of a sale directly by the Company of its securities (including a sale of
such securities through any underwriter retained by the Company to engage
in a distribution solely on behalf of the Company), shall such Fund Holder
be liable to the Company in any case in which such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and
the Company failed to deliver a copy of the final or amended prospectus at
or prior to the confirmation of the sale of the securities to the Person
asserting any such loss, claim, damage or liability in any case in which
such delivery is required by the 1933 Act.
(c) Promptly after receipt by any Indemnitee under this Section 2.7
of notice of the commencement of any action (including any governmental
action), such Indemnitee will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume and control the defense
thereof with counsel mutually satisfactory to the parties; provided,
--------
however, that such Indemnitee shall have the right to retain its own
-------
counsel, with the fees and expenses to be paid by
-11-
<PAGE>
the indemnifying party, if representation of such Indemnitee by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests, as reasonably determined by either party,
between such Indemnitee and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the Indemnitee under this Section
2.7 to the extent of such prejudice, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that
it may have to such Indemnitee otherwise than under this Section 2.7.
(d) The obligations of the Company and the Fund Holders under this
Section 2.7 shall survive the completion of any offering of Registrable
Securities in a registration statement whether under this Section 2 or
otherwise.
(e) If the indemnification provided for in this Section 2.7 is
unavailable to a party that would have been an Indemnitee under this
Section 2.7 in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to herein, then each
party that would have been an indemnifying party hereunder shall, in lieu
of indemnifying such Indemnitee, contribute to the amount paid or payable
by such Indemnitee as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party, on the one hand, and such Indemnitee, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the Violation relates to information supplied
by such indemnifying party or such Indemnitee and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such Violation. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 2.7(e) were determined
by pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the preceding
sentence. The amount paid or payable by a contributing party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 2.7(e) shall include any
legal or other expenses reasonably incurred by such Indemnitee in
connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. The
liability of any Fund Holder of Registrable Securities in respect of any
contribution obligation of such Fund Holder (after deduction of all
underwriters' discounts and commissions paid by such Fund Holder in
connection with the registration in question) arising under this Section
2.7(e) shall not in any event exceed an amount equal to the net proceeds to
such Fund Holder from the
-12-
<PAGE>
disposition of the Registrable Securities disposed of by such Fund Holder
pursuant to such registration.
2.8. Lock-up Agreements. If requested by the Company and the managing
------------------
underwriter, each Fund Holder will enter into lock-up agreements pursuant to
which it will not, for a period of not longer than 90 days following the
effective date of any registration statement for a public offering of the
Company's securities, offer, sell or otherwise dispose of any Registrable
Securities (except Registrable Securities sold pursuant to such registration
statement) without the prior consent of the Company and the managing
underwriter, provided that the directors, officers and all holders of more than
10% of the shares of Common Stock (calculated for the purpose as if all
securities convertible into or exercisable for Common Stock, directly or
indirectly, are so converted or exercised) of the Company enter into such lock-
up agreements for the same period and on the same terms. In addition, if
reasonably requested by the Fund Holders of a majority of the Registrable
Securities then outstanding, each of the Company and the directors and officers
of the Company will enter into lock-up agreements pursuant to which it will not,
for a period of 90 days following the effective date of any registration
statement for a public offering of the Company's securities, offer, sell or
otherwise dispose of any securities of the Company (except securities sold
pursuant to such registration statement) without the prior consent of the Fund
Holders of a majority of the Registrable Securities then outstanding, provided
that the Fund Holders enter into such lock-up agreements for the same period and
on the same terms.
2.9. Assignment of Registration Rights. The rights to cause the Company
---------------------------------
to register Registrable Securities pursuant to this Section 2 may be assigned by
any Fund Holder to any permitted transferee of any Registrable Security. Any
transferee to which rights under this Agreement are transferred (a) shall, as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon Fund Holders
under this Agreement to the same extent as if such transferee were a Fund Holder
under this Agreement and (b) shall be deemed to be a Fund Holder hereunder. Any
Fund Holder transferring its rights under this Agreement shall furnish to the
Company within a reasonable time after such transfer a written notice of the
name and address of such transferee or assignee and the Registrable Securities
with respect to which such registration rights are being transferred or
assigned.
2.10. Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Fund Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company relating to registration rights, unless such
agreement includes (a) to the extent such agreement would allow such or
prospective holder to include such securities in any registration filed under
Section 2.1 or 2.2, a provision that such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Fund Holders which would otherwise be included and (b) no
-13-
<PAGE>
provision which would allow such holder or prospective holder to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of the dates set forth in Section 2.1(a).
2.11. Adjustments Affecting Registrable Securities. The Company agrees
--------------------------------------------
that is shall not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability of the Fund Holder of any
Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
3. Legend. Each certificate representing any Registrable Security shall bear
------
on its face substantially the following legends:
(a) "THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST __, 1997 AMONG THE COMPANY
AND THE INVESTORS NAMED THEREIN, AS IN EFFECT FROM TIME TO TIME, A COPY OF
WHICH IS ON FILE AT THE OFFICES OF THE COMPANY."
(b) Any other legends required by (i) Section 11 of the Purchase
Agreement, or (ii) the laws of any applicable jurisdiction.
4. Specific Performance. The parties recognizes that their respective rights
--------------------
under this Agreement are unique, and, accordingly, each party shall, in addition
to such other remedies as may be available to it at law or in equity, have the
right to enforce its rights hereunder by actions for injunctive relief and
specific performance to the extent permitted by law. This Agreement is not
intended to limit or abridge any rights of any party which may exist apart from
this Agreement.
5. Notices. All notices, demands and other communications required to be given
-------
pursuant to this Agreement shall be in writing and shall be deemed to have been
received if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answer back)
or (b) in the case of a letter, three days shall have elapsed after the same
shall have been deposited in the mails (i) with first-class (air mail if to or
from outside the United States of America) postage prepaid and registered or
certified, with return receipt requested, or (ii) with express delivery postage
prepaid, with receipt required for delivery.
If to the Company, to it at System Software Associates, Inc., 500 W.
Madison, 32d Floor, Chicago, Illinois 60661, telecopy number (312) 258-6504, to
the attention of Roger E.
-14-
<PAGE>
Covey, with a copy to Sachnoff & Weaver, Ltd., 30 South Wacker Drive, Chicago,
Illinois 60606, telecopy number (312) 207-6400, to the attention of Douglas R.
Newkirk, Esq.
If to any Fund Investor, to it at its address set forth on Exhibit A, with
a copy to Ropes & Gray, One International Place, Boston, Massachusetts 02110,
telecopy number (617) 951-7050, to the attention of David C. Chapin, Esq.
6. Binding Effect; Assignment. This Agreement shall be binding upon, and inure
--------------------------
to the benefit of, the parties and their respective personal representatives,
successors and assigns; provided, however, that the Company shall not have the
-------- -------
right to assign its rights and obligations hereunder, or any interest herein,
without the prior written consent of the Fund Holders of a majority of the
Registrable Securities then outstanding.
7. Course of Dealing; Amendments, Waivers and Consents. No course of dealing
---------------------------------------------------
between the parties shall operate as a waiver of any party's rights under this
Agreement. Each party acknowledges that if any party, without being required to
do so by this Agreement, gives any notice or information to, or obtains any
consent from, the other party, such party shall not by implication have amended,
waived or modified any provision of this Agreement, or created any duty to give
any such notice or information or to obtain any such consent on any future
occasion. No delay or omission on the part of any party in exercising any right
under this Agreement shall operate as a waiver of such right or any other right
hereunder or thereunder. A waiver on any one occasion shall not be construed as
a bar to or waiver of any right or remedy on any future occasion. No amendment,
waiver or consent with respect to this Agreement shall be binding unless it is
in writing and signed by each of (a) the Company and (b) the Fund Holders of a
majority of the Registrable Securities then outstanding.
8. General. If any provision of this Agreement shall be found by any court of
-------
competent jurisdiction to be invalid or unenforceable, the parties hereby waive
such provision to the extent that it is found to be invalid or unenforceable.
Such provision shall, to the maximum extent allowable by law, be modified by
such court so that it becomes enforceable, and, as modified, shall be enforced
as any other provision hereof, all the other provisions hereof continuing in
full force and effect. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation hereof. This Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof and supersedes any and all
prior understandings and agreements, whether written or oral, with respect to
such subject matter. This Agreement may be executed in counterparts, which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the domestic substantive laws of
the State of Delaware without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
-15-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
executed by a duly authorized officer as an agreement under seal as of the date
first above written.
COMPANY: SYSTEM SOFTWARE ASSOCIATES, INC.
By_________________________________
Title:
FUND INVESTORS: BAIN CAPITAL/SSA ASSOCIATES
By Bain Capital V Mezzanine Fund, L.P.,
a general partner
By Bain Capital V Mezzanine Partners, L.P.,
its general partner
By Bain Capital Investors V, Inc.
its general partner
By:_________________________
Managing Director
JMI EQUITY FUND III, L.P.
By JMI Equity Associates L.L.C.,
its general partner
By:________________________________
Name:
Title:
CS INVESTOR, L.L.C.
By:________________________________
Name:
-16-
<PAGE>
Title:
-17-
<PAGE>
Exhibit A
---------
FUND INVESTORS
[To be Completed.]
<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."
/s/ Price Waterhouse LLP
- -------------------------------------
Price Waterhouse LLP
Chicago, Illinois
August 19, 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.
/s/ KPMG Peat Marwick, LLP
------------------------------------------
KPMG Peat Marwick LLP
Chicago, Illinois
August 19, 1997
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Carolyn Potter, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2531 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
SYSTEM SOFTWARE ASSOCIATES, INC.
(Name of obligor)
Delaware 36-3144515
(State of Incorporation) (I.R.S. Employer Identification No.)
500 West Madison Street
32nd Floor
Chicago, Illinois 60661
(Address of principal executive offices)
_____ % Convertible Subordinated Notes due 2002
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in effect
which includes the authority of the trustee to commence business and to
exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 10th day of August, 1997.
HARRIS TRUST AND SAVINGS BANK
By: /s/ C. Potter
------------------------------
C. Potter
Assistant Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ C. Potter
------------------------------
C. Potter
Assistant Vice President
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EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of March 31, 1997, as published in accordance with a
call made by the State Banking Authority and by the Federal Reserve Bank of the
Seventh Reserve District.
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on March 31, 1997, a state banking institution organized and operating
under the banking laws of this State and a member of the Federal Reserve System.
Published in accordance with a call made by the Commissioner of Banks and Trust
Companies of the State of Illinois and by the Federal Reserve Bank of this
District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
Cash and balances due from depository institutions:
<S> <C>
Non-interest bearing balances and currency and coin..................... $ 1,594,951
Interest bearing balances............................................... $ 620,847
Securities:....................................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,674,321
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBF's:
Federal funds sold...................................................... $ 447,375
Securities purchased under agreements to resell......................... $ 0
Loans and lease financing receivables:
Loans and leases, net of unearned income................................ $ 8,499,011
LESS: Allowance for loan and lease losses.............................. $ 110,978
------------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................... $ 8,388,033
Assets held in trading accounts................................................ $ 126,309
Premises and fixed assets (including capitalized leases)....................... $ 188,993
Other real estate owned........................................................ $ 446
Investments in unconsolidated subsidiaries and associated companies............ $ 53
Customer's liability to this bank on acceptances outstanding................... $ 66,859
Intangible assets.............................................................. $ 292,918
Other assets................................................................... $ 495,997
-----------
TOTAL ASSETS $15,897,102
===========
</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices.......................................................... $8,252,773
Non-interest bearing.................................................... $3,414,150
Interest bearing........................................................ $4,838,623
In foreign offices, Edge and Agreement subsidiaries, and IBF's............... $1,989,792
Non-interest bearing.................................................... $54,391
Interest bearing........................................................ $1,935,401
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds purchased & securities sold under agreements to repurchase..... $2,896,616
Trading Liabilities............................................................ 81,381
Other borrowed money:
a. With remaining maturity of one year or less................................ $991,442
b. With remaining maturity of more than one year.............................. $0
Bank's liability on acceptances executed and outstanding....................... $66,859
Subordinated notes and debentures.............................................. $310,000
Other liabilities.............................................................. $138,427
-------------------------
TOTAL LIABILITIES.............................................................. $14,727,290
=========================
EQUITY CAPITAL
Common stock................................................................... $100,000
Surplus........................................................................ $600,566
a. Undivided profits and capital reserves..................................... $519,518
b. Net unrealized holding gains (losses) on available-for-sale securities..... ($50,272)
-------------------------
TOTAL EQUITY CAPITAL $1,169,812
=========================
Total liabilities, limited-life preferred stock, and equity capital............ $15,897,102
=========================
</TABLE>
I, Steve Neudecker, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
STEVE NEUDECKER
4/30/97
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
MARIBETH S. RAHE
Directors.
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EXHIBIT 99.2
EXHIBIT A
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED
UNDER THE TRUST INDENTURE ACT OF 1939. THIS NOTE MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE
SECURITIES ACT. ADDITIONALLY, THE TRANSFER OF THIS NOTE IS SUBJECT TO THE
CONDITIONS SPECIFIED IN SECTION 6 OF THE NOTE PURCHASE AGREEMENT PURSUANT TO
WHICH THIS NOTE WAS PURCHASED AND NO TRANSFER OF THIS NOTE SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
Floating Rate Convertible Note Due 2000
March 27, 1997
SYSTEM SOFTWARE ASSOCIATES INC., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to the order of
XXXXXXXXXXX
or registered assigns, the sum of the principal amount of
U.S. $12,000,000
on March 31, 2000 (or, if such day is not a business day (as defined in Section
9 below), the next succeeding business day) (the "Maturity Date"). The
outstanding principal amount of this Note shall bear interest from and including
the date hereof (the "Closing Date") to but excluding the Maturity Date (or, if
a Conversion Notice (as defined below) has been delivered pursuant to Section
3(a), the Conversion Date (as defined below)), for each Interest Period (as
defined below) applicable thereto, at a rate per annum (calculated on the basis
of the actual number of days elapsed over a year of 360 days) equal to the
Applicable Rate for such Interest Period. "Applicable Rate" means, for any day
during any Interest Period, (x) the Base Rate from time to time in effect plus
(y) 1.00%. "Base Rate" means, for any day, the higher of (a) 0.50% per annum
above the latest Federal Funds Rate, and (b) the rate of interest in effect for
such day as publicly announced from time to time by Bank of America National
Trust and Savings Association or its successor, in San Francisco, California, as
its "reference rate." "Federal Funds Rate" means, for any day, the rate set
forth in the weekly statistical release designated as H.15(519) or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)", or, if for any relevant day such rate is not so
published on any such preceding business day, the rate for such day will be the
arithmetic mean as determined by the Holder of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
<PAGE>
City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Holder.
Interest shall be paid monthly in arrears on each Interest Payment Date by
wire transfer to the account of each holder of a Note (a "Holder") specified in
writing to the Company.
"Interest Period" means each period beginning on and including an Interest
Payment Date (or in the case of the first Interest Period, the Closing Date) and
ending on but excluding the immediately succeeding Interest Payment Date (or in
the case of the last Interest Payment Date, the Maturity Date (or, if a
Conversion Notice has been delivered pursuant to Section 3(a), the Conversion
Date)). "Interest Payment Date" means the last business day of each calendar
month commencing on April 30, 1997.
The outstanding principal amount of this Note (together with accrued
interest thereon) shall be payable to the Holder on the Maturity Date in lawful
money of the United States by wire transfer of immediately available funds to
such account as the Holder shall specify in writing to the Company.
SECTION 1. The Notes. This Note is one of the Notes of the Company which
are being issued in the aggregate principal amount of $12,000,000 and are
designated as "Floating Rate Convertible Notes Due 2000" (the "Notes"). This
Note was issued pursuant to the terms of a Note Purchase Agreement dated as of
March 27, 1997 (the "Purchase Agreement"), between the Company and XXXXXXXXXX
(the "Purchaser").
SECTION 2. Redemption. (a) Subject to Section 3, the Notes may be
redeemed at the option of the Company in whole (but not in part), at any time
prior to the earlier of (i) the Maturity Date or (ii) the Company's receipt, or
transmission, as the case may be, of a Conversion Notice (as defined below). The
redemption price ("Redemption Price") shall be equal to 100% percent of the
principal amount, Together with accrued interest to the Redemption Date (as
defined below).
(b) Notices to redeem the Notes shall be given to Holders in writing
mailed, by overnight courier, to each Holder at its address as it appears in the
register maintained by the Company, such mailing to be not more than 60 days nor
less than 30 days prior to the date fixed for redemption. Neither the failure to
give notice nor any defect in any notice given to any particular Holder of a
Note shall affect the sufficiency of any notice with respect to other Notes.
Notices to redeem Notes shall specify the date fixed for redemption (the
"Redemption Date"), the Redemption Price, the place or places of payment, that
payment will be made upon presentation and surrender of the Notes, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice, that on and after said date interest thereon will cease to accrue.
(c) If notice of redemption has been given in the manner set forth in this
Section, upon presentation and surrender of each Note at the place or places
specified in such notice, such Note shall be paid and redeemed by the Company by
payment of the Redemption Price therefor together with accrued interest thereon
in lawful money of the United States. Such payment shall
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be made to the Holder of such Note by wire transfer of immediately available
funds to such account as such Holder shall specify in writing to the Company. If
monies for the redemption of the Notes shall have been available for redemption
on the Redemption Date, the Notes shall cease to bear interest, and the only
right of the Holders of such Notes shall be to receive payment of the Redemption
Price together with accrued interest to the Redemption Date.
SECTION 3. Conversion. (a) At the option of (x) the Holder, at any time
after the first anniversary of the Closing Date or any time prior to such first
anniversary following either the Company's issuance of a notice to redeem the
Notes pursuant to Section 2 or the occurrence and continuance of an Event of
Default (as defined below) or (y) the Company, if the closing price of the
Common Stock, par value $.0033 per share (the "Common Stock"), of the Company,
shall be equal to or in excess of $20.00 per share for any twenty Trading Days
(as defined below) in any thirty Trading Day period, the Notes, in whole or in
part, may be converted on the Conversion Date (as defined below) at the
principal amount thereof, into fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100 of a share) of Common Stock
including the associated Rights (as defined in the Note Purchase Agreement), at
the Conversion Price (as defined below), in effect at the time of conversion;
provided that, for the Company to exercise the right specified in clause (y)
above, the Company must issue a Conversion Notice (as defined below) within
twenty business days of the end of any such thirty Trading Day period. In the
event that a Note is called for redemption pursuant to Section 2, such
conversion right in respect of the Note shall expire at the close of business on
the Redemption Date, unless the Company fails to make the payment due upon
redemption. The price at which the number of shares of Common Stock to be
delivered shall be determined upon conversion shall be $3.33 per share of Common
Stock (the "Conversion Price"). The Conversion Price shall be adjusted in
certain instances as provided in paragraph (d) of this Section 3.
(b) If either the Holder or the Company elects to convert the Notes, the
Holder or the Company, as the case may be, shall provide written notice (the
"Conversion Notice") to the Company (at the Company's address) or the Holders
(to each Holder's address as it appears on the register), as applicable, which
states that such party elects to convert such Note. In the event that the
Company elects to convert the Notes, the Conversion Notice shall include a
certification by the Company that each of the conditions set forth in Section
3(f) will be satisfied as of the Conversion Date. In order to exchange the
securities, the Holder shall surrender the Notes, duly endorsed or assigned to
the Company or in blank. If the Holder elects to convert the Notes, upon notice
to the Company thereof the Company shall use its best efforts to cause the
conditions set forth in Section 3(f)(ii) through (v) to be satisfied as promptly
as possible thereafter. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date all of the conditions set
forth in Section 3(f) have been satisfied or waived by the Holder (the
"Conversion Date"). If such day is not a business day, and a day on which the
principal national securities exchange or market quotation system on which the
Common Stock is then listed or admitted for trading is open (a "Trading Day"),
then such conversion will be deemed to have been effected on the next succeeding
Trading Day. As promptly as practicable on or after the Conversion Date, the
Company shall issue and deliver the certificates representing the
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number of full shares of Common Stock, including the associated Rights, issuable
upon conversion, together with payment in lieu of any fraction of a share, as
provided in Section 3(c).
(c) No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead of any fractional share of Common Stock which would otherwise
be issuable upon conversion of any Note, the Company shall pay a cash adjustment
in respect of such fraction in an amount equal to the same fraction of the
market price per share of Common Stock at the close of business on the
Conversion Date.
(d) The Conversion Price shall be subject to the following adjustments:
(i) if, on any Conversion Date, 80% of the closing price on the
trading day immediately preceding the Conversion Date is less than $3.33,
then the Conversion Price shall be reduced to equal 80% of such closing
price;
(ii) in case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective;
(iii) in case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Common Stock,
the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum
of such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination;
(iv) in case the Company shall issue rights or warrants to all
holders of its Common Stock entitling than to subscribe for or purchase
shares of Common Stock at a price per share less than the Conversion Price,
the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such rights or warrants shall be adjusted to such subscription or
purchase price, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination;
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(v) in case the Company shall issue Common Stock (other than shares
of Common Stock issued upon exercise of rights, options and warrants
outstanding as of the date hereof), or rights, options or warrants
convertible into, or exchangeable or exercisable for, Common Stock to any
third party, or shall reprice or adjust the conversion, exchange or
exercise price of rights, options or warrants outstanding as of the date
hereof, at or to a price per share of Common Stock less than the Conversion
Price, the Conversion Price in effect at the opening of business on the day
following the date of such issuance, repricing or adjustment shall be
adjusted to such issue, conversion, exchange or exercise price, or in the
case of a repricing or adjustment, such conversion, exchange or exercise
price as so adjusted, such reduction to become effective immediately after
the opening of business on the day following the date of such issuance,
repricing or adjustment, as the case may be;
(vi) in case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants referred to in
clause (iv) of this Section, any dividend or distribution paid in cash out
of the retained earnings of the Company and any dividend or distribution
referred to in clause (iii) of this Section), the Conversion Price in
effect at the opening of business on the date fixed for the determination
of stockholders entitled to receive such distribution shall be adjusted so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on
the date fixed for the determination of stockholders entitled to receive
such distribution by a fraction of which the numerator shall be the
Conversion Price on the date fixed for such determination less the then
fair market value of the portion of the assets or evidences of indebtedness
so distributed applicable to one share of Common Stock and the denominator
shall be such Conversion Price, such adjustment to become effective
immediately prior to the opening of business on the day following the date
fixed for such determination: and
(vii) the reclassification of Common Stock into securities including
other than Common Stock shall be deemed to involve (A) a distribution of
such securities other than Common Stock to all holders of Common Stock (and
the effective date of such reclassification shall be deemed to be "the date
fixed for the determination of stockholders entitled to receive such
distribution" and "the date fixed for such determination" within the
meaning of clause (vi) of this Section) and (B) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of
shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day upon which
such subdivision or combination becomes effective" within the meaning of
clause (ii) of this Section).
(e) Whenever the Conversion Price is adjusted pursuant to Section 3(d):
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(i) the Company shall compute the adjusted Conversion Price and
shall prepare a certificate signed by the Company setting forth the
adjusted Conversion Price showing in reasonable detail the facts upon which
such adjustment is based; and
(ii) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be
required, and as soon as practicable after it is required (together with a
copy of the certificate referred to in clause (i) above) such notice shall
be mailed by the Company to all Holders.
(f) The Company's right to convert the Notes shall be subject to
satisfaction of each of the following conditions:
(i) no Event of Default (as defined below) and no condition or
event which, with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default, shall have occurred;
(ii) consummation of the conversion shall not result in a violation
of any law, regulation, judgment, injunction, order or decree applicable to
the Company or any Holder;
(iii) all Common Stock held by any Holder as of the Conversion Date
and to be held by such Holder as a result of the conversion shall not, on
the Conversion Date or thereafter, be subject to any limitation or
restriction on such Holder's ability or right to hold, vote, transfer,
dispose or take any other action with respect to such Common Stock (other
than any such limitation or restriction arising as a result of the
requirements of the Securities Act of 1933, as amended, or as a result of
agreements of such Holder with third parties);
(iv) all filings with, and all approvals, consents and actions by
any Person necessary to exempt any Reserved Shares (as defined in the
Purchase Agreement) issued upon conversion of the Notes held by such Holder
as of the Conversion Date and to be held by such Holder as a result of the
conversion and any such Holder with respect to all such shares from, and to
exclude such Reserved Shares from the calculation of aggregate beneficial
ownership of Common Stock of such Holder for the purposes of, (x) the
provisions of the Rights Agreement (as defined in the Purchase Agreement)
or from any similar agreement or plan that the Company may have and (y) any
applicable anti-takeover statute or regulation shall have been obtained and
taken; and
(v) all filings with, and all approvals, consents and actions by,
any Person necessary to consummate the conversion (including, without
limitation, any approval required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended) shall have been made and obtained.
The term "Person" shall mean an individual, a company, a partnership, a limited
liability company, a trust, an unincorporated association or any other entity,
or organization, including,
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without limitation, a government or political subdivision or an agency,
instrumentality or official thereof.
The conversion of the Notes by the Company pursuant to this Section 3 shall
be deemed to be a representation and warranty by the Company that all of the
foregoing conditions are satisfied on and as of the Conversion Date.
(g) Notwithstanding anything to the contrary set forth in the Notes,
unless and until the Company's stockholders have approved the transactions
contemplated by the Purchase Agreement and the Notes, the Company shall not be
obligated to issue more than 8,480,151 shares of Common Stock (as adjusted to
reflect stock dividends, stock splits, recapitalization, reorganization, stock
exchange or other combination) (the "Nasdaq Limit") upon conversion of the
Notes. If, on any Conversion Date, the Notes are converted into a number of
shares of Common Stock that is less than the number of shares that the Notes
would have been convertible into had the limitation on the issuance of shares
set forth in the immediately preceding sentence not been in effect, the Company
shall on the Conversion Date, pay to the Holder by wire transfer of immediately
available funds an amount equal to the sum of (x) the product of (1) the excess
of (A) such number of shares that would have been issued upon such conversion
had such limitation not been in effect over (B) such number of shares that were
being issued upon such conversion and (2) the closing price of the Common Stock
on the trading day immediately preceding the Conversion Date and (y) the Make-
Whole Amount; provided that the amount payable pursuant to this sentence shall
in no event exceed the maximum amount allowable under applicable law. "Make-
Whole Amount" means an amount equal to the excess of (x) the amount of interest
that would have been due on the outstanding principal amount of the Notes from
March 27, 1997 through and including the Conversion Date had the Applicable Rate
been equal to 21% over (y) the amount of interest that was actually due on the
outstanding principal amount of the Notes for such period.
(h) At the next annual meeting of the Company's stockholders following the
Company's 1997 annual stockholders meeting, which the Company shall cause to
occur no later than May 31, 1998, the Company shall use its best efforts to
obtain the necessary approvals of its stockholders of the transactions
contemplated by the Purchase Agreement and the Notes in order to satisfy the
applicable rules of the Nasdaq National Market with respect to issuing more
shares than the Nasdaq Limit upon conversion of the Notes.
(i) The Company shall at all times reserve and keep available, free from
any pre-emptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Notes, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Notes (but in
no event less than 8,480,151 shares).
(j) The Company will pay any and all transfer, documentary and similar
taxes or charges that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Notes pursuant hereto. The Company shall
not however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder of the Note or Notes to be converted, and
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no such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
(k) The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and nonassessable
and, except as provided in Section 3(j), the Company will pay all taxes, liens
and charges with respect to the issue thereof.
(l) All Notes that have been converted shall be promptly delivered to the
Company to be canceled by the Company.
SECTION 4. Exchange or Replacement of Notes. (a) The Holder of any Note,
at such Holder's option may in person or by duly authorized attorney surrender
such Note for exchange, at the office or agency of the Company maintained
pursuant to Section 6(a) of this Note, and receive in exchange therefor a new
Note in the same principal amount as the outstanding principal amount of the
Note so surrendered and bearing interest at the same annual rate as the Note so
surrendered, each such new Note to be dated as of the most recent Interest
Payment Date on the Note so surrendered and to be in such outstanding principal
amount and payable to such person or persons, or order, as such Holder may
designate in writing; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in a name other than that of the Holder of
the Note surrendered in exchange therefor; provided, further, however, that the
Company shall not be required to so register the transfer unless the conditions
for transfer in the Purchase Agreement have been satisfied. The Holder shall
give to the Company 10 days prior written notice of such Holder's intention to
make such exchange.
(b) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft or destruction, mutilation of any Note and (in case of loss, theft
or destruction) of indemnity satisfactory to it, and upon surrender and
cancellation of such Note, if mutilated, the Company will execute and deliver in
lieu of such Note a new Note of like tenor. Any such new Note shall be dated as
of the most recent Interest Payment Date on the Note in lieu of which such new
Note is executed and delivered. The term "outstanding" when used in this Note
with reference to the Notes as of any particular time shall not include (i) any
Note in lieu of which a new Note has been executed and delivered by the Company
in accordance with the provisions of this Section and (ii) any Note held or
beneficially owned by the Company or any of its affiliates.
SECTION 5. Amendments and Waivers. With the written consent of the
Holders of 51% of the aggregate outstanding principal amount of the Notes at the
time outstanding and the written consent of the Purchaser so long as it holds
any of the Notes, any covenant, agreement or condition contained in the Notes
may be waived (either generally or in a particular instance and either
retroactively or prospectively), or such Holders, the Purchaser (so long as it
holds any of the Notes) and the Company may from time to time enter into
agreements for the purpose of
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amending any covenant, agreement or condition of the Notes or changing in any
manner the rights of the Holders of the Notes or the Company; provided, however,
that:
(i) no such amendment or waiver shall change the Maturity Date of
this Note or reduce the rate or extend the time of payment of interest
hereon, or reduce the amount of the payment of interest hereon, or reduce
the amount of the principal hereof, or modify any of the provisions of this
Note with respect to the payment hereof, or change the conditions to
conversion set forth in Section 4(f), without in any such case the consent
of the Holder of this outstanding Note,
(ii) no such amendment or waiver with respect to the provisions of
Section 8 shall be effective without the consent of the Holders of Senior
Indebtedness; and
(iii) no such waiver shall extend or affect any obligation not
expressly waived or impair any right consequent thereon.
Any such amendment or waiver shall be binding upon each future Holder
of this Note and upon the Company, whether or not such Note shall have been
marked to indicate such amendment or waiver, but any Note issued thereafter
shall bear a notation referring to any such amendment or continuing waiver.
SECTION 6. Covenants.
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(a) The Company shall maintain an office where notices, presentations and
demands to or upon the Company in respect of Notes, including those relative to
conversion of the Notes, may be given.
(b) The Company shall keep at such office a register at its expense, which
shall provide for the registration and transfer of Notes. The Company and any
agent of the Company may treat the person in whose name any Note is registered
as the Holder of such Note for the purpose of receiving payment of the principal
and interest on such Note and for all other purposes, whether or not such Note
be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
(c) The Company agrees that so long as any of the Notes are outstanding,
it shall not directly or indirectly (i) declare or pay any dividend (other than
a stock dividend) or make any distribution on its capital stock or to the
Holders of its capital stock, (ii) purchase, redeem or otherwise acquire or
retire for value, or permit any of the Subsidiaries to, directly or indirectly,
purchase, redeem or otherwise acquire or render for value, any such capital
stock (or options, warrants or other rights to acquire such capital stock),
(iii) except as provided under this Note, redeem, repurchase, defease
(including, but not limited to, in-substance or legal defeasance) or otherwise
acquire or retire for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, Indebtedness of the Company which
is pari passu or subordinate (whether pursuant to its terms or by operation of
law) in right of payment to the Notes and which is scheduled to mature (after
giving effect to any and all options to extend the
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maturity thereof) on or after the maturity date of such Notes (after giving
effect to any and all options to extend the maturity thereof).
(d) The Company agrees that as long as any of the Notes are outstanding,
it shall not (i) consolidate with or merge into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, all or any substantial part
of the assets of the Company and the Subsidiaries, taken as a whole, to any
other Person unless (A) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance, transfer or
lease all or any substantial part of the assets of the Company and the
Subsidiaries as an entirety, as the case may be, shall be a solvent corporation
organized and existing under the laws of the United States or any State thereof
(including the District of Columbia), and if the Company is not such
corporation, such corporation shall have executed and delivered to each Holder
of any Notes its assumption of the due and punctual performance and observance
of each covenant and condition of the Purchase Agreement and the Notes and (B)
immediately after giving effect to such transaction no Event of Default and no
condition or event which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default, shall have occurred
and be continuing.
(e) The Company agrees that so long as any of the Notes are outstanding,
neither the Company nor any of the Subsidiaries will in any manner, directly or
indirectly, incur or be liable in respect of any Indebtedness senior to or
ranking pari passu with the Notes, except:
(i) Indebtedness of the Company represented by the Notes;
(ii) Indebtedness of the Company existing as of March 27, 1997 as
set forth on Schedule 3(b)(iii) of the Company Disclosure Letter (as
defined in the Purchase Agreement);
(iii) other Indebtedness not exceeding $2,000,000 in aggregate
principal amount at any time outstanding; and
(iv) extensions, refinancings, amendments and modifications of any
Indebtedness described in clause (ii) above, provided that the principal
amount of such Indebtedness is not increased.
"Indebtedness" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary, course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, banker's acceptances, surety or other bonds and similar
instruments, (vi) all obligations of such Person to purchase securities (or
other property) which arise out of or in connection with the sale of the same or
substantially similar securities or property, (vii) all Indebtedness of others
secured by a
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Lien (as defined below) on any asset of such Persons, whether or not such
Indebtedness is assumed by such Person, and (viii) all Indebtedness of others
guaranteed by such Person or for which such Person is otherwise contingently
liable
(f) The Company agrees that so long as any of the Notes are outstanding,
neither the Company nor any of the Subsidiaries shall create, incur, assume or
suffer to exist any mortgage, deed of trust, security interest, lien or other
encumbrance (each, a "Lien") upon any of its properties or assets, whether now
owned or hereafter acquired, except Liens in favor of holders of the Notes and
Permitted Liens.
"Permitted Liens" shall mean; (i) liens for taxes not yet payable or being
contested in good faith and by appropriate proceedings diligently pursued,
provided that the reserve or other appropriate provision, if any, as shall be
required by generally accepted accounting principles shall have been made
therefor, (ii) deposits or pledges, to secure the payment of workmen's
compensation, unemployment insurance, old age pensions or other social security
benefits or obligations, (iii) deposits or pledges to secure the performance of
bids, tenders, contracts, leases, public or statutory obligations, surety or
appeal bonds, or other deposits or pledges for purposes of a like general nature
made or given in the ordinary course of business and not in connection with the
borrowing of money; (iv) Liens in favor of holders of Indebtedness permitted
under Section 6(e); (v) such utility, access and other easements, right of way,
restrictions, exceptions, minor defects or irregularities in or clouds on title
or encumbrances not arising out of the borrowing of money or the securing of
advances or credit, and which will not Interfere with or impair in any respect
the utility, operation or value of any properties of the Company; (vi) liens of
mechanics, warehousemen, carriers or other similar statutory liens incurred in
good faith in the ordinary course of business; (vii) liens existing as of March
27, 1997 on properties and assets of the Company or any Subsidiary as set forth
in Schedule 3(b)(iii) of the Company Disclosure Letter; and (viii) other liens
incidental to the conduct of the Company's business or the ownership of its
property and assets (including landlord liens) that (1) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit or
the guaranteeing of the obligations of another Person, (2) do not in the
aggregate materially detract from the value of the Company's properties or
assets or materially impair the Company's ability to use such property or assets
in the operation of its business and (3) do not secure any obligation in an
amount exceeding $250,000.
(g) The Company shall deliver (by overnight courier) to each Holder
promptly following the occurrence thereof written notice of (i) an Event of
Default or of any condition or event which, after notice, lapse of time, or
both, could constitute an Event of Default, and (ii) the commencement of any
action, suit, claim, investigation or legal or administrative or arbitration
proceeding which could have a material adverse affect on the Company or any of
the Subsidiaries.
SECTION 7. Events of Default.
------------------
(a) The following shall constitute an "Event of Default" under the Notes:
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(i) the Company shall fail to pay when due any principal of or
interest on any Note or any other amount payable under the Notes or the
Purchase Agreement;
(ii) the Company shall fail to observe or perform any covenant
contained in Section 6(c), 6(d), 6(e), or 6(f);
(iii) the Company shall fail to observe or perform any covenant or
agreement contained in the Notes or the Purchase Agreement (other than
those covered by clause (i) or (ii) above) for 15 days after written notice
thereof has been given to the Company;
(iv) any representation, warranty, certification or statement made
by the Company in the Purchase Agreement or in the Notes or in any
certificate, financial statement or other document delivered pursuant to
the Purchase Agreement or the Notes shall prove to have been incorrect in
any material respect when made;
(v) the Company or any of its subsidiaries shall fail to make any
payment in respect of any Material Indebtedness (as defined below) when due
or within any applicable grace period;
(vi) any event or condition shall occur which (A) results in the
acceleration of the maturity, of any Material Indebtedness or (B) enables
(or, with the giving of notice or lapse of time or both, would enable) the
holder of such Indebtedness or any Person acting on such holder's behalf to
accelerate the maturity thereof;
(vii) the Company or any of its subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(viii) an involuntary case or usher proceeding shall be commenced
against the Company or any of its subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Company or any of its subsidiaries under the federal bankruptcy
laws as now or hereafter in effect;
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(ix) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $100,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer any Material Plan; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $200,000;
(x) a judgment or order for the payment of money in excess of
$1,000,000 shall be rendered against the Company or any of its subsidiaries
and such judgment or order shall continue unsatisfied and unstayed for a
period of 30 business days; or
(xi) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) (other than the
Purchaser and its affiliates) after the date hereof shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 15% or more of the
outstanding shares of common stock of the Company; or individuals who were
directors of the Company as of the date hereof (together with any new
director whose election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination was previously so approved) shall cease for any reason to
constitute a majority of the board of directors of the Company.
For purposes of this Section, "Material Indebtedness" means
indebtedness (other than the Notes) of the Company or one or more of any
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal amount exceeding $750,000: provided that such term shall not
include the Indebtedness described on Exhibit C to Schedule 3(n) of the Company
Disclosure Letter for so long as none of the following has occurred: (i) any
Holder of such Indebtedness shall have either accelerated such Indebtedness or
commenced any enforcement action with respect thereto, (ii) any Holder of Senior
Indebtedness shall have ceased to waive any default under such Senior
Indebtedness arising out of such failure to pay any Indebtedness described on
Exhibit C to Schedule 3(n) and (iii) the aggregate dollar amount of all such
outstanding Indebtedness specified on Exhibit C to Schedule 3(n) (other than
fees, interest or penalties thereon) shall have increased above the level so
specified. As used herein the terms "ERISA", "ERISA Group", "Material Plan",
"Multiemployer Plan" and "PBGC" have the meanings set forth in the Purchase
Agreement.
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(b) In case of the happening of an Event of Default, then, and in every
such happening and at any time thereafter during the continuance of such Event
of Default, the Holders of at least 51% in interest of Notes at the time
outstanding may, by written notice to the Company, declare the Notes to be
forthwith due and payable, whereupon the Notes shall become forthwith due and
payable, both as to the outstanding principal amount thereof and accrued
interest thereon, without presentment, demand, protest, or other notice of any
kind, all of which are hereby expressly waived, anything contained herein or
therein to the contrary notwithstanding, provided that in the case of any of the
Events of Default specified in Section 7(a)(vii) or 7(a)(viii) above with
respect to the Company, without any notice to the Company or any other act by
the Holders, the Notes shall become forthwith due and payable, both as to the
outstanding principal amount thereof and accrued interest thereon, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or therein to the contrary
notwithstanding.
(c) In case an Event of Default shall have occurred and be continuing,
then, (i) the Holders of at least 51% in interest of the Notes at the time
outstanding may proceed to protect and enforce such Holders' rights either by
suit in equity and/or by action at law whether for the specific performance of
any covenant or agreement contained in the Purchase Agreement or the Notes or in
aid of the exercise of any power granted in the Purchase Agreement or in the
Notes, or proceed to enforce the payment of the Notes or to enforce any other
legal or equitable right of the Holders of the Notes and (ii) the interest rate
per annum with respect to any Note shall, for each day that such Event of
Default exists, be automatically increased to a rate per annum equal to the sum
of (A) 3% plus (B) the Applicable Rate for such day. Any overdue principal of or
interest on this Note and any overdue amount payable hereunder or under the
Purchase Agreement shall bear interest, payable on demand, and in lawful money
of the United States, for each day until paid at the rate per annum specified in
clause (ii) of the immediately preceding sentence. No remedy herein conferred
hereunder is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or not or hereafter existing at law or in equity or by statute
or otherwise. No course of dealing between the Company or any of its
subsidiaries and any Holder of Notes or any delay on the part of any Holder of
Notes in exercising any rights hereunder shall operate as a waiver of any rights
of any such person hereunder or under the Purchase Agreement.
SECTION 8. Subordination. (a) The Company, for itself, its successors and
assigns covenants and agrees, and each Holder by its acceptance hereof likewise
covenants and agrees that each Note shall be subordinated, to the extent set
forth below, to the prior payment in full of all Senior Indebtedness (as
hereinafter defined).
(b) During the period referred to in Section 8(g), the Company shall not
make or agree to make, and the Holder will not demand, sue for, take, or retain,
any direct or indirect payment (in cash, property, securities, by set-off or
otherwise) on account of the principal of or interest on this Note, provided
however, that the Company may pay and the Holder may demand, sue for, take and
retain any payments of interest and principal, including, without limitation,
payment upon the Company's right to redeem under Section 2, under the terms and
conditions of the Notes made or due prior to the date on which the Holder shall
have received written notice
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(by registered mail, overnight courier or confirmed facsimile) of any
Subordination Event (as hereinafter defined). Nothing in this Section 8 shall be
deemed to prevent the accrual of interest on outstanding amounts, contemplated
by the provisions of this Note including, without limitation, Section 7(c).
Nothing in this Section 8 shall be deemed to prevent the Holder from demanding,
suing for, taking or retaining any payments on account of this Note after the
earlier of (i) the date on which the Senior Indebtedness has been paid in full
and (ii) either (y) 180 days after the occurrence of an Event of Default (other
than an Event of Default under Section 7(a)(iii) or an Event of Default under
Section 7(a)(vi)(B)) shall have occurred or (y) 270 days after an Event of
Default under Section 7(a)(iii) shall have occurred, provided that in all cases
in which more than one Event of Default is outstanding at one time, the
applicable period for purposes of this clause (ii) shall be the shortest period
possible. Notwithstanding the preceding sentence, if at the time of receipt by
the Holder of any payment on account of the Notes (w) any Senior Indebtedness
shall have reached final maturity (whether by acceleration or otherwise), (x)
the holders of such Senior Indebtedness referred to in clause (w) above shall
have previously commenced proceedings to enforce payment of such Senior
Indebtedness, (y) such proceedings shall be continuing and (z) prior to the
Holder's receipt of such payment, the holders of such Senior Indebtedness shall
have notified the Holder of the commencement of such proceedings, then no such
payment shall be made on account of the Notes until the Senior Indebtedness
described in clause (w) is paid in full and if any such payment is received by
the Holder it shall be paid over to the holder of the Senior Indebtedness
referred to in clause (w) above in an amount equal to the lesser of (A) the
outstanding amount of such Senior Indebtedness and (B) the amount of such
payment.
(c) (i) In the event of the occurrence of an Event of Default under any
agreement that includes the Company's obligation to pay Senior Indebtedness of
the Company the failure to repay any Senior Indebtedness upon the final
maturity thereof or otherwise upon any payment or distribution whether of cash,
securities, or other property, to creditors of the Company in a total or partial
liquidation, reorganization or dissolution of the Company, whether voluntary or
involuntary or in a bankruptcy, reorganization, insolvency, receivership,
assignment for the benefit of creditors, marshaling of assets, or similar
proceeding relating to the Company or its property (the existence of such
acceleration, failure to pay upon final maturity or proceeding being herein
referred to as a "Subordination Event"), then except as set forth in the proviso
set forth in the first sentence of Section 8(b), all Senior Indebtedness
(including any interest thereon accruing after the occurrence of any such event)
shall first be paid in full before any payment or distribution whether in cash,
securities, or other property other than Subordinated Securities (as hereinafter
defined), shall be made to the Holder on account of this Note. Any payment or
distribution, whether in cash, securities, or other property (other than the
Subordinated Securities), which would otherwise (but for these subordination
provisions) be payable or deliverable in respect of this Note shall be paid or
delivered daily to the holder of the Senior Indebtedness until all Senior
Indebtedness (including any interest thereon accruing after the occurrence of
any such event) shall have been paid in full. "Subordinated Securities" shall
mean any securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is subordinate, at
least to the extent provided in these subordination provisions with respect to
the Notes, to the payment of all Senior Indebtedness at
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the time outstanding or to any securities issued in respect thereof under any
such plan of reorganization or readjustment.
(ii) In the case of a happening of any Event of Default other than any
of the Events of Default specified in Section 7(a)(vii) or 7(a)(viii), the
Holders will not declare the Notes to be forthwith due and payable until
the earliest of (x) the final maturity of any Senior Indebtedness, (y) the
acceleration of the maturity of any Senior Indebtedness and (z) either (A)
180 days after the occurrence of an Event of Default (other than an Event
of Default under Section 7(a)(iii) or an Event of Default under Section
7(a)(vi)(B)) shall have occurred or (B) 270 days after an Event of Default
under Section 7(a)(iii) shall have occurred, provided that in all cases in
which more than one Event of Default is outstanding at one time, the
applicable period for purposes of this clause (z) shall be the shortest
period possible.
(d) The provisions of this Section constitute a continuing subordination
agreement, and the holder of Senior Indebtedness may continue, without notice to
the Holder, to extend credit and make loans and advances to or for the account
of the Company in reliance hereon; provided that such loans and advances are not
prohibited by the provisions of Section 6(e). The holder of Senior Indebtedness
may, at any time and from time to time, without consent or notice to the Holder,
without incurring responsibility to the Holder, and without impairing or
releasing any rights of the holder of Senior Indebtedness or any obligations of
the Holder hereunder (i) change the manner, place or terms of payment or change
or extend the time of payment of, or renew or alter any of the Senior
Indebtedness, or otherwise amend in any manner any of the Senior Indebtedness or
any instrument evidencing the same or any agreement under which any of the
Senior Indebtedness is outstanding; (ii) require such additional collateral from
the Company or others to secure any of the Senior Indebtedness as it may deem
necessary or desirable; (iii) sell, exchange, release or otherwise deal with any
collateral for the Senior Indebtedness; (iv) release any person (other than the
Company) liable in any manner for the payment or collection of any of the Senior
Indebtedness; and (v) exercise or refrain from exercising any right against the
Company and any other person.
(e) The holder of Senior Indebtedness shall not be prejudiced in the right
to enforce subordination of the Notes by any act or failure to act on the part
of the Company or of the holder of Senior Indebtedness.
(f) Except as otherwise expressly agreed to or undertaken by the Holder
herein, nothing contained herein shall be deemed to impose upon the Holder any
liability or obligation of the Company to the holder of Senior Indebtedness or
shall be construed as implying any guarantee, warranty, undertaking or
representation on the part of the Holder as to the discharge by the Company of
any liability or obligation of the Company to the holder of Senior Indebtedness.
(g) As long as any Senior Indebtedness is outstanding, the Holder shall
not commence, or join with any creditor other than the holder of Senior
Indebtedness in
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commencing, any proceeding referred to in Section 8(b) (which shall be deemed to
include an involuntary bankruptcy proceeding against the Company) until the
earlier of (i) the date on which the Senior Indebtedness has been paid in full
and (ii) either (x) 180 days after the occurrence of an Event of Default (other
than an Event of Default under Section 7(a)(iii) or an Event of Default under
Section 7(a)(vi)(B) shall have occurred or (y) 270 days after an Event of
Default under Section 7(a)(iii) shall have occurred, provided that in all cases
in which more than one Event of Default is outstanding at one time, the
applicable period for purposes of this clause (ii) shall be the shortest period
possible.
(h) If the Holder receives any payment or distribution of any character in
contravention of any of the terms hereof, it shall hold such payment or
distribution in trust for the benefit of, and shall promptly pay over or deliver
and transfer such payment or distribution to, the holder of the Senior
Indebtedness.
(i) As used in this Section, "Senior Indebtedness" shall mean any
Indebtedness (as hereinafter defined) of the Company, other than the Notes,
permitted to be issued under Section 6(e), provided that in each case the terms
of any such Senior Indebtedness do not prohibit (except on the terms set forth
in this Note) the payment of principal of and interest on the Note (including,
without limitation upon redemption by the Company). "Senior Indebtedness" shall
expressly include the Indebtedness under the Amended and Restated Secured Credit
Agreement, dated as of February 28, 1997, among the Company, Bank of America
National Trust and Savings Association, as agent, and other named institutions,
as such agreement may be amended from time to time, except to the extent that
the Indebtedness thereunder is increased in a manner not permitted under Section
6(e), and the Amended and Restated Note Agreement, dated as of February 28,
1997, among the Company, Principal Mutual Life Insurance Company and
Massachusetts Mutual Life Insurance Company, as such agreement may be amended
from time to time, except to the extent that the indebtedness thereunder is
increased in a manner not permitted under Section 6(e).
(j) The provisions of this Section are for the purpose of defining the
relative rights of the holders of Senior Indebtedness on the one hand, and the
Holders on the other hand against the Company and its property, and nothing
herein shall impair, as between the Company and the Holders, the obligation
of the Company, which is unconditional and absolute, to pay to the Holder hereof
the principal hereof and interest hereon in accordance with the terms and
provisions hereof; nor shall anything herein prevent the Holders from exercising
all remedies otherwise permitted by applicable law hereunder upon default under
this Note, subject to the limitations set forth in Sections 8(b), 8(c)(ii) and
8(g) and to the rights, if any, under this Section, of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the Holders. Nothing in this Section 8, shall prohibit or in
any way restrict the Holder's right, at any time (including without limitation
following a Subordination Event), to the benefit of the provisions of Section 3.
(k) After the payment in full of all amounts payable with respect to
Senior Indebtedness, the Holders shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments, or distributions of cash,
property, stock or obligations applicable to Senior
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Indebtedness until the principal of and interest on this Note shall be paid in
full and, for the purposes of such subrogation, no payments or distributions to
the holders of Senior Indebtedness of any cash property, stock, or obligations
to which the Holders would be entitled except for the provisions of this
Section, and no payment pursuant to the provisions of this Section to the
holders of Senior Indebtedness by the Holders, shall, as between the Company,
its creditors other than holders of Senior Indebtedness and the Holders, be
deemed to be a payment by the Company to or on account of Senior Indebtedness.
Nothing contained in this Note shall prevent the Company from making payments at
any time of principal of or interest on the Notes except under the conditions
described in Section 8(b) or 8(c).
SECTION 9. Extension of Maturity. Should the principal of or interest on
this Note become due and payable on other than a business day, the maturity
thereof shall be extended to the next succeeding business day, and interest
shall be payable thereon at the rate per annum (calculated on the basis of the
actual number of days elapsed over a year of 360 days) herein specified during
such extension. The term "business day" shall mean any day that is not a
Saturday, Sunday or legal holiday in the State of New York.
SECTION 10. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 11. CONSENT TO JURISDICTION. EACH OF THE HOLDERS AND THE COMPANY
HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING
IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE
HOLDERS AND THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREINAFTER 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 COMPANY CONSENT TO THE SERVICE OF PROCESS IN ANY
SUCH PROCEEDING BY THE DELIVERY (BY OVERNIGHT COURIER) TO IT AT ITS ADDRESS
SPECIFIED IN SECTION 9(c)) OF THE PURCHASE AGREEMENT (OR IN THE CASE OF A
HOLDER OTHER THAN THE PURCHASER, TO ITS ADDRESS AS IT APPEARS IN THE REGISTER
MAINTAINED BY THE COMPANY). EACH OF THE HOLDERS AND THE COMPANY FURTHER AGREE
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.
SECTION 12. WAIVER OF JURY TRIAL. EACH OF THE HOLDER AND THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SYSTEM SOFTWARE ASSOCIATES, INC.
By:_____________________________
Name:
Title:
18
<PAGE>
Exhibit 99.5
------------
Management Agreement
This Management Agreement (this "Agreement") is entered into as of the ____
day of August 1997 by and between System Software Associates, Inc., a Delaware
corporation (the "Company"), and Bain Capital Partners V, L.P., a Delaware
limited partnership ("Bain").
Whereas, the Company is undertaking a recapitalization (the
"Recapitalization"), pursuant to which it is selling its [ ]% Convertible
Notes due 2002 in an underwritten public offering and its Junior
Subordinated Notes due 2003 (the "Notes") in a private placement to
institutional investors (the "Private Offering");
Whereas, certain funds (the "Bain Funds") affiliated with Bain are
providing equity financing (the "Equity Investments") to the Company in
connection with the Recapitalization; and
Whereas, subject to the terms and conditions of this Agreement, the
Company desires to retain Bain to provide certain management and advisory
services to the Company, and Bain desires to provide such services;
Now, therefore, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Services. Bain hereby agrees that, during the term of this Agreement (the
"Term"), it will:
a. provide the Company with advice in connection with the negotiation and
consummation of agreements, contracts, documents and instruments
necessary to provide the Company with financing from banks or other
financial institutions or other entities on terms and conditions
satisfactory to the Company; and
b. provide the Company with financial, managerial and operational advice
in connection with its day-to-day operations, including, without
limitation:
i. advice with respect to the investment of funds; and
<PAGE>
ii. advice with respect to the development and implementation of
strategies for improving the operating, marketing and financial
performance of the Company.
2. Payment of Fees. The Company hereby agrees to:
a. during the Term, pay to Bain (or an affiliate of Bain designated by
it) a management fee to reimburse Bain for time spent (at a reasonable
hourly rate to be determined by the Company's Board of Directors) and
materials used in providing services to the Company, as more fully
described in Section 1 of this Agreement, in an amount not to exceed
$500,000 per year; provided, however, that this amount may be
increased by the Company's Board of Directors; and
b. during the Term, allow Bain to participate in the negotiation and
consummation of senior financing for any acquisition transactions by
the Company or any of its direct or indirect subsidiaries, and pay to
Bain (or an affiliate of Bain designated by it) a fee in connection
therewith equal to one percent (1%) of the gross purchase price of the
transaction (including all liabilities assumed or otherwise included
in the transaction), such fee to be due and payable for the foregoing
services at the closing of such transaction, whether or not any such
senior financing is actually committed or drawn upon.
Each payment made pursuant to this Section 2 shall be paid by wire transfer
of immediately available federal funds to the account specified on Schedule
1 hereto, or to such other account(s) as Bain may specify to the Company in
writing prior to such payment.
3. Term. This Agreement shall continue in full force and effect, unless and
until terminated by mutual consent of the parties, for so long as any Notes
are outstanding; provided, however, that either party may terminate this
Agreement following a material breach of the terms of this Agreement by the
other party hereto and a failure to cure such breach within 30 days
following written notice thereof; and provided further that each of (a) the
obligations of the Company under Section 4 below, (b) any and all accrued
and unpaid obligations of the Company owed under Section 2 above and (c)
the provisions of Section 7 shall survive any termination of this Agreement
to the maximum extent permitted under applicable law.
4. Expenses; Indemnification.
a. Expenses. Whether or not the Recapitalization, the Equity
Investments or any of the other transactions contemplated by this
Agreement or any other agreement executed in connection herewith or
the Equity Investments shall be consummated, the Company agrees to pay
on demand all expenses incurred by
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<PAGE>
Bain, the Bain Funds, Bain Capital, Inc., JMI Equity Fund III, L.P. or
CS Investor, L.L.C. (collectively, the "Investors") (or any of them)
in connection with this Agreement, the Recapitalization and such other
transactions and all operations hereunder or in respect of the Equity
Investments or otherwise incurred in connection with the
Recapitalization or the Company, in an aggregate amount not to exceed
$450,000 including but not limited to (i) the fees and disbursements
of: (A) Ropes & Gray, special counsel to Bain Capital, Inc. and the
Bain Funds, (B) Price Waterhouse LLP, accountant to Bain Capital, Inc.
and the Bain Funds, and (C) any other consultants or advisors retained
by the Investors or either of the parties identified in clauses (A)
and (B) arising in connection therewith (including but not limited to
the preparation, negotiation and execution of this Agreement and any
other agreement executed in connection herewith or in connection with
the Recapitalization, the Senior Financing or the consummation of the
other transactions contemplated hereby (and any and all amendments,
modifications, restructurings and waivers, and exercises and
preservations of rights and remedies hereunder or thereunder) and the
operations of the Company and any of its subsidiaries), and (ii) any
out-of-pocket expenses incurred by the Investors in connection with
the provision of services hereunder or the attendance at any meeting
of the board of directors (or any committee thereof) of the Company or
any of its affiliates.
b. Indemnity and Liability. In consideration of the execution and
delivery of this Agreement by Bain and the provision of the Equity
Investments by the Bain Funds, the Company hereby agrees to indemnify,
exonerate and hold each of Bain, Bain Capital, Inc. and each Bain
Fund, and each of their respective partners, shareholders, affiliates,
directors, officers, fiduciaries, employees and agents and each of the
partners, shareholders, affiliates, directors, officers, fiduciaries,
employees and agents of each of the foregoing (collectively, the
"Indemnitees") free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities and damages, and expenses
in connection therewith, including without limitation reasonable
attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result
of, or arising out of, or relating to the Recapitalization, the
execution, delivery, performance, enforcement or existence of this
Agreement or the transactions contemplated hereby (including but not
limited to any indemnification obligations assumed or incurred by any
Indemnitee to or on behalf of Seller, or any of its accountants or
other representatives, agents or affiliates) except for any such
Indemnified Liabilities arising on account of such Indemnitee's gross
negligence or willful misconduct, and if and to the extent that the
foregoing undertaking may 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. None of the Indemnitees shall be
liable to the
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<PAGE>
Company or any of its affiliates for any act or omission suffered or
taken by such Indemnitee that does not constitute gross negligence or
willful misconduct.
5. Assignment, etc. Except as provided below, neither party shall have the
right to assign this Agreement. Bain acknowledges that its services under
this Agreement are unique. Accordingly, any purported assignment by Bain
(other than as provided below) shall be void. Notwithstanding the
foregoing, (a) Bain may assign all or part of its rights and obligations
hereunder to any affiliate of Bain which provides services similar to those
called for by this Agreement, in which event Bain shall be released of all
of its rights and obligations hereunder, and (b) the provisions hereof for
the benefit of the Bain Funds shall inure to the benefit of their
successors and assigns.
6. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and
executed by each of Bain and the Company. No waiver on any one occasion
shall extend to or effect or be construed as a waiver of any right or
remedy on any future occasion. No course of dealing of any person nor any
delay or omission in exercising any right or remedy shall constitute an
amendment of this Agreement or a waiver of any right or remedy of any party
hereto.
7. Miscellaneous.
a. Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware
without giving effect to any choice or conflict of law provision or
rule that would cause the application of the domestic substantive laws
of any other jurisdiction.
b. Consent to Jurisdiction. Each of the parties agrees that all actions,
suits or proceedings arising out of or based upon this Agreement or
the subject matter hereof shall be brought and maintained exclusively
in the federal and state courts of the State of Delaware. Each of the
parties hereto by execution hereof (i) hereby irrevocably submits to
the jurisdiction of the federal and state courts in the State of
Delaware for the purpose of any action, suit or proceeding arising out
of or based upon this Agreement or the subject matter hereof and (ii)
hereby waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise, in
any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that it is
immune from extraterritorial injunctive relief or other injunctive
relief, that its property is exempt or immune from attachment or
execution, that any such action, suit or proceeding may not be brought
or maintained in one of the above-named courts, that any such action,
suit or proceeding brought or maintained in one of the above-named
courts should be dismissed on grounds of forum non conveniens, should
be transferred to any
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<PAGE>
court other than one of the above-named courts, should be stayed by
virtue of the pendency of any other action, suit or proceeding in any
court other than one of the above-named courts, or that this Agreement
or the subject matter hereof may not be enforced in or by any of the
above-named courts. Each of the parties hereto hereby consents to
service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of Delaware, agrees that
service of process by registered or certified mail, return receipt
requested, at the address specified in or pursuant to Section 9 is
reasonably calculated to give actual notice and waives and agrees not
to assert by way of motion, as a defense or otherwise, in any such
action, suit or proceeding any claim that service of process made in
accordance with Section 9 does not constitute good and sufficient
service of process. The provisions of this Section 7(b) shall not
restrict the ability of any party to enforce in any court any judgment
obtained in a federal or state court of the State of Delaware.
c. Waiver of Jury Trial. To the extent not prohibited by applicable law
which cannot be waived, each of the parties hereto hereby waives, and
covenants that it will not assert (whether as plaintiff, defendant, or
otherwise), any right to trial by jury in any forum in respect of any
issue, claim, demand, cause of action, action, suit or proceeding
arising out of or based upon this Agreement or the subject matter
hereof, in each case whether now existing or hereafter arising and
whether in contract or tort or otherwise. Each of the parties hereto
acknowledges that it has been informed by each other party that the
provisions of this Section 7(c) constitute a material inducement upon
which such party is relying and will rely in entering into this
Agreement and the transactions contemplated hereby. Any of the parties
hereto may file an original counterpart or a copy of this Agreement
with any court as written evidence of the consent of each of the
parties hereto to the waiver of its right to trial by jury.
8. Merger/Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes any
prior communication or agreement with respect thereto.
9. Notice. All notices, demands, and communications of any kind which any
party may require or desire to serve upon any other party under this
Agreement shall be in writing and shall be served upon such other party and
such other party's copied persons as specified below by personal delivery
to the address set forth for it below or to such other address as such
party shall have specified by notice to each other party or by mailing a
copy thereof by certified or registered mail, or by Federal Express or any
other reputable overnight courier service, postage prepaid, with return
receipt requested, addressed to such party and copied persons at such
addresses. In the case of
-5-
<PAGE>
service by personal delivery, it shall be deemed complete on the first
business day after the date of actual delivery to such address. In case of
service by mail or by overnight courier, it shall be deemed complete,
whether or not received, on the third day after the date of mailing as
shown by the registered or certified mail receipt or courier service
receipt. Notwithstanding the foregoing, notice to any party or copied
person of change of address shall be deemed complete only upon actual
receipt by an officer or agent of such party or copied person.
If to the Company, to it at:
System Software Associates, Inc.
500 West Madison, 32nd floor
Chicago, IL 60661
Attention: Roger E. Covey
With a Copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Mark Nunnelly
If to Bain, to it at:
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Mark Nunnelly
With a Copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: David C. Chapin, Esq.
10. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then
such unenforceable provision shall be deemed eliminated from this Agreement
for the purpose of such proceedings to the extent necessary to permit the
remaining provisions to be enforced. To the full extent, however, that the
provisions of any applicable law may be waived, they are hereby waived to
the end that this Agreement be deemed to be valid and binding agreement
enforceable in accordance with its terms, and in the event that any
provision hereof shall be found to be invalid or unenforceable, such
provision shall be construed by
-6-
<PAGE>
limiting it so as to be valid and enforceable to the maximum extent
consistent with and possible under applicable law.
11. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
The Company: System Software Associates, Inc.
By_______________________________
Title:
Bain: Bain Capital Partners V, L.P.
By Bain Capital Investors V, Inc.,
. its general partner
By_______________________________
Title:
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<PAGE>
Schedule 1 to
Management Agreement
--------------------
Wire Transfer Instructions for
Bain Capital Partners V, L.P.
Bankers Trust Company, NY
ABA # 021 001 033
For: Brown Brothers Harriman
Account # 015 01 026
Account Name: Bain Capital Partners V, L.P.
Acct. # 810512-4
-8-
<PAGE>
EXHIBIT 99.6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the ____ day of August, 1997, by and between System Software Associates, Inc., a
Delaware corporation (the "Employer"), and Roger E. Covey (the "Executive").
RECITALS
--------
A. The Executive is currently serving as Chairman and Chief Executive
Officer of the Employer.
B. The Employer desires that the Executive continue to provide services
for the benefit of the Employer and the Executive desires to accept such
continued employment with the Employer.
C. The Employer and the Executive acknowledge that the Executive is, and
will continue to be, a member of the senior management team of the Employer and,
as such, will participate in implementing the Employer's business plan.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Employment. The Employer shall continue to employ the Executive as its
Chairman and Chief Executive Officer, and the Executive hereby accepts such
continued employment on the following terms and conditions.
2. Duties. The Executive shall work for the Employer in a full-time
capacity. The Executive shall, during the term of this Agreement, continue to
have the duties, responsibilities, powers, and authority customarily associated
with the position of Chairman and Chief Executive Officer. The Executive shall
report to, and follow the directions of, the Board of Directors of the Employer
(the "Board"). In discharging his obligations during the term of this Agreement,
the Executive shall diligently, competently, and faithfully perform his duties,
and shall devote his entire business time, energy, attention, and skill to the
performance of duties for the Employer and will use his best efforts to promote
the legitimate business interests of the Employer. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
religious, civic, or charitable boards or committees, so long as such activities
do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Employer in accordance with this
Agreement.
<PAGE>
3. Compensation.
A. Salary. The Employer shall pay the Executive an annual salary of
$600,000 (the "Base Salary"), payable in substantially equal periodic
installments in accordance with the Employer's payroll policy from time to time
in effect. The Base Salary shall be subject to any payroll or other deductions
as may be required to be made pursuant to law, government order, or by agreement
with, or consent of, the Executive. Increases to the Base Salary shall be made
following an annual salary review, the first of which shall take place in or
around October, 1997, and all subsequent reviews shall occur in or around
October of each year thereafter. The Base Salary shall not be reduced, and the
term Base Salary shall refer thereafter to the Base Salary, as it may be
increased from time to time. Notwithstanding anything herein to the contrary,
the Executive's Base Salary and additional benefits and other forms of
compensation shall at all times be no less than the salary and additional
benefits and other forms of compensation paid to any other officer or employee
of the Employer.
B. Supplemental Payments and Bonuses.
(1) The Executive, in consideration of the benefit described in this
subparagraph (1) and in order to be able to grant additional options to the
Employer's key management employees and thereby enhance the Employer's
long-term prospects for success, previously surrendered options to purchase
200,000 shares of the Company's common stock, $0.01 par value (the "Common
Stock"). Such options were priced to the Executive at an exercise price of
$4.62 per share under one or more of the Employer's stock option plans.
Subsequent to such surrender, and upon stockholder approval of an amendment
to the Employer's Long-Term Incentive Plan authorizing additional shares to
be made available under such plan, the Employer granted the Executive an
option to purchase 200,000 shares of Common Stock at 7-13/16, the fair
market value of the Common Stock on the date of grant. To make the
Executive whole for such surrender and regrant, the Company shall pay the
Executive, on the third anniversary of the date hereof, an amount equal to
$638,500, plus the earnings that would have accrued thereon from the date
hereof to the day immediately preceding the date of payment, compounded
annually based upon the 3-year Treasury Bill rate in effect on the date
hereof.
(2) The Executive has agreed to surrender 100,000 shares of
Common Stock pursuant to the terms of a proposed settlement agreement
relating to a pending litigation matter. On the date the Executive
surrenders such shares, the Employer shall determine the closing sales
price of the Common Stock on such date as reported on the Nasdaq National
Market System. An amount equal to the product of 100,000 and such closing
sales price shall be paid to the Executive on the third anniversary of the
date hereof, along with the earnings that would have accrued thereon from
the date of surrender to the day immediately preceding
2
<PAGE>
the date of payment, compounded annually based upon the 3-year
Treasury Bill rate in effect on the date of surrender.
(3) The Employer shall pay the Executive a bonus for the
Employer's 1997 fiscal year in an amount equal to $200,000, such bonus
to be paid to the Executive in a single sum on the last day of the
1997 fiscal year.
C. Stock Option Grant. The Employer shall grant the Executive on the
date hereof incentive stock options (in accordance with Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) and nonqualified
stock options under the Employer's Long-Term Incentive Plan to purchase
200,000 shares of the Employer's common stock. The stock options shall be
granted at an exercise price equal to the fair market value of such common
stock on the date hereof, and shall become exercisable ratably over five
(5) years. The stock options granted hereunder shall expire by their terms
no later than ten (10) years from the date of their grant. The stock
options granted hereunder shall be treated as incentive stock options under
Section 422 of the Code, to the extent permitted thereby, and, to the
extent limited by Section 422 of the Code, the remaining portion of the
stock options granted hereunder shall be treated as nonqualified stock
options.
D. Incentive Bonus. The Executive shall participate in an annual
bonus program, which program shall provide the Executive with an
opportunity to achieve a targeted bonus equal to fifty percent (50%) of his
Base Salary. The actual terms and conditions of the annual bonus program
shall be established by the Employer, shall be memorialized in a written
document to be prepared by the Employer and which will be incorporated
herein by reference, and shall be based upon an annual bonus being granted
hereunder if the Employer achieves specified quarterly and annual earnings
targets and if the Executive achieves specified personal management
objectives.
E. Other Benefits. During the term of this Agreement, the Employer
shall:
(1) include the Executive in any life insurance, disability
insurance, medical, prescription, dental or health insurance
(including dependent coverage), savings, vacation, pension, profit
sharing and retirement plans and other benefit plans or programs
(including, if applicable, any excess benefit or supplemental
executive retirement plans) maintained by the Employer for the benefit
of its executives; and
(2) include the Executive in such additional benefits and
perquisites as the Employer may establish from time to time that are
commensurate with his position and at least comparable to those
received by other executives of the Employer.
4. Expenses. The Employer shall reimburse the Executive for all
reasonable business expenses, provided the Executive submits paid receipts or
other documentation in
3
<PAGE>
accordance with the Employer's reimbursement policies hereto in effect and as
required by the Internal Revenue Service to qualify as ordinary and necessary
business expenses under the Code.
5. Termination. This Agreement shall terminate upon the first to occur of
the following events:
A. Upon the Executive's death or the date the Executive is given
written notice from the Employer stating that the Board has determined the
Executive to be disabled. For purposes of this Agreement, the Board may
deem the Executive to be disabled only if the Executive, as a result of
illness or incapacity, shall be unable to perform substantially his
required duties for a period of four (4) consecutive months or for any
aggregate period of six (6) months in any twelve (12) consecutive month
period. A termination of the Executive's employment by the Employer for
disability shall be communicated to the Executive by written notice and
shall be effective on the thirtieth (30th) calendar day after receipt of
such notice by the Executive, unless the Executive returns to full-time
performance of his duties before such thirtieth (30th) calendar day.
B. On the date the Employer provides the Executive with written
notice that he is being terminated for "Cause." For purposes of this
Agreement, the Executive shall be deemed terminated for Cause if the
Employer terminates the Executive after the Executive:
(1) shall have been convicted of any felony including, but not
limited to, a felony involving fraud, theft, misappropriation,
dishonesty, or embezzlement;
(2) shall have committed willful acts that materially impair the
goodwill or business of the Employer or cause material damage to its
property, goodwill, or business; or
(3) shall have refused to, or willfully failed to, perform his
material duties hereunder.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that his action or omission was in the
best interests of the Employer. A termination of the Executive's employment
for Cause shall be effected in accordance with the following procedures.
The Employer shall give the Executive written notice ("Notice of
Termination for Cause") of its intention to terminate the Executive's
employment for Cause, setting forth in reasonable detail the specific
conduct of the Executive that it considers to constitute Cause and the
specific provision(s) of this Agreement on which it relies, and stating the
date, time and place of the Board Meeting for Cause. The "Board Meeting for
Cause" means a meeting of the Board at which the Executive's termination
for Cause will be considered, that takes place not less than ten (10) and
not more than twenty (20) business days after the Executive receives the
Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for
Cause. The Executive's termination for Cause shall be effective when and if
a resolution is duly adopted at the Board Meeting for Cause by a two-thirds
vote of the entire membership of the Board, stating that in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
the Notice of Termination for
4
<PAGE>
Cause. The Executive shall be given an opportunity, together with counsel, to be
heard at the Board Meeting for Cause. The Executive's termination for Cause
shall be effective when and if a resolution is duly adopted at the Board Meeting
for Cause by a two-thirds vote of the entire membership of the Board, stating
that in the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that such conduct
constitutes Cause under this Agreement.
C. On the date the Executive terminates his employment for "Good
Reason." For purposes of this Agreement, "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any
respect with Paragraph 2 of this Agreement, or any other action by the
Employer that results in a diminution in the Executive's position,
authority, duties or responsibilities, other than an isolated,
insubstantial and inadvertent action that is not taken in bad faith and is
remedied by the Employer after receipt of notice thereof from the
Executive;
(2) any requirement by the Employer that the Executive's services
be rendered primarily at a location or locations other than within the
greater Chicago metropolitan area and for other than a de minimis period of
time;
(3) any breach of this Agreement by the Employer that is not remedied
by the Employer promptly after receipt of notice thereof from the
Executive;
(4) any failure by the Employer to comply with any provision of
Paragraph 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure that is not taken in bad faith and is remedied by the
Employer promptly after receipt of notice thereof from the Executive;
(5) any purported termination of the Executive's employment by the
Employer for a reason or in a manner not expressly permitted by this
Agreement; or
(6) the resignation by the Executive following a "Change in Control."
A "Change in Control" shall be deemed to occur on the earliest of (a) the
acquisition by any entity, person, or group of beneficial ownership, as
that term is defined in Rule 13d-3 under the Securities Exchange Act of
1934, of more than 30% of the outstanding capital stock of the Employer
entitled to vote for the election of directors ("Voting Stock"); (b) the
commencement by any entity, person, or group (other than the Employer or a
subsidiary of the Employer) of a tender offer or an exchange offer for more
than 30% of the outstanding Voting Stock of the Employer; (c) the effective
time of (1) a merger or consolidation of the Employer with one or more
corporations as a result of which the holders of the outstanding Voting
Stock of the Employer immediately prior to such merger hold less than 80%
of the Voting Stock of the surviving or resulting corporation, or
5
<PAGE>
(2) a transfer of substantially all of the property or assets of the
Employer other than to an entity of which the Employer owns at least 80% of
the Voting Stock; and (d) the election to the Board, without the
recommendation or approval of the incumbent Board, of the lesser of (1)
three directors, or (2) directors constituting a majority of the number of
directors of the Employer then in office.
A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Employer written notice ("Notice of Termination
for Good Reason") of the termination within three (3) months (six (6)
months in the event of a Change in Control) of the event constituting Good
Reason, setting forth in reasonable detail the specific conduct of the
Employer that constitutes Good Reason and the specific provisions of this
Agreement on which Executive relies. A termination of employment by the
Executive for Good Reason shall be effective on the fifth (5th) business
day following the date when the Notice of Termination for Good Reason is
given, unless the notice sets forth a later date (which date shall in no
event be later than thirty (30) business days after the notice is given).
D. On the date the Executive terminates his employment for any
reason, other than a reason set forth in Paragraph 5C, provided that the
Executive shall give the Employer sixty (60) days written notice prior to
such date of his intention to terminate this Agreement.
E. On the date the Employer terminates the Executive's employment for
any reason, other than a reason set forth in Paragraph 5B, provided that
the Employer shall give the Executive sixty (60) days written notice prior
to such date of its intention to terminate this Agreement.
6. Compensation Upon Termination. If Executive's services are terminated
pursuant to Paragraph 5, the Executive shall be entitled to his Base Salary
through his final date of active employment, plus any accrued but unused
vacation/time off pay. Additionally, if the Executive's services are terminated
pursuant to Paragraphs 5A, 5C or 5E, the Executive or, in the case of his death,
his designated beneficiary (or, if there is no such beneficiary, the Executive's
spouse or, if there is no spouse, his estate or legal representative) shall be
entitled to severance pay, payable over an eighteen (18) month period, in an
amount equal to 1.5 times his Base Salary. The Executive also shall be entitled
to any benefits mandated under the Consolidated Omnibus Budget Reconciliation
Act of 1985 (COBRA) (for which the Employer shall be obligated to pay all
premiums and other costs associated with such COBRA continuation coverage), or
required under the terms of any death, insurance, or retirement plan, program,
or agreement provided by the Employer and to which the Executive is a party or
in which the Executive is a participant, including, but not limited to, any
short-term or long-term disability plan or program, if applicable.
7. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a) personally
delivered, or sent by first class, registered or certified mail, postage
prepaid, return receipt requested, or by recognized overnight
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courier, (b) sent by facsimile, provided a hard copy is mailed on that date to
the party for whom such notices are intended, or (c) sent by other means at
least as fast and reliable as first class mail. A written notice shall be deemed
to have been given to the recipient party on the earlier of (a) the date it
shall be delivered to the address required by this Agreement; (b) the date
delivery shall have been refused at the address required by this Agreement; (c)
with respect to notices sent by mail or overnight courier, the date as of which
the Postal Service or overnight courier, as the case may be, shall have
indicated such notice to be undeliverable at the address required by this
Agreement; or (d) with respect to a facsimile, the date on which the facsimile
is sent and receipt of which is confirmed. Any and all notices referred to in
this Agreement, or which either party desires to give to the other, shall be
addressed to his residence in the case of the Executive, or to its principal
office in the case of the Employer.
8. Waiver of Breach. A waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver or estoppel of any subsequent breach. No waiver shall be valid unless in
writing and signed by the party to be charged.
9. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties and contains all of the agreements
made between the parties with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto, with respect to the subject matter hereof. No change
or modification of this Agreement shall be valid unless in writing and signed by
the Employer and the Executive. If any provision of this Agreement shall be
found invalid or unenforceable for any reason, in whole or in part, then such
provision shall be deemed modified, restricted, or reformulated to the extent
and in the manner necessary to render the same valid and enforceable, or shall
be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein, as the case may be.
10. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
11. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
12. Successors.
A. This Agreement is personal to the Executive and, without the prior
written consent of the Employer, shall not be assignable by the Executive.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
B. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns.
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C. The Employer shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employer expressly
to assume and agree to perform this Agreement in the same manner and to the
same extent that the Employer would have been required to perform it if no
such succession had taken place. As used in this Agreement, "Employer"
shall mean both the Employer as defined above and any such successor that
assumes and agrees to perform this Agreement, by operation of law or
otherwise.
13. Recitals. The recitals to this Agreement are incorporated herein as
an integral part hereof and shall be considered as substantive and not precatory
language.
14. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions.
IN WITNESS WHEREOF, the parties have set their signatures on the date first
written above.
SYSTEM SOFTWARE
ASSOCIATES, INC.
By:__________________________________ ______________________________________
Its:_________________________________ ROGER E. COVEY
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