As filed with the Securities and Exchange Commission on September 30, 1997
Registration Statement No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
InaCom Corp.
(Exact name of registrant as specified in its charter)
Delaware 47-0681813
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
10810 Farnam Drive
Omaha, Nebraska 68154
(402) 392-3900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David C. Guenthner
10810 Farnam Drive
Omaha, Nebraska 68154
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
David L. Hefflinger Howard S. Lanznar
McGrath, North, Mullin & Kratz, P.C. Katten Muchin & Zavis
Suite 1400 525 West Monroe Street
One Central Park Plaza Suite 1600
Omaha, NE 68102 Chicago, IL 60661
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement. If the
securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of each class of securities to be reAmounteto be Proposed maximum Proposed maximum Amount of
registered(1) offering price per unit aggregate offering price Registration Fee(1)
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<S> <C> <C> <C> <C>
Debt Securities {
Preferred Stock {.................... (2) (2) $300,000,000 $90,909
Common Stock (3) {
===================================================================================================================================
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(1) The maximum aggregate offering price of Debt Securities, Preferred
Stock and Common Stock registered hereunder shall not exceed
$300,000,000.
(2) Not applicable pursuant to General Instruction II.D. of Form S-3
under the Securities Act of 1933, as amended.
(3) In addition, the Registrant is registering Common Stock that may be
issued from time to time upon conversion of convertible Debt
Securities or convertible Preferred Stock. Because this additional
Common Stock is issuable only upon the conversion of convertible
Debt Securities or convertible Preferred Stock, no registration fee
is required with respect to such Common Stock pursuant to the
provisions of Rule 457(i).
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED _________________, 1997
$50,000,000
InaCom Corp.
___% Convertible Subordinated Debentures due ________, 2004
-------------------
Interest on the Debentures is payable on ___ and ___ of each year
commencing ___, 1998. The Debentures are redeemable, in whole or in part, at the
option of the Company, at any time on or after _____, ____, at the redemption
prices set forth herein, plus accrued interest to the date of redemption. Each
holder of Debentures may require the Company to repurchase such holder's
Debentures, in whole or in part, in the event of a Change in Control (as defined
herein) at a purchase price equal to 100% of the principal amount of such
Debentures plus accrued interest to the date of repurchase for cash or, at the
Company's option, Common Stock (valued at 95% of the average closing prices for
the five trading days immediately preceding and including the third trading day
prior to the repurchase date).
The Debentures are convertible at any time, unless previously redeemed,
into shares of Common Stock of the Company, at a conversion rate of _______
shares per each $1,000 principal amount of Debentures (equivalent to a
conversion price of $___ per share) subject to adjustment under certain
circumstances. On September 26, 1997, the last reported sales price of the
Common Stock of the Company, which is listed under the symbol "ICO" on the New
York Stock Exchange, was $37.25 per share.
The Debentures are general unsecured obligations of the Company issued
under an indenture dated September 30, 1997 between the Company and Norwest Bank
Minnesota, National Association as supplemented by the first supplemental
indenture dated __________, 1997 and are subordinate in right of payment to all
Senior Indebtedness (as defined herein) of the Company. The subordinated
indenture will not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or any of its subsidiaries.
The Debentures will be represented by one or more global securities
registered in the name of a nominee of The Depository Trust Company. Beneficial
interests in the Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary and its
participants. Except as described in this Prospectus Supplement, Debentures in
certificated form will not be issued in exchange for the global securities.
Concurrently with the offering of the Debentures hereby, the Company will
offer 3,000,000 shares of Common Stock (up to 3,450,000 shares if the
underwriters' over-allotment options are exercised) by a separate prospectus.
Neither offering is conditioned upon the consummation of the other offering. See
"Common Stock Offering".
See "Risk Factors" on pages S-7 to S-10 of this Prospectus Supplement
for a discussion of certain factors that should be considered by prospective
purchasers of the Debentures.
-------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
Initial Public Offering Underwriting Proceeds to
Price(1) Discount (2) Company (1)(3)
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<S> <C> <C> <C>
Per Debenture........................................ ___% ___% ___%
Total(4)............................................. ___$ ___$ ___$
(1) Plus accrued interest, if any, from ______, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deduction of expenses estimated at $82,500 payable by the Company.
(4) The Company has granted the Underwriters an option exercisable for 30 days after the date hereof to purchase up to
$7,500,000 of additional Debentures, at the initial public offering price, less the underwriting discount. If such option
is exercised in full, the total initial public offering price, underwriting discount and proceeds to the Company will be
$__________, $__________ and $__________, respectively. See "Underwriting."
</TABLE>
------------------------------------
The Debentures offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the Debentures will be ready for delivery in book-entry form only through
the facilities of the Depository Trust Company in New York, New York on or about
_________, 1997, against payment therefor in immediately available funds.
Goldman, Sachs & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
The date of this Prospectus Supplement is ________, 1997.
<PAGE>
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>
Photo collage of five photos in arrow shapes pointing clockwise at the adjacent
photo.
Caption: Needs Assessment and Technology Planning
Photo of two men and one woman discussing a company's information technology
needs.
Caption: Technology Procurement and Configuration
Photo of two technicians configuring computers at Inacom's Ontario, California
production facility.
Caption: Systems Integration and Systems Management
Photo of a technician working at a client company's technology nerve center.
Caption: Ongoing Systems Support and Distributed Support
Photo of a technician at Inacom's new Technology Services Center in Omaha,
Nebraska assisting a technology client.
Caption: Asset Management
Photo of a bar code and tracking system used to manage technology assets.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES OR THE
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-2
<PAGE>
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information and Consolidated Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus Supplement and Prospectus
or incorporated by reference. Except as otherwise indicated herein, all
information in this Prospectus Supplement and Prospectus assumes no exercise of
the Underwriters' over-allotment option.
The Company
InaCom Corp. (the "Company" or "Inacom") is a leading single source
provider of information technology products and technology management services
designed to enhance the productivity of information systems primarily for
Fortune 1000 clients. The Company offers a comprehensive range of value added
services to manage the entire information system life cycle including: (1) needs
assessment and technology planning, (2) technology procurement and
configuration, (3) systems integration and systems management, (4) ongoing
systems support and distributed support, and (5) asset management. Inacom's
expertise includes the integration of voice and data communications. Inacom
sells its products and services through a marketing network of 51 Company-owned
business centers throughout the United States that focus on serving large
corporations. The Company also has a network of approximately 1,000 value added
resellers that typically have a regional, industry, or specific product focus.
The Company has international affiliations in Europe, Asia, Central and South
America, the Caribbean, Middle East, Africa, Canada and Mexico to satisfy the
technology management needs of its multinational clients. Inacom is the largest
purchaser of IBM computer products and believes it is the second largest
purchaser of Compaq computer products worldwide.
Inacom's expertise in procurement, configuration and delivery of PC's,
peripherals and software from a wide range of major vendors enables the Company
to customize information systems to meet specific client needs. In addition,
Inacom provides its clients with numerous benefits including in-depth product
knowledge and experience, competitive pricing from its purchasing arrangements
and a wide array of services supporting client needs on an on-going basis.
Management believes that the Company's expertise in procuring,
configuring and delivering information technology products and providing
technology management services provides a strategic advantage in addressing
certain industry trends. In particular, businesses increasingly are seeking to
outsource the management and support of their information technology systems
with fewer providers. At the same time, the demand for cost-effective,
customized technology systems has led a number of manufacturers, including IBM,
Compaq and Hewlett-Packard, to move from "build-to-forecast" delivery systems to
"build-to-order" programs in which they ship computer components to a limited
number of qualified technology providers, including Inacom, for final assembly
and configuration. Management also believes that these trends will lead to
further consolidation in the highly fragmented technology management services
industry. As a result of the Company's experience in integrating acquired
businesses, management believes that the Company is well-positioned to take
advantage of strategic acquisition opportunities as they arise.
Inacom's earnings growth has been enhanced by its rapidly expanding
services business. In the first six months of fiscal 1997, computer services
provided 47.7% of net earnings, more than double the net earnings from the same
period in 1996. Computer products contributed 40.8% and communications products
and services provided 11.5% of net earnings in the same period. Inacom expects
that earnings from services will continue to grow more rapidly than earnings
from its other business segments given Inacom's broad offering of services to
its clients.
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals, Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are: (i) to leverage client
relationships to continue expanding higher-margin services revenues, (ii) to
capitalize on the trend toward build-to-order/configure-to-order systems, (iii)
to expand offerings and geographic coverage through strategic acquisitions, and
(iv) to capitalize on the convergence of data and voice communications.
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S-3
<PAGE>
<TABLE>
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Description of The Offering
<S> <C>
The Debentures............................. $50,000,000 aggregate principal amount of ___% Convertible
Subordinated Debentures (the "Debentures") due _______, 2004 issued
under an indenture (the "Subordinated Indenture") dated September 30, 1997 between the
Company and Norwest Bank Minnesota, National Association as
trustee (the "Trustee")as supplemented by the first supplemental
indenture dated __________, 1997 (the "First Supplemental Indenture").
The Company has granted the Underwriters an option exercisable for
30 days after the date of this Prospectus Supplement to purchase up to
$7,500,000 of additional Debentures.
Interest Payment Dates..................... Semiannually on each _______ and _______ commencing
___________, 1998.
Maturity Date.............................. ________, 2004
Conversion Rights.......................... The holders of the Debentures are entitled at any time, subject to prior
redemption or repurchase, to convert the Debentures, or portions
thereof (if the portions are $1,000 or whole multiples thereof) into
shares of the Common Stock at the conversion rate of ____ shares per
$1,000 principal amount of Debentures (equivalent to a conversion per
share price of approximately $_______), subject to certain adjustments.
See "Description of Debentures - Conversion."
Optional Redemption........................ The Debentures are not redeemable by the Company prior to ______,
____. On or after ______, ____, the Debentures are redeemable on at
least 20 and not more than 60 days' notice at the option of the
Company, in whole or in part at any time, at the redemption prices set
forth herein, in each case together with accrued interest. See
"Description of Debentures - Optional Redemption."
Change in Control.......................... Upon a Change in Control, each holder of Debentures will have the
right (a "Repurchase Right") to require the Company to repurchase all
of such holder's Debentures, or a portion thereof (if the portions are
$1,000 or whole multiples thereof) at 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of
repurchase for cash or, at the Company's option, Common Stock
(valued at 95% of the average closing prices for the five trading days
immediately preceding and including the third trading day prior to the
repurchase date). See "Description of Debentures - Repurchase at
Option of Holders Upon Change in Control."
Subordination.............................. The payment of the principal of and premium, if any, and interest on
the Debentures is subordinated in right of payment to the prior
payment in full of all existing and future Senior Indebtedness (as
defined herein). The Indenture contains no limitations on the
incurrence of additional Senior Indebtedness or other indebtedness by
the Company. See "Description of Debentures - Subordination."
Use of Proceeds............................ To repay, in part, indebtedness and fund other capital requirements.
See "Use of Proceeds."
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S-4
<PAGE>
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Events of Default.......................... An Event of Default with respect to the Debentures includes the
occurrence of any of the following: default for 30 days in payment of
interest; default in payment of principal at maturity, upon redemption
or exercise of a Repurchase Right or otherwise; default in payment on
Indebtedness (as defined herein) at maturity of at least $5,000,000
principal amount; default on Indebtedness which results in acceleration
of maturity of at least $5,000,000 principal amount of Indebtedness;
failure by the Company for 90 days after notice to it to comply in any
material respect with any of its other agreements in the Indenture or
the Debentures; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the Debentures may declare all the
Debentures to be due and payable immediately. See "Description of
Debentures - Defaults and Remedies."
Listing.................................... The Debentures will not be listed on any securities exchange or quoted
on NASDAQ. The Underwriters advised the Company that they intend
to make a market in the Debentures but are not obligated to do so.
Any market in the Debentures which develops may be discontinued at
any time without notice.
Description of Common Stock
The Common Stock........................... _______________ shares of Common Stock are issuable upon
conversion of the Debentures. The Debentures are convertible into
Common Stock at a conversion price of $_________ per share, subject
to adjustment under certain circumstances. See "Description of Capital
Stock" in the Prospectus and "Description of
Debentures - Conversion."
Shares Outstanding......................... On September 26, 1997, there were 11,566,707 shares of Common
Stock outstanding.(1)
Shares Outstanding if all Debentures _____________ shares of Common Stock would be outstanding if all of
are Converted.............................. the Debentures were converted into shares of Common Stock,
including _____ shares of Common
Stock which are being offered
concurrently with the offering of
the Debentures.
Dividend Policy........................... The Company has never declared or paid a cash dividend to
stockholders. The Company's Board of Directors presently intend to
retain all earnings to finance the expansion of the Company's
operations and does not expect to authorize cash dividends in the
foreseeable future. Any payment of cash dividends in the future will
depend upon the Company's earnings, capital requirements and other
factors considered relevant by the Company's Board of Directors.
Certain of the Company's debt agreements restrict the amount of
dividends which may be paid.
Trading.................................... The Common Stock is traded on the New York Stock Exchange under
the symbol "ICO."
(1) Does not include (i) 1,132,948 additional shares reserved for issuance pursuant to currently outstanding
options under the Company's 1997, 1994 and 1990 stock plans and 1987
nonqualified stock option plan, (ii) 2,302,084 additional shares reserved for issuance pursuant to the conversion of the Company's
6% Convertible Subordinated Debentures due June 15, 2006 or (iii) such additional shares which will be reserved for issuance
pursuant to the conversion of the Debentures.
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</TABLE>
S-5
<PAGE>
<TABLE>
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Summary Consolidated Financial Data
(in thousands, except per share data)
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................... $ 1,014,46 $ 1,545,22 $ 1,800,53 $ 2,200,344 $ 3,102,055 $ 1,411,941 $1,813,904
Earnings (loss) before income
taxes 17,959 19,693 (3,749) 19,833 31,719 12,566 20,262
Net earnings (loss)......... 10,734 11,975 (2,256) 11,707 18,733 7,414 11,954
Earnings (loss) per share,
fully diluted $ 1.25 $ 1.26 $ (0.22) $ 1.14 $ 1.64 $ 0.71 $ 0.94
Weighted average shares
outstanding, fully diluted 8,566 9,500 10,300 10,300 12,000 10,500 13,800
fully diluted...............
June 28, 1997
As As Adjusted
Balance Sheet Data: Actual Adjusted(1) Pro Forma(2)
Working capital................................................................... $ 81,869 $ 130,119 $ 235,723
Total assets...................................................................... 944,912 946,662 980,516
Long-term debt.................................................................... 55,250 105,250 105,250
Stockholders' equity.............................................................. 207,012 207,012 312,616
</TABLE>
(1) As adjusted to give effect to the sale of Debentures offered hereby.
(2) As adjusted to give effect to the sale of Debentures offered hereby and the
sale of the Common Stock, as described in the following paragraph, and the
application of the estimated net proceeds of both offerings.
See "Use of Proceeds".
Common Stock Offering
Concurrently with the offering, the Company is offering, by separate
prospectus, 3,000,000 shares of Common Stock (up to 3,450,000 shares if the
underwriters' over-allotment option is exercised in full). The consummation of
the offering of the Debentures made hereby is not conditioned upon the
consummation of the Common Stock offering.
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S-6
<PAGE>
RISK FACTORS
The Prospectus and this Prospectus Supplement, including documents
incorporated by reference herein, contain certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Such statements reflect the current view
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including factors described in "Risk Factors"
herein and in documents incorporated herein by reference. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
believed, estimated or expected.
Dependence Upon Key Vendors
Inacom's business is dependent in large measure upon its relationship
with key vendors. A substantial portion of Inacom's computer products revenue is
derived from the sales of the products of key vendors, including Compaq, IBM and
Hewlett-Packard. During the fiscal year ended December 28, 1996, sales of
Compaq, IBM and Hewlett-Packard products accounted for approximately 26%, 24%
and 15%, respectively, of the Company's revenues. Inacom derives a substantial
portion of its communications products and services revenue from the sale of
Lucent Technologies products and AT&T services. Although Inacom considers its
relationships with its key vendors to be good, there can be no assurance that
these relationships will continue as presently in effect or that changes in
marketing approach by one or more such key vendors and other suppliers would not
adversely affect Inacom. Inacom's agreements with these vendors are on a
non-exclusive basis and may be terminated by the vendors on notice typically
ranging from 30 to 90 days. Termination of, or a material change to, or a
nonrenewal of Inacom's agreements with Compaq, IBM and Hewlett-Packard, a
material decrease in the level of marketing development programs offered by
computer vendors, or an insufficient or interrupted supply of vendors' product
would have a material adverse effect on Inacom's business. See "Business --
Products and Vendors."
Impact of Vendor Incentive Funds
The key vendors of Inacom provide various incentives for promoting and
marketing their product offerings. Funds or credits received by Inacom are based
either on the sales of the vendor's products through the independent reseller
and Inacom-owned channels, or on Inacom's purchases from the respective vendor.
The three major forms of vendor incentives received by Inacom are co-operative
funds, market development funds and vendor rebates. The funds or credits are
earned through performance of specific marketing programs or upon completion of
objectives outlined by the vendors. These funds or credits from Inacom's primary
vendors typically range from 1% to 5% of purchases by Inacom. A material
decrease in the level of vendor incentive funding or credits would have a
material adverse effect on Inacom's business. See "Business -- Products and
Vendors."
Inventory Management Risks
The personal computer industry is characterized by rapid product
improvement and technological change resulting in relatively short product life
cycles and rapid product obsolescence, which can place inventory at considerable
valuation risk. Inacom's information technology suppliers generally provide
price protection intended to reduce the risk of inventory devaluation. However,
many of these suppliers have announced plans to reduce the number of days for
which they will provide price protection. There can be no assurance that vendors
will continue such policies or that unforeseen new product developments and
related inventory obsolescence will not materially adversely affect Inacom's
business.
S-7
<PAGE>
Build-to-Order Delivery Model
The system used by major manufacturers, such as IBM, Compaq and
Hewlett-Packard to deliver computer systems to business clients through
technology providers such as Inacom is changing from a build-to-forecast model
to a build-to-order model. See "Business - Industry". The potential advantages
to technology providers such as Inacom from such a system -- reduced inventory
requirements, improved margins and market share gains -- involve potential
disadvantages including a decrease in the number of days of price protection
available from the manufacturers and the requirement that Inacom meet strict
manufacturer final assembly qualification standards. The failure of Inacom to
meet the manufacturer qualification standards, or the inability of Inacom to
manage its inventory to levels to meet client demands and within the
manufacturer's price protection limits, could have a material adverse effect on
Inacom's business.
Dependence Upon Key Management and Technical Personnel
Inacom's success depends to a significant extent on its ability to
attract and retain key personnel. Inacom is particularly dependent on its senior
management team and technical personnel. Inacom's strategy for growth in the
sale of computer services and communication services depends on its ability to
attract and retain qualified technical personnel, including systems engineers
and communications specialists. Competition for technical personnel is intense
and no assurance can be given that Inacom will be able to recruit and retain
such personnel. The failure to recruit and retain senior management and
technical personnel could have a material adverse effect on Inacom's business.
Management of Expanding Operations and Increased Service Focus
The Company's growth resulting from expanding operations and its increased
focus on the complete life cycle technological needs of its business clients
places significant demands on the Company's management, operational and
technical resources. Such growth and increased life cycle service focus are
expected to continue to challenge the Company's sales, marketing, technical and
support personnel and senior management. The Company's future performance will
depend in part on its ability to manage expanding operations and to adapt its
operational systems to respond to changes in its business. In particular, the
Company's success will depend upon its key management and technical personnel.
See "Dependence Upon Key Management and Technical Personnel" above. The failure
of the Company to effectively manage its growth and increased life cycle service
focus effectively or to train its technical field personnel could have a
material adverse effect on Inacom's business.
Funding Requirements; Interest Rate Sensitivity
Inacom's business requires significant working capital to finance
product inventory and accounts receivable. Inacom has funded its inventory and
working capital requirements through an inventory and working capital financing
agreement, a revolving credit facility and the public sale of debentures. The
borrowings under these agreements typically bear a floating rate of interest.
Due to the Company's significant working capital needs, an increase in interest
rates could have a material adverse effect on Inacom's results of operation.
There can be no assurance that sufficient equity or debt financing will be
available on terms acceptable to Inacom or that Inacom will be able to refinance
its existing indebtedness. The inability of Inacom to refinance its existing
indebtedness or to obtain a sufficient amount of alternative financing would
have a material adverse effect on Inacom's business.
Risks of Financial Leverage
The Company's business requires significant working capital and the
primary sources of such working capital are provided through an inventory and
working capital financing agreement, the $55.25 million in aggregate principal
amount of 6% convertible subordinated debentures issued in June 1996, and a
revolving credit facility of $40.0 million. On June 28, 1997, $80.0 million was
outstanding under the working capital portion of the inventory and working
capital financing agreement and the interest rate was 7.5% based on three-month
LIBOR. The inventory and working capital agreement expires in June 1998. The
debentures are unsecured subordinated debt
S-8
<PAGE>
of the Company. On June 28, 1997, $40.0 million was outstanding under the
revolving credit facility and the interest rate was 6.99% based on three-month
LIBOR. The revolving credit facility expires in February 1998. The degree to
which the Company is leveraged could have important consequences to holders of
the Common Stock, including the following: (i) the Company's ability to obtain
other financing in the future may be impaired; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness; and (iii) a high degree of leverage
may make the Company more vulnerable to economic downturns and may limit the
ability to withstand competitive pressures. The Company's ability to make
scheduled payments on or, to the extent not restricted pursuant to the terms
thereof, to refinance its indebtedness depends on its financial and operating
performance, which is subject to prevailing economic conditions and to
financial, business and other factors beyond its control.
Competition
All aspects of the technology management services industry are highly
competitive. The technology management services industry continues to experience
a significant amount of consolidation. In the future Inacom may face fewer but
larger and better financed competitors as a consequence of such consolidation.
Inacom competes for potential clients, including national accounts, with
numerous resellers, distributors and service providers. Several computer
manufacturers have expanded their channels of delivery, pricing and product
positioning and compete with Inacom's marketing network for potential clients.
Other competitors operate mail-order or discount stores offering clones of major
vendor products. Inacom also competes with computer technology providers in the
recruitment and retention of franchisees and independently-owned resellers.
Inacom competes in the computer services division with a large number of service
providers, including IBM through its Global Services division, Andersen
Consulting, EDS, CompuCom Systems, ENTEX, GE Capital Technology Management
Services, IKON Office Solutions and Vanstar Corp. Competition in the
communications products and services industry is also intense, and includes
entities which are also significant vendors of Inacom, such as Lucent
Technologies and AT&T. Certain competitors and manufacturers are substantially
larger than Inacom and have greater financial, technical, service and marketing
resources. The level of future sales and earnings achieved by Inacom in any
period may be adversely affected by a number of competitive factors, including
an increase in direct sales by vendors to independent resellers and/or clients
and increased computer client preference for mail-order or discount store
purchases of clones of major vendor products.
Acquisitions
Inacom's strategy includes effecting acquisitions and strategic
relationships in selected geographic market and service areas. Acquisitions
involve a number of special risks, including the incorporation of acquired
products and services into Inacom's offerings, the potential loss of key
employees of the acquired business, the valuation of the acquired business, the
incurrence of additional debt and the financial impact of goodwill amortization.
Inacom expects to issue equity securities to consummate certain acquisitions,
which may cause dilution to current stockholders. No assurance can be given that
Inacom will have adequate resources to consummate acquisitions, integrate the
acquired businesses or that any such acquisitions will be successful in
enhancing Inacom's business.
Dependence on Information Systems
The Company depends on a variety of information systems to provide it
with a competitive advantage. Although the Company has not in the past
experienced significant failures or down time of its proprietary procurement and
delivery system or any of its other information systems, any such failure or
significant down time could prevent the Company from taking orders and/or
shipping product and could prevent clients from accessing price and product
availability information from the Company. In such event, the Company could be
at a severe disadvantage in determining appropriate product pricing or the
adequacy of inventory levels or in reacting to rapidly changing market
conditions. A failure of the Company's information systems which impacts any of
these functions could have a material adverse effect on the Company's business.
In addition, the inability of the Company to attract and retain the
highly-skilled personnel required to implement, maintain, and operate its
centralized information
S-9
<PAGE>
processing system and the Company's other information systems could have a
material adverse effect on the Company's business.
Gross Margin Risks
Gross margins from the sale of computer products have declined over the
past several years as a result of computer product price reductions and intense
competition. Inacom has responded by reducing operating expenses as a percentage
of revenue and by focusing on sales of higher-margin computer services and
communication services. There can be no assurance that gross margins for
computer products will not continue to decline or that Inacom will be successful
in reducing operating expenses as a percentage of revenue. Furthermore, there
can be no assurance that gross margins for computer services and communications
services will not also decline or that Inacom will be able to continue to
successfully grow and compete in such service markets.
Certain Anti-Takeover Effects
Certain provisions of the Company's Certificate of Incorporation and
Delaware law may be deemed to have anti-takeover effects. The Company's
Certificate of Incorporation provides that the Board of Directors may issue
additional shares of Common Stock or establish one or more classes or a series
of Preferred Stock with such designations, relative voting rights, dividend
rights, liquidation and other rights that the Board of Directors fixes without
stockholder approval. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law which
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
See "Description of Capital -- Preferred Stock" and "Description of Capital
Stock -- Section 203 of the Delaware General Corporation Law" in the Prospectus.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Debentures and
Common Stock being offered concurrently (assuming an offering price of $37.25
per share, the last reported share price of the Common Stock on the NYSE on
September 26, 1997) are expected to be $48,250,000 and $105,604,000,
respectively ($55,488,000 and $121,444,000, respectively if the Underwriters'
over-allotment options for the offerings are exercised in full), after deducting
the discounts and commissions and the estimated offering expenses payable by the
Company. The Company currently anticipates that approximately $120,000,000 of
such net proceeds will be used to repay, in part, borrowings under the Company's
short-term revolving lines of credit which borrowings are made for working
capital purposes and can be reborrowed at any time. The reduction in short-term
borrowings will strengthen the Company's balance sheet and provide the Company
with additional debt capacity to grow its business internally and through
acquisitions. Borrowings outstanding under such lines of credit were $80 million
and $40 million at June 28, 1997 and the annual interest rate was 7.5% and
6.99%, respectively. The balance of the net proceeds will be used for general
corporate purposes. See "Capitalization."
S-10
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Prior to September 12, 1997, the Common Stock traded in the
over-the-counter market and was quoted on the NASDAQ National Market under the
symbol "INAC". The Common Stock commenced trading on the NYSE on September 12,
1997, under the symbol "ICO." The following table sets forth the quarterly high
and low sales prices for the Common Stock as reported by the NASDAQ prior to
September 12, 1997 and by the NYSE thereafter.
........................................ High Low
---------- -------
Fiscal Year Ended December 30, 1995
First Quarter................................ $ 9.38 $ 7.00
Second Quarter............................... 14.25 8.25
Third Quarter................................ 15.25 12.25
Fourth Quarter............................... 15.12 9.50
Fiscal Year Ended December 28, 1996
First Quarter................................ $ 18.50 $13.25
Second Quarter .............................. 24.25 15.38
Third Quarter................................ 35.88 15.38
Fourth Quarter............................... 39.25 29.50
Fiscal Year Ending December 27, 1997
First Quarter................................ $ 40.63 $20.63
Second Quarter............................... 32.88 20.00
Third Quarter................................ 37.63 29.75
Fourth Quarter (through October __, 1997).... [--] [--]
On September, 26, 1997 the last reported sales price of the Common
Stock on the NYSE was $37.25. As of August 1, 1997 the Company estimates that
there were approximately 5,300 beneficial holders of the Company's Common Stock.
The Company has never declared or paid a cash dividend to stockholders.
The Company's Board of Directors presently intends to retain all earnings to
finance the expansion of the Company's operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the Company's earnings, capital
requirements and other factors considered relevant by the Company's Board of
Directors. Certain of the Company's debt agreements restrict the amount of
dividends which may be paid by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Liquidity and
Capital Resources."
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 28, 1997, and as adjusted to give effect to the application of estimated
net proceeds of $105,604,000 from the sale by the Company of the Common Stock
and $48,250,000 from the sale by the Company of the Debentures. The information
set forth below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
June 28, 1997
As Adjusted
Actual As Adjusted(1) Pro Forma(2)
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalent...................................... $ 30,720 $ 30,720 $ 64,574
============ ============ =============
Short-term debt............................................... $ 120,000 $ 71,750 --
============ ============ =============
Long-term debt................................................ $ 55,250 $ 105,250 $ 105,250
Stockholders' equity:
Capital stock:
Class A preferred stock, $1 par value;
authorized 1,000,000 shares; none issued............... -- -- --
Common stock, $.10 par value; authorized
30,000,000 shares; 11,537,315 shares
issued and outstanding; 14,537,315 shares
issued and outstanding as adjusted pro forma(3)........ 1,153 1,153 1,453
Additional paid-in capital................................ 116,298 116,298 221,602
Retained earnings......................................... 89,561 89,561 89,561
------------ ------------ -------------
Total stockholders' equity............................. 207,012 207,012 312,616
------------ ------------ -------------
Total capitalization................................ $ 262,262 $ 312,262 $ 417,866
============ ============ =============
</TABLE>
(1) As adjusted to give effect to the sale of the Debentures offered hereby.
(2) Assumes consummation of the offering of the Common Stock concurrently with
the consummation of the offering of Debentures.
(3) Does not include (i) 1,132,948 additional shares reserved for issuance
pursuant to currently outstanding options under the Company's 1997, 1994 and
1990 stock plans and 1987 nonqualified stock option plan, (ii) 2,302,084
additional shares reserved for issuance pursuant to the conversion of the
Company's 6% Convertible Subordinated Debentures due June 15, 2006 or (iii) such
additional shares which will be reserved for issuance pursuant to the conversion
of the Debentures.
S-12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data under the captions "Statement
of Operations Data" and "Balance Sheet Data" are derived from the Company's
Annual Reports on Form 10-K for each of the years ended December 26, 1992,
December 25, 1993, December 31, 1994, December 30, 1995 and December 28, 1996
which have been audited by KPMG Peat Marwick LLP, independent public
accountants, and such data as of and for the twenty-six weeks ended June 29,
1996 and June 28, 1997 have been derived from the Company's unaudited Quarterly
Reports on Form 10-Q. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and the independent
auditors' report and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share data)
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Statement of Operations Data:
Revenues...................... $1,014,466 $1,545,227 $1,800,539 $2,200,344 $3,102,055 $1,411,941 $1,813,904
Direct costs.................. 895,276 1,375,796 1,631,820 1,996,538 2,818,696 1,286,627 1,631,787
---------- --------- --------- --------- ---------- ---------- ---------
Gross margin.................. 119,190 169,431 168,719 203,806 283,359 125,314 182,117
Selling, general and administrative
expenses.................... 93,267 141,142 160,437 169,338 231,235 102,829 147,671
---------- --------- --------- --------- ---------- ---------- ---------
Operating income.............. 25,923 28,289 8,282 34,468 52,124 22,485 34,446
Interest expense.............. 7,964 8,596 12,031 14,635 20,405 9,919 14,184
---------- --------- --------- --------- ---------- ---------- ---------
Earnings (loss) before income taxes. 17,959 19,693 (3,749) 19,833 31,719 12,566 20,262
Income tax expense (benefit).. 7,225 7,947 (1,493) 8,126 12,986 5,152 8,308
Cumulative effect of change in
accounting for taxes........ -- 229 -- -- -- -- --
---------- --------- --------- --------- ---------- ---------- ---------
Net earnings (loss)........... $ 10,734 $ 11,975 $ (2,256) $ 11,707 $ 18,733 $ 7,414 $ 11,954
========== ========= ========= ========= ========== ========== =========
Earnings (loss) per share, fully
diluted. $1.25 $1.26 $ (0.22) $1.14 $1.64 $.71 $.94
========== ===== ======== ========= ========== ========== =========
Weighted average shares
outstanding, fully diluted.. 8,566 9,500 10,300 10,300 12,000 10,500 13,800
========== ========= ========= ========= ========== ========== =========
Balance Sheet Data:
Working capital............... $ 65,901 $ 67,936 $ 78,759 $ 90,940 $ 100,303 $ 135,408 $ 81,869
Total assets.................. 288,365 456,894 519,875 624,238 847,600 631,854 944,912
Long-term debt................ 36,800 20,000 30,333 23,667 55,250 68,850 55,250
Stockholders' equity.......... $ 101,275 $ 136,491 $ 135,590 $ 148,775 $ 176,830 $ 158,313 $ 207,012
Certain Data As A Percentage of Revenues
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
-------------------------------------------- -------- ---------- ----
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs....................... 88.3 89.0 90.6 90.7 90.8 91.1 90.0
------ ------ ------- ------ ------- ------ ------
Gross margin....................... 11.7 11.0 9.4 9.3 9.2 8.9 10.0
Selling, general and administrative
expenses. 9.2 9.1 8.9 7.7 7.5 7.3 8.1
--- ---------- --------- ---------- ------------ ---------- ---------
Operating income................... 2.5 1.9 0.5 1.6 1.7 1.6 1.9
Interest expense................... 0.8 0.6 0.7 0.7 0.7 0.7 0.8
------ ------ ------- ------ ------- ------ ------
Earnings (loss) before income tax.. 1.7 1.3 (0.2) 0.9 1.0 0.9 1.1
Income tax expense (benefit)....... 0.7 0.5 (0.1) 0.4 0.4 0.4 0.4
------ ------ ----- ------ ------- ------ ------
Net earnings (loss)................ 1.0% 0.8% (0.1)% 0.5% 0.6% 0.5% 0.7%
====== ====== ===== ====== ======= ====== ======
</TABLE>
S-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Inacom is a leading single source provider of information technology
products and technology management services designed to enhance the productivity
of information systems, primarily for Fortune 1000 clients. The Company offers a
comprehensive range of value added services to manage the entire information
system life cycle including: (1) needs assessment and technology planning, (2)
technology procurement and configuration, (3) systems integration and systems
management, (4) ongoing systems support and distributed support, and (5) asset
management.
The Company generates revenue, gross margin and earnings by providing
products and services to its clients throughout the life cycle of a computer
system. These revenues, gross margin and earnings are comprised of three main
classifications; (i) computer product sales, (ii) computer services and (iii)
communication products and services and are provided through the Company's
marketing network which consists of Company-owned business centers and
independent value added resellers. Computer product sales are derived from the
sale of microcomputer systems, workstations and related products. Computer
services are derived from the sale of technology procurement services, system
integration services and system support services. Communication products and
services are derived from the sale of voice and data equipment, long distance
services and convergence technology through the Company's communications
division.
The Company recognizes revenue from computer product sales upon
shipment to its clients. Revenues from consulting and other computer services
are recognized as the Company performs the services. Revenues from maintenance
and extended warranty agreements are recognized ratably over the term of the
agreement. Extended warranty costs are accounted for on an accrual basis and are
recognized under the sales method.
Results of Operations
The following table sets forth, for the indicated periods, revenues,
gross margins and net earnings of the Company segmented by the three main
classifications.
<TABLE>
Summary of Operating Results
(in thousands)
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28, June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Computer products....... $1,680,397 $2,047,215 $2,885,019 $1,316,307 $1,657,705 $ 718,585 $ 884,952
Computer services....... 85,406 95,476 136,888 58,340 108,238 30,201 60,607
Communication products
and services.......... 34,736 57,653 80,148 37,294 47,961 21,074 26,655
---------- ---------- ---------- ---------- --------- ---------- ---------
Total......... $1,800,539 $2,200,344 $3,102,055 $1,411,941 $1,813,904 $ 769,860 $ 972,214
========== ========== ========== ========== ========== ========== =========
Gross margin:
Computer products....... $ 113,797 $ 122,386 $ 162,651 $ 74,316 $ 92,080 $ 40,825 $ 48,076
Computer services....... 52,506 67,599 103,228 42,790 79,858 22,854 45,726
Communication products
and services.......... 7,516 13,821 17,480 8,208 10,179 4,454 5,072
---------- ---------- ---------- ---------- --------- ---------- ---------
Total......... $ 173,819 $ 203,806 $ 283,359 $ 125,314 $ 182,117 $ 68,133 $ 98,874
========== ========== ========== ========== ========= ========== =========
Net earnings (loss):
Computer products....... $ (659) $ 5,418 $ 9,703 $ 4,102 $ 4,883 $ 2,545 $ 2,550
Computer services....... 2,527 5,272 7,381 2,796 5,691 1,669 3,464
Communication products
and services.......... 77 1,017 1,649 516 1,380 210 695
---------- ---------- ---------- ---------- --------- ---------- ---------
Total......... $ 1,945 $ 11,707 $ 18,733 $ 7,414 $ 11,954 $ 4,424 $ 6,709
========== ========== ========== ========== ========= ========== =========
</TABLE>
(1) Gross margin and net earnings exclude the impact of non-recurring charges
recognized in the second quarter of 1994. (2) Net earnings include the impact of
non-recurring charges of $991,000 in the fourth quarter of 1996.
S-14
<PAGE>
The following table sets forth, for the indicated periods, the
percentage mix of revenue and net earnings of the Company by the three main
classifications.
<TABLE>
Percentage Mix of Revenues and Net Earnings
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28 June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Computer products....... 93.3% 93.1% 93.0% 93.3% 91.4% 93.4% 91.1%
Computer services....... 4.7 4.3 4.4 4.1 6.0 3.9 6.2
Communication products
and services.......... 2.0 2.6 2.6 2.6 2.6 2.7 2.7
------- ------- ------- -------- -------- -------- -----
Total......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======== ======== ======== =====
Net earnings:
Computer products....... (33.9)% 46.3% 51.8% 55.3% 40.8% 57.5% 38.0%
Computer services....... 129.9 45.0 39.4 37.7 47.7 37.7 51.6
Communication products
and services.......... 4.0 8.7 8.8 7.0 11.5 4.8 10.4
------- ------- ------- -------- -------- -------- -----
Total......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======== ======== ======== =====
</TABLE>
The following table sets forth, for the indicated periods, the gross margin
percentage of the three main classifications and the consolidated gross margin
percentage.
<TABLE>
Gross Margin Percentages
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28 June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross margin:
Computer products....... 6.8% 6.0% 5.6% 5.7% 5.6% 5.7% 5.4%
Computer services....... 61.5 70.8 75.4 73.4 73.8 75.7 75.5
Communication products
and services.......... 21.6 24.0 21.8 22.0 21.2 21.1 19.0
Consolidated gross margin 9.7 9.3 9.1 8.9 10.0 8.9 10.2
</TABLE>
(1) Gross margin and net earnings exclude the impact of non-recurring charges
recognized in the second quarter of 1994.
(2) Net earnings include the impact of non-recurring charges of $991,000 in the
fourth quarter of 1996.
Second Quarter and First Six Months of 1997
Compared to Second Quarter and First Six Months of 1996
Revenues. Revenues for the second quarter and first six months of 1997
increased $202.4 million or 26.3% and $402.0 million or 28.5% over the second
quarter and first six months of 1996, respectively. Revenue growth resulted
primarily from computer product sales which increased $166.4 million or 23.2%
and $341.4 million or 25.9% over the second quarter and first six months of
1996, respectively. Revenues from computer services increased $30.4 million or
100.7% and $49.9 million or 85.5% over the second quarter and first six months
of 1996, respectively. Revenues from communication products and services
increased $5.6 million or 26.5% and $10.7 million or 28.6% over the second
quarter and first six months of 1996, respectively.
Revenues increased primarily as a result of an increase in products
shipped directly to the end-user client, overall industry growth and the
acquisitions completed by the Company during 1996 and 1997. The increase in
revenues related to the acquisitions was approximately $27.5 million and $52.3
million over the second quarter and first six months of 1996, respectively. The
increase in computer product sales resulted primarily from an increase in sales
through the Company-owned business centers ($129.1 million or 39.2% and $222.2
million or 35.9% over the second quarter and first six months of 1996,
respectively) and through an increase in sales through the
S-15
<PAGE>
independent reseller channel ($49.0 million or 12.0% and $136.1 million or 18.7%
over the second quarter and first six months of 1996, respectively).
Revenues from computer services increased as a result of increased
sales efforts for such service offerings, the inclusion of these services with
increasing computer product sales and the recent acquisitions completed by the
Company. The increase in computer services sales resulted primarily from an
increase in sales through the Company-owned business centers ($15.0 million or
65.4% and $24.8 million or 55.9% over the second quarter and first six months of
1996, respectively). The increase in computer services revenues related to
acquisitions was approximately $9.4 million and $13.4 million over the second
quarter and first six months of 1996, respectively. Revenues from communication
products and services increased as a result of broad based growth from the
communications product offerings.
Gross Margins. The increase in the Company's gross margin percentages
for the first six months of 1997 versus the same period in 1996 was primarily a
result of the increase in mix of higher-margin computer services and
communications products and services versus lower-margin computer products. The
decrease in gross margin percentage for computer products resulted primarily
from a decrease in the margin percentage on computer product sales through the
Company-owned business centers and the independent reseller channel in the first
six months of 1997 versus the same period in 1996. The increase in gross margin
percentage for computer services resulted from an increase in the mix of
services to include more higher-margin systems integration services versus
support and technology procurement services. The decrease in gross margin
percentage for the communication products and services resulted from an increase
in mix of revenues to include more lower-margin communications product sales as
compared to higher-margin long distance and non-product services.
Selling, General And Administrative Expenses. Selling, general and
administrative (SG&A) expenses for the second quarter and first six months of
1997 increased $24.8 million or 44.6% and $44.8 million or 43.6% over the second
quarter and first six months of 1996, respectively. SG&A as a percentage of
revenue was 8.3% in the second quarter of 1997 versus 7.2% in the second quarter
of 1996, and 8.1% for the first six months of 1997 versus 7.3% for the first six
months of 1996. The increase in spending and the related increase in SG&A as a
percentage of revenues resulted primarily from the costs of handling the
increased services revenues. During the third quarter of 1996 the Company
continued to invest in the infrastructure by opening a center in Ontario,
California to facilitate "build-to-order" and cost-effective configuration and
delivery to the Company's clients. The Company incurred additional costs during
the second quarter and first six months of 1997 related to integrating the
acquisitions completed in the fourth quarter of 1996 and acquisitions completed
in the first and second quarters of 1997. The increase in SG&A related to
acquisitions was approximately $6.1 million and $7.5 million over the second
quarter and first six months of 1996, respectively.
Interest Expense. Interest expense for the second quarter and first six
months of 1997 was $7.1 million and $14.2 million, respectively, versus interest
expense for the second quarter and first six months of 1996 of $5.0 million and
$9.9 million, respectively. Interest expense increased primarily due to higher
average daily borrowings. Average daily borrowings for the second quarter and
first six months of 1997 were $124.1 million and $118.3 million more than the
average borrowings for the second quarter and first six months of 1996,
respectively. The weighted average borrowing rate for the second quarter of 1997
increased approximately 6 basis points over the second quarter of 1996 and
decreased 15 basis points for the first six months of 1997 versus the first six
months of 1996. The increase in the average daily borrowings resulted primarily
from financing an increase in accounts receivable resulting from the increase in
revenues, and an increase in inventory levels. The weighted average daily
borrowing interest rate increased for the second quarter of 1997 primarily due
to an increase in LIBOR rates in 1997 versus 1996. The average daily borrowing
interest rate decreased for the first six months of 1997 versus the same period
in 1996 primarily because the Company sold an additional $100 million of
accounts receivable in January 1997, which as of June 28, 1997 had an interest
rate of 6.09%, and issued $55.25 million of 6% convertible subordinated
debentures in June 1996 (see "Liquidity and Capital Resources"). The funding
from the sale of $100 million in accounts receivable and the issuance of $55.25
million of convertible bonds was used to decrease the borrowings outstanding on
the inventory and working capital credit line which on June 28, 1997 had an
interest rate of 7.5%.
S-16
<PAGE>
Net Earnings. Net earnings for the quarter ending June 28, 1997
increased 51.7% to $6.7 million compared with net earnings of $4.4 million for
the second quarter of 1996. Net earnings per share for the second quarter of
1997 increased to $.52 per fully diluted share from the $.42 per fully diluted
share reported for the same period in 1996. Net earnings for the first six
months of 1997 increased 61.2% to $12.0 million compared with net earnings of
$7.4 million for the first six months of 1996. Net earnings per share for the
first six months of 1997 increased to $.94 per fully diluted share from the $.71
per fully diluted share reported for the same period in 1996. Net earnings from
computer services for the quarter ending June 28, 1997 increased 107.5% to $3.5
million compared with net earnings from computer services of $1.7 million for
the same period in 1996 and constituted 51.6% in the aggregate of net earnings
of the Company for such period.
1996 Compared to 1995
Revenues. Revenues for 1996 increased $901.7 million or 41.0% to $3.1
billion when comparing the fiscal year ended December 28, 1996 with the fiscal
year ended December 30, 1995. Revenue growth resulted primarily from computer
product sales which increased $837.8 million or 40.9% during 1996. Revenues from
computer services increased $41.4 million or 43.4% over 1995. Revenues from
communication products and services increased $22.5 million or 39.0% in 1996.
Revenues increased primarily as a result of an increase in products
shipped directly to the end-user client, overall industry growth, the sale of
products to new independent resellers and the acquisitions completed by the
Company-owned business centers. The increase in revenues related to the
acquisitions was approximately $49.4 million for 1996. The increase in computer
product sales resulted from an increase in sales through the independent
reseller channel ($563.5 million or 50.9% over 1995) and through an increase in
sales through the Company-owned business centers ($291.7 million or 29.4% over
1995). Revenues from computer services increased as a result of increased sales
efforts for such service offerings and the inclusion of these services with
increasing computer product sales. Revenues from communication products and
services increased as a result of broad based growth from the communications
product and service offerings.
Gross Margins. The decrease in the Company's gross margin percentage
for 1996 is primarily a result of the decrease in the gross margin percentage on
computer products, which resulted primarily from a greater proportion of
lower-margin independent reseller channel sales in 1996 versus higher-margin
computer product sales in the Company-owned business centers.
The increase in gross margin percentage for computer services resulted
from an increase in the mix of services to include more higher-margin systems
integration services versus the support and technology procurement services. The
decrease in gross margin percentage for the communication products and services
resulted from an increase in mix of revenues which included more lower-margin
communications product sales as compared to the higher-margin long distance and
non-product services.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased $61.9 million or 36.6% in 1996. SG&A as
a percentage of revenue was 7.5% in 1996 versus 7.7% in 1995. Excluding the
impact of non-recurring charges recognized in the fourth quarter of 1996, SG&A
expenses increased $60.2 million or 35.6% in 1996. SG&A as a percentage of
revenue, excluding the impact of the non-recurring charges recognized in the
fourth quarter of 1996, was 7.4% in 1996 versus 7.7% in 1995.
The increase in spending resulted primarily from the costs of handling
the increased product, services and communications revenues. The Company also
continued to invest in the infrastructure by opening a center in Ontario,
California to enable "build-to-order" configuration and delivery, during the
third quarter of 1996. The Company incurred additional costs during the year
related to integrating the current year's acquisitions. The decrease in SG&A as
a percentage of revenue resulted from leverage achieved through operational
efficiencies resulting from current and prior period investments in distribution
center automation, information systems and computer service offerings.
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Interest Expense. Interest expense for 1996 increased by $5.8 million
to $20.4 million. Interest expense increased due to higher average daily
borrowings. Average daily borrowings for 1996 were $114.4 million more than the
average borrowings during 1995. The average daily borrowing interest rate
decreased approximately 0.8 percentage points from 1995. The increase in the
average daily borrowings resulted from the Company's decision in the first
quarter of 1996 to take advantage of early pay discounts offered by some of the
Company's major vendors as well as an increase in accounts receivable and
inventory. The increase in accounts receivable is a result of an increase in
sales. The decrease in the average daily borrowing interest rate resulted from
the Company selling $100 million of accounts receivable in June 1995 and the
issuance of $55.25 million of 6% convertible subordinated debentures in June
1996 (see "Liquidity and Capital Resources").
Net Earnings. Net earnings for 1996 increased 60% to $18.7 million,
which includes non-recurring charges of $991,000, compared with net earnings of
$11.7 million for 1995. Net earnings per share increased to $1.64 per fully
diluted share, which includes non-recurring charges of $0.09 per share, from the
$1.14 per fully diluted share reported for 1995.
Business Combination and Non-Recurring Charges. In December 1996, the
Company effected two business combinations accounted for as poolings of interest
transactions. The overall impact of the combinations with relation to the
financial statements taken as a whole are not material and thus prior periods
for the Company have not been restated to reflect the business combinations. The
Company recognized non-recurring charges of $991,000 related to the business
combinations during the fourth quarter of 1996. The effect of the immaterial
poolings was to increase stockholders' equity by approximately $643,000.
1995 Compared To 1994
Revenues. Computer product sales increased $366.8 million or 21.8% to
$2.0 billion during 1995. Computer services increased $10.1 million or 11.8% to
$95.5 million during 1995. Communications products and services revenue
increased $22.9 million or 66% to $57.7 million during 1995.
Revenues from computer product sales increased as a result of broad
based growth within both the independent reseller channel and the Company-owned
business centers. Revenues from the independent reseller channel increased as a
result of growth within the Company's existing reseller channel, an increase in
products shipped directly to the end-user and an increase in second source
revenue. Second source revenue is generated from sales to independent resellers
who are not Inacom resellers by contract. These revenues are primarily a result
of "open sourcing" pursuant to which certain manufacturers, beginning in 1994,
lessened or eliminated requirements from independent resellers to purchase
product from one source. Revenues from the Company-owned business centers
increased as a result of broad-based growth across all regional locations.
Computer services revenue increased as a result of the increase in computer
product sales. Revenues from communication products and services increased as a
result of broad-based growth within the Company's communications division.
Gross Margins. Computer product margins increased $8.6 million or 7.6%
to $122.4 million during 1995 and the gross margin percentage, exclusive of
non-recurring charges recognized in the second quarter of 1994, decreased 0.8
percentage points to 6.0% in 1995. Computer services margins increased $15.1
million or 28.7% to $67.6 million during 1995 and the gross margin percentage,
exclusive of non-recurring charges recognized in the second quarter of 1994,
increased 9.3 percentage points to 70.8% in 1995. Communications product and
services margins increased $6.3 million or 83.9% to $13.8 million during 1995
and the gross margin percentage increased 2.4 percentage points to 24.0% in
1995. Computer products margin was 60.1% of total 1995 gross margin versus 65.5%
of total 1994 gross margin. Computer services gross margin was 33.2% of total
1995 gross margin versus 30.2% of total 1994 gross margin. Communications
products and services gross margin was 6.7% of total 1995 gross margin versus
4.3% of total 1994 gross margin.
The increase in gross margin dollars for computer products was a result
of the increase in revenues. The decline in gross margin percentage for computer
products was a result of market pricing pressures related to open sourcing,
which began in the independent reseller channel during the second quarter of
1994, and an overall decline
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in hardware margins realized on end user sales. The increase in gross margin
dollars and gross margin percentage for computer services resulted from the
increased revenues and an increase in mix of services revenues to include more
higher margin systems integration services versus the support and technology
procurement services. The increase in gross margin dollars and gross margin
percentage for the communication products and services was a result of the
increased revenues and the increase in the mix of revenues to include more
higher margin long distance and services.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased $8.9 million or 5.6% to $169.3 million
in 1995. As a percentage of revenue, these expenses decreased 1.2 percentage
points from 8.9% in 1994 to 7.7% in 1995. Excluding the impact of 1994
non-recurring charges, SG&A expenses increased $10.9 million or 6.9% during
1995. SG&A as a percentage of revenue, excluding the impact of non-recurring
charges recognized in the second quarter of 1994, decreased 1.1 percentage
points during 1995.
The increase in SG&A during 1995 resulted primarily from increased
spending partially offset by an increase in market development funds earned from
various vendors and credited against SG&A. The increase in spending was
primarily a result of employee increases and contract labor expenses to support
the increasing service revenue component of the Company-owned business centers.
The increase in vendor funds earned resulted from attainment of program
objectives outlined by vendors primarily driven by higher revenues in 1995. The
decrease in SG&A as a percentage of revenue during 1995 resulted from
operational efficiencies achieved through investments in distribution center
automation and information systems.
Interest Expense. Net interest expense for 1995 increased by $2.6
million to $14.6 million. The increase was due primarily to the increase in the
average daily borrowing interest rate. The Company's average daily borrowing
interest rate for 1995 increased approximately 1.3 percentage points during the
year while the average daily borrowings decreased to $178.8 million in 1995 from
$201.9 million in 1994.
Net Earnings. For the reasons described above, the net earnings for
1995 were $11.7 million compared to a net loss of $2.3 million in 1994 which
includes non-recurring charges of $4.2 million; an increase of $14.0 million.
Earnings per share for 1995 were $1.14 compared to a loss per share of $0.22 in
1994 which includes non-recurring charges of $.41 per share.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per share" which revises the calculation and
presentation provisions of Accounting Principals Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 28, 1997. Retroactive application will be required. The Company
believes the adoption of Statement 128 will not have a significant effect on its
reported earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided through an
inventory and working capital financing agreement of $550.0 million (increased
from $350.0 million as of June 27, 1997), convertible subordinated debentures of
$55.25 million, and a revolving credit facility of $40.0 million.
The $550 million facility provided by IBM Credit Corp. can be used by
the Company at its discretion, subject to a borrowing base, for its working
capital needs and inventory purchases. The inventory and working capital
financing agreement was amended in 1997 and expires June 29, 1998. On June 28,
1997, $338.8 million was outstanding under the inventory and working capital
financing agreement. Of this amount, $258.8 million was related to non-interest
bearing trade accounts payable. The balance of $80.0 million was related to
working capital with an interest rate of 7.5% based on three-month LIBOR. This
inventory and working capital financing agreement is secured by inventory and
other assets.
The $55.25 million 6% convertible subordinated debentures were issued
in June 1996 and are due June 15, 2006. The debentures are convertible into
common stock of the Company at a conversion price of $24.00 per share, subject
to adjustments under certain circumstances, beginning on September 19, 1996. The
debentures are not redeemable by the Company prior to June 16, 2000 and,
thereafter, the Company may redeem the debentures at various premiums to
principal amount. The debentures may also be redeemed at the option of the
holder at any time prior to June 16, 2000 if there is a Change in Control (as
defined in the indenture) at a price equal to 100% of the principal amount plus
accrued interest at the date of redemption.
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The $40.0 million revolving credit facility agreement expires in
February 1998. On June 28, 1997, $40.0 million was outstanding under the
revolving credit facility and the interest rate was 6.99% based on three-month
LIBOR. The revolving credit facility is secured by inventory and other assets.
The debt agreements contain certain restrictive covenants, including
the maintenance of minimum levels of working capital, tangible net worth,
limitations on incurring additional indebtedness and restrictions on the amount
of net loss the Company can incur. Certain covenants effectively limit the
amount of dividends which the Company may pay to the stockholders. The amount of
retained earnings on June 28, 1997 not restricted as to payments of cash
dividends under the most restrictive covenants in such agreements was
approximately $78.8 million. The Company was in compliance with the covenants
contained in the agreements on June 28, 1997.
Long-term debt was 21.1% of the total long-term debt and equity at June
28, 1997 versus 30.3% at June 29, 1996. The decrease was primarily a result of
the payment of $13.6 million of private placement notes previously held by
unaffiliated insurance companies and an increase in equity due to earnings and
the issuance of additional shares of common stock.
The Company has entered into an agreement to sell $200 million of
accounts receivable, with limited recourse, to an unrelated financial
institution. The agreement was initially entered into in June 1995 with respect
to $100 million of accounts receivable and was amended in January 1997 to sell
an additional $100 million of accounts receivable. New qualifying receivables
are sold to the financial institution as collections reduce previously sold
receivables in order to maintain a balance of $200 million sold receivables. On
June 28, 1997, $46.6 million of additional accounts receivable were designated
to offset potential obligations under limited recourse provisions; however,
historical losses on Company receivables have been substantially less than such
additional amount. On June 28, 1997, the interest rate was 6.09%.
The Company occasionally uses financial instruments to reduce interest
rate risk. The Company does not hold or issue financial instruments for trading
purposes. On January 17, 1997 the Company entered into a one-year interest rate
swap agreement with an unrelated financial institution which resulted in certain
floating rate interest payment obligations becoming fixed rate interest payment
obligations at 5.82%. The notional amount of the swap agreement was $100
million.
During the first six months of 1997, the Company used $44.0 million of
cash in operations. Inventory increased by $74.1 million during the first six
months with a portion of the increase offset by an increase in accounts payable
of $68.8 million. Accounts receivable also increased $55.2 million during the
first six months of 1997. Inventory increased during the first six months of
1997 as a result of the Company taking advantage of certain major manufacturers
inventory incentive programs. Accounts payable increased as a result of the
increase in inventory levels. Accounts receivable increased during the first six
months primarily as a result of the increase in revenues for the first six
months of 1997.
The Company used $35.9 million in cash for investing activities in the
first six months of 1997. Cash of $19.8 million was used to purchase fixtures
and equipment and cash of $4.1 million was used for business combinations.
Net cash provided from financing activities for the first six months of
1997 totaled $79.2 million, of which $100.0 million was provided from the sale
of accounts receivable. The financing proceeds were used to reduce short term
borrowings of $20.8 million.
Operating activities used cash of $18.3 million in 1996 compared to
$57.7 million in 1995. The primary factor contributing to the change in cash
used by operating activities was the net cash provided by inventory and accounts
payable. In 1996, inventory increased $31.8 million over 1995 with an offsetting
increase in accounts payable of $71.1 million resulting in net cash provided
from inventory and accounts payable of $39.3 million. In 1995, inventory
increased $124.3 million over 1994 with a portion of the increase financed
through an increase in accounts payable of $105.1 million resulting in net cash
used in inventory and accounts payable of $19.2 million.
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The increase in cash provided by inventory and accounts payable was primarily a
result of an increase in inventory turns in addition to the Company's efforts to
match accounts payable terms more closely with inventory turns.
The net cash provided by inventory and accounts payable was primarily
offset by an increase in accounts receivable in 1996. Accounts receivable levels
increased $123.6 million due to the increased revenues.
The Company used $61.1 million in cash for investing activities in
1996. Cash of $26.2 million was used to purchase fixtures and equipment and cash
of $23.4 million was used for business combinations (See Notes to Consolidated
Financial Statements -- Business Combinations).
Net cash provided by financing for 1996 totaled $90.1 million, of which
$63.0 million was provided from notes payable and $55.25 million was provided
from the proceeds received from the sale of 6% convertible subordinated
debentures. The financing proceeds were partially offset by $30.3 million in
payments on long-term borrowings.
The Company believes the funding expected to be generated from
operations and provided by the existing credit facilities and this offering will
be sufficient to meet working capital and capital investment needs for the next
twelve months.
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BUSINESS
Inacom is a leading single source provider of information technology
products and technology management services designed to enhance the productivity
of information systems primarily for Fortune 1000 clients. The Company offers a
comprehensive range of value added services to manage the entire information
system life cycle including: (1) needs assessment and technology planning, (2)
technology procurement and configuration, (3) systems integration and systems
management, (4) ongoing systems support and distributed support, and (5) asset
management. Inacom's expertise includes the integration of voice and data
communications. Inacom sells its products and services through a marketing
network of 51 Company-owned business centers throughout the United States that
focus on serving large corporations. The Company also has a network of
approximately 1,000 value added resellers that typically have a regional,
industry, or specific product focus. The Company has international affiliations
in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa,
Canada and Mexico to satisfy the technology management needs of its
multinational clients. Inacom is the largest purchaser of IBM computer products
and believes it is the second largest purchaser of Compaq computer products
worldwide.
Inacom's expertise in procurement, configuration and delivery of PC's,
peripherals and software from a wide range of major vendors enables the Company
to customize information systems to meet specific client needs. In addition,
Inacom provides its clients with numerous benefits including in-depth product
knowledge and experience, competitive pricing from its purchasing arrangements
and a wide array of services supporting client needs on an on-going basis.
Management believes that the Company's expertise in procuring,
configuring and delivering information technology products and providing
technology management services provides a strategic advantage in addressing
certain industry trends. In particular, businesses increasingly are seeking to
outsource the management and support of their information technology systems
with fewer providers. At the same time, the demand for cost-effective,
customized technology systems has led a number of manufacturers, including IBM,
Compaq and Hewlett-Packard, to move from "build-to-forecast" delivery systems to
"build-to-order" programs in which they ship computer components to a limited
number of qualified technology providers, including Inacom, for final assembly
and configuration. Management also believes that these trends will lead to
further consolidation in the highly fragmented technology management services
industry. As a result of the Company's experience in integrating acquired
businesses, management believes that the Company is well-positioned to take
advantage of strategic acquisition opportunities as they arise.
Inacom's earnings growth has been enhanced by its rapidly expanding
services business. In the first six months of fiscal 1997, computer services
provided 47.7% of net earnings, more than double the net earnings from the same
period in 1996. Computer products contributed 40.8% and communications products
and services provided 11.5% of net earnings in the same period. Inacom expects
that earnings from services will continue to grow more rapidly than earnings
from its other business segments given Inacom's broad offering of services to
its clients and the industry trends discussed above.
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals, Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are: (i) to leverage client
relationships to continue expanding higher-margin services revenues, (ii) to
capitalize on the trend toward build-to-order/configure-to-order systems, (iii)
to expand offerings and geographic coverage through strategic acquisitions, and
(iv) to capitalize on the convergence of data and voice communications.
Industry Background
The markets for corporate information technology products and
technology management services are expected to grow at an annual rate of 18% and
15%, respectively, and are projected to reach $44.9 billion and $26.1 billion,
respectively, in 2000 according to DataQuest, a Gartner Group company, a leading
information technology research firm. In recent years, the computer industry has
undergone a significant transformation as
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personal computers have replaced traditional minicomputer and mainframe systems.
The increasing use of personal computers has led to the networking of personal
computers into local area networks (LANs), which in turn has resulted in the
expansion of shared information through wide area networks (WANs). Networks are
typically comprised of servers, personal computers, peripherals, communication
devices and software. Networks increase the speed and flexibility of
distributing information and the usefulness of such information to end-users.
Achieving the optimal technology system, however, is difficult for many
businesses due to the complexity of the distributed network environment, the
fragmented sources of products and services and the lack of trained personnel to
design, deploy and support networks.
The decision-making process that businesses face when designing,
selecting and deploying information technology solutions is becoming more costly
and complex. Many businesses increasingly seek to outsource part or all of the
management and support of their information technology systems. Businesses must
select from an expanding number of product options with shortening life cycles.
Businesses seeking to implement enterprise-wide information management solutions
often must integrate diverse and incompatible hardware and software environments
which have independently evolved within their organizations. Such integration
typically requires the design of a new network, the upgrade of existing hardware
and software, and the migration to new systems. In addition, a shortage of
qualified information technology personnel has limited the ability of many
businesses to capitalize on the latest technologies. Many businesses find it
increasingly difficult and costly to maintain the internal infrastructure needed
to support their networks. As a result of these trends, the outsourcing of
computer network management has grown substantially.
These developments have created a rapidly-growing market for managing
distributed technology. Although competition has led to reduced margins in the
computer products segment of the industry, the complexity of designing,
selecting and deploying information systems has led to an increase in demand for
related higher margins technology management services. The demand for
cost-effective customized technology systems has driven a significant change in
industry delivery methods. The historical method was a "build-to-forecast"
system, in which both manufacturers and providers of computer products
maintained inventories based on forecasted client demand. Recently, a number of
manufacturers, including IBM, Compaq and Hewlett-Packard, have announced
"build-to-order" programs in which they will ship basic computer components to a
limited number of technology providers, including Inacom, based on specific
client orders, with final assembly and configuration to be performed by the
technology providers for delivery to the business client.
Business Strategy
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are as follows.
Leverage Client Relationships to Continue Expanding Higher-Margin
Services Revenues. Inacom's large client base of hardware procurement clients is
a substantial source of services revenue. As businesses increasingly seek to
outsource systems management functions to fewer providers, the Company believes
it can continue to rapidly grow its services revenue. During the first six
months of 1997, computer services accounted for approximately 48% of net
earnings, compared to 38% in the comparable period one year ago. Services
revenue is generally higher margin, and tends to be more predictable and
recurring than hardware procurement revenue making it a particularly attractive
portion of the business mix. Inacom believes that its demonstrated ability to
extend its relationships into the full life cycle of management services
provides it with a competitive advantage in the technology management services
industry. The Company also believes that the growing outsourcing of computer
technology management services along with the Company's focus on faster growing
higher-margin services will allow it to grow its services revenues in excess of
projected industry growth rate.
Capitalize on Trend Toward Build-To-Order/Configured-To-Order Systems.
Businesses are demanding more efficient, cost-effective procurement and delivery
of custom-configured systems. In response to this demand for build-to-order
services, Inacom has invested $42 million to automate its three assembly and
configuration
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facilities. The Company believes that these facilities are among the most
sophisticated in the industry due to their state-of-the-art infrastructure and
information systems. Two of the Company's assembly and configuration facilities
have complete build-to-order capabilities and the third assembly and
configuration facility will have such capabilities by the end of 1997. Inacom's
strategy is to configure network-ready systems for its business clients on
behalf of vendors such as IBM, Compaq and Hewlett-Packard. Inacom has been
designated as a build-to-order channel participant for each of these three major
vendors.
Expand Service Offerings and Geographic Coverage Through Strategic
Acquisitions. Inacom continually seeks to acquire businesses which enhance its
service capabilities and allow the Company to build geographic coverage in
attractive markets. Inacom has demonstrated its ability to successfully
integrate acquired businesses, having acquired eight businesses during the past
eighteen months. These acquisitions expanded Inacom's offerings in the areas of
procurement, delivery, network integration, network consulting, asset management
and asset registry. These acquisitions also enhanced Inacom's geographic
coverage in key metropolitan markets across the United States. Management
believes that industry trends, including build-to-order, will result in further
consolidation in the highly fragmented technology management services industry.
Inacom's strategy is to use its experience in integrating acquired businesses to
take advantage of strategic acquisition opportunities as they arise.
Capitalize on Convergence of Data and Voice Communications. The Company
also is focusing on opportunities resulting from the convergence of voice and
data communications with computer information management systems. Inacom is
leveraging its expertise in providing computer services to assist its business
clients in integrating communications systems to allow voice/data recognition,
remote access, video conferencing, mobile communications and internet access.
Currently, Inacom provides its clients with the communications services and
products of Lucent Technologies, AT&T, Cisco Systems, 3Com and Intel. The
Company believes it is one of the nation's largest independent providers of
communications products for Lucent Technologies.
Life Cycle Management by the Company
As a single source provider of technology products and services, the
Company strives to help its clients optimize their information technology
investments and control ongoing costs throughout the life cycle of the clients'
technology systems. The Company combines a process improvement approach along
with tools and practices gained by experience and trained personnel to assist
its clients in managing the life cycle and costs of distributed technology.
Needs Assessment and Technology Planning. Technology planning services
involve assisting clients in designing and developing standardized technology
platforms. The services include determining standard hardware technology,
application software, operating system software and networking platforms. The
Company assists its clients with the selection and standardization of
manufacturer brands (such as IBM, Compaq, Hewlett-Packard, Microsoft, Lotus and
others) and assists its clients in studying the total cost, performance and
capabilities of these brands and products.
Technology planning services performed by the Company also include the
development of strategies for deployment of distributed technology systems
within its clients' businesses. The Company assists its clients in decisions to
lease or purchase, determining replacement cycles and centralizing acquisition
processes. To assist clients with technology planning, the Company has developed
specific products and programs such as Policy Based ManagementTM, Tactical
Enterprise Network AssessmentTM and Enterprise Technology BlueprintTM.
Technology Procurement and Configuration. Technology procurement and
configuration services generally involve coordinating the technology purchase
process, requisitioning technology products, processing, tracking and reporting
on the status of orders, customizing hardware and software configurations,
direct shipment and shipment tracking. The demand for cost-effective customized
technology systems has driven a significant change in industry procurement
methods including the trend toward build-to-order programs. Inacom believes that
only a limited number of technology providers will have the scale and
configuration capabilities necessary to meet these manufacturer requirements.
Compaq, IBM and Hewlett-Packard have chosen Inacom for participation in their
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build-to-order programs. Inacom has invested $42 million in its state-of-the-art
assembly and delivery systems to provide build-to-order capabilities. The
facilities are strategically located in Swedesboro, New Jersey, Omaha, Nebraska,
and Ontario, California to provide prompt and cost-effective delivery
nationwide.
The Company also focuses its technology procurement services on
shortening the delivery time of technology products, improving compliance to
standards in its clients' organizations, assisting in negotiating hardware and
software agreements on behalf of its clients, and providing other services that
minimize its clients' costs. The Company provides certain clients with on-site
technical procurement specialists who assist and manage the technology
procurement process at client locations nationwide. These procurement
specialists are technically oriented and focus on process improvement and
operational efficiencies in the procurement process.
The Company believes it has a competitive advantage in providing
procurement services through the use of its automated state-of-the-art ordering
systems. The Company's Inacommerce and Inacommerce PlusTM software provide an
easy to use internet-based procurement management system that allows a business
client to determine real-time product availability and order status along with a
custom configurator to assist the client in designing a technology solution from
its desktop computer. The Company's VISIONTM 2000 software also allows a
business client to determine daily product availability, custom configure and
order its technology solution. The Company's Direct Express delivery program
reduces the number of steps in the procurement process by shipping products
directly to the location selected by the business client.
Systems Integration and Systems Management. The Company provides
systems integration services to its clients in an effort to assist clients in
controlling costs and gaining control of the life cycle of its distributed
technology systems. The Company has products and services available to assist,
design and support clients' WANs and LANs and to manage software procurement and
license control. In addition, the Company can provide solutions to its clients
for data storage management, technology security management, capacity planning,
data and database management, and internet and intranet connectivity, support
and management.
The Company provides systems management services that assess the
current state and future needs of a client's distributed technology network to
maximize the value of the client's investment in its networked systems. The
systems management services provided through remote management centers assist
clients in the control and reliability of LAN/WAN environments, provide a study
of adequate network speed and responsive user services and monitor the
infrastructure and system capabilities to satisfy clients' current and future
needs.
The Company employs high-end technical systems engineers and systems
consultants who perform systems integration services at client locations. These
systems engineers and systems consultants, and the project managers who
coordinate their activities, are contracted to the client for hourly rates or
for fixed-price extended contracts.
The Company has developed specific products and programs to assist its
clients in the systems management function, including Inacom Network PatrolTM
and Inacom Network Baseline.TM
Ongoing Systems Support and Distributed Support. The Company provides
its clients ongoing support in their distributed technology systems primarily in
two major areas: "break/fix" hardware maintenance and installation, moves,
addition and changes ("IMACs"). These functions are similar, but differ in the
timing and level of service.
The Company's break/fix hardware maintenance capabilities are supported
directly by the Company's help desk operation, HelpCentralTM. Centralized
break/fix hardware maintenance provides coordination, problem solving, tracking
and control of the clients' hardware maintenance needs. The Company's national
services network, comprised of over 1,500 Company technicians plus over 2,000
technicians in affiliated partner locations provides extensive coverage of
clients' distributed technology.
Similarly, the Company delivers IMAC services to its clients with the
same technician delivery infrastructure. These distributed support services are
managed through various scheduling and reporting tools that
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are interrelated with the Company's VISTATM, VISIONTM, Inacommerce,TM and
Inacommerce PlusTM information systems. Additionally, the Company provides
distributed support services to its clients by providing on-site technical
personnel that may be involved in various support activities, including LAN
administration, network monitoring, general deskside support and some end-user
training.
The Company also offers convergence solutions centered around wide area
data networks, computer and telephone integration, desktop video conferencing,
and wireless data communications. These services include specialized support
programs, maintenance programs and specialized software. The Company provides
communication network services with advanced digital capabilities enabling
voice, data and video communications, utilizing AT&T, Frontier and Westinghouse
networks. The Company's communication services also include long distance,
inbound 800 service, calling cards and teleconferencing featuring account codes
and enhanced billing and customized call reports which allow business clients to
restrict and track telecommunications activity.
Asset Management. Asset management services are becoming increasingly
important as businesses determine what capabilities their existing technology
products have and whether, when and how to upgrade to the latest technology.
Asset management services consist of asset registration, tracking and disposal
of technology assets as they move throughout the client's organization.
The Company has developed a comprehensive program called Inacom Asset
AdvantageTM that contains tools and process improvement techniques to assist its
clients' inventory, track and control distributed technology assets. This
program helps clients meet financial, risk management, custodial, warranty,
maintenance, service and refreshment objectives. The products, including Inacom
Asset Roll-Call,TM can be integrated with HelpCentralTM and also integrated with
the other life cycle products and programs to help lower the total ownership
cost of clients' technology. Additionally, the Company's Computer Resources
International group and Boston Computer Exchange subsidiary provide customized
asset registry, asset tracking services and disposal services to its clients.
Marketing Network
Computer products and services are sold through a marketing network of
approximately 1,000 business centers located throughout the United States, of
which 51 are Company-owned. Communications products and services are provided
through a network of 18 direct sales offices and contractual relationships with
approximately 160 dealers. The Company has international affiliations in Europe,
Asia, Central and South America, the Caribbean, Middle East, Africa, Canada and
Mexico to satisfy the technology management needs of its multinational clients.
The Company's direct sales force in the Company-owned business centers
enables the Company to establish relationships with major corporate clients for
purposes of marketing the Company's technology management services.
Products and Vendors
Computer products include microcomputers, workstations, servers,
monitors, printers and operating systems software. The Company currently
distributes computer products from leading vendors such as Compaq, IBM,
Hewlett-Packard, Toshiba, Lexmark, Novell, Microsoft, Oracle, 3Com, SynOptics,
Cisco, Intel and Network General. Compaq, IBM and Hewlett-Packard represented
greater than 65% and 63% of the Company's net revenues in fiscal 1996 and for
the first six months of 1997, respectively. The Company is the largest purchaser
of IBM computer products and believes it is the second largest purchaser of
Compaq computer products on a world wide basis.
Communications products and services include phone systems, voice mail,
voice processing, data network equipment, multiple small office-home office
offerings and maintenance. The Company also offers network services including
long distance, 800 service, calling cards, wide area value-added data
networking, video conferencing and cellular communications. The products of
Lucent Technologies and the services of AT&T constitute approximately
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90% of the voice and data systems sold by the Company. The Company believes it
is one of the nation's largest independent provider of Lucent Technology
business products.
The Company has negotiated purchase arrangements, including price,
delivery, training and support, directly with most major vendors. The Company's
extensive vendor relationships allow it to offer over 35,000 products in
providing multiple-vendor solutions to meet its business client's needs. The
Company's agreements with its vendors are generally on a non-exclusive basis and
may be terminated by the vendors on notice typically ranging from 30 to 90 days.
The agreements with vendors generally contain provisions with respect
to product cost, price protection, returns and product allocations; the Company
is entitled to price protection with all major vendors on eligible products in
the Company's inventory in the event of vendor price reductions. Certain vendors
also sponsor payment programs with several financial service organizations to
facilitate product sales through the business centers. In addition, the
Company's primary vendors provide various incentives for promoting and marketing
their products which typically range from 1% to 5% of purchases. The three major
forms of vendor incentives received by the Company are co-operative funds,
market development funds and vendor rebates. Co-operative funds are earned based
upon the sale of the vendor's products and generally must be utilized to offset
the costs associated with advertising and promotion pursuant to programs
established by the respective vendor. Market development funds are earned based
upon the Company's purchases from the vendor and generally must be used for
market development activities approved by the respective vendor. Vendor rebates
are based upon the Company's attaining purchase volume targets established with
the vendor. Rebates generally can be used at the Company's discretion.
International Capabilities
InaCom International, a subsidiary of the Company, has international
affiliations in Europe, Asia, Central and South America, the Caribbean, Middle
East, Africa, Canada and Mexico to satisfy the technology management needs of
its multinational clients. ICG, an affiliation of leading independent
organizations in various countries, provides pc-related products and services to
international corporate clients. Inacom's capabilities in international project
management and local resources of the affiliated members allow Inacom to serve
the global needs of its multinational clients' information technology projects.
Inacom Latin America, a 60% owned subsidiary of the Company, provides
international logistics and configuration services in Mexico, the Caribbean,
Central and South America.
Clients
The Company is not dependent for a material part of its business upon a
single or a few clients and the loss of any one client would not have a material
adverse effect on the Company's business.
Employees
At June 28, 1997 the number of employees was 4,309, including 1,813
systems engineers, technicians and service support employees. In addition, at
June 28, 1997 the Company had contracted for the services of approximately 600
systems engineers and consultants, and through an alliance with selected
independent resellers has access to the services of approximately 2,000
additional services personnel. None of the employees is covered by a collective
bargaining agreement. The Company considers its relations with employees to be
good.
Competition
All aspects of the technology management services industry are highly
competitive. The technology management industry continues to experience a
significant amount of consolidation. In the future Inacom may face fewer but
larger and better financed competitors as a consequence of such consolidation.
The Company's marketing network competes for potential clients, including
national accounts, with numerous resellers and distributors. Several computer
manufacturers have expanded their channels of distribution, pricing and product
positioning and
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compete with the Company's marketing network for potential clients. Other
competitors operate mail-order or discount stores offering clones of major
vendor products. The Company also competes with other computer technology
providers in the recruitment and retention of franchisees and
independently-owned resellers. The Company competes in the computer services
industry with a large number of service providers, including IBM through its
Global Services division, Andersen Consulting, CompuCom, EDS, ENTEX, GE Capital
Technology Management Service, IKON Offices Solutions and Vanstar. Competition
in communication products and services is also intense, and includes entities
which are also significant vendors of the Company, such as Lucent Technologies
and AT&T. Certain competitors and manufacturers are substantially larger than
the Company and have greater financial, technical, service and marketing
resources. The Company's marketing network competes primarily on the basis of
professionalism and client contact, quality of product line, availability of
products, service, after-sale support, price, and quality of end-user training.
Service Mark and Trademark
The Company holds United States service mark and trademark
registrations for the marks "Inacom", "ValCom" and "Inacomp." The Company also
has certain state registrations. The Company claims common law rights to the
marks based on adoption and use. To the Company's knowledge, there are no
pending interference, opposition or cancellation proceedings, or litigation
threatened or claimed, with respect to the marks in any jurisdiction.
Government Regulation
The Company is subject to various federal, state and local laws and
regulations affecting businesses generally such as laws and regulations
concerning employment, workplace safety and protection of the environment. The
Company is also subject to federal and state laws regulating franchise
relationships which generally impose registration and/or disclosure requirements
on the Company in the offer and sale of franchises and also regulate related
advertisements. The Company believes it is in substantial compliance with all
such laws and regulations.
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MANAGEMENT
The Company's executive officers and directors are listed below,
together with their ages and offices held by them. The Company's Board of
Directors consists of nine members elected annually.
Name Age Position
Bill L. Fairfield 50 Director, President and Chief Executive Officer
David C. Guenthner 47 Executive Vice President and Chief Financial Officer
Michael A. Steffan 45 President, Distribution and Operations, and Secretary
Cris Freiwald 42 President and General Manager, International Division
Robert A. Schultz 54 Group Executive, Information Systems Group
Larry Fazzini 50 Vice President of Corporate Resources
George DeSola 50 Group Executive, Technology Service Group and
President, Inacom Communications
Jeffrey A. Hartigan 54 Vice President and Chief Information Officer
Steven Ross 39 President, Reseller Division and Corporate Marketing
Leon Kerkman 38 Vice President, Corporate Controller
Paul Kellenberger 37 Vice President of Planning and Business Development
Joseph Auerbach 80 Director
Mogens C. Bay 48 Director
James Q. Crowe 48 Director
W. Grant Gregory 56 Director
Rick Inatome 43 Director
Joseph Inatome 71 Director
Gary Schwendiman 56 Director
Linda S. Wilson 60 Director
Bill L. Fairfield has been President, Chief Operating Officer and a
director of the Company since March 1985. He was named Chief Executive Officer
in September 1987.
David C. Guenthner was named Executive Vice President and Chief
Financial Officer in November 1991. Prior to November 1991, Mr. Guenthner was
Senior Vice President of Finance and Chief Financial Officer for the Company.
Michael A. Steffan was named President of Distribution and Operations
in December 1995. Mr. Steffan was responsible for the Reseller Division from
December 1994 to December 1995 in addition to his position as President of
Distribution and Operations, a position he had held since May 1993. Prior to May
1993, Mr. Steffan was Vice President of Corporate Development and Secretary for
the Company.
Cris Freiwald was named President of the International Division in
November 1994. Mr. Freiwald was Vice President of Corporate Development from May
1993 to November 1994. Prior to May 1993, Mr. Freiwald was Director of Business
Development.
Robert A. Schultz was named Group Executive of the Information Systems
Group in December 1996. Prior to December 1996, Mr. Schultz was the President
and General Manager of Direct Operations, a position he has held since April
1994, and the President and General Manager of Client Services Division, a
position he had held from January 1993 to December 1996. Mr. Schultz was
responsible for Direct Operations and the Advanced Systems and Services Group
for the Company from August 1991 to January 1993.
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Larry Fazzini was named Vice President of Corporate Resources in
February 1993 when he joined the Company. Prior to February 1993, Mr. Fazzini
was the Director of Human Resources for Sears Business Centers, Inc., a
distributor of information technology products and services.
George DeSola was named Group Executive of the Technology Services
Group in December 1996 in addition to his position as President of Inacom
Communications, a position he has held since he joined the Company in March
1994. Mr. DeSola was responsible for Corporate Marketing from December 1994 to
December 1996 in addition to his position as President of Inacom Communications.
Prior to March 1994, Mr. DeSola was the Vice President of Marketing and Customer
Service for MCI Communications Corp., a telecommunications company.
Jeffrey A. Hartigan was named Vice President and Chief Information
Officer in May 1995 when he joined the Company. Prior to May 1995, Mr. Hartigan
was Vice President of Information Services at Northern Telecommunications Inc.
(NORTEL), a telecommunications company.
Steven Ross was named President of the Reseller Division and Corporate
Marketing in December 1996. Prior to December 1996, Mr. Ross was the President
of the Reseller Division, a position he has held since he joined the Company in
December 1995. Mr. Ross was Vice President of Sales and Business Development at
Intelligent Electronics Inc., a distributor of information technology products,
from September 1993 to November 1995. Prior to September 1993, Mr. Ross was the
Executive Vice President of Ultimate/Allerion Corp., an international systems
integrator company.
Leon Kerkman was named Vice President and Corporate Controller in June
1993. Prior to June 1993, Mr. Kerkman was Corporate Controller, a position he
has held since he joined the Company in 1989.
Paul Kellenberger was named Vice President of Business Development in
March 1997 when he joined the Company. Mr. Kellenberger was the Vice President
of Worldwide Channels, Computer Group from January 1995 to February 1997 and the
General Manager, Canada from February 1994 to December 1994 at Motorola Inc.
Prior to February 1994, Mr. Kellenberger was the Director of Marketing, Canada
for Digital Equipment Company, an information technology products company.
Joseph Auerbach is Professor of Business Administration, Emeritus, at
the Harvard Business School. He is Counsel to the firm of Sullivan & Worcester,
Boston, Massachusetts.
Mogens C. Bay is the President and Chief Executive Officer of Valmont
Industries, Inc. He is a director of ConAgra, Inc.
James Q. Crowe is the President and Chief Executive Office of Kiewit
Diversified Group, Inc. He is a director of Peter Kiewit Sons' Inc., CalEnergy,
Inc. and C-TEC Corporation.
W. Grant Gregory is Chairman of Gregory & Hoenemeyer, Inc., New York
and serves as a director of Bozell Inc., Ambac, Inc., Ambac Indemnity Group and
HCIA Health Care Inc.
Rick Inatome is Chairman of the Board of Directors and in 1976 was the
co-founder of Inacomp Computer Centers, Inc. and its Chief Executive Officer
from 1979 to August 1991. He is a director of Atlantic Premium Brands, American
Speedy Print, Liberty BIDCO, Action Technologies, Inc. and Saturn Electronic and
Engineering, Inc.
Joseph Inatome is a co-founder of Inacomp Computer Centers, Inc., and
was an executive officer until July 1989, and director until August 1991. He is
currently a director of American Speedy Print.
Gary Schwendiman is Professor of International Studies in the College
of Business at the University of Nebraska-Lincoln and was Dean of the College of
Business Administration for the University of Nebraska-Lincoln
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from 1977 to 1994. Mr. Schwendiman serves as a director of The Gallup
Organization, Inc. and Security Mutual Life Insurance Co.
Linda S. Wilson is the President of Radcliffe College. She is a
director of Citizens Financial Group and Trustee of Massachusetts General
Hospital Corporation.
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DESCRIPTION OF DEBENTURES
The following description of the particular terms of the Debentures
offered hereby (referred to in the Prospectus as the "Debt Securities")
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
Prospectus, to which description reference is hereby made. See "Events of
Default", "Modification of Indentures", "Consolidation, Merger and Sale of
Assets", "Other Covenants" and "Discharge and Defeasance" in the Prospectus. The
following summary of the Debentures is qualified in its entirety by reference to
the Subordinated Indenture referred to in the Prospectus and to the First
Supplemental Indenture thereto.
General
The Debentures will be unsecured general obligations of the Company,
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Debentures," and convertible into Common Stock
as described under "Conversion." The Debentures will mature on ____________,
2004. The Debentures will be limited to $50,000,000 aggregate principal amount
($57,500,000 if the over-allotment option is exercised in full). The Company
will pay interest on the Debentures semi-annually on _______, and ________, of
each year, commencing _______, 1998 at the rate of ____% per annum and will pay
interest on the Debentures (except default interest) to the persons who are
registered holders of Debentures at the close of business on the preceding
_____________ and _______________, respectively. The Company may pay principal
and interest by check and may mail an interest check to a holder's registered
address. Holders must surrender Debentures to the Paying Agent to collect
principal payments.
The Debentures are represented by a global Debenture in definitive,
fully registered form, deposited with The Depository Trust Company ("DTC").
Beneficial interests in the global Debentures will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants.
The Debentures are issued without coupons in denominations of $1,000
and whole multiples of $1,000. A holder may transfer or exchange Debentures in
accordance with the Subordinated Indenture. No service charge will be made for
any registration of transfer, exchange or conversion of Debentures, except for
any tax or other governmental charges that may be imposed in connection with any
transfers, registration of transfers or exchanges. The registrar for the
Debentures need not transfer or exchange any Debentures selected for redemption.
Also, it need not transfer or exchange any Debentures for a period of 15 days
before selecting Debentures to be redeemed. The registered holder of a Debenture
may be treated as its owner for all purposes.
The Trustee currently acts as Registrar, Paying Agent and Conversion
Agent. The Company may appoint an additional, or change any, Paying Agent,
Registrar or Conversion Agent without notice. The Company may act in any such
capacity.
The Subordinated Indenture does not contain any restrictions on the
payment of dividends or on the repurchase of securities of the Company or any
financial covenants, nor does the Subordinated Indenture require the Company to
maintain any sinking fund or other reserves for repayment of the Debentures.
Conversion
The holders of the Debentures are entitled at any time before the close
of business on the date of maturity of the Debentures, subject to prior
redemption or repurchase, to convert the Debentures, or portions thereof (if the
portions are $1,000 or whole multiples thereof) into shares of Common Stock at
the conversion rate of _____ shares of Common Stock per $1,000 principal amount
of Debentures (equivalent to a conversion price of $___ per share), subject to
adjustments as described below. Except as described below, no payment or
adjustment will be made for accrued interest on a converted Debenture or for
dividends on any Common Stock issued on conversion. If any Debenture is
converted during the period beginning on (and including) a record date for the
payment of interest and ending on (and including) the opening of business on the
next succeeding interest payment date, unless such Debenture has been called for
redemption on a redemption date or which are repurchasable on
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a repurchase date occurring, in either case, during such period, then such
Debenture must be accompanied by funds equal to the interest payable to the
registered holder on such interest payment date on the principal amount so
converted. A Debenture converted on an interest payment date need not be
accompanied by any payment, and the interest on the principal amount of the
Debenture being converted will be paid on such interest payment date to the
registered holder of such Debenture on the immediately preceding record date.
The Company will not issue fractional shares of Common Stock upon conversion of
Debentures and instead will deliver a check in lieu of the fractional share
based upon the market value of the Common Stock on the last trading day prior to
the conversion date. In the case of Debentures called for redemption, conversion
rights will expire on the redemption date unless the Company defaults in the
payment of the redemption price. In the event any holder exercises its
Repurchase Right (as defined below), such holder's conversion right will
terminate upon receipt of the written notice of exercise of such Repurchase
Right. See "Repurchase at Option of Holders Upon Change in Control."
The conversion price is subject to adjustment as set forth in the
Subordinated Indenture in certain events, including the payment of dividends or
distributions on the Common Stock in shares of capital stock; subdivisions or
combinations of the Common Stock into a greater or smaller number of shares; a
reclassification of the Common Stock resulting in an issuance of any shares of
the capital stock of the Company; the distribution of rights or warrants to all
holders of Common Stock entitling them to purchase Common Stock at less than the
then current market price at that time; and the distribution to all holders of
Common Stock of assets or debt securities or any rights or warrants to purchase
securities, other than Common Stock, of the Company (other than cash dividends
or cash distributions payable out of consolidated net income or retained
earnings). No adjustment will be required for rights to purchase Common Stock
pursuant to any plan of the Company for reinvestment of dividends or interest,
or for a change in the par value of the Common Stock. To the extent that
Debentures become convertible into cash, no adjustment will be required
thereafter as to cash. No adjustment in the conversion price will be made unless
such adjustment would require a change of at least 1% in the conversion price;
however, any adjustment that would otherwise be required to be made shall be
carried forward and taken into account at the earlier of any subsequent
adjustment or three years after the occurrence of the event giving rise to the
adjustment. The Company reserves the right to make such reductions in the
conversion price in addition to those required in the foregoing provisions as
the Company in its discretion shall determine to be advisable in order that
certain stock-related distributions hereafter made by the Company to its
stockholders shall not be taxable. Except as stated above, the conversion price
will not be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock, or carrying the right to
purchase any of the foregoing.
If the Company reclassifies the Common Stock or merges into, or
transfers or leases substantially all of its assets to, another corporation, the
holders of the Debentures then outstanding will be entitled thereafter to
convert such Debentures into the kind and amount of shares of capital stock,
other securities, cash or other assets which they would have owned immediately
after such event had such Debentures been converted immediately before the
effective date of the transaction.
Conversion price adjustments may in certain circumstances result in
constructive distributions that could be taxable as dividends under the Internal
Revenue Code of 1986, as amended, to holders of Debentures or to holders of
Common Stock issued upon conversion thereof.
Optional Redemption
The Debentures may be redeemed on at least 20 and not more than 60 days
notice at the option of the Company, in whole at any time or in part from time
to time, at the following redemption prices (expressed as percentages of
principal), together with accrued interest to the date fixed for redemption,
during the twelve month period beginning _________ in the years set forth below:
Year Percentage
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and thereafter at 100% of the principal amount, plus accrued interest; provided,
that no redemption may be made prior to ___________. If less than all the
Debentures are to be redeemed, the Trustee will select the Debentures to be
redeemed on a pro rata basis, by lot or by any other method the Trustee, in its
discretion, deems fair.
Repurchase at Option of Holders Upon Change in Control
Upon any Change in Control (as defined below) with respect to the
Company, each holder of Debentures shall have the right (the "Repurchase
Right"), at the holder's option, to require the Company to repurchase all of
such holder's Debentures, or a portion thereof which is $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") that is 45 days after the
date of the Company Notice (as defined below) at a price equal to 100% of the
principal amount of the Debentures, plus accrued interest, if any, to the
Repurchase Date (the "Repurchase Price"). Inacom may, at its option, in lieu of
paying the Repurchase Price in cash, pay the Repurchase price in Common Stock
valued at 95% of the average of the closing prices of the Common Stock for the
five consecutive trading days ending on and including the third trading day
preceding the Repurchase Date.
Within 30 days after the occurrence of a Change in Control, the
Company is obligated to mail to all holders of record of the Debentures a notice
(the "Company Notice") of the occurrence of such Change in Control and the
Repurchase Right arising as a result thereof. The Company shall deliver a copy
of the Company Notice to the Trustee and shall cause a copy of such notice to be
published in The Wall Street Journal or another newspaper of national
circulation. To exercise the Repurchase Right, a holder of Debentures must
deliver on or before the 30th day after the date of the Company Notice
irrevocable written notice to the Company (or an agent designated by the Company
for such purpose) and the Trustee of the holder's exercise of such right
together with the Debentures with respect to which the right is being exercised,
duly endorsed for transfer.
Change in Control
A "Change in Control" of the Company means (i) the acquisition by any
person of beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such person to exercise 50% or more of
the total voting power of all shares of capital stock of the Company entitled to
vote generally in the elections of directors (any shares of voting stock of
which such person or group is the beneficial owner that are not then outstanding
being deemed outstanding for purposes of calculating such percentage), other
than any such acquisition by the Company, any subsidiary of the Company or any
employee benefit plan of the Company existing on the date of the Indenture; or
(ii) any consolidation or merger of the Company with or into any other person,
any merger of another person into the Company, or any conveyance, sale,
transfer, or lease of all or substantially all of the assets (other than (a) any
such transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock, and (y) pursuant
to which the holders of 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in elections of
directors immediately prior to such transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total voting power of all
shares of capital stock of the continuing or surviving corporation entitled to
vote generally in elections of directors of the continuing or surviving
corporation immediately after such transaction and (b) a merger 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 into solely shares of common stock); provided, that a Change of
Control shall not be deemed to have occurred if the closing price per share on
any five trading days within the period of ten consecutive trading days ending
immediately after the later of the date of the Change of Control or the date of
the public announcement of the Change of Control (in the case of a Change of
Control under the foregoing subclause (i)) or the period of ten consecutive
trading days ending immediately prior to the date of the Change of Control (in
the case of a Change in Control under the foregoing subclause (ii) shall equal
or exceed 105% of the conversion price in effect on such trading day.
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No quantitative or other established meaning has been given to the
phrase "all or substantially all" (which appears in the definition of Change in
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts make a subjective determination as to the
portion of assets conveyed, considering such factors as the value of assets
conveyed and the proportion of an entity's income derived from the assets
conveyed. To the extent the meaning of such phrase is uncertain, uncertainty
will exist as to whether or not a Change in Control may have occurred (and,
accordingly, whether or not the holders of Debentures will have the right to
require the Company to repurchase their Debentures).
The occurrence of a Change in Control would, in most cases, permit the
Company's lenders to require prepayment of some or all amounts outstanding under
the Company's short-term and long-term debt agreements. In the event of a Change
in Control, any repurchase of the Debentures could, absent payment in full of
any amounts outstanding under such credit facilities or waiver, be prevented by
the subordination provisions of the Debentures. See "Subordination of
Debentures." Failure by the Company to repurchase the Debentures when required
will result in an Event of Default with respect to the Debentures whether or not
such repurchase is permitted by the subordination provisions. The right to
require the Company to repurchase the Debentures could delay or deter a Change
in Control of the Company, whether or not such Change in Control were supported
by the Board of Directors of the Company.
If a Change in Control occurs, there can be no assurance that the
Company would have sufficient funds or financing to repay any Senior
Indebtedness then required to be repaid or to repurchase any or all Debentures
then required to be repurchased under the Indenture.
If an offer is made to repurchase Debentures as a result of a Change
in Control, the Company intends to comply with all tender offer rules, including
but not limited to Section 13(e) and 14(e) under the Exchange Act and Rules
13c-1 and 14c-1 thereunder, to the extent applicable to such offer.
Subordination of Debentures
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, the
payment of the principal of and premium, if any, and interest on the Debentures
will be subordinated, to the extent provided in the Subordinated Indenture, in
right of payment to the prior payment in full of all Senior Indebtedness.
Except as provided pursuant to a supplemental indenture or a board
resolution of the Company, no payment in respect of the Debentures will be made
if, at the time of such payment, there exists a default in payment of all or any
portion of any Senior Indebtedness, and such default has not been cured or
waived in writing or the benefits of this sentence waived in writing by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuation of any event of default (other than a default referred to in the
immediately preceding sentence) with respect to any Senior Indebtedness
permitting the holders to accelerate the maturity thereof and upon written
notice thereof given to the Trustee, with a copy to the Company, by any holder
of such Senior Indebtedness or its representative, then, unless and until such
an event of default has been cured or waived or has ceased to exist, no payment
will be made by the Company with respect to the principal of or interest on the
Debentures or to acquire any of the Debentures or on account of the redemption
provisions for the Debentures; provided, however, that if the holders of the
Senior Indebtedness to which the default relates have not declared such Senior
indebtedness to be immediately due and payable within 90 days after the
occurrence of such default (or have declared such Senior Indebtedness to be
immediately due and payable and within such period rescind such declaration of
acceleration), then the Company will resume making any and all required payments
in respect of the Debentures (including any missed payments). Only one payment
blockage period under the immediately preceding sentence may be commenced within
any consecutive 270-day period with respect to the Debentures. No event of
default which existed or was continuing on the date of the commencement of any
90-day payment blockage period with respect to the Senior Indebtedness
initiating such payment blockage period will be made the basis for the
commencement of a second payment blockage period by a Holder or representative
of such Senior Indebtedness whether or not
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within a period of 270 consecutive days unless such event of default has been
cured or waived for a period of not less than 90 consecutive days (and, in the
case of any such waiver, no payment will be made by the Company to the holders
of Senior Indebtedness in connection with such waiver other than amounts due
pursuant to the terms of the Senior Indebtedness as in effect at the time of
such default).
Senior Indebtedness is defined in the Subordinated Indenture as
Indebtedness (as defined below) of the Company outstanding at any time except
Indebtedness that by its terms is subordinate in right of payment to the
Debentures or Indebtedness that is not otherwise senior in right of payment to
the Debentures. Senior Indebtedness does not include Indebtedness of the Company
to any of its subsidiaries. Indebtedness is defined with respect to any person
as the principal of, and premium, if any, and interest on (a) all indebtedness
of such person for borrowed money (including all indebtedness evidenced by
notes, bonds, debentures or other securities sold by such person for money), (b)
all indebtedness incurred by such person in the acquisition (whether by way of
purchase, merger, consolidation or otherwise and whether by such person or
another person) of any business, real property or other assets (except assets
acquired in the ordinary course of conduct of the acquiror's usual business),
(c) guarantees by such person of indebtedness described in clause (a) or (b) of
any other person, (d) all renewals, extensions, refundings, deferrals,
restructurings, amendments and modifications of any such indebtedness,
obligation or guarantee (e) all reimbursement obligations of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person, (f) all capital lease obligations of such
person, and (g) all net obligations of such person under interest rate swap or
similar agreements of such person. There are no restrictions in the Subordinated
Indenture upon the creation of additional Senior Indebtedness by the Company, or
on the creation of any indebtedness by the Company or any of its subsidiaries.
As of June 28, 1997, the Company had Senior Indebtedness (excluding accrued
interest) of approximately $120 million.
By reason of the subordination provisions described above, in the
event of insolvency, funds which would otherwise be payable to holders of the
Debentures will be paid to the holders of Senior Indebtedness to the extent
necessary to pay Senior Indebtedness in full. As a result of these payments,
general creditors of the Company may recover less, ratably, than holders of
Senior Indebtedness and such general creditors may recover more, ratably, than
holders of Debentures or other subordinated indebtedness of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
considerations relevant to holders of the Debentures. 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 deal with all aspects of federal income
taxation that may be relevant to holders of the Debentures or shares of Common
Stock and does not deal with tax consequences arising under the laws of any
foreign, state or local jurisdiction. This discussion is for general information
only, and does not purport to address all of the tax consequences that may be
relevant to particular purchasers in light of their personal circumstances, or
to certain types of purchasers (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
hold the Debentures or Common Stock in connection with a straddle, foreign
corporations and other holders who are not United States persons, citizens or
residents) who may be subject to special rules. This discussion assumes that
each holder holds the Debentures and the shares of Common Stock received upon
conversion thereof as capital assets.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE DEBENTURES,
INCLUDING CONVERSION OF THE DEBENTURES, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
S-36
<PAGE>
Interest on Debentures
Interest paid on a Debenture will be taxable to a holder as ordinary
interest income in accordance with the holder's method of tax accounting at the
time that such interest is accrued or (actually or constructively) received. The
Company anticipates that the Debentures will not be issued with original issue
discount ("OID") within the meaning of the Code.
Adjustment of Conversion Price or Ratio
The conversion ratio of the Debentures is subject to adjustment under
certain circumstances. Section 305 of the Code and the Treasury Regulations
issued thereunder may treat the holders of the Debentures 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 and/or accumulated earnings and profits, if and to the
extent that certain adjustments in the conversion ratio (particularly an
adjustment to reflect a taxable dividend to holders of Common Stock) increase
the proportionate interest of a holder of Debentures in the fully diluted Common
Stock, whether or not such holder ever exercises its conversion privilege. The
Company does not anticipate paying a cash distribution in the event holders of
the Debentures are treated as having received a constructive distribution.
Therefore, holders of the Debentures would have to utilize other assets to
satisfy any tax liability arising from a constructive distribution. Moreover, if
there is not a full adjustment to the conversion ratio of the Debentures 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 and/or
accumulated earnings and profits. The Debentures contain provisions intended to
cause a full adjustment to the conversion ratio of the Debentures, and in
addition the Board of Directors may reduce, in its discretion, the conversion
price as it deems advisable to avoid or diminish any such adverse consequence to
holders of Common Stock. Accordingly, the holders of Common Stock should not be
deemed to receive any such taxable dividend distribution under Section 305 of
the Code. See "Description of Debentures Conversion."
Sale or Exchange of Debentures or Shares of Common Stock
In general, a holder of a Debenture will recognize gain or loss upon
the sale, redemption, retirement or other disposition of the Debenture measured
by the difference between the amount of cash and the fair market value of any
property received (except to the extent attributable to the payment of accrued
interest) and the holder's adjusted tax basis in the Debenture. A holder's tax
basis in a Debenture generally will equal the cost of the Debenture to the
holder increased by the amount of market discount, if any, previously taken into
income by the holder or decreased by any bond premium theretofore amortized by
the holder with respect to the Debenture. In general, each holder of Common
Stock into which the Debentures have been converted will recognize gain or loss
upon the sale, exchange, redemption, or other disposition of the Common Stock
under rules similar to those applicable to the Debentures. Special rules may
apply to redemptions of Common Stock which may result in the amount paid being
treated as a dividend. Subject to the market discount rules discussed below, the
gain or loss on the disposition of the Debentures or shares of Common Stock will
be capital gain or loss and, for individuals will be mid-term gain or loss if
the Debentures or shares of Common Stock have been held for more than one year
but not more than 18 months at the time of such disposition, subject to a
maximum federal tax rate of 28 percent. If the Debentures or shares of Common
Stock have been held by an individual taxpayer for more than 18 months at the
time of disposition, then such individual's adjusted net capital gain therefrom
is subject to a maximum federal tax rate of 20 percent (and in tax years
beginning after December 31, 2000, an 18 percent maximum federal tax rate will
apply to such gain if the holding period for the Debentures or shares of Common
Stock is more than 5 years).
S-37
<PAGE>
Conversion into Common Stock
A holder of a Debenture will not recognize gain or loss on the
conversion of the Debenture into shares of Common Stock, except to the extent
that the Common Stock issued upon the conversion is attributable to accrued
interest on the Debenture. The holder's aggregate tax basis in the shares of
Common Stock received upon conversion of the Debenture will be equal to the
holder's aggregate basis in the Debenture exchanged therefor (less any portion
thereof allocable to cash received in lieu of a fractional share). The holding
period of the shares of Common Stock received by the holder upon conversion of
the Debenture will include the period during which the holder held the Debenture
prior to the conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.
Market Discount
The resale of a Debenture may be affected by the "market discount"
provisions of the Code. For this purpose, the market discount on a Debenture
will generally be equal to the amount, if any, by which the stated redemption
price at maturity of the Debenture immediately after its acquisition exceeds the
holder's tax basis in the Debenture. Subject to a de minimis exception, these
provisions generally require a holder of a Debenture acquired at a market
discount to treat as ordinary income any gain recognized on the disposition of
such Debenture to the extent of the "accrued market discount" on such Debenture
at the time of disposition. In general, market discount on a Debenture will be
treated as accruing on a straight-line basis over the term of such Debenture,
or, at the election of the holder, under a constant yield method.
In addition, any holder of a Debenture acquired at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Debenture until the
Debenture is disposed of in a taxable transaction. The foregoing rule will not
apply if the holder elects to include accrued market discount in income
currently.
If a holder acquires a Debenture at a market discount and receives
Common Stock upon conversion of the Debenture, the amount of accrued market
discount with respect to the converted Debenture through the date of the
conversion should be treated as ordinary income on the disposition of the Common
Stock.
Dividends on Shares of Common Stock
Distributions on shares of Common Stock will constitute dividends for
federal income tax purposes to the extent of current or accumulated earnings and
profits of the Company as determined under federal income tax principles.
Dividends paid to holders that are corporations may qualify for the
dividends-received deduction. Individuals, partnerships, trusts, and certain
corporations, including certain foreign corporations, are not entitled to the
dividends-received deduction.
To the extent, if any, that a holder receives a distribution on shares
of Common Stock that would otherwise constitute a dividend for federal income
tax purposes but that exceeds current and accumulated earnings and profits of
the Company, such distribution will be treated first as a non-taxable return of
capital reducing the holder's basis in the shares of Common Stock. Any such
distribution in excess of the holder's basis in the shares of Common Stock will
be treated as a capital gain.
Information Reporting and Backup Withholding
Information reporting and backup withholding may apply to payments of
interest or dividends on or the proceeds of the sale or other disposition of the
Debentures or shares of Common Stock made by the Company with
S-38
<PAGE>
respect to certain noncorporate holders. Such holders generally will be subject
to backup withholding at a rate of 31% unless the recipient of such payment
supplies a taxpayer identification number, certified under penalties of perjury,
as well as certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. Any amount withheld
under backup withholding is allowable as a credit against the holder's federal
income tax, upon furnishing the required information.
LEGAL MATTERS
The validity of the Securities offered hereby have been passed upon
for the Company by McGrath, North, Mullin & Kratz, P.C., Omaha, Nebraska and for
the Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedule of InaCom Corp. as
of December 28, 1996 and December 30, 1995, and for each of the years in the
three-year period ended December 28, 1996, have been included herein and
incorporated by reference in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<S> <C>
Page
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS (Audited)
Independent Auditors' Report..................................................................... F-2
Consolidated Statements of Operations-- Three-Year Period Ended December 28, 1996................ F-3
Consolidated Balance Sheets-- December 28, 1996 and December 30, 1995............................ F-4
Consolidated Statements of Stockholders' Equity -- Three-Year Period
Ended December 28, 1996................................................................. F-5
Consolidated Statements of Cash Flows-- Three-Year Period Ended December 28, 1996................ F-6
Notes to Consolidated Financial Statements-- Three-Year Period Ended December 28, 1996........... F-7
SCHEDULE-- Valuation and Qualifying Accounts............................................ F-16
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER AND
SIX MONTHS ENDED JUNE 28, 1997 (Unaudited)
Condensed and Consolidated Balance Sheets-- June 28, 1997 and December 28, 1996......... F-17
Condensed and Consolidated Statement of Operations -- Thirteen Weeks Ended June 28, 1997
and June 29, 1996 and Twenty-Six Weeks Ended June 28, 1997 and June 29, 1996............ F-18
Condensed and Consolidated Statement of Cash Flows -- Twenty-Six Weeks Ended June 28, 1997
and June 29, 1996....................................................................... F-19
Notes to Condensed and Consolidated Financial Statements -- Twenty-Six Weeks Ended
June 28, 1997........................................................................... F-20
</TABLE>
All other schedules have been omitted as the required information is
inapplicable or the information is included in the consolidated financial
statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
InaCom Corp.:
We have audited the accompanying consolidated financial statements of
InaCom Corp. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
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 audits provide 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 InaCom Corp.
and subsidiaries at December 28, 1996 and December 30, 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 28, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
February 21, 1997
F-2
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Three-year period ended December 28, 1996
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
.......................................................... 1996 1995 1994
----------- ------------ ------------
Revenues:
Computer products......................................... $ 2,885,019 2,047,215 1,680,397
Computer services......................................... 136,888 95,476 85,406
Communications products and services...................... 80,148 57,653 34,736
----------- ------------ ------------
.......................................................... 3,102,055 2,200,344 1,800,539
----------- ------------ ------------
Direct costs:
Computer products......................................... 2,722,368 1,924,829 1,571,700
Computer services......................................... 33,660 27,877 32,900
Communications products and services...................... 62,668 43,832 27,220
----------- ------------ ------------
.......................................................... 2,818,696 1,996,538 1,631,820
----------- ------------ ------------
Gross margin.............................................. 283,359 203,806 168,719
Selling, general and administrative expenses ................. 231,235 169,338 160,437
----------- ------------ ------------
Operating income.......................................... 52,124 34,468 8,282
Interest expense.............................................. 20,405 14,635 12,031
----------- ------------ ------------
Earnings (loss) before income taxes ...................... 31,719 19,833 (3,749)
Income tax expense (benefit).................................. 12,986 8,126 (1,493)
----------- ------------ -----------
Net earnings (loss)....................................... $ 18,733 11,707 (2,256)
Earnings (loss) per share:
Primary................................................... $ 1.76 1.14 (.22)
Fully diluted............................................. $ 1.64 1.14 (.22)
Common shares and equivalents outstanding:
Primary................................................... 10,600 10,300 10,300
Fully diluted............................................. 12,000 10,300 10,300
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
(Amounts in thousands, except share data)
<TABLE>
Assets 1996 1995
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 31,410 20,690
Accounts receivable, less allowance for doubtful
accounts of $4,385 in 1996 and $3,537 in 1995................ 288,407 160,306
Deferred income taxes............................................. 3,554 4,202
Inventories....................................................... 386,592 352,948
Other current assets.............................................. 2,335 1,794
----------- -----------
Total current assets......................................... 712,298 539,940
----------- -----------
Property and equipment, at cost....................................... 116,970 85,922
Less accumulated depreciation..................................... 57,845 44,421
----------- -----------
Net property and equipment................................... 59,125 41,501
----------- -----------
Other assets, net of accumulated amortization......................... 27,531 17,831
Cost in excess of net assets of business acquired,
net of accumulated amortization................................... 48,646 24,966
----------- -----------
............................................................. $ 847,600 624,238
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................................. $ 406,753 331,221
Notes payable and current installments of long-term debt.......... 140,770 83,526
Income taxes payable.............................................. 3,531 384
Other current liabilities............................................. 60,941 33,869
----------- -----------
Total current liabilities.................................... 611,995 449,000
----------- -----------
Long-term debt, excluding current installments........................ 55,250 23,667
Other long-term liabilities........................................... 73 --
Deferred income taxes................................................. 3,452 2,796
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value.
Authorized 1,000,000 shares; none issued..................... -- --
Common stock of $.10 par value. Authorized
30,000,000 shares; issued 10,850,008 shares
in 1996 and 10,040,000 in 1995............................... 1,085 1,004
Additional paid-in capital........................................ 98,153 89,528
Retained earnings............................................ 77,607 58,874
----------- -----------
............................................................. 176,845 149,406
Less:
Cost of common shares in treasury of 19,989 in 1995............... -- (161)
Unearned restricted stock......................................... (15) (470)
----------- -----------
Total stockholders' equity................................... 176,830 148,775
----------- -----------
Commitments and contingent liabilities................................
............................................................. $ 847,600 624,238
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three-year period ended December 28, 1996
(Amounts in thousands, except share data)
Additional Unearned Total
Common paid-in Retained Treasury restricted stockholders'
stock capital earnings stock stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 25, 1993....... $ 1,004 88,928 49,423 (2,034) (830) 136,491
Net loss........................... - - (2,256) - - (2,256)
Issuance of 3,400 treasury shares
as director compensation........... - 11 - 30 - 41
Issuance of 35,253 treasury
shares under stock option plans.... - 209 - 310 - 519
Issuance of 16,800 treasury shares
as stock awards, net of forfeitures - 166 - 161 468 795
--- -------- ----- ----- --- ---------
Balance at December 31, 1994....... 1,004 89,314 47,167 (1,533) (362) 135,590
Net earnings....................... - - 11,707 - - 11,707
Issuance of 4,400 treasury shares
as director compensation........... - (1) - 39 - 38
Issuance of 89,993 treasury
shares under stock option plans.... - 240 - 790 - 1,030
Issuance of 61,800 treasury shares
as stock awards, net of forfeitures - (25) - 543 (108) 410
--- ------- ----- ------ --- ---------
Balance at December 30, 1995....... 1,004 89,528 58,874 (161) (470) 148,775
Net earnings....................... - - 18,733 - - 18,733
Issuance of 691,131 shares in connection
with business combinations......... 69 6,581 - - - 6,650
Issuance of 132,966 treasury and common
shares under stock option plans.... 12 1,956 - 161 - 2,129
Issuance of 3,400 shares
as director compensation........... - 60 - - - 60
Issuance of 2,500 shares
as stock awards, net of forfeitures - 28 - - 455 483
-- ------- ------ --- --- ---------
Balance at December 28, 1996....... $ 1,085 98,153 77,607 - (15) 176,830
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three-year period ended December 28, 1996
(Amounts in thousands)
1996 1995 1994
----------- ----------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 18,733 11,707 (2,256)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization......................... 21,814 19,059 19,766
Changes in assets and liabilities, net
of effects from business combinations:
Accounts receivable.............................. (123,648) (75,333) (22,496)
Inventories...................................... (31,794) (124,296) (41,783)
Other current assets............................. 97 (610) 463
Accounts payable................................. 71,162 105,100 122,961
Other liabilities................................ 20,896 5,444 5,983
Income taxes..................................... 4,451 1,195 (2,192)
----------- ----------- -----------
Net cash provided (used) by
operating activities...................... (18,289) (57,734) 80,446
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment....................... (26,240) (10,346) (14,910)
Business combinations..................................... (23,386) - -
Payments from (advances of) notes receivable.............. 446 (1,872) 917
Other, including advances to affiliates................... (11,950) (1,051) (1,816)
----------- ----------- -----------
Net cash used in investing activities........ (61,130) (13,269) (15,809)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ..................... (30,334) (6,667) -
Proceeds from receivables sold............................ - 100,000 -
Proceeds from (payments of) notes payable................. 63,094 (13,184) (81,314)
Proceeds from long-term debt.............................. 55,250 - 17,000
Proceeds from the exercise of employee stock options...... 2,129 1,030 519
----------- ----------- -----------
Net cash provided by (used in)
financing activities...................... 90,139 81,179 (63,795)
----------- ----------- -----------
Net increase in cash and cash equivalents...................... 10,720 10,176 842
Cash and cash equivalents, beginning of year................... 20,690 10,514 9,672
----------- ----------- -----------
Cash and cash equivalents, end of year......................... $ 31,410 20,690 10,514
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The consolidated financial statements include the accounts of InaCom
Corp. (Company) and its wholly-owned subsidiaries. The Company is a leading
provider of management technology services which include technology procurement
and distribution of microcomputer systems, workstations, networking and
telecommunications equipment, systems integration and support services. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Accounts Receivable
The Company entered into an agreement in June 1995 (which agreement was
amended and restated in August 1995) to sell $100 million of accounts
receivable, with limited recourse, to an unrelated financial institution. New
qualifying receivables are sold to the financial institution as collections
reduce previously sold receivables in order to maintain a balance of $100
million sold receivables. On December 28, 1996, $37.3 million of additional
accounts receivable were designated to offset potential obligations under
limited recourse provisions; however, historical losses on Company receivables
have been substantially less than such additional amount. At December 28, 1996,
the implicit interest rate on the receivable sale transaction was 5.9%. On
January 13, 1997, the agreement was amended to sell an additional $100 million
of accounts receivable.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of computer hardware, software, voice and data equipment and
related materials.
(d) Other Assets
Other assets include vendor authorization rights and long-term notes
receivable. Vendor authorization rights are being amortized over 10 years.
(e) Cost in Excess of Net Assets of Business Acquired
The excess of the cost over the carrying value of assets of business
acquired is being amortized over 20 years. The Company assesses the
recoverability of intangible assets by determining whether the amortization of
the asset balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
(f) Depreciation
Depreciation is provided over the estimated useful lives of the
respective assets ranging from 3 to 31 years using the straight-line method.
F-7
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Earnings/(Loss) Per Common Share
Primary earnings/(loss) per share of common stock have been computed on
the basis of the weighted average number of shares of common stock outstanding
after giving effect to equivalent common shares from dilutive stock options.
Fully diluted earnings/(loss) per share further assumes the conversion of the
Company's convertible subordinated debentures for the period they were
outstanding.
(i) Revenue and Expense Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues from consulting and other services are recognized as the
Company performs the services. Revenues from maintenance and extended warranty
agreements are recognized ratably over the term of the agreement. Extended
warranty costs are accounted for on an accrual basis and are recognized under
the sales method.
(j) Marketing Development Funds
Primary vendors of the Company provide various incentives, in cash or
credit against obligations, for promoting and marketing their product offerings.
The funds or credits received are based on the purchases or sales of the
vendor's products and are earned through performance of specific marketing
programs or upon completion of objectives outlined by the vendors. Funds or
credits earned are applied to direct costs or selling, general and
administrative expenses depending on the objectives of the program. Funds or
credits from the Company's primary vendors typically range from 1% to 3% of
purchases.
(k) Risks and Uncertainties
Financial instruments which potentially expose the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company sells product to a large number of customers in many different
industries and geographies. To minimize credit concentration risk, the Company
utilizes several financial services organizations which purchase accounts
receivable and perform ongoing credit evaluations of its customers' financial
conditions.
The Company's business is dependent in large measure upon its
relationship with key vendors since a substantial portion of the Company's
revenue is derived from the sales of the products of such key vendors.
Termination of, or a material change to the Company's agreements with these
vendors, or a material decrease in the level of marketing development programs
offered by manufacturers, or an insufficient or interrupted supply of vendors'
product would have a material adverse effect on the Company's business.
F-8
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
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.
(l) Disclosures About Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts
receivable, accounts payable and notes payable approximate fair value because of
the short maturity of these instruments. The fair values of each of the
Company's long-term debt instruments are based on the amount of future cash
flows associated with each instrument discounted using the Company's current
borrowing rate for similar debt instruments of comparable maturity. The
estimated fair value of the Company's long-term debt at December 28, 1996
approximates book value.
(m) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers cash and temporary cash investments with a maturity of three months or
less to be cash equivalents.
2. BUSINESS COMBINATIONS
During 1996, the Company completed several acquisitions. In April 1996,
the Company acquired Technology Express, a network integrator in the Nashville,
Tennessee market for consideration of approximately $4.8 million in cash and
89,286 shares of common stock in a transaction accounted for as a purchase. The
excess purchase price over the estimated fair value of the net assets acquired
was $6.2 million and is being amortized using the straight-line method over 20
years.
In August 1996, the Company acquired Computer Access International for
consideration including approximately $7.6 million in cash and 238,209 shares of
common stock in a transaction accounted for as a purchase. The excess purchase
price over the estimated fair value of the net assets acquired was $8.0 million
and is being amortized using the straight line method over 20 years.
In December 1996, the Company acquired Gorham Clark, Inc., a network
consulting business in New York, New York for consideration of approximately
$12.0 million in cash in a transaction accounted for as a purchase. The Company
may also issue up to a maximum of 122,278 shares of common stock over the next
two years, contingent upon future results of the acquired business. The excess
purchase price over the estimated fair value of the net assets acquired was
$10.0 million and is being amortized using the straight-line method over 20
years.
In December 1996, the Company acquired all the issued and outstanding
shares of Perigee Communications Inc. of Minneapolis, Minnesota and Networks,
Inc. of Miami, Florida for 272,726 and 90,910 shares of common stock,
respectively, in transactions accounted for as "poolings of interest." The
Company's consolidated financial statements for the year ended December 28, 1996
include the fourth fiscal quarters' activity for the acquired businesses. Prior
period consolidated financial statements were not restated as the results of
operations would not have been materially different than those previously
reported by the Company. The effect of the immaterial poolings was to increase
stockholders' equity by approximately $643,000.
F-9
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
If the above business combinations had occurred on December 26, 1993,
the pro forma operations of the Company would not have been materially different
than that reported in the accompanying consolidated statements of operations.
3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Land, buildings and improvements............. $ 13,911 10,541
Furniture, fixtures and equipment............ 27,875 18,392
Computer equipment ..................... 53,239 35,340
Computer parts held for repair and exchange.. 21,945 21,649
---------- -------------
$ 116,970 85,922
</TABLE>
4. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Current:
Federal............. $ 10,195 6,151 487
State......... 1,488 943 92
Deferred:
Federal....... 1,209 897 (1,789)
State......... 94 135 (283)
---------- ---------- --------
$ 12,986 8,126 (1,493)
</TABLE>
The reconciliation of the statutory Federal income tax rate and the effective
tax rate are as follows:
<TABLE>
1996 1995 1994
---------- ----- --------
<S> <C> <C> <C>
Statutory Federal income tax rate ..... 35.0% 35.0% 34.0%
State income taxes, net of
Federal benefit .............. 3.2 3.6 4.7
Other ........................ 2.8 2.4 1.1
---- ---- ----
41.0% 41.0% 39.8%
</TABLE>
F-10
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
.................................... 1996 1995
------------ --------
<S> <C> <C>
Deferred tax assets:
Valuation reserves.................. $ 5,726 3,324
Accrued expenses not deducted until paid 2,188 1,275
Other............................... - 2
------------ ------------
Total deferred tax assets........... 7,914 4,601
------------ ------------
Deferred tax liabilities:
Vendor discounts.................... 2,766 -
Depreciation........................ 4,241 2,725
Other............................... 805 470
------------ ------------
Total deferred tax liabilities...... 7,812 3,195
------------ ------------
Net deferred tax assets............. $ 102 1,406
</TABLE>
There was no valuation allowance for deferred tax assets at December 28, 1996 or
December 30, 1995.
5. NOTES PAYABLE AND LONG-TERM DEBT
The Company's primary sources of liquidity are provided through a
working capital financing agreement for $350.0 million, a revolving credit
facility of $40.0 million and convertible subordinated debentures of $55.25
million. The $350.0 million working capital financing agreement, which is
provided by an unrelated financial services organization, expires June 29, 1998.
At December 28, 1996, $100.8 million was outstanding under the working capital
line and the interest rate was 7.4% based on LIBOR. The working capital
financing agreement is secured by accounts receivable and inventories.
The Company entered into a revolving credit facility agreement in
February 1996 with an unrelated financial institution. The $40.0 million
revolving credit facility agreement expires in February 1998. At December 28,
1996, $40.0 million was outstanding under the revolving credit facility and the
interest rate was 6.8% based on LIBOR. The revolving credit facility is secured
by accounts receivable and inventories.
The working capital financing agreement and the revolving credit
facility agreement contain certain restrictive covenants, including the
maintenance of minimum levels of working capital, tangible net worth,
limitations on incurring additional indebtedness and restrictions on the amount
of net loss that the Company can incur. The Company was in compliance with the
covenants contained in the agreements at December 28, 1996.
F-11
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
<TABLE>
A summary of long-term debt follows:
1996 1995
------------ ------------
<S> <C> <C>
Private placement notes (a).............................. $ - 30,334
Convertible subordinated debentures (b).................. 55,250 -
------------ ------------
Total long-term debt............................. 55,250 30,334
Less current installments................................ - 6,667
------------ -------------
Long-term debt, excluding current installments... $ 55,250 23,667
</TABLE>
(a) The private placement notes were held by unaffiliated
insurance companies. The balances of the notes were paid in
full in December 1996.
(b) In June 1996, the Company issued $55.25 million of 6.0%
convertible subordinated debentures due June 15, 2006. The
debentures are convertible into common stock of the Company at
a conversion price of $24.00 per share, subject to adjustments
under certain circumstances, beginning on September 19, 1996.
The debentures are not redeemable by the Company prior to June
16, 2000 and thereafter the Company may redeem the debentures
at various premiums to principal amount. The debentures may
also be redeemed at the option of the holder at any time prior
to June 16, 2000 if there is a Change in Control (as defined
in the indenture) at a price equal to 100% of the principal
amount plus accrued interest at the date of redemption. The
net proceeds from the sale of the 6% debentures were used to
reduce a portion of the outstanding balance of the working
capital financing agreement which carried an interest rate at
the time of the debenture sale of 7.3%.
6. CREDIT ARRANGEMENTS
The Company has floor plan agreements to take advantage of vendor
financing programs. The agreements were secured by $122.7 million of the
Company's inventory at December 28, 1996 and $111.9 million at December 30,
1995. The Company has entered into dealer working capital financing agreements
with several financial services organizations which purchase, primarily,
accounts receivable from the Company. The Company had contingent liabilities of
$1.8 million at December 28, 1996 and $7.9 million at December 30, 1995 relating
to these agreements.
7. LEASES
The Company operates in leased premises which include the general
offices, warehouse facilities and Company-owned branches. Operating lease terms
range from monthly to ten years and generally provide for renewal options. Rent
expense for operating leases was approximately $12.0 million, $9.8 million, and
$8.6 million for the three years ended December 28, 1996, respectively.
F-12
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
Future minimum operating lease obligations for the years 1997 through
2001 are $12.6 million, $10.6 million, $8.9 million, $6.6 million and $5.7
million, respectively. It is anticipated that leases will be renewed or replaced
as they expire such that future lease obligations will approximate rent expense
for 1996.
8. EMPLOYEE RETIREMENT BENEFIT PLAN
The Company maintains a qualified savings plan under Section 401(k) of
the Internal Revenue Code (IRC) which covers substantially all full-time
employees. Annual contributions to the qualified plan, based on participant's
annual pay, are made by the Company. Participants may also elect to make
contributions to the plan. Employee contributions are matched by the Company up
to limits prescribed by the IRC. Company contributions to the plan approximated
$3.3 million in 1996, $2.4 million in 1995 and $1.8 million in 1994.
The Company maintains a nonqualified savings plan for employees whose
benefits under the qualified savings plans are reduced because of limitations
under Federal tax laws. Contributions made to this plan were not material.
9. LITIGATION
The Company is involved in a limited number of legal actions.
Management believes that the ultimate resolution of all pending litigation will
not have a material adverse effect on the Company's consolidated financial
statements.
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid are summarized as follows:
<TABLE>
................................. 1996 1995 1994
----------- ----------- -------
<S> <C> <C> <C>
Interest paid......................... $ 19,611 14,054 12,599
Income taxes paid..................... 8,176 6,931 890
Components of cash used for acquisitions as reflected in the
consolidated statements of cash flows are summarized as follows:
1996
Fair value of assets acquired $ 41,965
Liabilities assumed (11,436)
Fair value of common stock issued (7,143)
-------------
Cash paid at closing, net of cash acquired $ 23,386
</TABLE>
F-13
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
11. STOCK OPTION AND AWARD PROGRAMS
The Company has two stock plans approved by the shareholders in 1994
and 1990, and a nonqualified stock option plan approved by shareholders in 1987.
Options granted under the stock plans may be either nonqualified or incentive
stock options. The option price, vesting period and term under the stock plans
and the nonqualified stock option plan are set by the Compensation Committee of
the Board of Directors of the Company. The option price may not be less than the
fair market value per share at the time the option is granted. The vesting
period of options granted typically ranges from 2 to 3 years, and the term of
any option granted may not exceed ten years. The stock plans also permit the
issuance of restricted or bonus stock awards by the Compensation Committee. At
December 28, 1996, the Company had approximately 80,000 shares available for
issuance pursuant to subsequent grants under the plans.
Additional information as to shares subject to options is as follows:
<TABLE>
Weighted
average
Number of Exercise price exercise
options per option price
<S> <C> <C> <C>
Options outstanding at December 25, 1993 684,000 $ 5.85 to 19.75 13.73
Granted 193,500 8.00 to 12.00 10.20
Exercised (35,000) 7.25 to 14.62 11.74
Canceled (42,000) 7.02 to 14.50 12.21
-------------
Options outstanding at December 31, 1994 800,500 5.85 to 19.75 13.01
Granted 157,000 9.56 to 14.69 9.82
Exercised (90,000) 7.25 to 12.00 10.26
Canceled (68,500) 5.85 to 14.63 12.45
-------------
Options outstanding at December 30, 1995 799,000 5.85 to 19.75 12.76
Granted 36,500 35.56 35.56
Exercised (133,000) 5.85 to 14.63 10.77
Canceled (21,000) 5.85 to 14.63 9.56
-------------
Options outstanding at December 28, 1996 681,500 8.00 to 35.56 14.47
Exercisable at December 28, 1996 428,000 $ 8.00 to 19.75 12.74
</TABLE>
F-14
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
The Company accounts for stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. Accordingly, the Company
has not recognized compensation expense for its options granted in 1995 and
1996. In 1996, the Company adopted FASB Statement No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. FASB Statement No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in FASB Statement No. 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of FASB Statement
No. 123.
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $30.96 and $7.83, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield 0.0%, risk-free interest rate of
6.1%, expected volatility factor of 192.9%, and an expected life of 2.5 years;
1995 - expected dividend yield 0.0%, risk-free interest rate of 5.7%, expected
volatility factor of 133.8%, and an expected life of 3.7 years.
Since the Company applies APB Opinion No. 25 in accounting for its
plans, no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company recorded compensation cost
based on the fair value at the grant date for its stock options under FASB
Statement No. 123, the Company's net earnings for 1996 and 1995 would have been
reduced by approximately 1.9% and 0.6%, respectively, and the Company's earnings
per share, fully diluted, for 1996 and 1995 would have been reduced by
approximately 1.2% and 0.9%, respectively.
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under FASB Statement No. 123 is not reflected in the pro forma net earnings
amounts presented above, because compensation cost is reflected over the
options' vesting period of two and three years for the 1996 and 1995 options,
respectively. Compensation costs for options granted prior to January 1, 1995
are not considered.
F-15
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
<TABLE>
SCHEDULE
INACOM CORP. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Amounts in thousands)
Balance at Charged to Amounts Balance
beginning costs and written at end
of period expenses off(1) of period
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1996 -
Allowance for doubtful accounts.............. $ 3,537 1,626 778 4,385
Fiscal year ended December 30, 1995 -
Allowance for doubtful accounts.............. $ 2,626 2,308 1,397 3,537
Fiscal year ended December 31, 1994 -
Allowance for doubtful accounts.............. $ 2,784 1,691 1,849 2,626
(1) The deductions from reserves are net of recoveries.
</TABLE>
F-16
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
<TABLE>
June 28, December 28,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 30,720 31,410
Accounts receivable, net................................................ 257,358 288,407
Inventories............................................................. 464,145 386,592
Other current assets.................................................... 8,843 5,889
------------- ------------
Total current assets............................................... 761,066 712,298
------------- ------------
Other assets, net........................................................... 45,513 27,531
Cost in excess of net assets of business acquired, net of
accumulated amortizations................................................ 68,659 48,646
Property and equipment, net................................................. 69,674 59,125
------------- ------------
............................................................... $ 944,912 847,600
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 479,746 406,753
Notes payable........................................................... 120,000 140,770
Other current liabilities............................................... 79,451 64,472
------------- ------------
Total current liabilities.......................................... 679,197 611,995
------------- ------------
Long-term debt.............................................................. 55,250 55,250
Other long-term liabilities................................................. 3,453 3,525
Stockholders' equity:
Capitol stock:
Class A preferred stock of $1 par value
Authorized 1,000,000 shares; none issued....................... -- --
Common stock of $.10 par value. Authorized 30,000,000 shares;
issued 11,537,315 in 1997 and 10,850,008 shares in 1996........ 1,153 1,085
Additional paid-in capital......................................... 116,298 98,153
Retained earnings.................................................. 89,561 77,607
------------- ------------
............................................................... 207,012 176,845
Less:
Unearned restricted stock.......................................... -- (15)
------------- ------------
Total stockholders' equity......................................... 207,012 176,830
------------- ------------
............................................................... $ 944,912 847,600
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
------------- ------------- ------------- ---------
Revenues:
Computer products............................... $ 884,952 718,585 $ 1,657,705 1,316,307
Computer services............................... 60,607 30,201 108,238 58,340
Communication products and services............. 26,655 21,074 47,961 37,294
------------ ------------- ------------- --------------
Total...................................... 972,214 769,860 1,813,904 1,411,941
------------ ------------- ------------- --------------
Direct costs:
Computer products............................... 836,876 677,760 1,565,625 1,241,991
Computer services............................... 14,881 7,347 28,380 15,550
Communications products and services............ 21,583 16,620 37,782 29,086
------------ ------------- ------------- --------------
................................................ 873,340 701,727 1,631,787 1,286,627
------------ ------------- ------------- --------------
Gross margin......................................... 98,874 68,133 182,117 125,314
Selling, general and administrative expenses......... 80,354 55,588 147,671 102,829
------------ ------------- ------------- --------------
Operating income..................................... 18,520 12,545 34,446 22,485
Interest expense..................................... 7,148 5,046 14,184 9,919
------------ ------------- ------------- --------------
Earnings before income tax........................... 11,372 7,499 20,262 12,566
Income tax expense .................................. 4,663 3,075 8,308 5,152
------------ ------------- ------------- --------------
Net earnings......................................... $ 6,709 4,424 $ 11,954 7,414
Earnings per share
Primary......................................... $ .58 .43 $ 1.04 .72
Fully diluted................................... $ .52 .42 .94 .71
Common shares and equivalents outstanding
Primary...................................... 11,600 10,300 11,500 10,300
Fully diluted................................ 13,900 10,700 13,800 10,500
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
<TABLE>
Twenty-Six Weeks Ended
June 28, June 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings ..................................................................... $ 11,954 7,414
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization................................................. 14,256 9,720
Increase in accounts receivable............................................... (55,200) (41,182)
(Increase) decrease in inventories............................................ (74,070) 48,585
Increase in other current assets.............................................. (2,599) (395)
Increase (decrease) in accounts payable....................................... 68,840 (69,691)
(Decrease) increase in other long-term liabilities............................ (83) 226
(Decrease) increase in other current liabilities.............................. (7,107) 13,219
----------- ---------
Net cash used in operating activities.................................... (44,009) (32,104)
----------- ---------
Cash flows from investing activities:
Additions to property and equipment............................................... (19,836) (10,016)
Proceeds from notes receivable.................................................... 100 1,605
Business combinations............................................................. (4,100) --
Increase in other assets.......................................................... (12,085) (10,472)
----------- ---------
Net cash used in investing activities......................................... (35,921) (18,883)
----------- ---------
Cash flows from financing activities:
Proceeds from receivables sold.................................................... 100,000 --
(Payments of) proceeds from short-term debt....................................... (20,770) 5,741
Payments of long-term debt........................................................ -- (6,667)
Proceeds from sale of convertible subordinated debentures......................... -- 55,250
Proceeds from exercise of stock options........................................... 10 808
----------- ---------
Net cash provided by financing activities..................................... 79,240 55,132
----------- ---------
Net (decrease) increase in cash and cash equivalents.................................. (690) 4,145
Cash and cash equivalents, beginning of the period.................................... 31,410 20,690
Cash and cash equivalents, end of the period.......................................... $ 30,720 24,835
See accompanying notes to consolidated financial statements.
</TABLE>
F-19
<PAGE>
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
The condensed and consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The condensed
and consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996. The results of
operations for the thirteen and twenty-six weeks ended June 28, 1997 are not
necessarily indicative of the results for the entire fiscal year ending December
27, 1997.
2. ACCOUNTS RECEIVABLE
The Company has entered into an agreement to sell $200 million of accounts
receivable, with limited recourse, to an unrelated financial institution. The
agreement was initially entered into in June 1995 with respect to $100 million
of accounts receivable and was amended in January 1997 to sell an additional
$100 million of accounts receivable. New qualifying receivables are sold to the
financial institution as collections reduce previously sold receivables in order
to maintain a balance of $200 million sold receivables. On June 27, 1997, $46.6
million of additional accounts receivable were designated to offset potential
obligations under limited recourse provisions; however, historical losses on
Company receivables have been substantially less than such additional amount. On
June 28, 1997, the interest rate was 6.09%.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of computer hardware, software, voice and data equipment and
related materials.
4. EARNINGS PER COMMON SHARE
Primary earnings per share of common stock have been computed on the basis
of the weighted average number of shares of common stock outstanding after
giving effect to equivalent common shares from dilutive stock options. Fully
diluted earnings per share further assumes the conversion of the Company's
convertible subordinated debentures for the period they were outstanding.
5. MARKETING DEVELOPMENT FUNDS
Primary vendors of the Company provide various incentives, in cash or credit
against obligations, for promoting and marketing their product offerings. The
funds or credits received are based on the purchases or sales of the vendor's
products and are earned through performance of specific marketing programs or
upon completion of objectives outlined by the vendors. Funds or credits earned
are applied to direct costs or selling, general and administrative expenses
depending on the objectives of the program. Funds or credits from the Company's
primary vendors typically range from 1% to 3% of purchases from these vendors.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the condensed and consolidated statement of cash flows, the
Company considers cash and cash investments with a maturity of three months or
less to be cash equivalents.
Interest and income taxes paid are summarized as follows (dollars in
thousands):
1997 1996
-------- ------
Interest paid.................. $ 14,310 $ 9,924
Income taxes paid.............. 7,574 1,126
F-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Inacom
has agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
PaineWebber Incorporated are acting as representatives, has severally agreed to
purchase from Inacom, the respective amount of Debentures set forth opposite its
name below:
Principal
Underwriter Amount
Goldman, Sachs & Co....................
J.P. Morgan Securities Inc. ...........
PaineWebber Incorporated...............
- ------------------------............... ------------
Total $50,000,000
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Debentures offered
hereby, if any are taken.
The Underwriters propose to offer the Debentures in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less a concession of ___% of the principal amount. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of ___% of the
principal amount to certain brokers and dealers. After the Debentures are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
Inacom has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
$7,500,000 additional principal amount of the Debentures solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof which the principal amount
of Debentures to be purchased by each of them, as shown in the foregoing table,
bears to the Debentures offered hereby.
Inacom and its directors and executive officers have agreed during the
period beginning from the date of this Prospectus Supplement and continuing to
and including the date 90 days after the date of this Prospectus Supplement, not
to offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities of Inacom that are substantially similar to the shares
of the Common Stock, or any other security convertible into or exchangeable for,
or that represent the right to receive, shares of Common Stock or any such
similar securities, except for (i) shares of Common Stock issuable pursuant to
convertible debt securities, warrants and stock options outstanding on the date
of this Prospectus Supplement, (ii) shares of Common Stock (or securities
convertible or exchangeable in to Common Stock) to be issued solely in
connection with acquisitions, (iii) the shares of Common Stock offered in the
concurrent offering of Common Stock and (iv) the Debentures offered hereby
without the prior written consent of the Underwriters. The Company has agreed to
give Goldman, Sachs & Co. prompt notice of any issuance of Common Stock in
private placements in connection with acquisitions and not to register such
Common Stock for sale or resale during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement.
In connection with this offering, the Underwriters may purchase and
sell Debentures or Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions in connection with this offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Debentures; and syndicate
short positions involve the sale by the Underwriters of a greater number of
Debentures than they are required to purchase from the Company in this offering.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
Debentures sold in this offering for their account, may be reclaimed by the
syndicate if such Debentures are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Debentures, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the NYSE or otherwise.
Inacom has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-1
<PAGE>
No person has been authorized to give any information or
to make any representations other than those contained in
this Prospectus, and, if given or made, such information
or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities
other than the Securities to which it relates, or an offer to
sell or the solicitation of an offer to buy such Securities,
in any circumstance in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances,
create any implication that there has been no change in
the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time
subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
Prospectus Supplement
Prospectus Summary............................ S-3
Risk Factors.................................. S-6
Use of Proceeds............................... S-9
Price Range of Company Stock
and Dividend Policy......................... S-10
Capitalization................................ S-11
Selected Consolidated Financial Data.......... S-12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................... S-13
Business.. S-21
Management.................................... S-28
Description of Debentures..................... S-33
Certain Federal Income Tax Consequences....... S-37
Legal Matters................................. S-40
Experts....................................... S-40
Index to Consolidated Financial
Statements and Financial Statement
Schedule.................................... F-1
Underwriting.................................. U-1
Prospectus
Available Information......................... 2
Incorporation of Certain
Documents By Reference....................... 3
The Company................................... 4
Use of Proceeds............................... 5
Ratios of Earnings to Fixed Charges........... 6
Description of Debt Securities................ 7
Description of Capital Stock.................. 12
Plan of Distribution.......................... 15
Legal Matters................................. 16
Experts....................................... 16
$50,000,000
InaCom Corp.
_____% CONVERTIBLE
SUBORDINATED DEBENTURES
DUE ____ 2004
--------------
PROSPECTUS
___________, 1997
-------------
Goldman, Sachs & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
----------------------------------------------------------
----------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED _____________ 1997
3,000,000 SHARES
InaCom Corp.
COMMON STOCK
(par value $.10 per share)
--------------------
All of the shares of Common Stock offered hereby are being offered by
InaCom Corp.
Concurrently with this offering, the Company is offering its ___%
Convertible Subordinated Debentures due __________, 2004 in the aggregate amount
of $50,000,000 under a separate Debenture Prospectus. Neither offering is
conditioned upon consummation of the other offering. See "Debentures Offering".
SEE "RISK FACTORS" ON PAGES S-6 TO S-9 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ICO." On September 26, 1997, the last reported sales price of the Common Stock
on the New York Stock Exchange was $37.25 per share. See "Price Range of Common
Stock."
------------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
Initial Public Underwriting Proceeds To
Offering Price Discount(1) Company(2)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(3)........................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deduction of expenses estimated at $165,000 payable by the Company.
(3) The Company has granted the Underwriters an option exercisable for 30 days
after the date hereof to purchase up to 450,000 additional shares of Common
Stock at the initial public offering price per share, less the underwriting
discount. If such option is exercised in full, the total initial public offering
price, underwriting discount and proceeds to Inacom will be $ _________,
$__________ and $__________, respectively. See "Underwriting."
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in book-entry form only through the
facilities of the Depository Trust Company in New York, New York, on or about
__________, 1997, against payment therefor in immediately available funds.
Goldman, Sachs & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
------------------------
The date of this Prospectus Supplement is ___________, 1997.
<PAGE>
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>
Photo collage of five photos in arrow shapes pointing clockwise at the adjacent
photo.
Caption: Needs Assessment and Technology Planning
Photo of two men and one woman discussing a company's information technology
needs.
Caption: Technology Procurement and Configuration
Photo of two technicians configuring computers at Inacom's Ontario, California
production facility.
Caption: Systems Integration and Systems Management
Photo of a technician working at a client company's technology nerve center.
Caption: Ongoing Systems Support and Distributed Support
Photo of a technician at Inacom's new Technology Services Center in Omaha,
Nebraska assisting a technology client.
Caption: Asset Management
Photo of a bar code and tracking system used to manage technology assets.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
================================================================================
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information and Consolidated Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus Supplement and Prospectus
or incorporated by reference. Except as otherwise indicated herein, all
information in this Prospectus Supplement and Prospectus assumes no exercise of
the Underwriters' over-allotment option.
The Company
InaCom Corp. (the "Company" or "Inacom") is a leading single source
provider of information technology products and technology management services
designed to enhance the productivity of information systems primarily for
Fortune 1000 clients. The Company offers a comprehensive range of value added
services to manage the entire information system life cycle including: (1) needs
assessment and technology planning, (2) technology procurement and
configuration, (3) systems integration and systems management, (4) ongoing
systems support and distributed support, and (5) asset management. Inacom's
expertise includes the integration of voice and data communications. Inacom
sells its products and services through a marketing network of 51 Company-owned
business centers throughout the United States that focus on serving large
corporations. The Company also has a network of approximately 1,000 value added
resellers that typically have a regional, industry, or specific product focus.
The Company has international affiliations in Europe, Asia, Central and South
America, the Caribbean, Middle East, Africa, Canada and Mexico to satisfy the
technology management needs of its multinational clients. Inacom is the largest
purchaser of IBM computer products and believes it is the second largest
purchaser of Compaq computer products worldwide.
Inacom's expertise in procurement, configuration and delivery of PC's,
peripherals and software from a wide range of major vendors enables the Company
to customize information systems to meet specific client needs. In addition,
Inacom provides its clients with numerous benefits including in-depth product
knowledge and experience, competitive pricing from its purchasing arrangements
and a wide array of services supporting client needs on an on-going basis.
Management believes that the Company's expertise in procuring,
configuring and delivering information technology products and providing
technology management services provides a strategic advantage in addressing
certain industry trends. In particular, businesses increasingly are seeking to
outsource the management and support of their information technology systems
with fewer providers. At the same time, the demand for cost-effective,
customized technology systems has led a number of manufacturers, including IBM,
Compaq and Hewlett-Packard, to move from "build-to-forecast" delivery systems to
"build-to-order" programs in which they ship computer components to a limited
number of qualified technology providers, including Inacom, for final assembly
and configuration. Management also believes that these trends will lead to
further consolidation in the highly fragmented technology management services
industry. As a result of the Company's experience in integrating acquired
businesses, management believes that the Company is well-positioned to take
advantage of strategic acquisition opportunities as they arise.
Inacom's earnings growth has been enhanced by its rapidly expanding
services business. In the first six months of fiscal 1997, computer services
provided 47.7% of net earnings, more than double the net earnings from the same
period in 1996. Computer products contributed 40.8% and communications products
and services provided 11.5% of net earnings in the same period. Inacom expects
that earnings from services will continue to grow more rapidly than earnings
from its other business segments given Inacom's broad offering of services to
its clients and the industry trends discussed above.
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals, Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are: (i) to leverage client
relationships to continue expanding higher-margin services revenues, (ii) to
capitalize on the trend toward build-to-order/configure-to-order systems, (iii)
to expand offerings and geographic coverage through strategic acquisitions, and
(iv) to capitalize on the convergence of data and voice communications.
S-3
<PAGE>
================================================================================
The Offering
Common Stock, $.10 par value
(the "Common Stock")........... 3,000,000 shares
Common Stock Outstanding
after the Offering............. 14,566,707 shares(1)
Use of Proceeds................ To repay, in part, indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Trading Symbol................. The Common Stock is traded on the New
York Stock Exchange ("NYSE") under the
symbol "ICO".
(1) Does not include (i) 1,132,948 additional shares reserved for issuance
pursuant to currently outstanding options under the Company's 1997, 1994 and
1990 stock plans and 1987 nonqualified stock option plan, (ii) 2,302,084
additional shares reserved for issuance pursuant to the conversion of the
Company's 6% Convertible Subordinated Debentures due June 15, 2006 or (iii)
such additional shares which will be reserved for issuance pursuant to the
conversion of the Company's ___% Convertible Subordinated Debentures due
_________, 2004 which the Company is offering concurrently with this
offering of Common Stock.
================================================================================
S-4
<PAGE>
================================================================================
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $ 1,014,466 $ 1,545,227 $ 1,800,539 $ 2,200,344 $3,102,055 $ 1,411,941 $ 1,813,904
Earnings (loss) before income taxes 17,959 19,693 (3,749) 19,833 31,719 12,566 20,262
Net earnings (loss).......... 10,734 11,975 (2,256) 11,707 18,733 7,414 11,954
Earnings (loss) per share, $ 1.25 $ 1.26 $ (0.22) $ 1.14 $ 1.64 $ 0.71 $ 0.94
fully diluted
Weighted average shares outstanding, 8,566 9,500 10,300 10,300 12,000 10,500 13,800
fully diluted................
Balance Sheet Data: June 28, 1997
As As Adjusted
Actual Adjusted(1) Pro Forma(2)
Working capital........................................................................ $ 81,869 $ 187,473 $ 235,723
Total assets........................................................................... 944,912 944,912 980,516
Long-term debt......................................................................... 55,250 55,250 105,250
Stockholders' equity................................................................... 207,012 312,616 312,616
</TABLE>
(1) As adjusted to give effect to the sale of Common Stock offered hereby.
(2) As adjusted to give effect to the sale of Common Stock offered hereby and
the sale of the debentures, as described in the following paragraph, and the
application of the estimated net proceeds of both offerings. See "Use of
Proceeds".
Debenture Offering
Concurrently with the offering, the Company is offering, by separate
prospectus, $50,000,000 of its ___% Convertible Subordinated Debentures due
________, 2004 (the "Debentures") (up to $57,500,000 of Debentures if the
underwriters' over-allotment option is exercised in full). The consummation of
the offering of the Common Stock made hereby is not conditioned upon the
consummation of the Debentures offering.
================================================================================
S-5
<PAGE>
RISK FACTORS
The Prospectus and this Prospectus Supplement, including documents
incorporated by reference herein, contain certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Such statements reflect the current view
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including factors described in "Risk Factors"
herein and in documents incorporated herein by reference. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
believed, estimated or expected.
Dependence Upon Key Vendors
Inacom's business is dependent in large measure upon its relationship
with key vendors. A substantial portion of Inacom's computer products revenue is
derived from the sales of the products of key vendors, including Compaq, IBM and
Hewlett-Packard. During the fiscal year ended December 28, 1996, sales of
Compaq, IBM and Hewlett-Packard products accounted for approximately 26%, 24%
and 15%, respectively, of the Company's revenues. Inacom derives a substantial
portion of its communications products and services revenue from the sale of
Lucent Technologies products and AT&T services. Although Inacom considers its
relationships with its key vendors to be good, there can be no assurance that
these relationships will continue as presently in effect or that changes in
marketing approach by one or more such key vendors and other suppliers would not
adversely affect Inacom. Inacom's agreements with these vendors are on a
non-exclusive basis and may be terminated by the vendors on notice typically
ranging from 30 to 90 days. Termination of, or a material change to, or a
nonrenewal of Inacom's agreements with Compaq, IBM and Hewlett-Packard, a
material decrease in the level of marketing development programs offered by
computer vendors, or an insufficient or interrupted supply of vendors' product
would have a material adverse effect on Inacom's business. See "Business --
Products and Vendors."
Impact of Vendor Incentive Funds
The key vendors of Inacom provide various incentives for promoting and
marketing their product offerings. Funds or credits received by Inacom are based
either on the sales of the vendor's products through the independent reseller
and Inacom-owned channels, or on Inacom's purchases from the respective vendor.
The three major forms of vendor incentives received by Inacom are co-operative
funds, market development funds and vendor rebates. The funds or credits are
earned through performance of specific marketing programs or upon completion of
objectives outlined by the vendors. These funds or credits from Inacom's primary
vendors typically range from 1% to 5% of purchases by Inacom. A material
decrease in the level of vendor incentive funding or credits would have a
material adverse effect on Inacom's business. See "Business -- Products and
Vendors."
Inventory Management Risks
The personal computer industry is characterized by rapid product
improvement and technological change resulting in relatively short product life
cycles and rapid product obsolescence, which can place inventory at considerable
valuation risk. Inacom's information technology suppliers generally provide
price protection intended to reduce the risk of inventory devaluation. However,
many of these suppliers have announced plans to reduce the number of days for
which they will provide price protection. There can be no assurance that vendors
will continue such policies or that unforeseen new product developments and
related inventory obsolescence will not materially adversely affect Inacom's
business.
S-6
<PAGE>
Build-to-Order Delivery Model
The system used by major manufacturers, such as IBM, Compaq and
Hewlett-Packard to deliver computer systems to business clients through
technology providers such as Inacom is changing from a build-to-forecast model
to a build-to-order model. See "Business - Industry". The potential advantages
to technology providers such as Inacom from such a system -- reduced inventory
requirements, improved margins and market share gains -- involve potential
disadvantages including a decrease in the number of days of price protection
available from the manufacturers and the requirement that Inacom meet strict
manufacturer final assembly qualification standards. The failure of Inacom to
meet the manufacturer qualification standards, or the inability of Inacom to
manage its inventory to levels to meet client demands and within the
manufacturer's price protection limits, could have a material adverse effect on
Inacom's business.
Dependence Upon Key Management and Technical Personnel
Inacom's success depends to a significant extent on its ability to
attract and retain key personnel. Inacom is particularly dependent on its senior
management team and technical personnel. Inacom's strategy for growth in the
sale of computer services and communication services depends on its ability to
attract and retain qualified technical personnel, including systems engineers
and communications specialists. Competition for technical personnel is intense
and no assurance can be given that Inacom will be able to recruit and retain
such personnel. The failure to recruit and retain senior management and
technical personnel could have a material adverse effect on Inacom's business.
Management of Expanding Operations and Increased Service Focus
The Company's growth resulting from expanding operations and its
increased focus on the complete life cycle technological needs of its business
clients places significant demands on the Company's management, operational and
technical resources. Such growth and increased life cycle service focus are
expected to continue to challenge the Company's sales, marketing, technical and
support personnel and senior management. The Company's future performance will
depend in part on its ability to manage expanding operations and to adapt its
operational systems to respond to changes in its business. In particular, the
Company's success will depend upon its key management and technical personnel.
See "Dependence Upon Key Management and Technical Personnel" above. The failure
of the Company to effectively manage its growth and increased life cycle service
focus effectively or to train its technical field personnel could have a
material adverse effect on Inacom's business.
Funding Requirements; Interest Rate Sensitivity
Inacom's business requires significant working capital to finance
product inventory and accounts receivable. Inacom has funded its inventory and
working capital requirements through an inventory and working capital financing
agreement, a revolving credit facility and the public sale of debentures. The
borrowings under these agreements typically bear a floating rate of interest.
Due to the Company's significant working capital needs, an increase in interest
rates could have a material adverse effect on Inacom's results of operation.
There can be no assurance that sufficient equity or debt financing will be
available on terms acceptable to Inacom or that Inacom will be able to refinance
its existing indebtedness. The inability of Inacom to refinance its existing
indebtedness or to obtain a sufficient amount of alternative financing would
have a material adverse effect on Inacom's business.
Risks of Financial Leverage
The Company's business requires significant working capital and the
primary sources of such working capital are provided through an inventory and
working capital financing agreement, the $55.25 million in aggregate principal
amount of 6% convertible subordinated debentures issued in June 1996, and a
revolving credit facility of $40.0 million. On June 28, 1997, $80.0 million was
outstanding under the working capital portion of the inventory and working
capital financing agreement and the interest rate was 7.5% based on three-month
LIBOR. The inventory and working capital agreement expires in June 1998. The
debentures are unsecured subordinated debt
S-7
<PAGE>
of the Company. On June 28, 1997, $40.0 million was outstanding under the
revolving credit facility and the interest rate was 6.99% based on three-month
LIBOR. The revolving credit facility expires in February 1998. The degree to
which the Company is leveraged could have important consequences to holders of
the Common Stock, including the following: (i) the Company's ability to obtain
other financing in the future may be impaired; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness; and (iii) a high degree of leverage
may make the Company more vulnerable to economic downturns and may limit the
ability to withstand competitive pressures. The Company's ability to make
scheduled payments on or, to the extent not restricted pursuant to the terms
thereof, to refinance its indebtedness depends on its financial and operating
performance, which is subject to prevailing economic conditions and to
financial, business and other factors beyond its control.
Competition
All aspects of the technology management services industry are highly
competitive. The technology management services industry continues to experience
a significant amount of consolidation. In the future Inacom may face fewer but
larger and better financed competitors as a consequence of such consolidation.
Inacom competes for potential clients, including national accounts, with
numerous resellers, distributors and service providers. Several computer
manufacturers have expanded their channels of delivery, pricing and product
positioning and compete with Inacom's marketing network for potential clients.
Other competitors operate mail-order or discount stores offering clones of major
vendor products. Inacom also competes with computer technology providers in the
recruitment and retention of franchisees and independently-owned resellers.
Inacom competes in the computer services division with a large number of service
providers, including IBM through its Global Services division, Andersen
Consulting, EDS, CompuCom Systems, ENTEX, GE Capital Technology Management
Services, IKON Office Solutions and Vanstar Corp. Competition in the
communications products and services industry is also intense, and includes
entities which are also significant vendors of Inacom, such as Lucent
Technologies and AT&T. Certain competitors and manufacturers are substantially
larger than Inacom and have greater financial, technical, service and marketing
resources. The level of future sales and earnings achieved by Inacom in any
period may be adversely affected by a number of competitive factors, including
an increase in direct sales by vendors to independent resellers and/or clients
and increased computer client preference for mail-order or discount store
purchases of clones of major vendor products.
Acquisitions
Inacom's strategy includes effecting acquisitions and strategic
relationships in selected geographic market and service areas. Acquisitions
involve a number of special risks, including the incorporation of acquired
products and services into Inacom's offerings, the potential loss of key
employees of the acquired business, the valuation of the acquired business, the
incurrence of additional debt and the financial impact of goodwill amortization.
Inacom expects to issue equity securities to consummate certain acquisitions,
which may cause dilution to current stockholders. No assurance can be given that
Inacom will have adequate resources to consummate acquisitions, integrate the
acquired businesses or that any such acquisitions will be successful in
enhancing Inacom's business.
Dependence on Information Systems
The Company depends on a variety of information systems to provide it
with a competitive advantage. Although the Company has not in the past
experienced significant failures or down time of its proprietary procurement and
delivery system or any of its other information systems, any such failure or
significant down time could prevent the Company from taking orders and/or
shipping product and could prevent clients from accessing price and product
availability information from the Company. In such event, the Company could be
at a severe disadvantage in determining appropriate product pricing or the
adequacy of inventory levels or in reacting to rapidly changing market
conditions. A failure of the Company's information systems which impacts any of
these functions could have a material adverse effect on the Company's business.
In addition, the inability of the Company to attract and retain the
highly-skilled personnel required to implement, maintain, and operate its
centralized information
S-8
<PAGE>
processing system and the Company's other information systems could have a
material adverse effect on the Company's business.
Gross Margin Risks
Gross margins from the sale of computer products have declined over the
past several years as a result of computer product price reductions and intense
competition. Inacom has responded by reducing operating expenses as a percentage
of revenue and by focusing on sales of higher-margin computer services and
communication services. There can be no assurance that gross margins for
computer products will not continue to decline or that Inacom will be successful
in reducing operating expenses as a percentage of revenue. Furthermore, there
can be no assurance that gross margins for computer services and communications
services will not also decline or that Inacom will be able to continue to
successfully grow and compete in such service markets.
Certain Anti-Takeover Effects
Certain provisions of the Company's Certificate of Incorporation and
Delaware law may be deemed to have anti-takeover effects. The Company's
Certificate of Incorporation provides that the Board of Directors may issue
additional shares of Common Stock or establish one or more classes or a series
of Preferred Stock with such designations, relative voting rights, dividend
rights, liquidation and other rights that the Board of Directors fixes without
stockholder approval. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law which
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
See "Description of Capital -- Preferred Stock" and "Description of Capital
Stock -- Section 203 of the Delaware General Corporation Law" in the Prospectus.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock
(assuming an offering price of $37.25 per share, the last reported share price
of the Common Stock on the NYSE on September 26, 1997) and the Debentures being
offered concurrently are expected to be $105,604,000 and $48,250,000,
respectively ($121,444,000 and $55,488,000, respectively if the Underwriters'
over-allotment options for the offerings are exercised in full), after deducting
the discounts and commissions and the estimated offering expenses payable by the
Company. The Company currently anticipates that approximately $120,000,000 of
such net proceeds will be used to repay, in part, borrowings under the Company's
short-term revolving lines of credit which borrowings are made for working
capital purposes and can be reborrowed at any time. The reduction in short-term
borrowings will strengthen the Company's balance sheet and provide the Company
with additional debt capacity to grow its business internally and through
acquisitions. Borrowings outstanding under such lines of credit were $80 million
and $40 million at June 28, 1997 and the annual interest rate was 7.5% and
6.99%, respectively. The balance of the net proceeds will be used for general
corporate purposes. See "Capitalization."
S-9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Prior to September 12, 1997, the Common Stock traded in the
over-the-counter market and was quoted on the NASDAQ National Market under the
symbol "INAC". The Common Stock commenced trading on the NYSE on September 12,
1997, under the symbol "ICO." The following table sets forth the quarterly high
and low sales prices for the Common Stock as reported by the NASDAQ prior to
September 12, 1997 and by the NYSE thereafter.
<TABLE>
High Low
---------- -----------
<S> <C> <C>
Fiscal Year Ended December 30, 1995
First Quarter........................ $ 9.38 $ 7.00
Second Quarter....................... 14.25 8.25
Third Quarter........................ 15.25 12.25
Fourth Quarter....................... 15.12 9.50
Fiscal Year Ended December 28, 1996
First Quarter........................ $ 18.50 $ 13.25
Second Quarter ...................... 24.25 15.38
Third Quarter........................ 35.88 15.38
Fourth Quarter....................... 39.25 29.50
Fiscal Year Ending December 27, 1997
First Quarter........................ $ 40.63 $ 20.63
Second Quarter....................... 32.88 20.00
Third Quarter........................ 37.63 29.75
Fourth Quarter
(through October __, 1997)......... [--] [--]
</TABLE>
On September, 26, 1997 the last reported sales price of the Common
Stock on the NYSE was $37.25. As of August 1, 1997 the Company estimates that
there were approximately 5,300 beneficial holders of the Company's Common Stock.
The Company has never declared or paid a cash dividend to stockholders.
The Company's Board of Directors presently intends to retain all earnings to
finance the expansion of the Company's operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the Company's earnings, capital
requirements and other factors considered relevant by the Company's Board of
Directors. Certain of the Company's debt agreements restrict the amount of
dividends which may be paid by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Liquidity and
Capital Resources."
S-10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 28, 1997, and as adjusted to give effect to the application of estimated
net proceeds of $105,604,000 from the sale by the Company of the Common Stock
and $48,250,000 from the sale by the Company of the Debentures. The information
set forth below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
June 28, 1997
As Adjusted
Actual As Adjusted(1) Pro Forma(2)
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalent.................................. $ 30,720 $ 30,720 $ 64,574
============== ============ ============
Short-term debt........................................... $ 120,000 $ 14,396 ---
============== ============ ============
Long-term debt............................................ $ 55,250 $ 55,250 $ 105,250
Stockholders' equity:
Capital stock:
Class A preferred stock, $1 par value;
authorized 1,000,000 shares; none issued........... -- -- --
Common stock, $.10 par value; authorized
30,000,000 shares; 11,537,315 shares
issued and outstanding; 14,537,315 shares issued
and outstanding as adjusted(3)..................... 1,153 1,453 1,453
Additional paid-in capital............................ 116,298 221,602 221,602
Retained earnings..................................... 89,561 89,561 89,561
-------------- ------------ ------------
Total stockholders' equity......................... 207,012 312,616 312,616
-------------- ------------ ------------
Total capitalization............................ $ 262,262 $ 367,866 $ 417,866
============== ============ ============
</TABLE>
(1) As adjusted to give effect to the sale of the Common Stock offered hereby.
(2) Assumes consummation of the offering of the Debentures concurrently with the
consummation of the offering of Common Stock.
(3) Does not include (i) 1,132,948 additional shares reserved for issuance
pursuant to currently outstanding options under the Company's 1997, 1994 and
1990 stock plans and 1987 nonqualified stock option plan, (ii) 2,302,084
additional shares reserved for issuance pursuant to the conversion of the
Company's 6% Convertible Subordinated Debentures due June 15, 2006 or (iii) such
additional shares which will be reserved for issuance pursuant to the conversion
of the Company's ____% Convertible Subordinated Debentures due _____________,
2004 which the Company is offering concurrently with this offering of Common
Stock.
S-11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data under the captions "Statement
of Operations Data" and "Balance Sheet Data" are derived from the Company's
Annual Reports on Form 10-K for each of the years ended December 26, 1992,
December 25, 1993, December 31, 1994, December 30, 1995 and December 28, 1996
which have been audited by KPMG Peat Marwick LLP, independent public
accountants, and such data as of and for the twenty-six weeks ended June 29,
1996 and June 28, 1997 have been derived from the Company's unaudited Quarterly
Reports on Form 10-Q. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and the independent
auditors' report and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Selected Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $1,014,466 $1,545,227 $1,800,539 $2,200,344 $3,102,055 $1,411,941 $1,813,904
Direct costs.................. 895,276 1,375,796 1,631,820 1,996,538 2,818,696 1,286,627 1,631,787
---------- --------- ---------- ---------- ---------- ---------- ----------
Gross margin.................. 119,190 169,431 168,719 203,806 283,359 125,314 182,117
Selling, general and
administrative expenses..... 93,267 141,142 160,437 169,338 231,235 102,829 147,671
---------- --------- --------- --------- ---------- ---------- ----------
Operating income.............. 25,923 28,289 8,282 34,468 52,124 22,485 34,446
Interest expense.............. 7,964 8,596 12,031 14,635 20,405 9,919 14,184
---------- --------- --------- --------- ---------- -------- ---------
Earnings (loss) before income
taxes....................... 17,959 19,693 (3,749) 19,833 31,719 12,566 20,262
Income tax expense (benefit).. 7,225 7,947 (1,493) 8,126 12,986 5,152 8,308
Cumulative effect of change in
accounting for taxes........ -- 229 -- -- -- -- --
--------- --------- -------- --------- --------- -------- ---------
Net earnings (loss)........... $ 10,734 $ 11,975 $ (2,256) $ 11,707 $ 18,733 $ 7,414 $ 11,954
========= ========= ========= ========= ========= ======== =========
Earnings (loss) per share,
fully diluted............... $ 1.25 $ 1.26 $ (0.22) $ 1.14 $ 1.64 $ .71 $ .94
========= ========= ========== ========= ========= ======== =========
Weighted average shares
outstanding, fully diluted.. 8,566 9,500 10,300 10,300 12,000 10,500 13,800
========= ========= ========== ========= ========= ======== =========
Balance Sheet Data:
Working capital............... $ 65,901 $ 67,936 $ 78,759 $ 90,940 $ 100,303 $135,408 $ 81,869
Total assets.................. 288,365 456,894 519,875 624,238 847,600 631,854 944,912
Long-term debt................ 36,800 20,000 30,333 23,667 55,250 68,850 55,250
Stockholders' equity.......... $ 101,275 $ 136,491 $ 135,590 $ 148,775 $ 176,830 $158,313 $ 207,012
Certain Data As A Percentage of Revenues
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------ ------- ------ ------
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs....................... 88.3 89.0 90.6 90.7 90.8 91.1 90.0
------ ------ ------- ------ ------- ------ ------
Gross margin....................... 11.7 11.0 9.4 9.3 9.2 8.9 10.0
Selling, general and administrative
expenses 9.2 9.1 8.9 7.7 7.5 7.3 8.1
------ ------ ------- ------ ------- ------ ------
Operating income................... 2.5 1.9 0.5 1.6 1.7 1.6 1.9
Interest expense................... 0.8 0.6 0.7 0.7 0.7 0.7 0.8
------ ------ ------- ------ ------- ------ ------
Earnings (loss) before income tax.. 1.7 1.3 (0.2) 0.9 1.0 0.9 1.1
Income tax expense (benefit)....... 0.7 0.5 (0.1) 0.4 0.4 0.4 0.4
------ ------ ------- ------ ------- ------ ------
Net earnings (loss)................ 1.0% 0.8% (0.1)% 0.5% 0.6% 0.5% 0.7%
====== ====== ======= ====== ======= ====== ======
</TABLE>
S-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Inacom is a leading single source provider of information technology
products and technology management services designed to enhance the productivity
of information systems, primarily for Fortune 1000 clients. The Company offers a
comprehensive range of value added services to manage the entire information
system life cycle including: (1) needs assessment and technology planning, (2)
technology procurement and configuration, (3) systems integration and systems
management, (4) ongoing systems support and distributed support, and (5) asset
management.
The Company generates revenue, gross margin and earnings by providing
products and services to its clients throughout the life cycle of a computer
system. These revenues, gross margin and earnings are comprised of three main
classifications; (i) computer product sales, (ii) computer services and (iii)
communication products and services and are provided through the Company's
marketing network which consists of Company-owned business centers and
independent value added resellers. Computer product sales are derived from the
sale of microcomputer systems, workstations and related products. Computer
services are derived from the sale of technology procurement services, system
integration services and system support services. Communication products and
services are derived from the sale of voice and data equipment, long distance
services and convergence technology through the Company's communications
division.
The Company recognizes revenue from computer product sales upon
shipment to its clients. Revenues from consulting and other computer services
are recognized as the Company performs the services. Revenues from maintenance
and extended warranty agreements are recognized ratably over the term of the
agreement. Extended warranty costs are accounted for on an accrual basis and are
recognized under the sales method.
Results of Operations
The following table sets forth, for the indicated periods, revenues,
gross margins and net earnings of the Company segmented by the three main
classifications.
<TABLE>
Summary of Operating Results
(in thousands)
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28, June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Computer products....... $1,680,397 $2,047,215 $2,885,019 $1,316,307 $1,657,705 $ 718,585 $ 884,952
Computer services....... 85,406 95,476 136,888 58,340 108,238 30,201 60,607
Communication products
and services.......... 34,736 57,653 80,148 37,294 47,961 21,074 26,655
---------- ---------- ---------- ---------- --------- ---------- ---------
Total......... $1,800,539 $2,200,344 $3,102,055 $1,411,941 $1,813,904 $ 769,860 $ 972,214
========== ========== ========== ========== ========== ========== =========
Gross margin:
Computer products....... $ 113,797 $ 122,386 $ 162,651 $ 74,316 $ 92,080 $ 40,825 $ 48,076
Computer services....... 52,506 67,599 103,228 42,790 79,858 22,854 45,726
Communication products
and services.......... 7,516 13,821 17,480 8,208 10,179 4,454 5,072
---------- ---------- ---------- ---------- --------- ---------- ---------
Total......... $ 173,819 $ 203,806 $ 283,359 $ 125,314 $ 182,117 $ 68,133 $ 98,874
========== ========== ========== ========== ========== ========== =========
Net earnings (loss):
Computer products....... $ (659) $ 5,418 $ 9,703 $ 4,102 $ 4,883 $ 2,545 $ 2,550
Computer services....... 2,527 5,272 7,381 2,796 5,691 1,669 3,464
Communication products
and services.......... 77 1,017 1,649 516 1,380 210 695
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total......... $ 1,945 $ 11,707 $ 18,733 $ 7,414 $ 11,954 $ 4,424 $ 6,709
========== ========== ========== ========== ========== ========== =========
</TABLE>
S-13
<PAGE>
(1) Gross margin and net earnings exclude the impact of non-recurring charges
recognized in the second quarter of 1994. (2) Net earnings include the impact of
non-recurring charges of $991,000 in the fourth quarter of 1996.
The following table sets forth, for the indicated periods, the
percentage mix of revenue and net earnings of the Company by the three main
classifications.
<TABLE>
Percentage Mix of Revenues and Net Earnings
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28 June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Computer products....... 93.3% 93.1% 93.0% 93.3% 91.4% 93.4% 91.1%
Computer services....... 4.7 4.3 4.4 4.1 6.0 3.9 6.2
Communication products
and services.......... 2.0 2.6 2.6 2.6 2.6 2.7 2.7
------- ------- ------- -------- -------- -------- -----
Total......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======== ======== ======== =====
Net earnings:
Computer products....... (33.9)% 46.3% 51.8% 55.3% 40.8% 57.5% 38.0%
Computer services....... 129.9 45.0 39.4 37.7 47.7 37.7 51.6
Communication products
and services.......... 4.0 8.7 8.8 7.0 11.5 4.8 10.4
------- ------- ------- -------- -------- -------- -----
Total......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======== ======== ======== =====
</TABLE>
The following table sets forth, for the indicated periods, the gross margin
percentage of the three main classifications and the consolidated gross margin
percentage.
<TABLE>
Gross Margin Percentages
Fiscal Year Ended December Twenty-Six Weeks Ended Thirteen Weeks Ended
June 29, June 28 June 29, June 28,
1994(1) 1995 1996(2) 1996 1997 1996 1997
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross margin:
Computer products....... 6.8% 6.0% 5.6% 5.7% 5.6% 5.7% 5.4%
Computer services....... 61.5 70.8 75.4 73.4 73.8 75.7 75.5
Communication products
and services.......... 21.6 24.0 21.8 22.0 21.2 21.1 19.0
Consolidated gross margin.. 9.7 9.3 9.1 8.9 10.0 8.9 10.2
(1) Gross margin and net earnings exclude the impact of non-recurring charges
recognized in the second quarter of 1994.
(2) Net earnings include the impact of non-recurring charges of $991,000 in the fourth quarter of 1996.
</TABLE>
Second Quarter and First Six Months of 1997 Compared to
Second Quarter and First Six Months of 1996
Revenues. Revenues for the second quarter and first six months of 1997
increased $202.4 million or 26.3% and $402.0 million or 28.5% over the second
quarter and first six months of 1996, respectively. Revenue growth resulted
primarily from computer product sales which increased $166.4 million or 23.2%
and $341.4 million or 25.9% over the second quarter and first six months of
1996, respectively. Revenues from computer services increased $30.4 million or
100.7% and $49.9 million or 85.5% over the second quarter and first six months
of 1996, respectively. Revenues from communication products and services
increased $5.6 million or 26.5% and $10.7 million or 28.6% over the second
quarter and first six months of 1996, respectively.
Revenues increased primarily as a result of an increase in products
shipped directly to the end-user client, overall industry growth and the
acquisitions completed by the Company during 1996 and 1997. The increase in
revenues related to the acquisitions was approximately $27.5 million and $52.3
million over the second quarter and first six months of 1996, respectively. The
increase in computer product sales resulted primarily from an increase
S-14
<PAGE>
in sales through the Company-owned business centers ($129.1 million or 39.2% and
$222.2 million or 35.9% over the second quarter and first six months of 1996,
respectively) and through an increase in sales through the independent reseller
channel ($49.0 million or 12.0% and $136.1 million or 18.7% over the second
quarter and first six months of 1996, respectively).
Revenues from computer services increased as a result of increased
sales efforts for such service offerings, the inclusion of these services with
increasing computer product sales and the recent acquisitions completed by the
Company. The increase in computer services sales resulted primarily from an
increase in sales through the Company-owned business centers ($15.0 million or
65.4% and $24.8 million or 55.9% over the second quarter and first six months of
1996, respectively). The increase in computer services revenues related to
acquisitions was approximately $9.4 million and $13.4 million over the second
quarter and first six months of 1996, respectively. Revenues from communication
products and services increased as a result of broad based growth from the
communications product offerings.
Gross Margins. The increase in the Company's gross margin percentages
for the first six months of 1997 versus the same period in 1996 was primarily a
result of the increase in mix of higher-margin computer services and
communications products and services versus lower-margin computer products. The
decrease in gross margin percentage for computer products resulted primarily
from a decrease in the margin percentage on computer product sales through the
Company-owned business centers and the independent reseller channel in the first
six months of 1997 versus the same period in 1996. The increase in gross margin
percentage for computer services resulted from an increase in the mix of
services to include more higher-margin systems integration services versus
support and technology procurement services. The decrease in gross margin
percentage for the communication products and services resulted from an increase
in mix of revenues to include more lower-margin communications product sales as
compared to higher-margin long distance and non-product services.
Selling, General And Administrative Expenses. Selling, general and
administrative (SG&A) expenses for the second quarter and first six months of
1997 increased $24.8 million or 44.6% and $44.8 million or 43.6% over the second
quarter and first six months of 1996, respectively. SG&A as a percentage of
revenue was 8.3% in the second quarter of 1997 versus 7.2% in the second quarter
of 1996, and 8.1% for the first six months of 1997 versus 7.3% for the first six
months of 1996. The increase in spending and the related increase in SG&A as a
percentage of revenues resulted primarily from the costs of handling the
increased services revenues. During the third quarter of 1996 the Company
continued to invest in the infrastructure by opening a center in Ontario,
California to facilitate "build-to-order" and cost-effective configuration and
delivery to the Company's clients. The Company incurred additional costs during
the second quarter and first six months of 1997 related to integrating the
acquisitions completed in the fourth quarter of 1996 and acquisitions completed
in the first and second quarters of 1997. The increase in SG&A related to
acquisitions was approximately $6.1 million and $7.5 million over the second
quarter and first six months of 1996, respectively.
Interest Expense. Interest expense for the second quarter and first six
months of 1997 was $7.1 million and $14.2 million, respectively, versus interest
expense for the second quarter and first six months of 1996 of $5.0 million and
$9.9 million, respectively. Interest expense increased primarily due to higher
average daily borrowings. Average daily borrowings for the second quarter and
first six months of 1997 were $124.1 million and $118.3 million more than the
average borrowings for the second quarter and first six months of 1996,
respectively. The weighted average borrowing rate for the second quarter of 1997
increased approximately 6 basis points over the second quarter of 1996 and
decreased 15 basis points for the first six months of 1997 versus the first six
months of 1996. The increase in the average daily borrowings resulted primarily
from financing an increase in accounts receivable resulting from the increase in
revenues, and an increase in inventory levels. The weighted average daily
borrowing interest rate increased for the second quarter of 1997 primarily due
to an increase in LIBOR rates in 1997 versus 1996. The average daily borrowing
interest rate decreased for the first six months of 1997 versus the same period
in 1996 primarily because the Company sold an additional $100 million of
accounts receivable in January 1997, which as of June 28, 1997 had an interest
rate of 6.09%, and issued $55.25 million of 6% convertible subordinated
debentures in June 1996 (see "Liquidity and Capital Resources"). The funding
from the sale of $100 million in accounts receivable and the issuance of $55.25
million of convertible bonds was used to decrease the
S-15
<PAGE>
borrowings outstanding on the inventory and working capital credit line which on
June 28, 1997 had an interest rate of 7.5%.
Net Earnings. Net earnings for the quarter ending June 28, 1997
increased 51.7% to $6.7 million compared with net earnings of $4.4 million for
the second quarter of 1996. Net earnings per share for the second quarter of
1997 increased to $.52 per fully diluted share from the $.42 per fully diluted
share reported for the same period in 1996. Net earnings for the first six
months of 1997 increased 61.2% to $12.0 million compared with net earnings of
$7.4 million for the first six months of 1996. Net earnings per share for the
first six months of 1997 increased to $.94 per fully diluted share from the $.71
per fully diluted share reported for the same period in 1996. Net earnings from
computer services for the quarter ending June 28, 1997 increased 107.5% to $3.5
million compared with net earnings from computer services of $1.7 million for
the same period in 1996 and constituted 51.6% in the aggregate of net earnings
of the Company for such period.
1996 Compared to 1995
Revenues. Revenues for 1996 increased $901.7 million or 41.0% to $3.1
billion when comparing the fiscal year ended December 28, 1996 with the fiscal
year ended December 30, 1995. Revenue growth resulted primarily from computer
product sales which increased $837.8 million or 40.9% during 1996. Revenues from
computer services increased $41.4 million or 43.4% over 1995. Revenues from
communication products and services increased $22.5 million or 39.0% in 1996.
Revenues increased primarily as a result of an increase in products
shipped directly to the end-user client, overall industry growth, the sale of
products to new independent resellers and the acquisitions completed by the
Company-owned business centers. The increase in revenues related to the
acquisitions was approximately $49.4 million for 1996. The increase in computer
product sales resulted from an increase in sales through the independent
reseller channel ($563.5 million or 50.9% over 1995) and through an increase in
sales through the Company-owned business centers ($291.7 million or 29.4% over
1995). Revenues from computer services increased as a result of increased sales
efforts for such service offerings and the inclusion of these services with
increasing computer product sales. Revenues from communication products and
services increased as a result of broad based growth from the communications
product and service offerings.
Gross Margins. The decrease in the Company's gross margin percentage
for 1996 is primarily a result of the decrease in the gross margin percentage on
computer products, which resulted primarily from a greater proportion of
lower-margin independent reseller channel sales in 1996 versus higher-margin
computer product sales in the Company-owned business centers.
The increase in gross margin percentage for computer services resulted
from an increase in the mix of services to include more higher-margin systems
integration services versus the support and technology procurement services. The
decrease in gross margin percentage for the communication products and services
resulted from an increase in mix of revenues which included more lower-margin
communications product sales as compared to the higher-margin long distance and
non-product services.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased $61.9 million or 36.6% in 1996. SG&A as
a percentage of revenue was 7.5% in 1996 versus 7.7% in 1995. Excluding the
impact of non-recurring charges recognized in the fourth quarter of 1996, SG&A
expenses increased $60.2 million or 35.6% in 1996. SG&A as a percentage of
revenue, excluding the impact of the non-recurring charges recognized in the
fourth quarter of 1996, was 7.4% in 1996 versus 7.7% in 1995.
The increase in spending resulted primarily from the costs of handling
the increased product, services and communications revenues. The Company also
continued to invest in the infrastructure by opening a center in Ontario,
California to enable "build-to-order" configuration and delivery, during the
third quarter of 1996. The Company incurred additional costs during the year
related to integrating the current year's acquisitions. The decrease in SG&A as
a percentage of revenue resulted from leverage achieved through operational
efficiencies
S-16
<PAGE>
resulting from current and prior period investments in distribution center
automation, information systems and computer service offerings.
Interest Expense. Interest expense for 1996 increased by $5.8 million
to $20.4 million. Interest expense increased due to higher average daily
borrowings. Average daily borrowings for 1996 were $114.4 million more than the
average borrowings during 1995. The average daily borrowing interest rate
decreased approximately 0.8 percentage points from 1995. The increase in the
average daily borrowings resulted from the Company's decision in the first
quarter of 1996 to take advantage of early pay discounts offered by some of the
Company's major vendors as well as an increase in accounts receivable and
inventory. The increase in accounts receivable is a result of an increase in
sales. The decrease in the average daily borrowing interest rate resulted from
the Company selling $100 million of accounts receivable in June 1995 and the
issuance of $55.25 million of 6% convertible subordinated debentures in June
1996 (see "Liquidity and Capital Resources").
Net Earnings. Net earnings for 1996 increased 60% to $18.7 million,
which includes non-recurring charges of $991,000, compared with net earnings of
$11.7 million for 1995. Net earnings per share increased to $1.64 per fully
diluted share, which includes non-recurring charges of $0.09 per share, from the
$1.14 per fully diluted share reported for 1995.
Business Combination and Non-Recurring Charges. In December 1996, the
Company effected two business combinations accounted for as poolings of interest
transactions. The overall impact of the combinations with relation to the
financial statements taken as a whole are not material and thus prior periods
for the Company have not been restated to reflect the business combinations. The
Company recognized non-recurring charges of $991,000 related to the business
combinations during the fourth quarter of 1996. The effect of the immaterial
poolings was to increase stockholders' equity by approximately $643,000.
1995 Compared To 1994
Revenues. Computer product sales increased $366.8 million or 21.8% to
$2.0 billion during 1995. Computer services increased $10.1 million or 11.8% to
$95.5 million during 1995. Communications products and services revenue
increased $22.9 million or 66% to $57.7 million during 1995.
Revenues from computer product sales increased as a result of broad
based growth within both the independent reseller channel and the Company-owned
business centers. Revenues from the independent reseller channel increased as a
result of growth within the Company's existing reseller channel, an increase in
products shipped directly to the end-user and an increase in second source
revenue. Second source revenue is generated from sales to independent resellers
who are not Inacom resellers by contract. These revenues are primarily a result
of "open sourcing" pursuant to which certain manufacturers, beginning in 1994,
lessened or eliminated requirements from independent resellers to purchase
product from one source. Revenues from the Company-owned business centers
increased as a result of broad-based growth across all regional locations.
Computer services revenue increased as a result of the increase in computer
product sales. Revenues from communication products and services increased as a
result of broad-based growth within the Company's communications division.
Gross Margins. Computer product margins increased $8.6 million or 7.6%
to $122.4 million during 1995 and the gross margin percentage, exclusive of
non-recurring charges recognized in the second quarter of 1994, decreased 0.8
percentage points to 6.0% in 1995. Computer services margins increased $15.1
million or 28.7% to $67.6 million during 1995 and the gross margin percentage,
exclusive of non-recurring charges recognized in the second quarter of 1994,
increased 9.3 percentage points to 70.8% in 1995. Communications product and
services margins increased $6.3 million or 83.9% to $13.8 million during 1995
and the gross margin percentage increased 2.4 percentage points to 24.0% in
1995. Computer products margin was 60.1% of total 1995 gross margin versus 65.5%
of total 1994 gross margin. Computer services gross margin was 33.2% of total
1995 gross margin versus 30.2% of total 1994 gross margin. Communications
products and services gross margin was 6.7% of total 1995 gross margin versus
4.3% of total 1994 gross margin.
S-17
<PAGE>
The increase in gross margin dollars for computer products was a result
of the increase in revenues. The decline in gross margin percentage for computer
products was a result of market pricing pressures related to open sourcing,
which began in the independent reseller channel during the second quarter of
1994, and an overall decline in hardware margins realized on end user sales. The
increase in gross margin dollars and gross margin percentage for computer
services resulted from the increased revenues and an increase in mix of services
revenues to include more higher margin systems integration services versus the
support and technology procurement services. The increase in gross margin
dollars and gross margin percentage for the communication products and services
was a result of the increased revenues and the increase in the mix of revenues
to include more higher margin long distance and services.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased $8.9 million or 5.6% to $169.3 million
in 1995. As a percentage of revenue, these expenses decreased 1.2 percentage
points from 8.9% in 1994 to 7.7% in 1995. Excluding the impact of 1994
non-recurring charges, SG&A expenses increased $10.9 million or 6.9% during
1995. SG&A as a percentage of revenue, excluding the impact of non-recurring
charges recognized in the second quarter of 1994, decreased 1.1 percentage
points during 1995.
The increase in SG&A during 1995 resulted primarily from increased
spending partially offset by an increase in market development funds earned from
various vendors and credited against SG&A. The increase in spending was
primarily a result of employee increases and contract labor expenses to support
the increasing service revenue component of the Company-owned business centers.
The increase in vendor funds earned resulted from attainment of program
objectives outlined by vendors primarily driven by higher revenues in 1995. The
decrease in SG&A as a percentage of revenue during 1995 resulted from
operational efficiencies achieved through investments in distribution center
automation and information systems.
Interest Expense. Net interest expense for 1995 increased by $2.6
million to $14.6 million. The increase was due primarily to the increase in the
average daily borrowing interest rate. The Company's average daily borrowing
interest rate for 1995 increased approximately 1.3 percentage points during the
year while the average daily borrowings decreased to $178.8 million in 1995 from
$201.9 million in 1994.
Net Earnings. For the reasons described above, the net earnings for
1995 were $11.7 million compared to a net loss of $2.3 million in 1994 which
includes non-recurring charges of $4.2 million; an increase of $14.0 million.
Earnings per share for 1995 were $1.14 compared to a loss per share of $0.22 in
1994 which includes non-recurring charges of $.41 per share.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per share" which revises the calculation and
presentation provisions of Accounting Principals Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 28, 1997. Retroactive application will be required. The Company
believes the adoption of Statement 128 will not have a significant effect on its
reported earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided through an
inventory and working capital financing agreement of $550.0 million (increased
from $350.0 million as of June 27, 1997), convertible subordinated debentures of
$55.25 million, and a revolving credit facility of $40.0 million.
The $550 million facility provided by IBM Credit Corp. can be used by
the Company at its discretion, subject to a borrowing base, for its working
capital needs and inventory purchases. The inventory and working capital
financing agreement was amended in 1997 and expires June 29, 1998. On June 28,
1997, $338.8 million was outstanding under the inventory and working capital
financing agreement. Of this amount, $258.8 million was related to non-interest
bearing trade accounts payable. The balance of $80.0 million was related to
working capital with an interest rate of 7.5% based on three-month LIBOR. This
inventory and working capital financing agreement is secured by inventory and
other assets.
The $55.25 million 6% convertible subordinated debentures were issued
in June 1996 and are due June 15, 2006. The debentures are convertible into
common stock of the Company at a conversion price of $24.00 per share, subject
to adjustments under certain circumstances, beginning on September 19, 1996. The
debentures are not redeemable by the Company prior to June 16, 2000 and,
thereafter, the Company may redeem the debentures at
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various premiums to principal amount. The debentures may also be redeemed at the
option of the holder at any time prior to June 16, 2000 if there is a Change in
Control (as defined in the indenture) at a price equal to 100% of the principal
amount plus accrued interest at the date of redemption.
The $40.0 million revolving credit facility agreement expires in
February 1998. On June 28, 1997, $40.0 million was outstanding under the
revolving credit facility and the interest rate was 6.99% based on three-month
LIBOR. The revolving credit facility is secured by inventory and other assets.
The debt agreements contain certain restrictive covenants, including
the maintenance of minimum levels of working capital, tangible net worth,
limitations on incurring additional indebtedness and restrictions on the amount
of net loss the Company can incur. Certain covenants effectively limit the
amount of dividends which the Company may pay to the stockholders. The amount of
retained earnings on June 28, 1997 not restricted as to payments of cash
dividends under the most restrictive covenants in such agreements was
approximately $78.8 million. The Company was in compliance with the covenants
contained in the agreements on June 28, 1997.
Long-term debt was 21.1% of the total long-term debt and equity at June
28, 1997 versus 30.3% at June 29, 1996. The decrease was primarily a result of
the payment of $13.6 million of private placement notes previously held by
unaffiliated insurance companies and an increase in equity due to earnings and
the issuance of additional shares of common stock.
The Company has entered into an agreement to sell $200 million of
accounts receivable, with limited recourse, to an unrelated financial
institution. The agreement was initially entered into in June 1995 with respect
to $100 million of accounts receivable and was amended in January 1997 to sell
an additional $100 million of accounts receivable. New qualifying receivables
are sold to the financial institution as collections reduce previously sold
receivables in order to maintain a balance of $200 million sold receivables. On
June 28, 1997, $46.6 million of additional accounts receivable were designated
to offset potential obligations under limited recourse provisions; however,
historical losses on Company receivables have been substantially less than such
additional amount. On June 28, 1997, the interest rate was 6.09%.
The Company occasionally uses financial instruments to reduce interest
rate risk. The Company does not hold or issue financial instruments for trading
purposes. On January 17, 1997 the Company entered into a one-year interest rate
swap agreement with an unrelated financial institution which resulted in certain
floating rate interest payment obligations becoming fixed rate interest payment
obligations at 5.82%. The notional amount of the swap agreement was $100
million.
During the first six months of 1997, the Company used $44.0 million of
cash in operations. Inventory increased by $74.1 million during the first six
months with a portion of the increase offset by an increase in accounts payable
of $68.8 million. Accounts receivable also increased $55.2 million during the
first six months of 1997. Inventory increased during the first six months of
1997 as a result of the Company taking advantage of certain major manufacturers
inventory incentive programs. Accounts payable increased as a result of the
increase in inventory levels. Accounts receivable increased during the first six
months primarily as a result of the increase in revenues for the first six
months of 1997.
The Company used $35.9 million in cash for investing activities in the
first six months of 1997. Cash of $19.8 million was used to purchase fixtures
and equipment and cash of $4.1 million was used for business combinations.
Net cash provided from financing activities for the first six months of
1997 totaled $79.2 million, of which $100.0 million was provided from the sale
of accounts receivable. The financing proceeds were used to reduce short term
borrowings of $20.8 million.
Operating activities used cash of $18.3 million in 1996 compared to
$57.7 million in 1995. The primary factor contributing to the change in cash
used by operating activities was the net cash provided by inventory and
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accounts payable. In 1996, inventory increased $31.8 million over 1995 with an
offsetting increase in accounts payable of $71.1 million resulting in net cash
provided from inventory and accounts payable of $39.3 million. In 1995,
inventory increased $124.3 million over 1994 with a portion of the increase
financed through an increase in accounts payable of $105.1 million resulting in
net cash used in inventory and accounts payable of $19.2 million. The increase
in cash provided by inventory and accounts payable was primarily a result of an
increase in inventory turns in addition to the Company's efforts to match
accounts payable terms more closely with inventory turns.
The net cash provided by inventory and accounts payable was primarily
offset by an increase in accounts receivable in 1996. Accounts receivable levels
increased $123.6 million due to the increased revenues.
The Company used $61.1 million in cash for investing activities in
1996. Cash of $26.2 million was used to purchase fixtures and equipment and cash
of $23.4 million was used for business combinations (See Notes to Consolidated
Financial Statements -- Business Combinations).
Net cash provided by financing for 1996 totaled $90.1 million, of which
$63.0 million was provided from notes payable and $55.25 million was provided
from the proceeds received from the sale of 6% convertible subordinated
debentures. The financing proceeds were partially offset by $30.3 million in
payments on long-term borrowings.
The Company believes the funding expected to be generated from
operations and provided by the existing credit facilities and this offering will
be sufficient to meet working capital and capital investment needs for the next
twelve months.
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BUSINESS
Inacom is a leading single source provider of information technology
products and technology management services designed to enhance the productivity
of information systems primarily for Fortune 1000 clients. The Company offers a
comprehensive range of value added services to manage the entire information
system life cycle including: (1) needs assessment and technology planning, (2)
technology procurement and configuration, (3) systems integration and systems
management, (4) ongoing systems support and distributed support, and (5) asset
management. Inacom's expertise includes the integration of voice and data
communications. Inacom sells its products and services through a marketing
network of 51 Company-owned business centers throughout the United States that
focus on serving large corporations. The Company also has a network of
approximately 1,000 value added resellers that typically have a regional,
industry, or specific product focus. The Company has international affiliations
in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa,
Canada and Mexico to satisfy the technology management needs of its
multinational clients. Inacom is the largest purchaser of IBM computer products
and believes it is the second largest purchaser of Compaq computer products
worldwide.
Inacom's expertise in procurement, configuration and delivery of PC's,
peripherals and software from a wide range of major vendors enables the Company
to customize information systems to meet specific client needs. In addition,
Inacom provides its clients with numerous benefits including in-depth product
knowledge and experience, competitive pricing from its purchasing arrangements
and a wide array of services supporting client needs on an on-going basis.
Management believes that the Company's expertise in procuring,
configuring and delivering information technology products and providing
technology management services provides a strategic advantage in addressing
certain industry trends. In particular, businesses increasingly are seeking to
outsource the management and support of their information technology systems
with fewer providers. At the same time, the demand for cost-effective,
customized technology systems has led a number of manufacturers, including IBM,
Compaq and Hewlett-Packard, to move from "build-to-forecast" delivery systems to
"build-to-order" programs in which they ship computer components to a limited
number of qualified technology providers, including Inacom, for final assembly
and configuration. Management also believes that these trends will lead to
further consolidation in the highly fragmented technology management services
industry. As a result of the Company's experience in integrating acquired
businesses, management believes that the Company is well-positioned to take
advantage of strategic acquisition opportunities as they arise.
Inacom's earnings growth has been enhanced by its rapidly expanding
services business. In the first six months of fiscal 1997, computer services
provided 47.7% of net earnings, more than double the net earnings from the same
period in 1996. Computer products contributed 40.8% and communications products
and services provided 11.5% of net earnings in the same period. Inacom expects
that earnings from services will continue to grow more rapidly than earnings
from its other business segments given Inacom's broad offering of services to
its clients and the industry trends discussed above.
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals, Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are: (i) to leverage client
relationships to continue expanding higher-margin services revenues, (ii) to
capitalize on the trend toward build-to-order/configure-to-order systems, (iii)
to expand offerings and geographic coverage through strategic acquisitions, and
(iv) to capitalize on the convergence of data and voice communications.
Industry Background
The markets for corporate information technology products and
technology management services are expected to grow at an annual rate of 18% and
15%, respectively, and are projected to reach $44.9 billion and $26.1 billion,
respectively, in 2000 according to DataQuest, a Gartner Group company, a leading
information technology research firm. In recent years, the computer industry has
undergone a significant transformation as
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personal computers have replaced traditional minicomputer and mainframe systems.
The increasing use of personal computers has led to the networking of personal
computers into local area networks (LANs), which in turn has resulted in the
expansion of shared information through wide area networks (WANs). Networks are
typically comprised of servers, personal computers, peripherals, communication
devices and software. Networks increase the speed and flexibility of
distributing information and the usefulness of such information to end-users.
Achieving the optimal technology system, however, is difficult for many
businesses due to the complexity of the distributed network environment, the
fragmented sources of products and services and the lack of trained personnel to
design, deploy and support networks.
The decision-making process that businesses face when designing,
selecting and deploying information technology solutions is becoming more costly
and complex. Many businesses increasingly seek to outsource part or all of the
management and support of their information technology systems. Businesses must
select from an expanding number of product options with shortening life cycles.
Businesses seeking to implement enterprise-wide information management solutions
often must integrate diverse and incompatible hardware and software environments
which have independently evolved within their organizations. Such integration
typically requires the design of a new network, the upgrade of existing hardware
and software, and the migration to new systems. In addition, a shortage of
qualified information technology personnel has limited the ability of many
businesses to capitalize on the latest technologies. Many businesses find it
increasingly difficult and costly to maintain the internal infrastructure needed
to support their networks. As a result of these trends, the outsourcing of
computer network management has grown substantially.
These developments have created a rapidly-growing market for managing
distributed technology. Although competition has led to reduced margins in the
computer products segment of the industry, the complexity of designing,
selecting and deploying information systems has led to an increase in demand for
related higher margins technology management services. The demand for
cost-effective customized technology systems has driven a significant change in
industry delivery methods. The historical method was a "build-to-forecast"
system, in which both manufacturers and providers of computer products
maintained inventories based on forecasted client demand. Recently, a number of
manufacturers, including IBM, Compaq and Hewlett-Packard, have announced
"build-to-order" programs in which they will ship basic computer components to a
limited number of technology providers, including Inacom, based on specific
client orders, with final assembly and configuration to be performed by the
technology providers for delivery to the business client.
Business Strategy
Inacom's goals are to grow net earnings and increase economic value
added to enhance shareholder value. To achieve these goals Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company's strategy are as follows.
Leverage Client Relationships to Continue Expanding Higher-Margin
Services Revenues. Inacom's large client base of hardware procurement clients is
a substantial source of services revenue. As businesses increasingly seek to
outsource systems management functions to fewer providers, the Company believes
it can continue to rapidly grow its services revenue. During the first six
months of 1997, computer services accounted for approximately 48% of net
earnings, compared to 38% in the comparable period one year ago. Services
revenue is generally higher margin, and tends to be more predictable and
recurring than hardware procurement revenue making it a particularly attractive
portion of the business mix. Inacom believes that its demonstrated ability to
extend its relationships into the full life cycle of management services
provides it with a competitive advantage in the technology management services
industry. The Company also believes that the growing outsourcing of computer
technology management services along with the Company's focus on faster growing
higher-margin services will allow it to grow its services revenues in excess of
the projected industry growth rate.
Capitalize on Trend Toward Build-To-Order/Configured-To-Order Systems.
Businesses are demanding more efficient, cost-effective procurement and delivery
of custom-configured systems. In response to this demand for build-to-order
services, Inacom has invested $42 million to automate its three assembly and
configuration
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facilities. The Company believes that these facilities are among the most
sophisticated in the industry due to their state-of-the-art infrastructure and
information systems. Two of the Company's assembly and configuration facilities
have complete build-to-order capabilities and the third assembly and
configuration facility will have such capabilities by the end of 1997. Inacom's
strategy is to configure network-ready systems for its business clients on
behalf of vendors such as IBM, Compaq and Hewlett-Packard. Inacom has been
designated as a build-to-order channel participant for each of these three major
vendors.
Expand Service Offerings and Geographic Coverage Through Strategic
Acquisitions. Inacom continually seeks to acquire businesses which enhance its
service capabilities and allow the Company to build geographic coverage in
attractive markets. Inacom has demonstrated its ability to successfully
integrate acquired businesses, having acquired eight businesses during the past
eighteen months. These acquisitions expanded Inacom's offerings in the areas of
procurement, delivery, network integration, network consulting, asset management
and asset registry. These acquisitions also enhanced Inacom's geographic
coverage in key metropolitan markets across the United States. Management
believes that industry trends, including build-to-order, will result in further
consolidation in the highly fragmented technology management services industry.
Inacom's strategy is to use its experience in integrating acquired businesses to
take advantage of strategic acquisition opportunities as they arise.
Capitalize on Convergence of Data and Voice Communications. The Company
is focusing on opportunities resulting from the convergence of voice and data
communications with computer information management systems. Inacom is
leveraging its expertise in providing computer services to assist its business
clients in integrating communications systems to allow voice/data recognition,
remote access, video conferencing, mobile communications and internet access.
Currently, Inacom provides its clients with the communications services and
products of Lucent Technologies, AT&T, Cisco Systems, 3Com and Intel. The
Company believes it is one of the nation's largest independent provider of
communications products for Lucent Technologies.
Life Cycle Management by the Company
As a single source provider of technology products and services, the
Company strives to help its clients optimize their information technology
investments and control ongoing costs throughout the life cycle of the clients'
technology systems. The Company combines a process improvement approach along
with tools and practices gained by experience and trained personnel to assist
its clients in managing the life cycle and costs of distributed technology.
Needs Assessment and Technology Planning. Technology planning services
involve assisting clients in designing and developing standardized technology
platforms. The services include determining standard hardware technology,
application software, operating system software and networking platforms. The
Company assists its clients with the selection and standardization of
manufacturer brands (such as IBM, Compaq, Hewlett-Packard, Microsoft, Lotus and
others) and assists its clients in studying the total cost, performance and
capabilities of these brands and products.
Technology planning services performed by the Company also include the
development of strategies for deployment of distributed technology systems
within its clients' businesses. The Company assists its clients in decisions to
lease or purchase, determining replacement cycles and centralizing acquisition
processes. To assist clients with technology planning, the Company has developed
specific products and programs such as Policy Based ManagementTM, Tactical
Enterprise Network AssessmentTM and Enterprise Technology BlueprintTM.
Technology Procurement and Configuration. Technology procurement and
configuration services generally involve coordinating the technology purchase
process, requisitioning technology products, processing, tracking and reporting
on the status of orders, customizing hardware and software configurations,
direct shipment and shipment tracking. The demand for cost-effective customized
technology systems has driven a significant change in industry procurement
methods including the trend toward build-to-order programs. Inacom believes that
only a limited number of technology providers will have the scale and
configuration capabilities necessary to meet these manufacturer requirements.
Compaq, IBM and Hewlett-Packard have chosen Inacom for participation in their
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build-to-order programs. Inacom has invested $42 million in its state-of-the-art
assembly and delivery systems to provide build-to-order capabilities. The
facilities are strategically located in Swedesboro, New Jersey, Omaha, Nebraska,
and Ontario, California to provide prompt and cost-effective delivery
nationwide.
The Company also focuses its technology procurement services on
shortening the delivery time of technology products, improving compliance to
standards in its clients' organizations, assisting in negotiating hardware and
software agreements on behalf of its clients, and providing other services that
minimize its clients' costs. The Company provides certain clients with on-site
technical procurement specialists who assist and manage the technology
procurement process at client locations nationwide. These procurement
specialists are technically oriented and focus on process improvement and
operational efficiencies in the procurement process.
The Company believes it has a competitive advantage in providing
procurement services through the use of its automated state-of-the-art ordering
systems. The Company's Inacommerce and Inacommerce PlusTM software provide an
easy to use internet-based procurement management system that allows a business
client to determine real-time product availability and order status along with a
custom configurator to assist the client in designing a technology solution from
its desktop computer. The Company's VISIONTM 2000 software also allows a
business client to determine daily product availability, custom configure and
order its technology solution. The Company's Direct Express delivery program
reduces the number of steps in the procurement process by shipping products
directly to the location selected by the business client.
Systems Integration and Systems Management. The Company provides
systems integration services to its clients in an effort to assist clients in
controlling costs and gaining control of the life cycle of its distributed
technology systems. The Company has products and services available to assist,
design and support clients' WANs and LANs and to manage software procurement and
license control. In addition, the Company can provide solutions to its clients
for data storage management, technology security management, capacity planning,
data and database management, and internet and intranet connectivity, support
and management.
The Company provides systems management services that assess the
current state and future needs of a client's distributed technology network to
maximize the value of the client's investment in its networked systems. The
systems management services provided through remote management centers assist
clients in the control and reliability of LAN/WAN environments, provide a study
of adequate network speed and responsive user services and monitor the
infrastructure and system capabilities to satisfy clients' current and future
needs.
The Company employs high-end technical systems engineers and systems
consultants who perform systems integration services at client locations. These
systems engineers and systems consultants, and the project managers who
coordinate their activities, are contracted to the client for hourly rates or
for fixed-price extended contracts.
The Company has developed specific products and programs to assist its
clients in the systems management function, including Inacom Network PatrolTM
and Inacom Network Baseline.TM
Ongoing Systems Support and Distributed Support. The Company provides
its clients ongoing support in their distributed technology systems primarily in
two major areas: "break/fix" hardware maintenance and installation, moves,
addition and changes ("IMACs"). These functions are similar, but differ in the
timing and level of service.
The Company's break/fix hardware maintenance capabilities are supported
directly by the Company's help desk operation, HelpCentralTM. Centralized
break/fix hardware maintenance provides coordination, problem solving, tracking
and control of the clients' hardware maintenance needs. The Company's national
services network, comprised of over 1,500 Company technicians plus over 2,000
technicians in affiliated partner locations provides extensive coverage of
clients' distributed technology.
Similarly, the Company delivers IMAC services to its clients with the
same technician delivery infrastructure. These distributed support services are
managed through various scheduling and reporting tools that
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are interrelated with the Company's VISTATM, VISIONTM, Inacommerce,TM and
Inacommerce PlusTM information systems. Additionally, the Company provides
distributed support services to its clients by providing on-site technical
personnel that may be involved in various support activities, including LAN
administration, network monitoring, general deskside support and some end-user
training.
The Company also offers convergence solutions centered around wide area
data networks, computer and telephone integration, desktop video conferencing,
and wireless data communications. These services include specialized support
programs, maintenance programs and specialized software. The Company provides
communication network services with advanced digital capabilities enabling
voice, data and video communications, utilizing AT&T, Frontier and Westinghouse
networks. The Company's communications services also include long distance,
inbound 800 service, calling cards and teleconferencing featuring account codes
and enhanced billing and customized call reports which allow business clients to
restrict and track telecommunications activity.
Asset Management. Asset management services are becoming increasingly
important as businesses determine what capabilities their existing technology
products have and whether, when and how to upgrade to the latest technology.
Asset management services consist of asset registration, tracking and disposal
of technology assets as they move throughout the client's organization.
The Company has developed a comprehensive program called Inacom Asset
AdvantageTM that contains tools and process improvement techniques to assist its
clients' inventory, track and control distributed technology assets. This
program helps clients meet financial, risk management, custodial, warranty,
maintenance, service and refreshment objectives. The products, including Inacom
Asset Roll-Call,TM can be integrated with HelpCentralTM and also integrated with
the other life cycle products and programs to help lower the total ownership
cost of clients' technology. Additionally, the Company's Computer Resources
International group and Boston Computer Exchange subsidiary provide customized
asset registry, asset tracking services and disposal services to its clients.
Marketing Network
Computer products and services are sold through a marketing network of
approximately 1,000 business centers located throughout the United States, of
which 51 are Company-owned. Communications products and services are provided
through a network of 18 direct sales offices and contractual relationships with
approximately 160 dealers. The Company has international affiliations in Europe,
Asia, Central and South America, the Caribbean, Middle East, Africa, Canada and
Mexico to satisfy the technology management needs of its multinational clients.
The Company's direct sales force in the Company-owned business centers
enables the Company to establish relationships with major corporate clients for
purposes of marketing the Company's technology management services.
Products and Vendors
Computer products include microcomputers, workstations, servers,
monitors, printers and operating systems software. The Company currently
distributes computer products from leading vendors such as Compaq, IBM,
Hewlett-Packard, Toshiba, Lexmark, Novell, Microsoft, Oracle, 3Com, SynOptics,
Cisco, Intel and Network General. Compaq, IBM and Hewlett-Packard represented
greater than 65% and 63% of the Company's net revenues in fiscal 1996 and for
the first six months of 1997, respectively. The Company is the largest purchaser
of IBM computer products and believes it is the second largest purchaser of
Compaq computer products on a world wide basis.
Communications products and services include phone systems, voice mail,
voice processing, data network equipment, multiple small office-home office
offerings and maintenance. The Company also offers network services including
long distance, 800 service, calling cards, wide area value-added data
networking, video conferencing and cellular communications. The products of
Lucent Technologies and the services of AT&T constitute approximately
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90% of the voice and data systems sold by the Company. The Company believes it
is one of the nation's largest independent resellers of Lucent Technology
business products.
The Company has negotiated purchase arrangements, including price,
delivery, training and support, directly with most major vendors. The Company's
extensive vendor relationships allow it to offer over 35,000 products in
providing multiple-vendor solutions to meet its business client's needs. The
Company's agreements with its vendors are generally on a non-exclusive basis and
may be terminated by the vendors on notice typically ranging from 30 to 90 days.
The agreements with vendors generally contain provisions with respect
to product cost, price protection, returns and product allocations; the Company
is entitled to price protection with all major vendors on eligible products in
the Company's inventory in the event of vendor price reductions. Certain vendors
also sponsor payment programs with several financial service organizations to
facilitate product sales through the business centers. In addition, the
Company's primary vendors provide various incentives for promoting and marketing
their products which typically range from 1% to 5% of purchases. The three major
forms of vendor incentives received by the Company are co-operative funds,
market development funds and vendor rebates. Co-operative funds are earned based
upon the sale of the vendor's products and generally must be utilized to offset
the costs associated with advertising and promotion pursuant to programs
established by the respective vendor. Market development funds are earned based
upon the Company's purchases from the vendor and generally must be used for
market development activities approved by the respective vendor. Vendor rebates
are based upon the Company's attaining purchase volume targets established with
the vendor. Rebates generally can be used at the Company's discretion.
International Capabilities
InaCom International, a subsidiary of the Company, has international
affiliations in Europe, Asia, Central and South America, the Caribbean, Middle
East, Africa, Canada and Mexico to satisfy the technology management needs of
its multinational clients. ICG, an affiliation of leading independent
organizations in various countries, provides pc-related products and services to
international corporate clients. Inacom's capabilities in international project
management and local resources of the affiliated members allow Inacom to serve
the global needs of its multinational clients' information technology projects.
Inacom Latin America, a 60% owned subsidiary of the Company, provides
international logistics and configuration services in Mexico, the Caribbean,
Central and South America.
Clients
The Company is not dependent for a material part of its business upon a
single or a few clients and the loss of any one client would not have a material
adverse effect on the Company's business.
Employees
At June 28, 1997 the number of employees was 4,309, including 1,813
systems engineers, technicians and service support employees. In addition, at
June 28, 1997 the Company had contracted for the services of approximately 600
systems engineers and consultants, and through an alliance with selected
independent resellers has access to the services of approximately 2,000
additional services personnel. None of the employees is covered by a collective
bargaining agreement. The Company considers its relations with employees to be
good.
Competition
All aspects of the technology management services industry are highly
competitive. The technology management industry continues to experience a
significant amount of consolidation. In the future Inacom may face fewer but
larger and better financed competitors as a consequence of such consolidation.
The Company's marketing network competes for potential clients, including
national accounts, with numerous resellers and distributors. Several computer
manufacturers have expanded their channels of distribution, pricing and product
positioning and
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compete with the Company's marketing network for potential clients. Other
competitors operate mail-order or discount stores offering clones of major
vendor products. The Company also competes with other computer technology
providers in the recruitment and retention of franchisees and
independently-owned resellers. The Company competes in the computer services
industry with a large number of service providers, including IBM through its
Global Services division, Andersen Consulting, CompuCom, EDS, ENTEX, GE Capital
Technology Management Service, IKON Offices Solutions and Vanstar. Competition
in communication products and services is also intense, and includes entities
which are also significant vendors of the Company, such as Lucent Technologies
and AT&T. Certain competitors and manufacturers are substantially larger than
the Company and have greater financial, technical, service and marketing
resources. The Company's marketing network competes primarily on the basis of
professionalism and client contact, quality of product line, availability of
products, service, after-sale support, price, and quality of end-user training.
Service Mark and Trademark
The Company holds United States service mark and trademark
registrations for the marks "Inacom", "ValCom" and "Inacomp." The Company also
has certain state registrations. The Company claims common law rights to the
marks based on adoption and use. To the Company's knowledge, there are no
pending interference, opposition or cancellation proceedings, or litigation
threatened or claimed, with respect to the marks in any jurisdiction.
Government Regulation
The Company is subject to various federal, state and local laws and
regulations affecting businesses generally such as laws and regulations
concerning employment, workplace safety and protection of the environment. The
Company is also subject to federal and state laws regulating franchise
relationships which generally impose registration and/or disclosure requirements
on the Company in the offer and sale of franchises and also regulate related
advertisements. The Company believes it is in substantial compliance with all
such laws and regulations.
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MANAGEMENT
The Company's executive officers and directors are listed below,
together with their ages and offices held by them. The Company's Board of
Directors consists of nine members elected annually.
<TABLE>
Name Age Position
<S> <C> <C>
Bill L. Fairfield 50 Director, President and Chief Executive Officer
David C. Guenthner 47 Executive Vice President and Chief Financial Officer
Michael A. Steffan 45 President, Distribution and Operations, and Secretary
Cris Freiwald 42 President and General Manager, International Division
Robert A. Schultz 54 Group Executive, Information Systems Group
Larry Fazzini 50 Vice President of Corporate Resources
George DeSola 50 Group Executive, Technology Service Group and President,
Inacom Communications
Jeffrey A. Hartigan 54 Vice President and Chief Information Officer
Steven Ross 39 President, Reseller Division and Corporate Marketing
Leon Kerkman 38 Vice President, Corporate Controller
Paul Kellenberger 37 Vice President of Planning and Business Development
Joseph Auerbach 80 Director
Mogens C. Bay 48 Director
James Q. Crowe 48 Director
W. Grant Gregory 56 Director
Rick Inatome 43 Director
Joseph Inatome 71 Director
Gary Schwendiman 56 Director
Linda S. Wilson 60 Director
</TABLE>
Bill L. Fairfield has been President, Chief Operating Officer and a
director of the Company since March 1985. He was named Chief Executive Officer
in September 1987.
David C. Guenthner was named Executive Vice President and Chief
Financial Officer in November 1991. Prior to November 1991, Mr. Guenthner was
Senior Vice President of Finance and Chief Financial Officer for the Company.
Michael A. Steffan was named President of Distribution and Operations
in December 1995. Mr. Steffan was responsible for the Reseller Division from
December 1994 to December 1995 in addition to his position as President of
Distribution and Operations, a position he had held since May 1993. Prior to May
1993, Mr. Steffan was Vice President of Corporate Development and Secretary for
the Company.
Cris Freiwald was named President of the International Division in
November 1994. Mr. Freiwald was Vice President of Corporate Development from May
1993 to November 1994. Prior to May 1993, Mr. Freiwald was Director of Business
Development.
Robert A. Schultz was named Group Executive of the Information Systems
Group in December 1996. Prior to December 1996, Mr. Schultz was the President
and General Manager of Direct Operations, a position he has held since April
1994, and the President and General Manager of Client Services Division, a
position he had held from January 1993 to December 1996. Mr. Schultz was
responsible for Direct Operations and the Advanced Systems and Services Group
for the Company from August 1991 to January 1993.
S-28
<PAGE>
Larry Fazzini was named Vice President of Corporate Resources in
February 1993 when he joined the Company. Prior to February 1993, Mr. Fazzini
was the Director of Human Resources for Sears Business Centers, Inc., a
distributor of information technology products and services.
George DeSola was named Group Executive of the Technology Services
Group in December 1996 in addition to his position as President of Inacom
Communications, a position he has held since he joined the Company in March
1994. Mr. DeSola was responsible for Corporate Marketing from December 1994 to
December 1996 in addition to his position as President of Inacom Communications.
Prior to March 1994, Mr. DeSola was the Vice President of Marketing and Customer
Service for MCI Communications Corp., a telecommunications company.
Jeffrey A. Hartigan was named Vice President and Chief Information
Officer in May 1995 when he joined the Company. Prior to May 1995, Mr. Hartigan
was Vice President of Information Services at Northern Telecommunications Inc.
(NORTEL), a telecommunications company.
Steven Ross was named President of the Reseller Division and Corporate
Marketing in December 1996. Prior to December 1996, Mr. Ross was the President
of the Reseller Division, a position he has held since he joined the Company in
December 1995. Mr. Ross was Vice President of Sales and Business Development at
Intelligent Electronics Inc., a distributor of information technology products,
from September 1993 to November 1995. Prior to September 1993, Mr. Ross was the
Executive Vice President of Ultimate/Allerion Corp., an international systems
integrator company.
Leon Kerkman was named Vice President and Corporate Controller in June
1993. Prior to June 1993, Mr. Kerkman was Corporate Controller, a position he
has held since he joined the Company in 1989.
Paul Kellenberger was named Vice President of Business Development in
March 1997 when he joined the Company. Mr. Kellenberger was the Vice President
of Worldwide Channels, Computer Group from January 1995 to February 1997 and the
General Manager, Canada from February 1994 to December 1994 at Motorola Inc.
Prior to February 1994, Mr. Kellenberger was the Director of Marketing, Canada
for Digital Equipment Company, an information technology products company.
Joseph Auerbach is Professor of Business Administration, Emeritus, at
the Harvard Business School. He is Counsel to the firm of Sullivan & Worcester,
Boston, Massachusetts.
Mogens C. Bay is the President and Chief Executive Officer of Valmont
Industries, Inc. He is a director of ConAgra, Inc.
James Q. Crowe is the President and Chief Executive Office of Kiewit
Diversified Group, Inc. He is a director of Peter Kiewit Sons' Inc., CalEnergy,
Inc. and C-TEC Corporation.
W. Grant Gregory is Chairman of Gregory & Hoenemeyer, Inc., New York
and serves as a director of Bozell Inc., Ambac, Inc., Ambac Indemnity Group and
HCIA Health Care Inc.
Rick Inatome is Chairman of the Board of Directors and in 1976 was the
co-founder of Inacomp Computer Centers, Inc. and its Chief Executive Officer
from 1979 to August 1991. He is a director of Atlantic Premium Brands, American
Speedy Print, Liberty BIDCO, Action Technologies, Inc. and Saturn Electronic and
Engineering, Inc.
Joseph Inatome is a co-founder of Inacomp Computer Centers, Inc., and
was an executive officer until July 1989, and director until August 1991. He is
currently a director of American Speedy Print.
Gary Schwendiman is Professor of International Studies in the College
of Business at the University of Nebraska-Lincoln and was Dean of the College of
Business Administration for the University of Nebraska-Lincoln
S-29
<PAGE>
from 1977 to 1994. Mr. Schwendiman serves as a director of The Gallup
Organization, Inc. and Security Mutual Life Insurance Co.
Linda S. Wilson is the President of Radcliffe College. She is a
director of Citizens Financial Group and Trustee of Massachusetts General
Hospital Corporation.
LEGAL MATTERS
The validity of the Securities offered hereby have been passed upon for
the Company by McGrath, North, Mullin & Kratz, P.C., Omaha, Nebraska and for the
Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedule of InaCom Corp. as
of December 28, 1996 and December 30, 1995, and for each of the years in the
three-year period ended December 28, 1996, included herein and incorporated by
reference in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<S> <C>
Page
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS (Audited)
Independent Auditors' Report..................................................................... F-2
Consolidated Statements of Operations-- Three-Year Period Ended December 28, 1996....... F-3
Consolidated Balance Sheets-- December 28, 1996 and December 30, 1995............................ F-4
Consolidated Statements of Stockholders' Equity -- Three-Year Period
Ended December 28, 1996................................................................. F-5
Consolidated Statements of Cash Flows-- Three-Year Period Ended December 28, 1996................ F-6
Notes to Consolidated Financial Statements-- Three-Year Period Ended December 28, 1996........... F-7
SCHEDULE-- Valuation and Qualifying Accounts............................................ F-16
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER AND
SIX MONTHS ENDED JUNE 28, 1997 (Unaudited)
Condensed and Consolidated Balance Sheets-- June 28, 1997 and December 28, 1996......... F-17
Condensed and Consolidated Statement of Operations -- Thirteen Weeks Ended June 28, 1997
and June 29, 1996 and Twenty-Six Weeks Ended June 28, 1997 and June 29, 1996............ F-18
Condensed and Consolidated Statement of Cash Flows -- Twenty-Six Weeks Ended June 28, 1997
and June 29, 1996....................................................................... F-19
Notes to Condensed and Consolidated Financial Statements -- Twenty-Six Weeks Ended
June 28, 1997........................................................................... F-20
</TABLE>
All other schedules have been omitted as the required information is
inapplicable or the information is included in the consolidated financial
statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
InaCom Corp.:
We have audited the accompanying consolidated financial statements of
InaCom Corp. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
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 audits provide 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 InaCom Corp.
and subsidiaries at December 28, 1996 and December 30, 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 28, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
February 21, 1997
F-2
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Three-year period ended December 28, 1996
(Amounts in thousands, except per share data)
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Computer products......................................... $ 2,885,019 2,047,215 1,680,397
Computer services......................................... 136,888 95,476 85,406
Communications products and services...................... 80,148 57,653 34,736
----------- ------------ ------------
.......................................................... 3,102,055 2,200,344 1,800,539
----------- ------------ ------------
Direct costs:
Computer products......................................... 2,722,368 1,924,829 1,571,700
Computer services......................................... 33,660 27,877 32,900
Communications products and services...................... 62,668 43,832 27,220
----------- ------------ ------------
.......................................................... 2,818,696 1,996,538 1,631,820
----------- ------------ ------------
Gross margin.............................................. 283,359 203,806 168,719
Selling, general and administrative expenses ................. 231,235 169,338 160,437
----------- ------------ ------------
Operating income.......................................... 52,124 34,468 8,282
Interest expense.............................................. 20,405 14,635 12,031
----------- ------------ ------------
Earnings (loss) before income taxes ...................... 31,719 19,833 (3,749)
Income tax expense (benefit).................................. 12,986 8,126 (1,493)
----------- ------------ -----------
Net earnings (loss)....................................... $ 18,733 11,707 (2,256)
Earnings (loss) per share:
Primary................................................... $ 1.76 1.14 (.22)
Fully diluted............................................. $ 1.64 1.14 (.22)
Common shares and equivalents outstanding:
Primary................................................... 10,600 10,300 10,300
Fully diluted............................................. 12,000 10,300 10,300
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
(Amounts in thousands, except share data)
Assets 1996 1995
------ ----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 31,410 20,690
Accounts receivable, less allowance for doubtful
accounts of $4,385 in 1996 and $3,537 in 1995................ 288,407 160,306
Deferred income taxes............................................. 3,554 4,202
Inventories....................................................... 386,592 352,948
Other current assets.............................................. 2,335 1,794
----------- -----------
Total current assets......................................... 712,298 539,940
----------- -----------
Property and equipment, at cost....................................... 116,970 85,922
Less accumulated depreciation..................................... 57,845 44,421
----------- -----------
Net property and equipment................................... 59,125 41,501
----------- -----------
Other assets, net of accumulated amortization......................... 27,531 17,831
Cost in excess of net assets of business acquired,
net of accumulated amortization................................... 48,646 24,966
----------- -----------
............................................................. $ 847,600 624,238
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................................. $ 406,753 331,221
Notes payable and current installments of long-term debt.......... 140,770 83,526
Income taxes payable.............................................. 3,531 384
Other current liabilities............................................. 60,941 33,869
----------- -----------
Total current liabilities.................................... 611,995 449,000
----------- -----------
Long-term debt, excluding current installments........................ 55,250 23,667
Other long-term liabilities........................................... 73 --
Deferred income taxes................................................. 3,452 2,796
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value.
Authorized 1,000,000 shares; none issued..................... -- --
Common stock of $.10 par value. Authorized
30,000,000 shares; issued 10,850,008 shares
in 1996 and 10,040,000 in 1995............................... 1,085 1,004
Additional paid-in capital........................................ 98,153 89,528
Retained earnings............................................ 77,607 58,874
----------- -----------
............................................................. 176,845 149,406
Less:
Cost of common shares in treasury of 19,989 in 1995............... -- (161)
Unearned restricted stock......................................... (15) (470)
----------- -----------
Total stockholders' equity................................... 176,830 148,775
----------- -----------
Commitments and contingent liabilities................................
............................................................. $ 847,600 624,238
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three-year period ended December 28, 1996
(Amounts in thousands, except share data)
Additional Unearned Total
Common paid-in Retained Treasury restricted stockholders'
stock capital earnings stock stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 25, 1993....... $ 1,004 88,928 49,423 (2,034) (830) 136,491
Net loss........................... - - (2,256) - - (2,256)
Issuance of 3,400 treasury shares
as director compensation........... - 11 - 30 - 41
Issuance of 35,253 treasury
shares under stock option plans.... - 209 - 310 - 519
Issuance of 16,800 treasury shares
as stock awards, net of forfeitures - 166 - 161 468 795
--- -------- ---- ------ --- ---------
Balance at December 31, 1994....... 1,004 89,314 47,167 (1,533) (362) 135,590
Net earnings....................... - - 11,707 - - 11,707
Issuance of 4,400 treasury shares
as director compensation........... - (1) - 39 - 38
Issuance of 89,993 treasury
shares under stock option plans.... - 240 - 790 - 1,030
Issuance of 61,800 treasury shares
as stock awards, net of forfeitures - (25) - 543 (108) 410
--- ------- ----- ----- --- ---------
Balance at December 30, 1995....... 1,004 89,528 58,874 (161) (470) 148,775
Net earnings....................... - - 18,733 - - 18,733
Issuance of 691,131 shares in connection
with business combinations......... 69 6,581 - - - 6,650
Issuance of 132,966 treasury and common
shares under stock option plans.... 12 1,956 - 161 - 2,129
Issuance of 3,400 shares
as director compensation........... - 60 - - - 60
Issuance of 2,500 shares
as stock awards, net of forfeitures - 28 - - 455 483
--- ------ ------ --- --- ---------
Balance at December 28, 1996....... $ 1,085 98,153 77,607 - (15) 176,830
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three-year period ended December 28, 1996
(Amounts in thousands)
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 18,733 11,707 (2,256)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization......................... 21,814 19,059 19,766
Changes in assets and liabilities, net
of effects from business combinations:
Accounts receivable.............................. (123,648) (75,333) (22,496)
Inventories...................................... (31,794) (124,296) (41,783)
Other current assets............................. 97 (610) 463
Accounts payable................................. 71,162 105,100 122,961
Other liabilities................................ 20,896 5,444 5,983
Income taxes..................................... 4,451 1,195 (2,192)
----------- ----------- -----------
Net cash provided (used) by
operating activities...................... (18,289) (57,734) 80,446
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment....................... (26,240) (10,346) (14,910)
Business combinations..................................... (23,386) - -
Payments from (advances of) notes receivable.............. 446 (1,872) 917
Other, including advances to affiliates................... (11,950) (1,051) (1,816)
----------- ----------- -----------
Net cash used in investing activities........ (61,130) (13,269) (15,809)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ..................... (30,334) (6,667) -
Proceeds from receivables sold............................ - 100,000 -
Proceeds from (payments of) notes payable................. 63,094 (13,184) (81,314)
Proceeds from long-term debt.............................. 55,250 - 17,000
Proceeds from the exercise of employee stock options...... 2,129 1,030 519
----------- ----------- -----------
Net cash provided by (used in)
financing activities...................... 90,139 81,179 (63,795)
----------- ----------- -----------
Net increase in cash and cash equivalents...................... 10,720 10,176 842
Cash and cash equivalents, beginning of year................... 20,690 10,514 9,672
----------- ----------- -----------
Cash and cash equivalents, end of year......................... $ 31,410 20,690 10,514
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The consolidated financial statements include the accounts of InaCom
Corp. (Company) and its wholly-owned subsidiaries. The Company is a leading
provider of management technology services which include technology procurement
and distribution of microcomputer systems, workstations, networking and
telecommunications equipment, systems integration and support services. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Accounts Receivable
The Company entered into an agreement in June 1995 (which agreement was
amended and restated in August 1995) to sell $100 million of accounts
receivable, with limited recourse, to an unrelated financial institution. New
qualifying receivables are sold to the financial institution as collections
reduce previously sold receivables in order to maintain a balance of $100
million sold receivables. On December 28, 1996, $37.3 million of additional
accounts receivable were designated to offset potential obligations under
limited recourse provisions; however, historical losses on Company receivables
have been substantially less than such additional amount. At December 28, 1996,
the implicit interest rate on the receivable sale transaction was 5.9%. On
January 13, 1997, the agreement was amended to sell an additional $100 million
of accounts receivable.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of computer hardware, software, voice and data equipment and
related materials.
(d) Other Assets
Other assets include vendor authorization rights and long-term notes
receivable. Vendor authorization rights are being amortized over 10 years.
(e) Cost in Excess of Net Assets of Business Acquired
The excess of the cost over the carrying value of assets of business
acquired is being amortized over 20 years. The Company assesses the
recoverability of intangible assets by determining whether the amortization of
the asset balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
(f) Depreciation
Depreciation is provided over the estimated useful lives of the
respective assets ranging from 3 to 31 years using the straight-line method.
F-7
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(h) Earnings/(Loss) Per Common Share
Primary earnings/(loss) per share of common stock have been computed on
the basis of the weighted average number of shares of common stock outstanding
after giving effect to equivalent common shares from dilutive stock options.
Fully diluted earnings/(loss) per share further assumes the conversion of the
Company's convertible subordinated debentures for the period they were
outstanding.
(i) Revenue and Expense Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues from consulting and other services are recognized as the
Company performs the services. Revenues from maintenance and extended warranty
agreements are recognized ratably over the term of the agreement. Extended
warranty costs are accounted for on an accrual basis and are recognized under
the sales method.
(j) Marketing Development Funds
Primary vendors of the Company provide various incentives, in cash or
credit against obligations, for promoting and marketing their product offerings.
The funds or credits received are based on the purchases or sales of the
vendor's products and are earned through performance of specific marketing
programs or upon completion of objectives outlined by the vendors. Funds or
credits earned are applied to direct costs or selling, general and
administrative expenses depending on the objectives of the program. Funds or
credits from the Company's primary vendors typically range from 1% to 3% of
purchases.
(k) Risks and Uncertainties
Financial instruments which potentially expose the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company sells product to a large number of customers in many different
industries and geographies. To minimize credit concentration risk, the Company
utilizes several financial services organizations which purchase accounts
receivable and perform ongoing credit evaluations of its customers' financial
conditions.
The Company's business is dependent in large measure upon its
relationship with key vendors since a substantial portion of the Company's
revenue is derived from the sales of the products of such key vendors.
Termination of, or a material change to the Company's agreements with these
vendors, or a material decrease in the level of marketing development programs
offered by manufacturers, or an insufficient or interrupted supply of vendors'
product would have a material adverse effect on the Company's business.
F-8
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
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.
(l) Disclosures About Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts
receivable, accounts payable and notes payable approximate fair value because of
the short maturity of these instruments. The fair values of each of the
Company's long-term debt instruments are based on the amount of future cash
flows associated with each instrument discounted using the Company's current
borrowing rate for similar debt instruments of comparable maturity. The
estimated fair value of the Company's long-term debt at December 28, 1996
approximates book value.
(m) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers cash and temporary cash investments with a maturity of three months or
less to be cash equivalents.
2. BUSINESS COMBINATIONS
During 1996, the Company completed several acquisitions. In April 1996,
the Company acquired Technology Express, a network integrator in the Nashville,
Tennessee market for consideration of approximately $4.8 million in cash and
89,286 shares of common stock in a transaction accounted for as a purchase. The
excess purchase price over the estimated fair value of the net assets acquired
was $6.2 million and is being amortized using the straight-line method over 20
years.
In August 1996, the Company acquired Computer Access International for
consideration including approximately $7.6 million in cash and 238,209 shares of
common stock in a transaction accounted for as a purchase. The excess purchase
price over the estimated fair value of the net assets acquired was $8.0 million
and is being amortized using the straight line method over 20 years.
In December 1996, the Company acquired Gorham Clark, Inc., a network
consulting business in New York, New York for consideration of approximately
$12.0 million in cash in a transaction accounted for as a purchase. The Company
may also issue up to a maximum of 122,278 shares of common stock over the next
two years, contingent upon future results of the acquired business. The excess
purchase price over the estimated fair value of the net assets acquired was
$10.0 million and is being amortized using the straight-line method over 20
years.
In December 1996, the Company acquired all the issued and outstanding
shares of Perigee Communications Inc. of Minneapolis, Minnesota and Networks,
Inc. of Miami, Florida for 272,726 and 90,910 shares of common stock,
respectively, in transactions accounted for as "poolings of interest." The
Company's consolidated financial statements for the year ended December 28, 1996
include the fourth fiscal quarters' activity for the acquired businesses. Prior
period consolidated financial statements were not restated as the results of
operations would not have been materially different than those previously
reported by the Company. The effect of the immaterial poolings was to increase
stockholders' equity by approximately $643,000.
F-9
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
If the above business combinations had occurred on December 26, 1993,
the pro forma operations of the Company would not have been materially different
than that reported in the accompanying consolidated statements of operations.
<TABLE>
3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
1996 1995
---- ----
<S> <C> <C>
Land, buildings and improvements ................... $ 13,911 10,541
Furniture, fixtures and equipment .................. 27,875 18,392
Computer equipment ................................. 53,239 35,340
Computer parts held for repair and exchange ........ 21,945 21,649
-------- --------
$116,970 85,922
</TABLE>
4. INCOME TAXES
<TABLE>
Income tax expense (benefit) consists of the following:
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Current:
Federal ....................... $10,195 6,151 487
State ................... 1,488 943 92
Deferred:
Federal ................. 1,209 897 (1,789)
State ................... 94 135 (283)
------- ------- -------
$12,986 8,126 (1,493)
</TABLE>
The reconciliation of the statutory Federal income tax rate and the effective
tax rate are as follows:
<TABLE>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Statutory Federal income tax rate............... 35.0% 35.0% 34.0%
State income taxes, net of
Federal benefit........................ 3.2 3.6 4.7
Other.................................. 2.8 2.4 1.1
---------- ---------- ---------
41.0% 41.0% 39.8%
</TABLE>
F-10
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Valuation reserves ................................ $5,726 3,324
Accrued expenses not deducted until paid .......... 2,188 1,275
Other ............................................. -- 2
------ ------
Total deferred tax assets ......................... 7,914 4,601
------ ------
Deferred tax liabilities:
Vendor discounts .................................. 2,766 --
Depreciation ...................................... 4,241 2,725
Other ............................................. 805 470
------ ------
Total deferred tax liabilities .................... 7,812 3,195
------ ------
Net deferred tax assets ........................... $ 102 1,406
</TABLE>
There was no valuation allowance for deferred tax assets at December 28, 1996 or
December 30, 1995.
5. NOTES PAYABLE AND LONG-TERM DEBT
The Company's primary sources of liquidity are provided through a
working capital financing agreement for $350.0 million, a revolving credit
facility of $40.0 million and convertible subordinated debentures of $55.25
million. The $350.0 million working capital financing agreement, which is
provided by an unrelated financial services organization, expires June 29, 1998.
At December 28, 1996, $100.8 million was outstanding under the working capital
line and the interest rate was 7.4% based on LIBOR. The working capital
financing agreement is secured by accounts receivable and inventories.
The Company entered into a revolving credit facility agreement in
February 1996 with an unrelated financial institution. The $40.0 million
revolving credit facility agreement expires in February 1998. At December 28,
1996, $40.0 million was outstanding under the revolving credit facility and the
interest rate was 6.8% based on LIBOR. The revolving credit facility is secured
by accounts receivable and inventories.
The working capital financing agreement and the revolving credit
facility agreement contain certain restrictive covenants, including the
maintenance of minimum levels of working capital, tangible net worth,
limitations on incurring additional indebtedness and restrictions on the amount
of net loss that the Company can incur. The Company was in compliance with the
covenants contained in the agreements at December 28, 1996.
F-11
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
<TABLE>
A summary of long-term debt follows:
1996 1995
------- -------
<S> <C> <C>
Private placement notes (a) .............................. $ -- 30,334
Convertible subordinated debentures (b) .................. 55,250 --
------- -------
Total long-term debt ............................. 55,250 30,334
Less current installments ................................ -- 6,667
------- -------
Long-term debt, excluding current installments ... $55,250 23,667
</TABLE>
(a) The private placement notes were held by unaffiliated
insurance companies. The balances of the notes were paid in
full in December 1996.
(b) In June 1996, the Company issued $55.25 million of 6.0%
convertible subordinated debentures due June 15, 2006. The
debentures are convertible into common stock of the Company at
a conversion price of $24.00 per share, subject to adjustments
under certain circumstances, beginning on September 19, 1996.
The debentures are not redeemable by the Company prior to June
16, 2000 and thereafter the Company may redeem the debentures
at various premiums to principal amount. The debentures may
also be redeemed at the option of the holder at any time prior
to June 16, 2000 if there is a Change in Control (as defined
in the indenture) at a price equal to 100% of the principal
amount plus accrued interest at the date of redemption. The
net proceeds from the sale of the 6% debentures were used to
reduce a portion of the outstanding balance of the working
capital financing agreement which carried an interest rate at
the time of the debenture sale of 7.3%.
6. CREDIT ARRANGEMENTS
The Company has floor plan agreements to take advantage of vendor
financing programs. The agreements were secured by $122.7 million of the
Company's inventory at December 28, 1996 and $111.9 million at December 30,
1995. The Company has entered into dealer working capital financing agreements
with several financial services organizations which purchase, primarily,
accounts receivable from the Company. The Company had contingent liabilities of
$1.8 million at December 28, 1996 and $7.9 million at December 30, 1995 relating
to these agreements.
7. LEASES
The Company operates in leased premises which include the general
offices, warehouse facilities and Company-owned branches. Operating lease terms
range from monthly to ten years and generally provide for renewal options. Rent
expense for operating leases was approximately $12.0 million, $9.8 million, and
$8.6 million for the three years ended December 28, 1996, respectively.
F-12
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
Future minimum operating lease obligations for the years 1997 through
2001 are $12.6 million, $10.6 million, $8.9 million, $6.6 million and $5.7
million, respectively. It is anticipated that leases will be renewed or replaced
as they expire such that future lease obligations will approximate rent expense
for 1996.
8. EMPLOYEE RETIREMENT BENEFIT PLAN
The Company maintains a qualified savings plan under Section 401(k) of
the Internal Revenue Code (IRC) which covers substantially all full-time
employees. Annual contributions to the qualified plan, based on participant's
annual pay, are made by the Company. Participants may also elect to make
contributions to the plan. Employee contributions are matched by the Company up
to limits prescribed by the IRC. Company contributions to the plan approximated
$3.3 million in 1996, $2.4 million in 1995 and $1.8 million in 1994.
The Company maintains a nonqualified savings plan for employees whose
benefits under the qualified savings plans are reduced because of limitations
under Federal tax laws. Contributions made to this plan were not material.
9. LITIGATION
The Company is involved in a limited number of legal actions.
Management believes that the ultimate resolution of all pending litigation will
not have a material adverse effect on the Company's consolidated financial
statements.
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid are summarized as follows:
<TABLE>
1996 1995 1994
------- ------ ------
<S> <C> <C>
Interest paid .................. $19,611 14,054 12,599
Income taxes paid .............. 8,176 6,931 890
</TABLE>
Components of cash used for acquisitions as reflected in the
consolidated statements of cash flows are summarized as follows:
<TABLE>
1996
<S> <C>
Fair value of assets acquired $ 41,965
Liabilities assumed (11,436)
Fair value of common stock issued (7,143)
-------------
Cash paid at closing, net of cash acquired $ 23,386
</TABLE>
F-13
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
11. STOCK OPTION AND AWARD PROGRAMS
The Company has two stock plans approved by the shareholders in 1994
and 1990, and a nonqualified stock option plan approved by shareholders in 1987.
Options granted under the stock plans may be either nonqualified or incentive
stock options. The option price, vesting period and term under the stock plans
and the nonqualified stock option plan are set by the Compensation Committee of
the Board of Directors of the Company. The option price may not be less than the
fair market value per share at the time the option is granted. The vesting
period of options granted typically ranges from 2 to 3 years, and the term of
any option granted may not exceed ten years. The stock plans also permit the
issuance of restricted or bonus stock awards by the Compensation Committee. At
December 28, 1996, the Company had approximately 80,000 shares available for
issuance pursuant to subsequent grants under the plans.
Additional information as to shares subject to options is as follows:
<TABLE>
Weighted
average
Number of Exercise price exercise
options per option price
<S> <C> <C> <C>
Options outstanding at December 25, 1993 684,000 $ 5.85 to 19.75 13.73
Granted 193,500 8.00 to 12.00 10.20
Exercised (35,000) 7.25 to 14.62 11.74
Canceled (42,000) 7.02 to 14.50 12.21
-------------
Options outstanding at December 31, 1994 800,500 5.85 to 19.75 13.01
Granted 157,000 9.56 to 14.69 9.82
Exercised (90,000) 7.25 to 12.00 10.26
Canceled (68,500) 5.85 to 14.63 12.45
-------------
Options outstanding at December 30, 1995 799,000 5.85 to 19.75 12.76
Granted 36,500 35.56 35.56
Exercised (133,000) 5.85 to 14.63 10.77
Canceled (21,000) 5.85 to 14.63 9.56
-------------
Options outstanding at December 28, 1996 681,500 8.00 to 35.56 14.47
Exercisable at December 28, 1996 428,000 $ 8.00 to 19.75 12.74
</TABLE>
F-14
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
The Company accounts for stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. Accordingly, the Company
has not recognized compensation expense for its options granted in 1995 and
1996. In 1996, the Company adopted FASB Statement No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. FASB Statement No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in FASB Statement No. 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of FASB Statement
No. 123.
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $30.96 and $7.83, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield 0.0%, risk-free interest rate of
6.1%, expected volatility factor of 192.9%, and an expected life of 2.5 years;
1995 - expected dividend yield 0.0%, risk-free interest rate of 5.7%, expected
volatility factor of 133.8%, and an expected life of 3.7 years.
Since the Company applies APB Opinion No. 25 in accounting for its
plans, no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company recorded compensation cost
based on the fair value at the grant date for its stock options under FASB
Statement No. 123, the Company's net earnings for 1996 and 1995 would have been
reduced by approximately 1.9% and 0.6%, respectively, and the Company's earnings
per share, fully diluted, for 1996 and 1995 would have been reduced by
approximately 1.2% and 0.9%, respectively.
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under FASB Statement No. 123 is not reflected in the pro forma net earnings
amounts presented above, because compensation cost is reflected over the
options' vesting period of two and three years for the 1996 and 1995 options,
respectively. Compensation costs for options granted prior to January 1, 1995
are not considered.
F-15
<PAGE>
INACOM CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three-year period ended December 28, 1996
(Columnar dollar amounts in thousands, except per share data)
<TABLE>
SCHEDULE
INACOM CORP. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Amounts in thousands)
Balance at Charged to Amounts Balance
beginning costs and written at end
of period expenses off(1) of period
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1996 -
Allowance for doubtful accounts.............. $ 3,537 1,626 778 4,385
Fiscal year ended December 30, 1995 -
Allowance for doubtful accounts.............. $ 2,626 2,308 1,397 3,537
Fiscal year ended December 31, 1994 -
Allowance for doubtful accounts.............. $ 2,784 1,691 1,849 2,626
(1) The deductions from reserves are net of recoveries.
</TABLE>
F-16
<PAGE>
<TABLE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
June 28, December 28,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 30,720 31,410
Accounts receivable, net................................................ 257,358 288,407
Inventories............................................................. 464,145 386,592
Other current assets.................................................... 8,843 5,889
------------- ------------
Total current assets............................................... 761,066 712,298
------------- ------------
Other assets, net........................................................... 45,513 27,531
Cost in excess of net assets of business acquired, net of
accumulated amortizations................................................ 68,659 48,646
Property and equipment, net................................................. 69,674 59,125
------------- ------------
............................................................... $ 944,912 847,600
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 479,746 406,753
Notes payable........................................................... 120,000 140,770
Other current liabilities............................................... 79,451 64,472
------------- ------------
Total current liabilities.......................................... 679,197 611,995
------------- ------------
Long-term debt.............................................................. 55,250 55,250
Other long-term liabilities................................................. 3,453 3,525
Stockholders' equity:
Capitol stock:
Class A preferred stock of $1 par value
Authorized 1,000,000 shares; none issued....................... -- --
Common stock of $.10 par value. Authorized 30,000,000 shares;
issued 11,537,315 in 1997 and 10,850,008 shares in 1996 1,153 1,085
Additional paid-in capital......................................... 116,298 98,153
Retained earnings.................................................. 89,561 77,607
------------- ------------
............................................................... 207,012 176,845
Less:
Unearned restricted stock.......................................... -- (15)
------------- ------------
Total stockholders' equity......................................... 207,012 176,830
------------- ------------
............................................................... $ 944,912 847,600
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 28, June 29, June 28, June 29,
----------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Computer products............................... $ 884,952 718,585 $ 1,657,705 1,316,307
Computer services............................... 60,607 30,201 108,238 58,340
Communication products and services............. 26,655 21,074 47,961 37,294
------------ ------------- ------------- -------------
Total...................................... 972,214 769,860 1,813,904 1,411,941
------------ ------------- ------------- -------------
Direct costs:
Computer products............................... 836,876 677,760 1,565,625 1,241,991
Computer services............................... 14,881 7,347 28,380 15,550
Communications products and services............ 21,583 16,620 37,782 29,086
------------ ------------- ------------- -------------
................................................ 873,340 701,727 1,631,787 1,286,627
------------ ------------- ------------- -------------
Gross margin......................................... 98,874 68,133 182,117 125,314
Selling, general and administrative expenses 80,354 55,588 147,671 102,829
------------ ------------- -------------- -------------
Operating income..................................... 18,520 12,545 34,446 22,485
Interest expense..................................... 7,148 5,046 14,184 9,919
------------ ------------- ------------- -------------
Earnings before income tax........................... 11,372 7,499 20,262 12,566
Income tax expense .................................. 4,663 3,075 8,308 5,152
------------ ------------- ------------- -------------
Net earnings......................................... $ 6,709 4,424 $ 11,954 7,414
Earnings per share
Primary......................................... $ .58 .43 $ 1.04 .72
Fully diluted................................... $ .52 .42 .94 .71
Common shares and equivalents outstanding
Primary...................................... 11,600 10,300 11,500 10,300
Fully diluted................................ 13,900 10,700 13,800 10,500
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
<TABLE>
Twenty-Six Weeks Ended
June 28, June 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings ..................................................................... $ 11,954 7,414
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization................................................. 14,256 9,720
Increase in accounts receivable............................................... (55,200) (41,182)
(Increase) decrease in inventories............................................ (74,070) 48,585
Increase in other current assets.............................................. (2,599) (395)
Increase (decrease) in accounts payable....................................... 68,840 (69,691)
(Decrease) increase in other long-term liabilities............................ (83) 226
(Decrease) increase in other current liabilities.............................. (7,107) 13,219
----------- ---------
Net cash used in operating activities.................................... (44,009) (32,104)
----------- ---------
Cash flows from investing activities:
Additions to property and equipment............................................... (19,836) (10,016)
Proceeds from notes receivable.................................................... 100 1,605
Business combinations............................................................. (4,100) --
Increase in other assets.......................................................... (12,085) (10,472)
----------- ---------
Net cash used in investing activities......................................... (35,921) (18,883)
----------- ---------
Cash flows from financing activities:
Proceeds from receivables sold.................................................... 100,000 --
(Payments of) proceeds from short-term debt....................................... (20,770) 5,741
Payments of long-term debt........................................................ -- (6,667)
Proceeds from sale of convertible subordinated debentures......................... -- 55,250
Proceeds from exercise of stock options........................................... 10 808
----------- ---------
Net cash provided by financing activities..................................... 79,240 55,132
----------- ---------
Net (decrease) increase in cash and cash equivalents.................................. (690) 4,145
Cash and cash equivalents, beginning of the period.................................... 31,410 20,690
Cash and cash equivalents, end of the period.......................................... $ 30,720 24,835
See accompanying notes to consolidated financial statements.
</TABLE>
F-19
<PAGE>
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
The condensed and consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The condensed
and consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996. The results of
operations for the thirteen and twenty-six weeks ended June 28, 1997 are not
necessarily indicative of the results for the entire fiscal year ending December
27, 1997.
2. ACCOUNTS RECEIVABLE
The Company has entered into an agreement to sell $200 million of accounts
receivable, with limited recourse, to an unrelated financial institution. The
agreement was initially entered into in June 1995 with respect to $100 million
of accounts receivable and was amended in January 1997 to sell an additional
$100 million of accounts receivable. New qualifying receivables are sold to the
financial institution as collections reduce previously sold receivables in order
to maintain a balance of $200 million sold receivables. On June 27, 1997, $46.6
million of additional accounts receivable were designated to offset potential
obligations under limited recourse provisions; however, historical losses on
Company receivables have been substantially less than such additional amount. On
June 28, 1997, the interest rate was 6.09%.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of computer hardware, software, voice and data equipment and
related materials.
4. EARNINGS PER COMMON SHARE
Primary earnings per share of common stock have been computed on the basis
of the weighted average number of shares of common stock outstanding after
giving effect to equivalent common shares from dilutive stock options. Fully
diluted earnings per share further assumes the conversion of the Company's
convertible subordinated debentures for the period they were outstanding.
5. MARKETING DEVELOPMENT FUNDS
Primary vendors of the Company provide various incentives, in cash or credit
against obligations, for promoting and marketing their product offerings. The
funds or credits received are based on the purchases or sales of the vendor's
products and are earned through performance of specific marketing programs or
upon completion of objectives outlined by the vendors. Funds or credits earned
are applied to direct costs or selling, general and administrative expenses
depending on the objectives of the program. Funds or credits from the Company's
primary vendors typically range from 1% to 3% of purchases from these vendors.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the condensed and consolidated statement of cash flows, the
Company considers cash and cash investments with a maturity of three months or
less to be cash equivalents.
Interest and income taxes paid are summarized as follows (dollars in
thousands):
1997 1996
-------- ------
Interest paid..................................... $ 14,310 $ 9,924
Income taxes paid................................. 7,574 1,126
F-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Inacom
has agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
PaineWebber Incorporated are acting as representatives, has severally agreed to
purchase from Inacom, the respective number of shares of Common Stock set forth
opposite its name below:
Number of
Shares of
Underwriter Common Stock
------------
Goldman, Sachs & Co.............................
J.P. Morgan Securities Inc. ....................
PaineWebber Incorporated........................
________________________........................ ____________
Total 3,000,000
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of Common Stock
offered hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $_______ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $_______
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
Inacom has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
450,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of shares to be purchased by each
of them, as shown in the foregoing table, bears to the 3,000,000 shares of
Common Stock offered hereby.
Inacom and its directors and executive officers have agreed during the
period beginning from the date of this Prospectus Supplement and continuing to
and including the date 90 days after the date of this Prospectus Supplement, not
to offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities of Inacom that are substantially similar to the shares
of the Common Stock, or any other security convertible into or exchangeable for,
or that represent the right to receive, shares of Common Stock or any such
similar securities, except for (i) shares of Common Stock issuable pursuant to
convertible debt securities, warrants and stock options outstanding on the date
of this Prospectus Supplement, (ii) shares of Common Stock (or securities
convertible or exchangeable in to Common Stock) to be issued solely in
connection with acquisitions, (iii) the shares of Common Stock offered in this
offering and (iv) the Debentures offered in the concurrent Debenture offering
without the prior written consent of the Underwriters. The Company has agreed to
give Goldman, Sachs & Co. prompt notice of any issuance of Common Stock in
private placements in connection with acquisitions and not to register such
Common Stock for sale or resale during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement.
In connection with this offering, the Underwriters may purchase and
sell Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions in connection with this offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Common Stock; and syndicate short positions
involve the sale by the Underwriters of a greater number of shares of Common
Stock than they are required to purchase from the Company in this offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the shares of Common
Stock sold in this offering for their account, may be reclaimed by the syndicate
if such shares of Common Stock are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the NYSE or otherwise.
Inacom has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
<PAGE>
- ----------------------------------------------------------
- ----------------------------------------------------------
No person has been authorized to give any information or
to make any representations other than those contained in
this Prospectus, and, if given or made, such information
or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities
other than the Securities to which it relates, or an offer to
sell or the solicitation of an offer to buy such Securities,
in any circumstance in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances,
create any implication that there has been no change in
the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time
subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
Prospectus Supplement
Prospectus Summary............................ S-3
Risk Factors.................................. S-6
Use of Proceeds............................... S-9
Price Range of Company Stock
and Dividend Policy......................... S-10
Capitalization................................ S-11
Selected Consolidated Financial Data.......... S-12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................... S-13
Business.. S-21
Management.................................... S-28
Legal Matters................................. S-30
Experts....................................... S-30
Index to Consolidated Financial
Statements and Financial Statement
Schedule.................................... F-1
Underwriting.................................. U-1
Prospectus
Available Information......................... 2
Incorporation of Certain
Documents By Reference....................... 3
The Company................................... 4
Use of Proceeds............................... 5
Ratios of Earnings to Fixed Charges........... 6
Description of Debt Securities................ 7
Description of Capital Stock.................. 12
Plan of Distribution.......................... 15
Legal Matters................................. 16
Experts....................................... 16
3,000,000
Shares
of
InaCom Corp.
COMMON STOCK
--------------
PROSPECTUS
___________, 1997
-------------
Goldman, Sachs & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED September 30, 1997
$300,000,000
INACOM CORP.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
InaCom Corp. ("InaCom" or the "Company") may from time to time offer (i)
debt securities ("Debt Securities") consisting of debentures, notes and/or other
evidences of indebtedness, in one or more series, (ii) shares of preferred
stock, par value $1.00 per share ("Preferred Stock"), in one or more series, or
(iii) shares of common stock, par value $.10 per share ("Common Stock"), or any
combination of the foregoing, at an aggregate initial offering price not to
exceed $300,000,000, at prices and on terms to be determined at or prior to the
time of the sale. The Debt Securities, Preferred Stock and Common Stock are
collectively referred to herein as "Securities".
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement (the
"Prospectus Supplement"), together with the terms of the offering of such
Securities and the initial price and the net proceeds to the Company from their
sale. Without limiting the foregoing, the Prospectus Supplement will set forth
the following: (i) in the case of Debt Securities, the specific designation,
aggregate principal amount, ranking as senior debt or subordinated debt,
authorized denomination, maturity, rate or method of calculation of interest and
dates for payment thereof, nature and terms of any security, any
exchangeability, conversion, redemption, prepayment or sinking fund provisions,
additional covenants or events of default, tax consequences, and the currency or
currencies or currency unit or currency units in which principal, premium, if
any, or interest, if any, is payable; (ii) in the case of Preferred Stock, the
designation, number of shares, liquidation preference per share, dividend rate
(or method of calculation thereof), dates on which dividends, if any, shall be
payable and from which dividends shall accrue, voting rights, if any, any
redemption or sinking fund provisions, and any conversion or exchange rights;
and (iii) in the case of Common Stock, the number of shares.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ICO." Any Common Stock sold pursuant to a Prospectus Supplement will be listed
on the New York Stock Exchange, subject to official notice of issuance. The
Company has not yet determined whether any of the Debt Securities or Preferred
Stock offered hereby will be listed on any exchange or over-the-counter market.
If the Company decides to seek listing of any such Securities, the Prospectus
Supplement relating thereto will disclose such exchange or market.
The Company may sell the Securities directly, through agents, underwriters
or dealers, as designated from time to time, or through a combination of any
such methods. See "Plan of Distribution." If any agents of the Company or any
underwriters or dealers are involved in the sale of the Securities, the names of
such agents, underwriters or dealers and any applicable commissions and
discounts will be set forth in the Prospectus Supplement.
----------------------
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.
----------------------
The date of this Prospectus is ______________, 1997.
<PAGE>
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.
1
<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 reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade
Center, New York, New York 10048 and 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such material also can be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Reports and other information concerning the
Company can also be inspected at the office of the New York Stock Exchange, 20
Broad Street, New York, New York 10005. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
The Company has filed a registration statement on Form S-3 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the Securities offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement may be inspected and copied at the public
reference facilities maintained at the addresses set forth in the preceding
paragraph. Statements contained or incorporated by reference herein concerning
the provisions of documents are necessarily summaries of such documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are hereby incorporated by reference: (i) Annual Report on
Form 10-K for the fiscal year ended December 28, 1996, (ii) Quarterly Reports on
Form 10-Q for the quarters ended March 29, 1997 and June 28, 1997, (iii) Proxy
Statement for the Annual Meeting of Stockholders held on April 22, 1997 and (iv)
the description of the Common Stock contained in the Company's Registration
Statement on Form 8-A filed on August 26, 1997 pursuant to Section 12 of the
Exchange Act and all amendments thereto and reports filed for the purposes of
updating such description.
All documents filed by the Company pursuant to Sections 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 the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to David C. Guenthner,
Chief Financial Officer, InaCom Corp., 10810 Farnam Drive, Omaha, Nebraska
68154, Telephone: (402) 392- 3900.
---------------
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<PAGE>
THE COMPANY
Inacom is a leading single source provider of information technology
products and technology management services designed to enhance the productivity
of information systems, primarily for Fortune 1000 clients. The Company offers a
comprehensive range of value added services to manage the entire information
system life cycle including: (1) needs assessment and technology planning, (2)
technology procurement and configuration, (3) systems integration and systems
management, (4) ongoing systems support and distributed support, and (5) asset
management. Inacom's expertise includes the integration of voice and data
communications. Inacom sells its products and services through a marketing
network of 51 Company-owned business centers throughout the United States that
focus on serving large corporations. The Company also has a network of
approximately 1,000 value added resellers that typically have a regional,
industry, or specific product focus. The Company has international affiliations
in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa,
Canada and Mexico to satisfy the technology management needs of its
multinational clients.
The Company's headquarters are located at 10810 Farnam Drive, Omaha
Nebraska 68154, and its telephone number is (402) 392-3900.
USE OF PROCEEDS
The Company currently anticipates that net proceeds from the sale of
Securities would be used for general corporate purposes, including, but not
limited to payments of outstanding indebtedness, working capital, capital
expenditures, investments and acquisitions. When Securities are offered, the
Prospectus Supplement related thereto will set forth the Company's intended use
for the net proceeds received from the sale of such Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company for the periods indicated. There were no shares of Preferred Stock
issued or outstanding during the periods indicated below and therefore the
combined ratio of earnings to fixed charges and preferred dividends would have
been the same as set forth below.
<TABLE>
Fiscal Year Ended December Twenty-Six Weeks Ended
1992 1993 1994 1995 1996 June 29, 1996 June 28, 1997
--------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges............ 2.85 2.80 0.75x 2.11 2.30 2.07 2.20
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before interest expense, interest
income and income taxes plus fixed charges) by fixed charges. Fixed charges
consist of interest expense (including amortization of deferred financing costs)
and the portion of rental expense that is representative of the interest factor.
For the fiscal year ended December 31, 1994, earnings were insufficient to cover
fixed charges by $3.8 million; for such fiscal year the Company incurred
non-recurring charges of $7.1 million; exclusive of such charges, the ratio of
earnings to fixed charges was 1.23.
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate ("Offered Debt Securities"). The particular terms of the Offered Debt
Securities and the extent to which such general provisions may apply will be
described in the Prospectus Supplement relating to such Offered Debt Securities.
The Debt Securities will be general obligations of the Company, and each
series of Offered Debt Securities will constitute either senior debt securities
or subordinated debt securities. In the case of senior debt securities
3
<PAGE>
("Senior Debt Securities"), the Debt Securities will be issued under an
indenture dated September 30, 1997 (the "Senior Indenture") between the Company
and Norwest Bank Minnesota, National Association as trustee. In the case of
subordinated debt securities ("Subordinated Debt Securities"), the Debt
Securities will be issued under an indenture September 30, 1997 (the
"Subordinated Indenture") between the Company and Norwest Bank Minnesota,
National Association as trustee. The Senior Indenture and the Subordinated
Indenture are sometimes hereinafter referred to herein individually as an
"Indenture" and collectively as the "Indentures." The trustee under each
Indenture (and any successor thereto under each Indenture) is referred to herein
as the "Trustee." The statements under this caption relating to the Debt
Securities and the Indentures are summaries only and do not purport to be
complete. Such summaries make use of terms defined in the Indentures. Wherever
such terms are used herein or particular provisions of the Indentures are
referred to, such terms or provisions, as the case may be, are incorporated by
reference as part of the statements made herein, and such statements are
qualified in their entirety by such reference. Copies of the Senior Indenture
and the Subordinated Indenture have been filed as exhibits to the Registration
Statement, of which this Prospectus is a part.
Provisions Applicable to Both Senior and Subordinated Debt Securities
General
The Indentures do not limit the aggregate principal amount of Debt
Securities which can be issued thereunder and provide that Debt Securities may
be issued thereunder from time to time in one or more series, each in an
aggregate principal amount authorized by the Company prior to issuance. The
applicable Prospectus Supplement will set forth any limitations on the amount of
other indebtedness or securities which may be issued by the Company.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms of the Offered
Debt Securities: (i) the title and aggregate principal amount; (ii) the maturity
date or dates; (iii) the interest rate or rates (which may be fixed or variable)
per annum, if any, or the method of determining such rate or rates; (iv) the
date or dates from which such interest, if any, will accrue and the date or
dates on which such interest, if any, will be payable, the date on which payment
of such interest, if any, will commence and the record dates for determining
interest payments, if any; (v) the terms for redemption or early payment, if
any, including any mandatory or optional sinking fund or analogous provision;
(vi) whether such Offered Debt Securities will be secured or unsecured and, if
secured, the nature and terms of the security; (vii) the terms for conversion or
exchange, if any; (viii) the classification as Senior Debt Securities or
Subordinated Debt Securities; (ix) in the case of Offered Debt Securities
offered to foreign investors, whether such Offered Debt Securities will be
issued in fully registered form or in bearer form or any combination thereof;
(x) whether such Offered Debt Securities will be issued in the form of one or
more global securities and whether such global securities are to be issuable in
temporary global form or permanent global form; (xi) if other than U.S. dollars,
the currency or currencies or currency unit or units in which such Offered Debt
Securities will be denominated and in which the principal of, and premium, if
any, and interest, if any, thereon will be payable; (xii) whether, and the terms
and conditions on which, the Company or a holder may elect that, or the other
circumstances under which, payment of principal of, or premium, if any, or
interest, if any, is to be made in a currency or currencies or currency unit or
units other than that in which such Offered Debt Securities are denominated;
(xiii) any Events of Default (as defined below) with respect to the Offered Debt
Securities if not otherwise set forth under "Events of Default" below; (xiv) any
additions to, or changes in, the covenants which apply to the Offered Debt
Securities; (xv) a summary of the tax consequences to holders under United
States laws of owning the Offered Debt Securities, including the possible
imposition of withholding taxes; (xvi) the securities exchange or market, if
any, on which the Offered Debt Securities will be listed; and (xvii) any other
specific terms of the Offered Debt Securities.
Offered Debt Securities may be sold at a discount (which may be
substantial) below their stated principal amount or bear no interest or interest
at a rate which at the time of issuance is below market rates, or both.
4
<PAGE>
No service charge will be made to any holder for any registration of
transfer or exchange of the Offered Debt Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
If any of the Offered Debt Securities are sold for any foreign currency or
currency unit or if the principal of, or premium, if any, or interest, if any,
on any of the Offered Debt Securities is payable in any foreign currency or
currency unit, the restrictions, elections, tax consequences, specific terms and
other information with respect to such Offered Debt Securities and such foreign
currency or currency unit will be set forth in the Prospectus Supplement
relating thereto.
Events of Default
Unless otherwise provided in the Prospectus Supplement with respect to any
series of Offered Debt Securities, the following are "Events of Default" under
each Indenture with respect to each series of Debt Securities issued under such
Indenture: (a) failure for 30 days to pay any interest on any Debt Security of
such series when due; (b) failure to pay principal of (or premium, if any, on)
any Debt Security of such series when due; (c) failure for 60 days to deposit
any mandatory sinking fund payment, when due, in respect of the Debt Securities
of such series; (d) failure for 90 days after written notice as provided in the
Indenture to perform any other covenant of the Company in the Indenture (other
than covenants described in clauses (a), (b) or (c) above); (e) failure to pay
when due any payment on, or the acceleration of, Indebtedness (as defined below)
under any mortgages, indentures (including the Indenture) or instruments under
which the Company may have issued, or under which there may have been secured or
evidenced, any indebtedness for money borrowed by the Company aggregating in
excess of $5 million, if such Indebtedness is not discharged or such
acceleration is not annulled within 30 days after written notice as provided in
the Indenture; (f) certain events of bankruptcy, insolvency or reorganization;
and (g) any other Event of Default as may be specified in the Prospectus
Supplement with respect to the Offered Debt Securities. If an Event of Default
with respect to any outstanding series of Debt Securities occurs and is
continuing, either the Trustee or the holders of at least 25% in principal
amount of the outstanding Debt Securities of such series (in the case of an
Event of Default described in clause (a), (b), (c) or (d) above) or at least 25%
in principal amount of all outstanding Debt Securities under the applicable
Indenture (in the case of other Events of Default) may declare the principal
amount and all accrued but unpaid interest of all the Debt Securities of the
applicable series (or of all outstanding Debt Securities under the applicable
Indenture, as the case may be) to be due and payable immediately. At any time
after a declaration of acceleration with respect to Debt Securities of any
series (or of all outstanding Debt Securities under the applicable Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
money has been obtained, the holders of a majority in principal amount of the
outstanding Debt Securities of such series (or of all outstanding Debt
Securities under the applicable Indenture, as the case may be) may, under
certain circumstances, rescind and annul such acceleration. Depending on the
terms of other Indebtedness of the Company outstanding from time to time, an
Event of Default under an Indenture may give rise to cross defaults on such
other indebtedness of the Company.
Each Indenture provides that the Trustee will, within 90 days after the
occurrence of a default in respect of any series of Debt Securities, give to the
holders of the Debt Securities of such series notice of all unsecured and
unwaived defaults known to it; provided, however, that except in the case of a
default in the payment of the principal of, or premium, if any, or interest, if
any, on or any sinking fund installment with respect to, any Debt Securities of
such series, the Trustee will be protected in withholding such notice if it in
good faith determines that the withholding of such notice is in the best
interest of the holders of the Debt Securities of such series. For the purpose
of this provision, "default" with respect to Debt Securities of any series means
any event which is, or after notice or lapse of time or both would become, an
Event of Default with respect to the Debt Securities of such series.
The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or
5
<PAGE>
exercising any trust or power conferred on the Trustee with respect to the Debt
Securities of such series (or of all outstanding Debt Securities under the
applicable Indenture). Each Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee shall exercise such of its rights and
powers under the applicable Indenture and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances 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 the
applicable Indenture at the request of any of the holders of the Debt Securities
unless they shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request.
The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) may, on behalf of the holders of all Debt
Securities of such series (or of all outstanding Debt Securities under the
applicable Indenture), waive any past default under the applicable Indenture,
except a default in the payment of the principal of, or premium, if any, or
interest, if any, on, any Debt Security of such series (or of all outstanding
Debt Securities under the applicable Indenture) or in respect of a provision
which under the applicable Indenture cannot be modified or amended without the
consent of the holder of each outstanding Debt Security affected. The holders of
a majority in principal amount of the outstanding Debt Securities affected
thereby may, on behalf of the holders of all such Debt Securities, waive
compliance by the Company with certain restrictive provisions of the Indentures.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under each
Indenture and as to any default in such performance.
Modification of Indentures
The Company and the Trustee may, with the consent of the holders of a
majority in principal amount of all series of outstanding Debt Securities under
the Indenture affected thereby, enter into supplemental indentures for the
purpose of amending or modifying, in any manner, provisions of such Indenture or
any supplemental indenture modifying the rights of holders of such series of
Debt Securities; provided, however, that no such supplemental indenture, without
the consent of the holder of each outstanding Debt Security affected thereby,
shall, among other things, (a) change the stated maturity date of the principal
of, or any installment of interest on, any Debt Security, (b) reduce the
principal amount of, or the premium, if any, or interest, if any, on any Debt
Security, (c) change the place or currency or currencies or currency unit or
units of payments of principal of, or premium, if any, or interest, if any, on,
any Debt Security, (d) impair the right to institute suit for the enforcement of
any payment on or with respect to any Debt Securities or (e) reduce the
percentage in principal amount of outstanding Debt Securities the consent of
whose holders is required for execution of any such supplemental indenture or
for waiver of compliance with certain provisions of such Indenture or for waiver
of certain defaults.
Each Indenture provides that the Company and the Trustee may, without the
consent of any holders of Debt Securities, enter into supplemental indentures
for the purposes, among other things, of (a) adding to the Company's covenants,
(b) adding additional Events of Default, (c) establishing the form or terms of
Debt Securities or (d) curing ambiguities or inconsistencies in the applicable
Indenture, any supplemental indenture or in the Debt Securities of any series,
provided such action to cure ambiguities or inconsistencies shall not adversely
affect the interests of the holders of the Debt Securities in any material
respect.
Consolidation, Merger and Sale of Assets
The Company may not consolidate with or merge into, or convey transfer or
lease its assets substantially as an entirety to, any person, unless (a) the
person formed by such consolidation or into which the Company is merged or which
acquires or leases the assets of the Company substantially as an entirety is a
corporation, partnership, limited liability company or trust organized under the
laws of any United States jurisdiction, (b) the person formed by such
consolidation or into which the Company is merged or which acquires or leases
the assets
6
<PAGE>
of the Company substantially as an entirety assumes by supplemental indenture
the Company's obligations in respect of the Debt Securities and under the
Indentures, (c) after giving effect to the transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing, and (d) certain other conditions
are met. Upon compliance with these provisions by a successor person, the
Company will (except in the case of a lease) be relieved of its obligations
under the Indentures and the Debt Securities.
Other Covenants
The Prospectus Supplement relating to the Offered Debt Securities will
describe other specific affirmative and negative covenants, if any, from which
the Offered Debt Securities will benefit. The Company may covenant, among other
things, to deliver to holders of the Offered Debt Securities reports filed by
the Company pursuant to the Exchange Act and to execute additional instruments
necessary to fulfill its obligations under the Indenture and the Offered Debt
Securities. Each Indenture or indenture supplement thereto may also impose
restrictions on indebtedness, guarantees, issuance of preferred stock, liens,
investments, acquisitions, dividend payments and/or transactions with
affiliates. Unless otherwise indicated in a Prospectus Supplement, the Debt
Securities will not benefit from any covenant or other provision that would
afford holders of such Debt Securities special protection in the event of a
highly leveraged transaction or change of control involving the Company.
Discharge and Defeasance
The Company may satisfy and discharge its obligations under each Indenture,
other than its obligation to pay the principal of, and premium, if any, and
interest, if any, on, the Debt Securities of any series and certain other
obligations, if it (i) irrevocably deposits or causes to be irrevocably
deposited with the Trustee as trust funds, an amount, in money or U.S.
government obligations maturing as to principal and interest, sufficient to pay
the principal of, and premium, if any, and interest, if any, on, and any
mandatory sinking funds in respect of, all outstanding Debt Securities of such
series on the stated maturity date of such payments or on any redemption date
and (ii) complies with any additional conditions specified to be applicable with
respect to the covenant defeasance of Debt Securities of such series.
The terms of any series of Debt Securities may also provide for legal
defeasance pursuant to each Indenture. In such case, if the Company (i)
irrevocably deposits or causes to be irrevocably deposited money or U.S.
government obligations as described above, (ii) makes a request to the Trustee
to be discharged from its obligations on the Debt Securities of such series and
(iii) complies with any additional conditions specified to be applicable with
respect to legal defeasance of Debt Securities of such series, the Company shall
be deemed to have paid and discharged the entire indebtedness on all the
outstanding Debt Securities of such series, and the obligations of the Company
under the applicable Indenture and the Debt Securities of such series to pay the
principal of, and premium, if any, and interest, if any, on, the Debt Securities
of such series shall cease, terminate and be completely discharged, and the
holders thereof shall thereafter be entitled only to payment out of the money or
U.S. government obligations so deposited with the Trustee, unless the Company's
obligations are revived and reinstated because the Trustee is unable to apply
such trust fund by reason of any legal proceeding, order or judgment.
Form, Exchange, Registration and Transfer
Each Debt Security will be represented by either a global security (a
"Global Debt Security") registered in the name of The Depository Trust Company
(the "Depositary") or a nominee of the Depositary (each such Debt Security
represented by a Global Debt Security being herein referred to as a "Book-Entry
Debt Security") or a certificate issued in definitive registered form (a
"Certificated Debt Security"), as set forth in the applicable Prospectus
Supplement. Except as set forth below, Book-Entry Debt Securities will not be
issuable in certificated form.
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<PAGE>
Certificated Debt Securities may be transferred or exchanged at the
Trustee's office or paying agencies in accordance with the terms of the
Indenture. No service charge will be made to any holder for any transfer or
exchange of Certificated Debt Securities, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Certificated Debt Securities will not be exchangeable for
Book-Entry Debt Securities.
The transfer of Certificated Debt Securities and the right to the principal
of, and premium, if any, and interest, if any, on, such Certificated Debt
Securities may be effected only by surrender of the old certificate representing
such Certificated Debt Securities and either reissuance by the Company or the
Trustee of the old certificate to the new holder or the issuance by the Company
or the Trustee of a new certificate to the new holder.
Each Global Debt Security representing Book-Entry Debt Securities will be
deposited with, or on behalf of, the Depositary and registered in the name of
the Depositary or a nominee of the Depositary. Except as set forth below,
Book-Entry Debt Securities will not be exchangeable for Certificated Debt
Securities and will not otherwise be issuable as Certificated Debt Securities.
Ownership of beneficial interests in Book-Entry Debt Securities will be
limited to persons that have accounts with the Depositary for the related Global
Debt Security ("Participants") or persons that may hold interests through
Participants. Upon deposit of a Global Debt Security, the Depositary will
credit, on its book-entry registration and transfer system, the Participants'
accounts with the respective principal amounts of the Book-Entry Debt Securities
represented by such Global Debt Security beneficially owned by such
Participants. The accounts to be credited shall be designated by any dealers,
underwriters or agents participating in the distribution of such Book-Entry Debt
Securities. Ownership of Book-Entry Debt Securities will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by the Depositary for the related Global Debt Security (with respect
to interests of Participants) and on the records of Participants (with respect
to interests of persons holding through Participants). The laws of some states
may require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to own, transfer or pledge beneficial interests in Book-Entry Debt Securities.
So long as the Depositary for a Global Debt Security, or its nominee, is
the registered owner of such Global Debt Security, the Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Book-Entry Debt Securities represented by such Global Debt Security for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in Book-Entry Debt Securities will not be entitled to have such
securities registered in their names, will not receive or be entitled to receive
physical delivery of a certificate in definitive form representing such
securities and will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, approvals or instructions to the Trustee thereunder. As a result,
the ability of a person having a beneficial interest in Book-Entry Debt
Securities represented by a Global Debt Security to pledge such interest to
persons or entities that do not participate in the Depositary's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest. Accordingly, each
person owning Book-Entry Debt Securities must rely on the procedures of the
Depositary for the related Global Debt Security and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder under the Indenture.
The Company understands that, under existing industry practice, if the
Company requests any action of holders, or an owner of a beneficial interest in
a Global Debt Security desires to give any notice or take any action a holder is
entitled to give or take under the Indenture, the Depositary will authorize the
Participants on whose behalf it holds a Global Debt Security to give such notice
or take such action, and Participants will authorize beneficial owners owning
through such Participant to give such notice or take such action or will
otherwise act upon the instructions of beneficial owners owning through them.
The Indentures provide that the Company, the Trustee and their respective agents
will treat as the holder of a Debt Security the persons specified in a written
statement
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<PAGE>
of the Depositary with respect to such Global Debt Security for purposes of
obtaining any consents or directions required to be given by holders of the Debt
Securities pursuant to the Indentures.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Debt Securities will be made by the Trustee to the Depositary or its
nominee, as the case may be, as the registered holder of the related Global Debt
Security. Under the terms of the Indentures, the Company and the Trustee may
treat the persons in whose names the Offered Debt Securities, including the
Global Debt Security, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, none of the Company, the Trustee or any other agent of the Company
or any agent of the Trust will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of any beneficial
ownership interest in, such Global Debt Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary, upon receipt of any payment of
principal of, or premium, if any, or interest, if any, on a Global Debt
Security, will immediately credit Participants' accounts with payments in
amounts proportionate to the respective amounts of Book-Entry Debt Securities
held by each such Participant as shown on the records of such Depositary. The
Company also expects that payments by Participants to owners of beneficial
interests in Book-Entry Debt Securities held through such Participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of the
Participants.
If (i) the Depositary is at any time unwilling or unable to continue as
Depositary or ceases to be a clearing agency registered under the Exchange Act,
and a successor depositary registered as a clearing agency under the Exchange
Act is not appointed by the Company within 90 days, (ii) the Company, at its
option, notifies the Trustee that it elects to cause the issuance of
Certificated Debt Securities under an Indenture or (iii) there shall be an Event
of Default with respect to the Debt Securities represented by the Global Debt
Security, then, upon surrender by the Depositary of the Global Debt Security,
Certificated Debt Securities will be issued to each person that the Depositary
identifies as the beneficial owner of the Book-Entry Debt Securities represented
by the Global Debt Security.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or any person that may hold interests through a
Participant in identifying the beneficial owners of the Book-Entry Debt
Securities, and the Company and the Trustee may conclusively rely on, and shall
be protected in relying on, instructions from the Depositary for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Book-Entry Debt Securities to be issued).
The foregoing information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company takes no responsibility for the accuracy of
such information or the performance by the Depositary or its Participants of
their respective obligations as described hereunder or under the rules and
procedures governing their respective operations.
Each Indenture requires that payments in respect to the Book-Entry Debt
Securities represented by a Global Debt Security (including principal, premium,
if any, and interest, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Depositary. With respect to Offered Debt
Securities represented by Certificated Debt Securities, the Company will make
all payments of principal, premium, if any, and interest, if any, by mailing a
check to each such holder's registered address.
9
<PAGE>
The Trustee
Each Indenture contains certain limitations on the right of the Trustee, as
a creditor of the Company, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions,
except that, if it acquires any conflicting interest (as defined), it must
eliminate such conflict or resign. The Trustee may also be a trustee under other
indentures of the Company under which outstanding senior or subordinated debt
securities of the Company have been issued.
Norwest Bank Minnesota, National Association is the Trustee under each
Indenture and is one of a number of banks with which Inacom maintains banking
relationships.
Provisions Applicable Solely to Senior Debt Securities
Senior Debt Securities will be issued under the Senior Indenture and will
rank pari passu with all other Senior Indebtedness (as defined below) of the
Company.
Provisions Applicable Solely to Subordinated Debt Securities
General
Subordinated Debt Securities will be issued under the Subordinated
Indenture and will rank pari passu with certain other subordinated debt of the
Company that may be outstanding from time to time and junior to all Senior
Indebtedness (as defined below) of the Company (including any Senior Debt
Securities) that may be outstanding from time to time.
Subordination
The payment of the principal of, and premium, if any, and interest, if any,
on the Subordinated Debt Securities is expressly subordinated, to the extent and
in the manner set forth in the Subordinated Indenture, in right of payment to
the prior payment in full of all Senior Indebtedness of the Company.
In the event of any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether in bankruptcy,
reorganization, insolvency, receivership or similar proceeding, the holders of
Senior Indebtedness will be entitled to receive payment in full of all amounts
due or to become due on or in respect of all Senior Indebtedness before the
holders of the Subordinated Debt Securities are entitled to receive any payment
on account of principal of, or premium, if any, or interest, if any, on, the
Subordinated Debt Securities.
Except as provided pursuant to a supplemental indenture or a board
resolution of the Company, no payment in respect of the Debentures will be made
if, at the time of such payment, there exists a default in payment of all or any
portion of any Senior Indebtedness, and such default has not been cured or
waived in writing or the benefits of this sentence waived in writing by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuation of any event of default (other than a default referred to in the
immediately preceding sentence) with respect to any Senior Indebtedness
permitting the holders to accelerate the maturity thereof and upon written
notice thereof given to the Trustee, with a copy to the Company, by any holder
of such Senior Indebtedness or its representative, then, unless and until such
an event of default has been cured or waived or has ceased to exist, no payment
will be made by the Company with respect to the principal of or interest on the
Debentures or to acquire any of the Debentures or on account of the redemption
provisions for the Debentures; provided, however, that if the holders of the
Senior Indebtedness to which the default relates have not declared such Senior
indebtedness to be immediately due and payable within 90 days after the
occurrence of such default (or have declared such Senior Indebtedness to be
immediately due and payable and within such period rescind such declaration of
acceleration),
10
<PAGE>
then the Company will resume making any and all required payments in respect of
the Debentures (including any missed payments). Only one payment blockage period
under the immediately preceding sentence may be commenced within any consecutive
270-day period with respect to the Debentures. No event of default which existed
or was continuing on the date of the commencement of any 90-day payment blockage
period with respect to the Senior Indebtedness initiating such payment blockage
period will be made the basis for the commencement of a second payment blockage
period by a Holder or representative of such Senior Indebtedness whether or not
within a period of 270 consecutive days unless such event of default has been
cured or waived for a period of not less than 90 consecutive days (and, in the
case of any such waiver, no payment will be made by the Company to the holders
of Senior Indebtedness in connection with such waiver other than amounts due
pursuant to the terms of the Senior Indebtedness as in effect at the time of
such default).
The term "Senior Indebtedness" is defined in the Indenture as Indebtedness
(as defined below) of the Company outstanding at any time except Indebtedness
that by its terms is subordinate in right of payment to the Subordinated Debt
Securities or Indebtedness that is not otherwise senior in right of payment to
the Subordinated Debt Securities. Senior Indebtedness does not include
Indebtedness of the Company to any of its subsidiaries. Indebtedness is defined
with respect to any person as the principal of, and premium, if any, and
interest on (a) all indebtedness of such person for borrowed money (including
all indebtedness evidenced by notes, bonds, debentures or other securities sold
by such person for money), (b) all indebtedness incurred by such person in the
acquisition (whether by way of purchase, merger, consolidation or otherwise and
whether by such person or another person) of any business, real property or
other assets (except assets acquired in the ordinary course of the conduct of
the acquiror's usual business), (c) guarantees by such person of indebtedness
described in clause (a) or (b) of any other person, (d) all renewals,
extensions, refundings, deferrals, restructurings, amendments and modifications
of any such indebtedness, obligation or guarantee (e) all reimbursement
obligations of such person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such person, (f) all
capital lease obligations of such person, and (g) all net obligations of such
person under interest rate swap or similar agreements of such person. There are
no restrictions in the Subordinated Indenture upon the creation of additional
Senior Indebtedness by the Company, or on the creation of any indebtedness by
the Company or any of its subsidiaries.
If Subordinated Debt Securities are issued under the Subordinated
Indenture, the aggregate principal amount of Senior Indebtedness outstanding as
of a recent date will be set forth in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will also set forth any limitation on the
issuance by the Company of any additional Senior Indebtedness.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.10 per share, and 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of September 26, 1997, there were
11,537,315 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding.
On June 15, 1996, InaCom issued $55,250,000 in aggregate principal amount
of its 6% Convertible Subordinated Debentures due June 15, 2006 (the
"Debentures"). The Debentures are convertible at the option of the holder into
Common Stock at a conversion price of $24.00 per share; an aggregate of
2,302,084 shares of Common Stock would be issued if all Debentures were
converted into Common Stock.
Common Stock
Holders of outstanding Common Stock are entitled to such dividends as may
be declared by the Company Board of Directors out of the assets legally
available for that purpose, and are entitled to one vote per share on all
matters submitted to a vote of the stockholders of the Company. The holders of
shares of Common Stock do not have cumulative voting rights. Therefore, the
holders of more than 50% of the Common Stock voting for the election of
directors can elect all the directors, and the remaining holders will not be
able to elect any directors.
11
<PAGE>
The holders of Common Stock have no pre-emptive or other subscription rights,
and there are no conversion or redemption or sinking fund provisions with
respect to such shares.
All of the outstanding shares of Common Stock will be, when issued upon
conversion of the Debt Securities, duly authorized, validly issued, fully paid
and nonassessable.
Preferred Stock
The Company Board of Directors is authorized to issue up to 1,000,000
shares of Preferred Stock in one or more series, from time to time, with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof, as may be
provided in a resolution or resolutions adopted by the Company Board of
Directors. The authority of the Company Board of Directors includes, but is not
limited to, the determination or fixing of the following with respect to shares
of such class or any series thereof: (i) the number of shares; (ii) the dividend
rate and the date from which dividends are to be cumulative; (iii) whether
shares are to be redeemable and, if so, the terms and amount of any sinking fund
providing for the purchase or redemption of such shares; (iv) whether shares
shall be convertible, and, if so, the terms and provisions thereof; (v) what
restrictions are to apply, if any, on the issue or reissue of any additional
Preferred Stock; and (vi) whether such shares have voting rights. Shares of
Preferred Stock may be issued with a preference over the Common Stock as to the
payment of dividends. No shares of Preferred Stock have been issued.
The description of Preferred Stock herein and the description of the terms
of a particular series of Preferred Stock that will be set forth in a Prospectus
Supplement do not purport to be complete and are qualified in their entirety by
reference to the certificate of designation, preferences and rights relating to
such series.
Classes of stock such as the Preferred Stock may be used, in certain
circumstances, to create voting impediments on extraordinary corporate
transactions or to frustrate persons seeking to effect a merger or otherwise to
gain control of the Company. For the foregoing reasons, any shares of Preferred
Stock issued by the Company could have an adverse effect on the rights of the
holders of the Common Stock. The Company has no present plans to issue any
shares of Preferred Stock.
Liquidation and Other Rights
Upon liquidation, the holders of Common Stock are entitled to share ratably
in assets available for distribution to stockholders after satisfaction of any
liquidation preferences of any outstanding preferred stock. The issuance of any
shares of series of Preferred Stock in future financings, acquisitions or
otherwise may result in dilution of voting power and relative equity interest of
the holders of shares of Common Stock and will subject the Common Stock to the
prior dividend and liquidation rights of the outstanding shares of the series of
Preferred Stock.
Advance Notice Requirements in Connection with Stockholder Meetings
The Company bylaws establish an advance notice procedure for bringing
business before an annual meeting of stockholders and for nominating (other than
by or at the direction of the Board of Directors) candidates for election as
directors at a meeting of stockholders. To be timely, notice of business to be
brought before an annual meeting or nominations of candidates for election of
directors at a meeting must be received by the Secretary of the Company not less
than 60 nor more than 90 days prior to the meeting. In the event that less than
40 days' notice or prior public disclosure of the date is given or made to the
stockholders, notice by the stockholder must be received no later than the tenth
day following the date on which notice of the date of the meeting was mailed or
public disclosure thereof was made.
12
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Section 203 of the Delaware General Corporation Law
Section 203 of the General Corporation Law of the Delaware prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
upon consummation of such transaction the interested stockholder owned 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced or unless the business combination is, or the transaction in which
such person became interested stockholder was, approved in a prescribed manner.
A "business combination" includes a merger, an asset sale and any other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock.
Transfer Agent
The transfer agent for the Common Stock is The First Chicago Trust Company
of New York.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company may offer the Securities directly to purchasers, to or through
underwriters, through dealers or agents or through a combination of any such
methods. Any such underwriter(s), dealer(s) or agent(s) involved in the offer
and sale of the Securities in respect of which this Prospectus is delivered will
be named in a Prospectus Supplement. The Prospectus Supplement with respect to
such Securities also will set forth the terms of the offering of such
Securities, including the purchase price of such Securities and the proceeds to
the Company from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers and any
securities exchanges or markets on which such Securities may be listed.
If underwriters are used in an offering of Securities, the Company will
execute an underwriting agreement with such underwriters, and the name of each
underwriter and the terms of the transaction, including any underwriting
discounts and other items constituting compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement relating to such
offering, and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such Prospectus Supplement. Such
Securities will be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If a dealer is used in an offering of Securities, the Company will sell
such Securities to the dealer, as principal. The dealer then may resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale. The name of the dealer and the terms of the transaction will
be set forth in the Prospectus Supplement relating thereto.
If an agent is used in an offering of Securities, the agent will be named,
and the terms of the agency will be set forth, in the Prospectus Supplement
relating thereto. Unless otherwise indicated in such Prospectus Supplement, an
agent will act on a best efforts basis for the period of its appointment.
Dealers and agents named in a Prospectus Supplement may be deemed to be
underwriters (within the meaning of the Securities Act) of the Securities
described therein. Underwriters, dealers and agents, under underwriting
agreements and other agreements which may be entered into with the Company, may
be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Offers to purchase Securities may be solicited, and sales thereof may be
made, by the Company directly to institutional investors or others, who may be
deemed to be underwriters within the meaning of the Securities Act with respect
to any resales thereof. The terms of any such offer will be set forth in the
Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or other agents of the Company to solicit offers by
certain institutional investors to purchase Securities from the Company pursuant
to contracts providing for payment and delivery at a future date. Institutional
investors with which such contracts may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such purchasers must be
approved by the Company. The obligations of any purchaser under any such
contract will not be subject to any conditions except that (i) the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
any jurisdiction to which such purchaser is subject and (ii) if the Securities
also are being sold to underwriters, the Company shall have sold to such
underwriters the Securities not subject to delayed delivery. Underwriters and
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
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<PAGE>
The anticipated date of delivery of the Securities will be set forth in the
Prospectus Supplement relating to each applicable offering.
There can be no assurance that a secondary market will be created for the
Debt Securities or the Preferred Stock or, if it is created, that it will
continue.
Certain underwriters, dealers or agents and their associates may engage in
transactions with, and perform services for, the Company in the ordinary course
of business, including refinancing of the Company's indebtedness.
To facilitate an offering of a series of Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Securities. This may include
over-allotments or short sales of the Securities, which involves the sale by
persons participating in the offering of more Securities than have been sold to
them by the Company. In such circumstances, such persons would cover such
over-allotments or short positions by purchasing in the open market or by
exercising the over-allotment option granted to such persons. In addition, such
persons may stabilize or maintain the price of the Securities by bidding for or
purchasing Securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in any such offering may be
reclaimed if Securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize
or maintain the market price of the Securities at a level above that which might
otherwise prevail in the open market. Such transactions, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by McGrath, North, Mullin & Kratz, P.C., Omaha, Nebraska 68102.
EXPERTS
The consolidated financial statements and schedule of InaCom Corp. as of
December 28, 1996 and December 30, 1995, and for each of the years in the
three-year period ended December 28, 1996, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the Securities being registered. All of the
amounts shown are estimated except the registration fees of the Commission and
the NYSE.
==========================================================================
Item Amount to be paid by
Company
- --------------------------------------------------------------------------
SEC registration fee $ 90,909
- --------------------------------------------------------------------------
NYSE filing fee for common stock $ 100,000
- --------------------------------------------------------------------------
Trustee Fees and Expenses $ 35,000
- --------------------------------------------------------------------------
Printing and engraving expenses $ 100,000
- --------------------------------------------------------------------------
Accounting fees and expenses $ 80,000
- --------------------------------------------------------------------------
Legal fees and expenses $ 60,000
- --------------------------------------------------------------------------
Blue Sky fees and expenses $ 10,000
- --------------------------------------------------------------------------
NASD fee $ 15,500
- --------------------------------------------------------------------------
Miscellaneous $ 3,591
- --------------------------------------------------------------------------
Total $ 495,000
==========================================================================
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<PAGE>
Item 15. Indemnification of Directors and Officers.
Pursuant to Article VII of the Certificate of Incorporation of InaCom,
InaCom shall, to the extent required, and may, to the extent permitted by
Section 102 and Section 145 of the General Corporation Law of the State of
Delaware, indemnify and reimburse all persons whom it may indemnify and
reimburse pursuant thereto. No director shall be liable to InaCom or its
stockholders for monetary damages for breach of fiduciary duty as a director
with respect to acts or omissions occurring on or after May 27, 1987. A director
shall continue to be liable for (i) any breach of a director's duty of loyalty
to InaCom or its stockholders; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) paying a
dividend or approving a stock repurchase which would violate Section 174 of the
General Corporation Law of the State of Delaware; or (iv) any transaction from
which the director derived an improper personal benefit.
The by-laws of InaCom provide for indemnification of InaCom's officers and
directors against all expenses, liabilities or losses reasonably incurred or
suffered by them, including liability arising under the Securities Act of 1933,
to the extent legally permissible under section 145 of the General Corporation
Law of the State of Delaware where any such person was, is, or is threatened to
be made a party to or is involved in any action, suit or proceeding whether
civil, criminal, administrative or investigative, by reason of the fact such
person was serving InaCom in such capacity. Generally, under Delaware law,
indemnification may only be available where an officer or director can establish
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of InaCom.
InaCom has purchased directors' and officers' liability insurance covering
certain liabilities incurred by its officers and directors and those of its
subsidiaries and affiliates in connection with the performance of their duties.
Item 16. Exhibits.
Exhibit 1.1 Form of Underwriting Agreement (Debt)
1.2 Form of Underwriting Agreement (Equity)
4.1 Specimen Common Stock Certificate incorporated by reference
from Exhibit 1 of the Company's Registration Statement on
Form 8-A filed August 26, 1997
4.2 Indenture dated September 30, 1997 by and between the Company
and Norwest Bank Minnesota, National Association, as trustee
(Senior Debt)
4.3 Indenture dated September 30, 1997 by and between the Company
and Norwest Bank Minnesota, National Association, as trustee
and Form of First Supplemental Indenture thereto
(Subordinated Debt)
4.4 Restated Certificate of Incorporation of the Company, as
amended, incorporated herein by reference from the Company's
Current Report on Form 8-K dated March 30, 1993
4.5 Bylaws of the Company, as amended to date, incorporated
herein by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1996
5.1 Opinion of McGrath, North, Mullin & Kratz, P.C.
12 Statement re Computation of Ratios
23.1 Consent of KPMG Peat Marwick LLP
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<PAGE>
23.2 Consent of McGrath, North, Mullin & Kratz, P.C.
(included in Exhibit 5.1)
24 Powers of Attorney
25 Statement of Eligibility of Trustee
Item 17. Undertakings.
The undersigned registrant ("Registrant") hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus, any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in this Registration Statement.
(2) To remove from registration by means of a post-effective
amendment, any of the Securities being registered which remain unsold at the
termination of the offering.
(3) That, for purposes of determining any liability under the
Securities Act of 1933 (the "Securities Act"), each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that is incorporated by reference in
this 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.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to written agreements, Bylaw provisions, the Delaware
Corporation Law, or 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 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
II-3
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
4. The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustees to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b) (2) of
the Securities Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, InaCom Corp., a Delaware corporation, 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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Omaha,
State of Nebraska, on the 29th day of September, 1997.
INACOM CORP.
/s/ Bill L. Fairfield
By:_____________________________
Bill L. Fairfield, President
Pursuant to the requirements of the Securities Act of 1933 this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 29th day of September, 1997.
Signature Title
/s/ Bill L. Fairfield
_____________________________________ President and Director (Principal
Bill L. Fairfield Executive Officer)
President and Director
/s/ David C. Guenthner
_____________________________________ Executive Vice President
David C. Guenthner and Chief Financial Officer
Executive Vice President (Principal Financial
Accounting Officer)
Joseph Auerbach* Director
Mogens C. Bay* Director
James Q. Crowe* Director
W. Grant Gregory* Director
Joseph Inatome* Director
Rick Inatome* Director
Gary Schwendiman* Director
Linda S. Wilson* Director
* Bill L. Fairfield, by signing his name hereto, signs the
Registration Statement on behalf of each of the persons indicated. A
Power-of-Attorney authorizing Bill L. Fairfield to sign this Registration
Statement on behalf of each of the indicated Directors of InaCom Corp. is filed
herewith as Exhibit 24.
Bill L. Fairfield
By:________________________
Bill L. Fairfield
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description
1.1 Form of Underwriting Agreement (Debt)
1.2 Form of Underwriting Agreement (Equity)
4.1 Specimen Common Stock Certificate incorporated by reference
from Exhibit 1 of the Company's Registration Statement on Form
8-A dated August 26, 1997
4.2 Indenture dated September 30, 1997 by and between the Company
and Norwest Bank Minnesota, National Association, as trustee
(Senior Debt)
4.3 Indenture dated September 30, 1997 by and between the Company
and Norwest Bank Minnesota, National Association, as trustee
and Form of First Supplemental Indenture thereto (Subordinated
Debt)
4.4 Restated Certificate of Incorporation of the Company, as
amended, incorporated herein by reference from the Company's
Current Report on Form 8-K dated March 30, 1993
4.5 Bylaws of the Company, as amended to date, incorporated herein
by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 28, 1996
5.1 Opinion of McGrath, North, Mullin & Kratz, P.C.
12 Statement re Computation of Ratios
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of McGrath, North, Mullin & Kratz, P.C.
(included in Exhibit 5.1)
24 Powers of Attorney
25 Statement of Eligibility of Trustee
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II-6
<PAGE>
InaCom Corp.
% Convertible Subordinated Debentures,
convertible into Common Stock, $.10 par value
Underwriting Agreement
__________, 1997
Goldman, Sachs & Co.,
As representative of the several Underwriters
named in Schedule I hereto,
4900 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
InaCom Corp., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of $_________
principal amount of the % Convertible Subordinated Debentures, convertible into
Common Stock, $.10 par value ("Stock") of the Company, specified above (the
"Firm Securities") and, at the election of the Underwriters, up to an aggregate
of $_________ additional aggregate principal amount (the "Optional Securities")
(the Firm Securities and the Optional Securities which the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Securities").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-3 (File No. 33- ) (the
"Initial Registration Statement") in respect of the Securities and
shares of the Stock issuable upon conversion thereof has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you (the
"Representative"), and, excluding exhibits thereto, but including all
documents incorporated by reference in the prospectus contained
therein, for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration
statement, if any, increasing the size of the offering (a "Rule 462(b)
Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective
upon filing, no other document with respect to the Initial Registration
Statement or document incorporated by reference therein has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any,
has been issued and no proceeding for that purpose has been initiated
or threatened by the Commission (any preliminary prospectus included in
Initial Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the
Act, is hereinafter called a "Preliminary Prospectus"); the various
parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto but
excluding Form T-1 and including (i) the information contained in the
form of final prospectus filed with the
<PAGE>
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was
declared effective and (ii) the documents incorporated by reference in
the prospectus contained in the registration statement at the time such
part of the registration statement became effective, each as amended at
the time such part of the registration statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or
hereafter becomes effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus"; any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the Act, as of the date of such Preliminary Prospectus or Prospectus,
as the case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to
and include any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated
by reference in such Preliminary Prospectus or Prospectus, as the case
may be; and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any annual report of
the Company filed pursuant to Section 13(a) or 15(d) of the Exchange
Act after the effective date of the Registration Statement that is
incorporated by reference in the Registration Statement;
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
rules and regulations of the Commission thereunder, and did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co. expressly
for use therein;
(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation
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and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co. expressly
for use therein;
(d) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(e) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus;
(f) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or
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<PAGE>
is subject to no material liability or disability by reason of the
failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture referred to below,
will be duly and validly issued, fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
and all of the issued shares of capital stock of each Material
Subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and the capital stock owned
directly or indirectly by the Company are owned free and clear of all
liens, encumbrances, equities or claims (except for subisdary shares
used as security for bank debt). As used herein, the term "Material
Subsidiary" means any entity (i) of which the Company, directly or
indirectly, beneficially owns a majority of the equity interests or
(ii) that is material to the financial condition or results of
operations of the Company and controlled, directly or indirectly, by
the Company. No person or entity holds a right to require or
participate in the Registration Statement which right has not been
waived by the holder thereof as of the date hereof, and except as
described in the Prospectus, no person holds a right to require
registration under the Securities Act of any securities of the Company
at any other time, except as set forth on Schedule 1(h). The Company is
not a party to any agreement or understanding, and has no knowledge of
any agreement or understanding, granting any person or entity a right
of participation with respect to the sale of the Securities or the
Stock;
(i) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits
provided by the indenture to be dated as of ___________ 1997 (the
"Indenture") between the Company and ___________, as Trustee (the
"Trustee"), under which they are to be issued, which will be
substantially in the form filed as an exhibit to the Registration
Statement; the Indenture has been duly authorized and duly qualified
under the Trust Indenture Act and, when executed and delivered by the
Company and the Trustee, will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general equity principles and except for the possible
unenforceability of the rights of indemnity and contribution
thereunder; and the Securities and the Indenture will conform to the
descriptions thereof in the Prospectus;
(j) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the Indenture
and this Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with
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<PAGE>
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Securities or the consummation by the Company of the transactions
contemplated by this Agreement or the Indenture, except the
registration under the Act of the Securities and the shares of Stock
issuable upon conversion thereof, such as have been obtained under the
Trust Indenture Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters;
(k) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound which
violation or default would have a material adverse effect on the
Company's financial condition or results of operations;
(l) The statements set forth in the Prospectus under the
caption "Description of Debentures", "Description of Common Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Taxation", and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate,
complete and fair;
(m) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(o) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
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<PAGE>
(p) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its subsidiaries, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(q) The Company and each of its subsidiaries, now hold, and at
the Time of Delivery (as defined in Section 4 hereof) will hold, all
material licenses, certificates, permits, franchises, authorizations,
clearances and other approvals from the regulatory authority of any
federal, state or other regulatory authorities (herein called Licenses)
which are necessary to own their respective properties and to conduct
their respective businesses in the manner described in the Prospectus;
there are no current facts about the Company or any of its subsidiaries
that could reasonably be expected to cause any existing License to be
revoked, withdrawn, cancelled, suspended or restricted in a manner that
would restrict the Company or its subsidiaries carrying out their
respective businesses in any material respect as described in the
Prospectus;
(r) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or possess adequate
rights to use sufficient trademarks, trade names, service marks,
service mark registrations, patent rights, copyrights, licenses,
approvals, governmental authorizations, trade secrets and rights to
conduct their respective businesses as now conducted; except as
described in the Prospectus, the expiration or termination of any
trademarks, trade names, service marks, service mark registrations,
patent rights, copyrights, licenses, approvals, government
authorizations, trade secrets or rights would not have a material
adverse effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company or its
subsidiaries, taken as a whole; and the Company does not have any
knowledge of any material infringement by the Company or its
subsidiaries of trademark, trade name rights, patent rights,
copyrights, licenses, service marks, service mark registrations, trade
secret or other similar rights of others, or of any such development of
similar or identical trade secrets or technical information by others
and there is no claim being made against the Company or its
subsidiaries regarding trademark, trade name, patent, copyright,
license, service marks, service mark registrations, trade secret or
other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries, taken as a whole. The
Company and its subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their
intellectual properties;
(s) The consolidated financial statements of the Company and
its subsidiaries, together with the related notes and schedules as set
forth in the Registration Statement, comply with the Securities Act and
present fairly in all material respects the consolidated financial
position and the results of operations of the Company and its
subsidiaries, at the indicated dates and for the indicated periods.
Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of results for such periods have been made. The
summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements presented
therein;
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<PAGE>
(t) The Company and each of its subsidiaries has filed all
federal, state and foreign income tax returns which have been required
to be filed (or have filed extensions therefor or obtained any required
extensions in connection therewith), and have paid all taxes indicated
by said returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested
in good faith, except to the extent that such failure to file or pay
would not have a material adverse effect on the Company's financial
condition or results of operations;
(u) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accept accounting principles and to maintain
accountability for assets; and (C) access to assets is permitted only
in accordance with management's general or specific authorization;
(v) Neither the Company nor any of its subsidiaries is
involved in any material labor dispute nor, to the knowledge of the
Company, is any such dispute threatened;
(w) Except as described on Schedule 1(w) in the Prospectus,
the Company does not maintain, sponsor or contribute to any program or
arrangement that is an "employee welfare benefit plan," "employee
pension benefit plan," or a "multiemployer plan" as such terms are
defined in Sections 3(1), 3(2) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended (herein called
ERISA) (herein collectively called the ERISA Plans). The Company does
not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the
United States Internal Revue Code of 1986, as amended (herein called
the Code), which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate
to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA
Plan and the attendant trust are qualified thereunder. The Company has
never completely or partially withdrawn from a "multiemployer plan";
(x) Except as set forth in the Prospectus, there are no
agreements, claims, payment, , arrangements or understandings, whether
oral or written, for services in the nature of finder's, consulting or
origination fees with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company or any of its officers, directors,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities
Dealers, Inc.;
(y) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection
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<PAGE>
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole; and
(z) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price of _____% of the principal amount thereof, plus accrued
interest, if any, from ____________, 1997 to the Time of Delivery hereunder, the
principal amount of Securities set forth opposite the name of such Underwriter
in Schedule I hereto, and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Securities as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the same purchase price set forth in clause (a) of
this Section 2, that portion of the aggregate principal amount of the Optional
Securities as to which such election shall have been exercised (to be adjusted
by you so as to eliminate fractions of $___________,) determined by multiplying
such aggregate principal amount of Optional Securities by a fraction, the
numerator of which is the maximum aggregate principal amount of Optional
Securities which such Underwriter is entitled to purchase as set forth opposite
the name of such Underwriter in Schedule I hereto and the denominator of which
is the maximum aggregate principal amount of Optional Securities which all of
the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to $_________ aggregate principal amount of Optional
Securities, at the purchase price set forth in clause (a) of the first paragraph
of this Section 2, for the sole purpose of covering overallotments in the sale
of Firm Securities. Any such election to purchase Optional Securities may be
exercised by written notice from you to the Company, given one time within a
period of 30 calendar days after the date of this Agreement, setting forth the
aggregate principal amount of Optional Securities to be purchased and the date
on which such Optional Securities are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
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<PAGE>
3. Upon the authorization by you of the release of the Firm Securities,
the several Underwriters propose to offer the Firm Securities for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Securities to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of The Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of federal
funds, payable to the order of the Company in New York Clearing House (same day)
funds. The Securities to be purchased by each Underwriter hereunder will be
represented by one or more definitive global Securities in book-entry form which
will be deposited by or on behalf of the Company with DTC or its designated
custodian. The Company will deliver the Securities to Goldman, Sachs & Co., for
the account of each Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of federal funds,
payable to the order of the Company in New York Clearing House (same day) funds,
by causing DTC to credit the Securities to the account of Goldman, Sachs & Co.
at DTC. The Company will cause the certificates representing the Securities to
be made available to Goldman, Sachs & Co. for checking at least twenty-four
hours prior to the Time of Delivery at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Securities, 9:30 a.m., New York City
time, on ................, 1997 or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing, and, with respect to the Optional
Securities, 9:30 a.m., New York City time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Securities, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such
time and date for delivery of the Firm Securities is herein called the "First
Time of Delivery", such time and date for delivery of the Optional Securities,
if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
Such Securities, if any, as Goldman, Sachs & Co. may request upon at
least forty-eight hours' prior notice to the Company (such request to include
the authorized denominations and the names in which such Securities are to be
registered), shall be delivered in definitive certificated form, by or on behalf
of the Company to Goldman, Sachs & Co. for the account of certain of the
Underwriters, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of federal funds, payable to the order
of the Company in New York Clearing House (same day) funds.
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriters pursuant to Section 7(j) hereof, will be delivered at the offices
of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693 (the "Closing Location"), and the Securities will be delivered at the
Designated Office, all at the Time of Delivery. A meeting will be held at the
Closing Location at _______ p.m., Chicago time, on the Chicago Business Day next
preceding the Time
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of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Agreement, "Chicago Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in Chicago, Illinois are generally authorized or obligated
by law or executive order to close, and "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York, New York are generally authorized or obligated
by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus prior to
such Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to file
promptly all reports and any definitive proxy or information statements required
to be filed by the Company with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for
so long as the delivery of a prospectus is required in connection with the
offering or sale of the Securities; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Securities or the
shares of Stock issuable upon conversion of the Securities for offering or sale
in any jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to promptly use its best efforts to obtain
the withdrawal of such order;
(b) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
(c) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Securities,
provided that in
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connection therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(d) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the
Securities and the shares of Stock issuable upon conversion of the Securities
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act, the Exchange Act or
the Trust Indenture Act, to notify you and upon your request to file such
document and to prepare and furnish without charge to each Underwriter and to
any dealer in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Securities and the shares of Stock issuable upon conversion of the
Securities at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(e) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c)), an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158);
(f) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Securities or
the Stock, including but not limited to any securities that are convertible into
or exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans or employee benefit plans existing on, or upon the conversion or exchange
of convertible or exchangeable securities outstanding as of, the date of this
Agreement and except for securities issued in private placements in business
acquisition transactions, provided that such securities shall not be registered
for sale or resale during the period beginning on the date hereof and continuing
to and including the date 90 days after the date of the Prospectus and provided
that the Company shall have given you, as representative of the Underwriters,
prompt written notice of any such issuance), without your prior written consent;
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(g) To furnish to the holders of the Securities as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which the Securities or any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in reports
furnished to its stockholders generally or to the Commission);
(i) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(j) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
(k) To use its best efforts to list, subject to notice of issuance, the
shares of Stock issuable upon conversion of the Securities on the New York Stock
Exchange (the "Exchange").
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities and the shares of Stock
issuable upon conversion of the Securities under the Act and all other expenses
in connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Indenture, the Blue Sky and Legal
Investment Memoranda, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Securities; (iii) all expenses in connection with the qualification of
the Securities and the shares of Stock issuable upon conversion of the
Securities for offering and sale under state securities laws as provided in
Section 5(c) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky and legal investment surveys up to a maximum of $5,000; (iv) any fees
charged by securities rating services for rating the Securities; (v) the filing
fees incident to, and the fees and disbursements of counsel for the Underwriters
up to a maximum of $5,000 in connection with, any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Securities; (vi) the cost of preparing the Securities; (vii) the fees and
expenses of the Trustee and
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any agent of the Trustee and the fees and disbursements of counsel for the
Trustee in connection with the Indenture and the Securities; and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Katten Muchin & Zavis, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached hereto as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (vi), (vii), (viii),
(ix), (xii) and (xv) of subsection (c) below as well as such other related
matters as you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to pass
upon such matters;
(c) McGrath, North, Mullin & Kratz, P.C., counsel for the Company,
shall have furnished to you their written opinion (a draft of each such opinion
is attached hereto as Annex II(b) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; and the shares of Stock initially issuable
upon conversion of the Securities have been duly and validly authorized
and reserved for issuance and, when issued and delivered in accordance
with the provisions of the Securities and the Indenture, will be duly
and validly issued and
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fully paid and non assessable, and will conform to the description of
the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification
or is subject to no material liability or disability by reason of the
failure to be so qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon opinions
of local counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both the Underwriters and such counsel are justified
in relying upon such opinions and certificates;
(iv) Each Material Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such Material Subsidiary held by
the Company or any Material Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company or a Material Subsidiary, (such
counsel being entitled to rely in respect of the opinion in this clause
upon opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries), provided
that such counsel shall state that they believe that both the
Underwriters and such counsel are justified in relying upon such
opinions and certificates;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the consolidated financial
position of the Company and its subsidiaries; and, to the best of such
counsel's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The Securities have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
binding obligations of the Company; and the Securities and the
Indenture conform to the descriptions thereof in the Prospectus;
(viii) The Indenture has been duly authorized, executed and
delivered by the parties thereto and constitutes a valid and legally
binding instrument, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles and subject to the possible
unenforceability of provisions relating to indemnity and contribution;
and the Indenture has been duly qualified under the Trust Indenture
Act;
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(ix) The issue and sale of the Securities being issued at such
Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture and this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, which conflict, breach
or violation would have a material adverse effect on the Company's
financial condition, nor will such actions result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties;
(x) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Securities being issued
at such Time of Delivery or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture, except
such as have been obtained under the Act and the Trust Indenture Act,
such as may be required under the Act in connection with the shares of
Stock issuable upon conversion of the Securities and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound which
violation or default would have a material adverse effect on the
Company's financial condition;
(xii) The statements set forth in the Prospectus under the
caption "Description of Debentures", "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Taxation" and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate,
complete and fair;
(xiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xiv) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Time of Delivery (other than the financial
statements and related schedules and other financial data therein, as
to which such counsel need express no opinion), when they became
effective or were filed with the Commission, as the case may be,
complied as to form in all material respects with the requirements of
the Act or the Exchange Act, as applicable, and the
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rules and regulations of the Commission thereunder; and they have no
reason to believe that any of such documents, when such documents
became effective or were so filed, as the case may be, contained, in
the case of a registration statement which became effective under the
Act, an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or, in the case of other documents
which were filed under the Act or the Exchange Act with the Commission,
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such documents were
so filed, not misleading; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Act and the Trust Indenture Act and the
rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus,
except for those referred to in the opinion in subsection (xiii) of
this Section 7(c), they have no reason to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules and other financial data
therein, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and other financial data therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules and
other financial data therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be incorporated by reference into the
Prospectus or required to be described in the Registration Statement or
the Prospectus which are not filed or incorporated by reference or
described as required;
(d) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this
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Agreement is attached hereto as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective amendment to
the Registration Statement and as of each Time of Delivery is attached hereto as
Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in Clause (i) or
(ii), is in the judgment of the Representative so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities being issued at such Time of Delivery on the terms
and in the manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the Exchange; (ii) a suspension or material limitation in trading
in the Company's securities on the Exchange; (iii) a general moratorium on
commercial banking activities declared by either Federal or Illinois State
authorities; (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or war,
if the effect of any such event specified in this Clause (iv) in the judgment of
the Representative makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities being issued at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus; or (v)
the occurrence of any material adverse change in the existing financial,
political or economic conditions in the United States or elsewhere which, in the
judgment of the Representative, would materially and adversely affect the
financial markets or the markets for the Securities and other debt securities or
the market for or any equity securities;
(h) The shares of Stock issuable upon conversion of the Securities
shall have been duly listed, subject to notice of issuance, on the Exchange;
(i) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
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(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in the introductory paragraph and
subsection (e) of this Section and as to such other matters as you may
reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the
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indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
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subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Securities on the terms contained herein at a Time of Delivery. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Securities on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Securities, or the Company
notifies you that it has so arranged for the purchase of such Securities, you or
the Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of such
Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Securities which such Underwriter agreed
to purchase hereunder) of the Securities of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
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<PAGE>
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate principal amount of Securities
which remains unpurchased exceeds one-eleventh of the aggregate principal amount
of all the Securities to be purchased at such Time of Delivery, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company, except
for the expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives at 4900 Sears Tower,
Chicago, Illinois 60606, Attention: Registration Department; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission to
the address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers
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<PAGE>
and directors of the Company and each person who controls the Company or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Securities from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
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<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us four (4) counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
InaCom Corp.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By:
(Goldman Sachs & Co.)
On behalf of each of the Underwriters
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<PAGE>
SCHEDULE I
Principal Amount
Principal of Optional
Amount of Securities to be
Firm Purchased if
Securities to Maximum Option
Underwriter be Purchased Exercised
Goldman, Sachs & Co.................... $ $
[Names of other Underwriters]
.......................................
Total $ $
<PAGE>
ANNEX I(a)
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial
information) examined by them and included or incorporated by reference
in the Registration Statement or the Prospectus comply as to form in
all material respects with the applicable accounting requirements of
the Act or the Exchange Act, as applicable, and the related published
rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American
Institute of Certified Public Accountants of the consolidated interim
financial statements, selected financial data, pro forma financial
information, prospective financial statements and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representative");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statement of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's quarterly
report on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representative; and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to
in paragraph (vi)(A)(i) below comply as to form in the related in all
material respects with the applicable accounting requirements of the
Act and the Exchange Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or
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<PAGE>
incorporated by reference in the Company's Annual Reports on Form 10-K
for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, inquiries of officials of
the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus and/or included or incorporated by
reference in the Company's Quarterly Reports on Form 10-Q incorporated
by reference in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Exchange
Act and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus, for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included or incorporated by reference
in the Company's Annual Report on Form 10-K for the most recent fiscal
year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited financial statements included
or incorporated by reference in the Company's Annual Report on Form
10-K for the most recent fiscal year;
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<PAGE>
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest balance
sheet included or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representative, or
any increases in any items specified by the Representative, in each
case as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to
the specified date referred to in Clause (E) there were any decreases
in consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified by
the Representative, or any increases in any items specified by the
Representative, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length
specified by the Representative, except in each case for increases or
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representative which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus (excluding documents incorporated by reference) or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representative or in documents incorporated by
reference in the Prospectus specified by the Representative, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
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<PAGE>
ANNEX I(b)
[To be attached]
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<PAGE>
ANNEX II(a)
Form of Opinion of Counsel for Underwriters
[To be attached]
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<PAGE>
ANNEX II(b)
Form of Opinion of Company Counsel
[To be attached]
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<PAGE>
InaCom Corp.
Common Stock
$.10 par value
Underwriting Agreement
_________________, 1997
Goldman, Sachs & Co., As representative of the several Underwriters named in
Schedule 1 hereto,
4900 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
From time to time InaCom Corp., a Delaware corporation (the "Company"),
proposes to enter into one or more Pricing Agreements (each a "Pricing
Agreement") in the form of Annex I hereto, with such additions and deletions as
the parties thereto may determine, and, subject to the terms and conditions
stated herein and therein, to issue and sell to the firms named in Schedule I to
the applicable Pricing Agreement (such firms constituting the "Underwriters"
with respect to such Pricing Agreement and the securities specified therein)
certain shares of its Common Stock, $.10 par value (the "Shares"), specified in
Schedule II to such Pricing Agreement (with respect to such Pricing Agreement,
the "Firm Shares"). If specified in such Pricing Agreement, the Company may
grant to the Underwriters the right to purchase at their election an additional
number of shares, specified in such Pricing Agreement as provided in Section 3
hereof (the "Optional Shares"). The Firm Shares and the Optional Shares, if any,
which the Underwriters elect to purchase pursuant to Section 3 hereof are herein
collectively called the "Designated Shares".
The terms and rights of any particular issuance of Designated Shares
shall be as specified in the Pricing Agreement relating thereto.
1. Particular sales of Designated Shares may be made from time to time
to the Underwriters of such Shares, for whom the firms designated as
representatives of the Underwriters of such Shares in the Pricing Agreement
relating thereto will act as representatives (the "Representatives"). The term
"Representatives" also refers to a single firm acting as sole representative of
the Underwriters and to Underwriters who act without any firm being designated
as their representative. This Underwriting Agreement shall not be construed as
an obligation of the Company to sell any of the Shares or as an obligation of
any of the Underwriters to purchase any of the Shares. The obligation of the
Company to issue and sell any of the Shares and the obligation of any of the
Underwriters to purchase any of the Shares shall be evidenced by the Pricing
Agreement with respect to the Designated Shares specified therein. Each Pricing
Agreement shall specify the aggregate number of the Firm Shares, the maximum
number of Optional Shares, if any, the initial public offering price of such
Firm and Optional Shares or the manner of determining such price, the purchase
price to the Underwriters
<PAGE>
of such Designated Shares, the names of the Underwriters of such Designated
Shares, the names of the Representatives of such Underwriters, the number of
such Designated Shares to be purchased by each Underwriter and the commission,
if any, payable to the Underwriters with respect thereto and shall set forth the
date, time and manner of delivery of such Firm and Optional Shares, if any, and
payment therefor. The Pricing Agreement shall also specify (to the extent not
set forth in the registration statement and prospectus with respect thereto) the
terms of such Designated Shares. A Pricing Agreement shall be in the form of an
executed writing (which may be in counterparts), and may be evidenced by an
exchange of telegraphic communications or any other rapid transmission device
designed to produce a written record of communications transmitted. The
obligations of the Underwriters under this Agreement and each Pricing Agreement
shall be several and not joint.
2. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) A registration statement on Form S-3 (File No 33- ) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered or to be delivered to
the Representatives and, excluding exhibits thereto, but including all
documents incorporated by reference in the prospectus included therein,
to the Representatives for each of the other Underwriters have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement or document incorporated by reference therein
has heretofore been filed, or transmitted for filing, with the
Commission (other than prospectuses filed pursuant to Rule 424(b) of
the rules and regulations of the Commission under the Securities Act of
1933, as amended (the "Act") each in the form heretofore delivered to
the Representatives); and no stop order suspending the effectiveness of
the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) under the Act, is hereinafter called a
"Preliminary Prospectus"); the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if
any, including all exhibits thereto and the documents incorporated by
reference in the prospectus contained in the Initial Registration
Statement at the time such part of the registration statement became
effective, each as amended at the time such part of the registration
statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; the
prospectus relating to the Shares, in the form in which it has most
recently been filed, or transmitted for filing, with the Commission on
or prior to the date of this Agreement, is hereinafter called the
"Prospectus"; any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to the applicable form under
the Act, as of the date of such Preliminary Prospectus or Prospectus,
as the
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<PAGE>
case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to
and include any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated
by reference in such Preliminary Prospectus or Prospectus, as the case
may be; any reference to any amendment to the Registration Statement
shall be deemed to refer to and include any annual report of the
Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act
after the effective date of the Registration Statement that is
incorporated by reference in the Registration Statement; and any
reference to the Prospectus as amended or supplemented shall be deemed
to refer to the Prospectus as amended or supplemented in relation to
the applicable Designated Shares in the form in which it is filed with
the Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof, including any documents incorporated by reference
therein as of the date of such filing);
(b) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter of
Designated Shares through the Representatives expressly for use in the
Prospectus as amended or supplemented relating to such Shares;
(c) The Registration Statement and the Prospectus conform, and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter of
Designated Shares through the Representatives expressly for use in the
Prospectus as amended or supplemented relating to such Shares;
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<PAGE>
(d) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; and all of the issued shares of capital stock
of each Material Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and the shares
of capital stock owned directly or indirectly by the Company are owned
free and clear of all liens, encumbrances, equities or claims (except
for subsidiary shares used as security for bank debt). As used herein,
the term "Material Subsidiary" means any entity (i) of which the
Company, directly or indirectly, beneficially owns a majority of the
equity interests or (ii) that is material to the financial condition or
results of operations of the Company and controlled, directly or
indirectly, by the Company. No person or entity holds a right to
acquire or participate in the Registration Statement which right has
not
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<PAGE>
been waived by the holder thereof as of the date hereof, and except as
described in the Prospectus, no person holds a right to require
registration under the Securities Act of any securities of the Company
at any other time, except as set forth on Schedule 2(g). The Company is
not a party to any agreement or understanding, and has no knowledge of
any agreement or understanding, granting any person or entity a right
of participation with respect to the sale of the Shares;
(h) The Shares have been duly and validly authorized, and,
when the Firm Shares are issued and delivered pursuant to this
Agreement and the Pricing Agreement with respect to such Designated
Shares and, in the case of any Optional Shares, pursuant to
Over-allotment Options (as defined in Section 3 hereof) with respect to
such Shares, such Designated Shares will be duly and validly issued and
fully paid and non-assessable; the Shares conform to the description
thereof contained in the Registration Statement and the Designated
Shares will conform to the description thereof contained in the
Prospectus as amended or supplemented with respect to such Designated
Shares;
(i) The issue and sale of the Shares and the compliance by the
Company with all of the provisions of this Agreement, any Pricing
Agreement and each Over-allotment Option, if any, and the consummation
of the transactions contemplated herein and therein will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company is a party or by which the Company is bound or to which any
of the property or assets of the Company is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement or any Pricing Agreement or
any Over-allotment Option, except such as have been, or will have been
prior to each Time of Delivery (as defined in Section 4 hereof),
obtained under the Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(j) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject, which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(k) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of
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<PAGE>
any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound which violation or default would have a
material adverse effect on the Company's financial condition or results
of operations;
(l) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Plan of Distribution" and "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to therein,
are accurate, complete and fair;
(m) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(n) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(o) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its subsidiaries, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(p) The Company and each of its subsidiaries now hold, and at
the Time of Delivery (as defined in Section 4 hereof) will hold, all
material licenses, certificates, permits, franchises, authorizations,
clearances and other approvals from the regulatory authority of any
federal, state or other regulatory authorities (herein called Licenses)
which are necessary to own their respective properties and to conduct
their respective businesses in the manner described in the Prospectus;
there are no current facts about the Company or any of its subsidiaries
that could reasonably be expected to cause any existing License to be
revoked, withdrawn, cancelled, suspended or restricted in a manner that
would restrict the Company or its subsidiaries carrying out their
respective businesses in any material respect as described in the
Prospectus;
(q) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or possess adequate
rights to use sufficient trademarks, trade names, service marks,
service mark registrations, patent rights, copyrights, licenses,
approvals, governmental authorizations, trade secrets and rights to
conduct their respective businesses as now conducted; except as
described in the Prospectus, the expiration or termination of any
trademarks, trade names, service marks, service mark registrations,
patent rights, copyrights, licenses, approvals, government
authorizations, trade secrets or rights would not have a material
adverse effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company or its
subsidiaries, taken as a whole; and the Company does not have any
knowledge of any material infringement by the Company or its
subsidiaries of trademark, trade name rights,
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patent rights, copyrights, licenses, service marks, service mark
registrations, trade secret or other similar rights of others, or of
any such development of similar or identical trade secrets or technical
information by others and there is no claim being made against the
Company or its subsidiaries regarding trademark, trade name, patent,
copyright, license, service marks, service mark registrations, trade
secret or other infringement which could have a material adverse effect
on the condition (financial or otherwise), business, results of
operations or prospects of the Company and its subsidiaries, taken as a
whole. The Company and its subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of
their intellectual properties;
(r) The consolidated financial statements of the Company and
its subsidiaries, together with the related notes and schedules as set
forth in the Registration Statement, comply with the Securities Act and
present fairly in all material respects the consolidated financial
position and the results of operations of the Company and its
subsidiaries, at the indicated dates and for the indicated periods.
Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of results for such periods have been made. The
summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements presented
therein;
(s) The Company and each of its subsidiaries has filed all
federal, state and foreign income tax returns which have been required
to be filed (or have filed extensions therefor or obtained any required
extensions in connection therewith), and have paid all taxes indicated
by said returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested
in good faith;
(t) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accept accounting principles and to maintain
accountability for assets; and (C) access to assets is permitted only
in accordance with management's general or specific authorization;
(u) Neither the Company nor any of its subsidiaries is
involved in any material labor dispute nor, to the knowledge of the
Company, is any such dispute threatened;
(v) Except as described in Schedule 2(v) or in the Prospectus,
the Company does not maintain, sponsor or contribute to any program or
arrangement that is an "employee welfare benefit plan," "employee
pension benefit plan," or a "multiemployer plan" as such terms are
defined in Sections 3(1), 3(2) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended (herein called
ERISA) (herein collectively called the ERISA Plans). The Company does
not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the
United
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States Internal Revue Code of 1986, as amended (herein called the
Code), which could subject the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA
Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan";
(w) Except as set forth in the Prospectus, there are no
agreements, claims, payment, issuances, arrangements or understandings,
whether oral or written, for services in the nature of finder's,
consulting or origination fees with respect to the sale of the Shares
hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its
officers, directors, partners, employees or affiliates that may affect
the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc.;
(x) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; and
(y) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
3. Upon the execution of the Pricing Agreement applicable to any
Designated Shares and authorization by the Representatives of the release of the
Firm Shares, the several Underwriters propose to offer the Firm Shares for sale
upon the terms and conditions set forth in the Prospectus as amended or
supplemented.
The Company may specify in the Pricing Agreement applicable to any
Designated Shares that the Company thereby grants to the Underwriters the right
(an "Overallotment Option") to purchase at their election up to the number of
Optional Shares set forth in such Pricing Agreement, on the terms set forth in
the paragraph above, for the sole purpose of covering over-allotments in the
sale of the Firm Shares. Any such election to purchase Optional Shares may be
exercised by written notice from the Representatives to the Company, given one
time
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<PAGE>
within a period specified in the Pricing Agreement, setting forth the aggregate
number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by the Representatives but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless the Representatives and the Company otherwise agree in writing, earlier
than or later than the respective number of business days after the date of such
notice set forth in such Pricing Agreement.
The number of Optional Shares to be added to the number of Firm Shares
to be purchased by each Underwriter as set forth in Schedule I to the Pricing
Agreement applicable to such Designated Shares shall be, in each case, the
number of Optional Shares which the Company has been advised by the
Representatives have been attributed to such Underwriter; provided that, if the
Company has not been so advised, the number of Optional Shares to be so added
shall be, in each case, that proportion of Optional Shares which the number of
Firm Shares to be purchased by such Underwriter under such Pricing Agreement
bears to the aggregate number of Firm Shares (rounded as the Representatives may
determine to the nearest 100 shares). The total number of Designated Shares to
be purchased by all the Underwriters pursuant to such Pricing Agreement shall be
the aggregate number of Firm Shares set forth in Schedule I to such Pricing
Agreement plus the aggregate number of Optional Shares which the Underwriters
elect to purchase.
4. Certificates for the Firm Shares and the Optional Shares to be
purchased by each Underwriter pursuant to the Pricing Agreement relating
thereto, in the form specified in such Pricing Agreement and in such authorized
denominations and registered in such names as the Representatives may request
upon at least forty-eight hours' prior notice to the Company, shall be delivered
by or on behalf of the Company to the Representatives for the account of such
Underwriter, against payment by such Underwriter or on its behalf of the
purchase price therefor by wire transfer of federal funds, payable to the order
of the Company in the funds specified in such Pricing Agreement, (i) with
respect to the Firm Shares, all in the manner and at the place and time and date
specified in such Pricing Agreement or at such other place and time and date as
the Representatives and the Company may agree upon in writing, such time and
date being herein called the "First Time of Delivery" and (ii) with respect to
the Optional Shares, if any, in the manner and at the time and date specified by
the Representatives in the written notice given by the Representatives of the
Underwriters' election to purchase such Optional Shares, or at such other time
and date as the Representatives and the Company may agree upon in writing, such
time and date, if not the First Time of Delivery, herein called the "Second Time
of Delivery". Each such time and date for delivery is herein called a "Time of
Delivery".
5. The Company agrees with each of the Underwriters of any
Designated Shares:
(a) To prepare the Prospectus as amended and supplemented in
relation to the applicable Designated Shares in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the
second business day following the execution and delivery of the Pricing
Agreement relating to the applicable Designated Shares or, if
applicable, such earlier time as may be required by Rule 424(b); to
make no further amendment or any supplement to the Registration
Statement or Prospectus as amended or supplemented after the date of
the Pricing Agreement relating to such Shares and prior to any Time of
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Delivery for such Shares which shall be disapproved by the
Representatives for such Shares promptly after reasonable notice
thereof; to advise the Representatives promptly of any such amendment
or supplement after any Time of Delivery for such Shares and furnish
the Representatives with copies thereof; to file promptly all reports
and any definitive proxy or information statements required to be filed
by the Company with the Commission pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act for so long as the delivery of a
prospectus is required in connection with the offering or sale of such
Shares, and during such same period to advise the Representatives,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus
has been filed with the Commission, of the issuance by the Commission
of any stop order or of any order preventing or suspending the use of
any prospectus relating to the Shares, of the suspension of the
qualification of such Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any such
stop order or of any such order preventing or suspending the use of any
prospectus relating to the Shares or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such
order;
(b) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the
time of filing either pay to the Commission the filing fee for the Rule
462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act;
(c) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify such Shares for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of such Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(d) Prior to 10:00 A.M., New York City time, on the "New York
Business Day" (which, for purposes of this Agreement, shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York, New York are generally
authorized or obligated by law or executive order to close) next
succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City as
amended or supplemented in such quantities as the Representatives may
reasonably request, and, if the delivery of a prospectus is required at
any time in connection with the offering or sale of the Shares and if
at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such
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<PAGE>
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated
by reference in the Prospectus in order to comply with the Act or the
Exchange Act, to notify the Representatives and upon their request to
file such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance;
(e) To make generally available to its security holders as
soon as practicable, but in any event not later than eighteen months
after the effective date of the Registration Statement (as defined in
Rule 158(c) under the Act), an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations of the Commission
thereunder (including, at the option of the Company, Rule 158);
(f) During the period beginning from the date of the Pricing
Agreement for such Designated Shares and continuing to and including
the date 90 days after the date of the Prospectus, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder,
any securities of the Company that are substantially similar to the
Designated Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans or employee benefit plans
existing on, or upon the conversion of convertible or exchangeable
securities outstanding as of, the date of the Pricing Agreement for
such Designated Shares and except for securities issued in private
placements in business acquisition transactions, provided that such
securities shall not be registered for sale or resale during the period
beginning on the date hereof and continuing to and including the date
90 days after the date of the Prospectus and provided that the Company
shall have given you, as representative of the Underwriters, prompt
written notice of any such issuance) without the prior written consent
of the Representatives;
(g) To furnish to the holders of the Shares as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders'
equity and cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(h) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which the Shares or
any class of securities of the Company is listed; and (ii) such
additional information concerning the business and
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<PAGE>
financial condition of the Company as you may from time to time
reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries
are consolidated in reports furnished to its stockholders generally or
to the Commission); and
(i) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds".
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, any Pricing Agreement, any
Blue Sky Memorandum, closing documents (including compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters up to a maximum of $5,000 in connection with such qualification and
in connection with the Blue Sky survey(s); (iv) any filing fees incident to, and
the fees and disbursements of counsel for the Underwriters up to a maximum of
$5,000 in connection with, any required reviews by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (v) the cost of
preparing certificates for the Shares; (vi) the cost and charges of any transfer
agent or registrar or dividend disbursing agent; and (vii) all other costs and
expenses incident to the performance of its obligations hereunder and under any
Over-allotment Options which are not otherwise specifically provided for in this
Section. It is understood, however, that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, transfer taxes on resale of
any of the Shares by them, and any advertising expenses connected with any
offers they may make.
7. The obligations of the Underwriters of any Designated Shares under
the Pricing Agreement relating to such Designated Shares shall be subject, in
the discretion of the Representatives, to the condition that all representations
and warranties and other statements of the Company in or incorporated by
reference in the Pricing Agreement relating to such Designated Shares are, at
and as of each Time of Delivery for such Designated Shares, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus as amended or supplemented in relation to
such Designated Shares shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement; no stop order suspending
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<PAGE>
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to the Representatives' reasonable satisfaction;
(b) Katten Muchin & Zavis, counsel for the Underwriters, shall
have furnished to the Representatives such opinion or opinions (a draft
of each such opinion is attached hereto as Annex II(a) hereto), dated
each Time of Delivery for such Designated Shares, with respect to the
matters covered in paragraphs (i), (ii), (iv), (viii), (ix), (x) and
(xi) of subsection (c) below as well as such other related matters as
the Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) McGrath, North, Mullin & Kratz, P.C., counsel for the
Company, shall have furnished to the Representatives their written
opinions (a draft of each such opinion is attached hereto as Annex
II(b) hereto), dated each Time of Delivery for such Designated Shares,
respectively, in form and substance satisfactory to the
Representatives, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus as amended
or supplemented;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus as amended or supplemented, and
all of the issued shares of capital stock of the Company
(including the Designated Shares being delivered at such Time
of Delivery) have been duly and validly authorized and issued
and are fully paid and non assessable; and the Designated
Shares conform to the description thereof in the Prospectus as
amended or supplemented;
(iii) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
material adverse effect on the consolidated financial position
of the Company and its subsidiaries; and to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by
others;
(iv) This Agreement and the Pricing Agreement with
respect to the Designated Shares have been duly authorized,
executed and delivered by the Company;
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<PAGE>
(v) The issue and sale of the Designated Shares being
delivered at such Time of Delivery and the compliance by the
Company with all of the provisions of this Agreement and the
Pricing Agreement with respect to the Designated Shares and
the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to which the Company is a party or by which the
Company is bound or to which any of the property or assets of
the Company is subject which conflict, breach or violation
would have a material adverse effect on the Company's
financial condition, nor will such action result in any
violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the
Company or any of its properties;
(vi) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Designated Shares being delivered at such Time of
Delivery or the consummation by the Company of the
transactions contemplated by this Agreement or such Pricing
Agreement, except such as have been obtained under the Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution
of the Designated Shares by the Underwriters;
(vii) Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or By-laws
or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by
which it or any of its properties may be bound which violation
or default would have a material adverse effect on the
Company's financial condition;
(viii) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as
they purport to constitute a summary of the terms of the
Stock, and under the captions "Plan of Distribution" and
"Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and fair;
(ix) The Company is not an "Investment Company" or an
entity "controlled" by an "Investment Company", as such terms
are defined in the Investment Company Act;
(x) The documents incorporated by reference in the
Prospectus as amended or supplemented (other than the
financial statements and related schedules and other financial
data therein, as to which such counsel need express no
opinion), when they became effective or were filed with the
Commission, as
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<PAGE>
the case may be, complied as to form in all material respects
with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder; and they have no reason to believe that any of
such documents, when they became effective or were so filed,
as the case may be, contained, in the case of a registration
statement which became effective under the Act, an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or, in the case of other
documents which were filed under the Act or the Exchange Act
with the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made when such documents were so filed,
not misleading; and
(xi) The Registration Statement and the Prospectus as
amended or supplemented, and any further amendments and
supplements thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related
schedules and other financial data therein, as to which such
counsel need express no opinion), comply as to form in all
material respects with the requirements of the Act and the
rules and regulations thereunder; although they do not assume
any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or
the Prospectus, except for those referred to in the opinion in
subsection (viii) of this Section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules and other financial data
therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that, as of its date, the Prospectus as amended or
supplemented or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules and other
financial data therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact
or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time
of Delivery, either the Registration Statement or the
Prospectus as amended or supplemented or any further amendment
or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related
schedules and other financial data therein, as to which such
counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration
Statement required to be filed or any contracts or other
documents of a character required to be filed as an exhibit to
the Registration Statement or required to be incorporated by
reference into the Prospectus as amended or supplemented or
required to be described in the
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Registration Statement or the Prospectus as amended or
supplemented which are not filed or incorporated by reference
or described as required.
(d) On the date of the Pricing Agreement for such
Designated Shares and at each Time of Delivery for such
Designated Shares, the independent accountants of the Company
who have certified the financial statements of the Company and
its subsidiaries included or incorporated by reference in the
Registration Statement shall have furnished to the
Representatives a letter, dated the effective date of the
Registration Statement or the date of the most recent report
filed with the Commission containing financial statements and
incorporated by reference in the Registration Statement, if
the date of such report is later than such effective date, and
a letter dated such Time of Delivery, respectively, to the
effect set forth in Annex III hereto, and with respect to such
letter dated such Time of Delivery, as to such other matters
as the Representatives may reasonably request and in form and
substance satisfactory to the Representatives (the executed
copy of the letter delivered prior to the execution of this
Agreement is attached hereto as Annex III(a) hereto and a
draft of the form of letter to be delivered on the effective
date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached hereto
as Annex III(b) hereto;
(e) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited
financial statements included or incorporated by reference in
the Prospectus as amended prior to the date of the Pricing
Agreement relating to the Designated Shares any loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus as amended prior to the date of the Pricing
Agreement relating to the Designated Shares, and (ii) since
the respective dates as of which information is given in the
Prospectus as amended prior to the date of the Pricing
Agreement relating to the Designated Shares there shall not
have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting
the general affairs, management, financial position,
stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus as amended prior to the date of
the Pricing Agreement relating to the Designated Shares, the
effect of which, in any such case described in Clause (i) or
(ii), is in the judgment of the Representatives so material
and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the
Designated Shares on the terms and in the manner contemplated
in the Prospectus as amended relating to the Designated
Shares;
(f) On or after the date of the Pricing Agreement
relating to the Designated Shares (i) no downgrading shall
have occurred in the rating accorded the Company's debt
securities or preferred stock by any "nationally recognized
statistical rating organization", as that term is defined by
the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have
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publicly announced that it has under surveillance or review,
with possible negative implications, its rating of any of the
Company's debt securities or preferred stock;
(g) On or after the date of the Pricing Agreement
relating to the Designated Shares there shall not have
occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York
Stock Exchange (the "Exchange"); (ii) a suspension or material
limitation in trading in the Company's securities on the
Exchange; (iii) a general moratorium on commercial banking
activities declared by either Federal or Illinois State
authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any
such event specified in this Clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Firm
Shares or Optional Shares or both on the terms and in the
manner contemplated in the Prospectus as first amended or
supplemented relating to the Designated Shares;
(h) The Shares at each Time of Delivery shall have
been duly listed, subject to notice of issuance, on the
Exchange;
(i) The Company shall have furnished or caused to be
furnished to the Representatives at each Time of Delivery for
the Designated Shares certificates of officers of the Company
satisfactory to the Representatives as to the accuracy of the
representations and warranties of the Company herein at and as
of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or
prior to such Time of Delivery, as to the matters set forth in
the introductory paragraph and subsection (e) of this Section
and as to such other matters as the Representatives may
reasonably request;
(j) The Company shall have complied with the
provisions of Section 5(c) hereof with respect to the
furnishing of prospectuses on the New York Business Day next
succeeding the date of this Agreement; and
(k) On or prior to the Time of Delivery, the
Underwriters shall have received from all directors and
executive officers, agreements, in form reasonably
satisfactory to Katten Muchin & Zavis on behalf of the
Underwriters, such person or entity will not, for a period of
90 days following the commencement of the public offering of
the Shares by the Underwriters, directly or indirectly, sell,
offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose
of any shares of Common Stock of the Company or any securities
convertible into or exchangeable or exercisable for or any
other rights to purchase or acquire Common Stock of the
Company.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or
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actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, any preliminary prospectus supplement, the Registration Statement,
the Prospectus as amended or supplemented and any other prospectus relating to
the Shares, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, any preliminary prospectus supplement, the Registration Statement,
the Prospectus as amended or supplemented and any other prospectus relating to
the Shares, or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
of Designated Shares through the Representatives expressly for use in the
Prospectus as amended or supplemented relating to such Shares.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any preliminary prospectus supplement,
the Registration Statement, the Prospectus as amended or supplemented and any
other prospectus relating to the Shares, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, any preliminary
prospectus supplement, the Registration Statement, the Prospectus as amended or
supplemented and any other prospectus relating to the Shares, or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives expressly for use therein; and will reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof,
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the indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include any statement as to or an admission of fault, culpability or a failure
to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
of the Designated Shares on the other from the offering of the Designated Shares
to which such loss, claim, damage or liability (or action in respect thereof)
relates. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Underwriters
of the Designated Shares on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and such Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from such offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by such Underwriters. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or such
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the applicable Designated Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
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<PAGE>
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Underwriters of Designated Shares in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations with respect to such Shares and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Firm Shares or Optional Shares which it has agreed to purchase under the
Pricing Agreement relating to such Shares, the Representatives may in their
discretion arrange for themselves or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter the Representatives do not arrange for the purchase
of such Firm Shares or Optional Shares, as the case may be, then the Company
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to the Representatives to
purchase such Shares on such terms. In the event that, within the respective
prescribed period, the Representatives notify the Company that they have so
arranged for the purchase of such Shares, or the Company notifies the
Representatives that it has so arranged for the purchase of such Shares, the
Representatives or the Company shall have the right to postpone a Time of
Delivery for such Shares for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus as amended or supplemented, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments or supplements to the Registration Statement or the Prospectus which
in the opinion of the Representatives may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to the Pricing Agreement with respect to such Designated Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Firm Shares or Optional Shares, as the case may be, of a defaulting Underwriter
or Underwriters by the Representatives and the Company as provided in subsection
(a) above, the aggregate number of such Shares which remains unpurchased does
not exceed one-eleventh of the aggregate number of the Firm Shares or Optional
Shares, as the case may be, to be purchased at the respective Time of Delivery,
then the Company shall have the right to require each non-defaulting Underwriter
to purchase the number of Firm Shares or Optional Shares, as the case may be,
which such Underwriter agreed to purchase under the Pricing Agreement relating
to such Designated Shares and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Firm Shares
or Optional Shares, as the case may be, which such Underwriter agreed to
purchase under such Pricing Agreement) of the Firm Shares or Optional Shares, as
the case may be, of such defaulting Underwriter or Underwriters for
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<PAGE>
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Firm Shares or Optional Shares, as the case may be, of a defaulting Underwriter
or Underwriters by the Representatives and the Company as provided in subsection
(a) above, the aggregate number of Firm Shares or Optional Shares, as the case
may be, which remains unpurchased exceeds one-eleventh of the aggregate number
of the Firm Shares or Optional Shares, as the case may be, to be purchased at
the respective Time of Delivery, as referred to in subsection (b) above, or if
the Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Firm Shares or Optional Shares,
as the case may be, of a defaulting Underwriter or Underwriters, then the
Pricing Agreement relating to such Firm Shares or the Over-allotment Option
relating to such Optional Shares, as the case may be, shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company,
except for the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If any Pricing Agreement or Over-allotment Option shall be
terminated pursuant to Section 9 hereof, the Company shall not then be under any
liability to any Underwriter with respect to the Firm Shares or Optional Shares
with respect to which such Pricing Agreement shall have been terminated except
as provided in Sections 6 and 8 hereof; but, if for any other reason, Designated
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through the Representatives for all
out-of-pocket expenses approved in writing by the Representatives, including
fees and disbursements of counsel, reasonably incurred by the Underwriters in
making preparations for the purchase, sale and delivery of such Designated
Shares, but the Company shall then be under no further liability to any
Underwriter with respect to such Designated Shares except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, the Representatives of the Underwriters
of Designated Shares shall act on behalf of each of such Underwriters, and the
parties hereto shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of any Underwriter made or given by such
Representatives jointly or by such of the Representatives, if any, as may be
designated for such purpose in the Pricing Agreement.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Representatives as set forth in the
Pricing Agreement; and if to the Company shall be
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<PAGE>
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement and each Pricing Agreement shall be binding upon,
and inure solely to the benefit of, the Underwriters, the Company and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement or any such Pricing Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of each Pricing Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
15. This Agreement and each Pricing Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
16. This Agreement and each Pricing Agreement may be executed by any
one or more of the parties hereto and thereto in any number of counterparts,
each of which shall be deemed to be an original, but all such respective
counterparts shall together constitute one and the same instrument.
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<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us four (4) counterparts hereof.
Very truly yours,
InaCom Corp.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By:
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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<PAGE>
ANNEX I
Pricing Agreement
Goldman, Sachs & Co., As Representatives of the several Underwriters named in
Schedule I hereto,
4900 Sears Tower,
Chicago, Illinois 60606
______________, 1997
Ladies and Gentlemen:
InaCom Corp., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein and in the Underwriting Agreement,
dated __________ , 1997 (the "Underwriting Agreement"), between the Company on
the one hand and Goldman, Sachs & Co. on the other hand, to issue and sell to
the Underwriters named in Schedule I hereto (the "Underwriters") the Shares
specified in Schedule II hereto (the "Designated Shares" consisting of Firm
Shares and any Optional Shares the Underwriters may elect to purchase). Each of
the provisions of the Underwriting Agreement is incorporated herein by reference
in its entirety, and shall be deemed to be a part of this Agreement to the same
extent as if such provisions had been set forth in full herein; and each of the
representations and warranties set forth therein shall be deemed to have been
made at and as of the date of this Pricing Agreement, except that each
representation and warranty which refers to the Prospectus in Section 2 of the
Underwriting Agreement shall be deemed to be a representation or warranty as of
the date of the Underwriting Agreement in relation to the Prospectus (as therein
defined), and also a representation and warranty as of the date of this Pricing
Agreement in relation to the Prospectus as amended or supplemented relating to
the Designated Shares which are the subject of this Pricing Agreement. Each
reference to the Representatives herein and in the provisions of the
Underwriting Agreement so incorporated by reference shall be deemed to refer to
you. Unless otherwise defined herein, terms defined in the Underwriting
Agreement are used herein as therein defined. The Representatives designated to
act on behalf of the Representatives and on behalf of each of the Underwriters
of the Designated Shares pursuant to Section 12 of the Underwriting Agreement
and the address of the Representatives referred to in such Section 12 are set
forth in Schedule II hereto.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Designated Shares, in the form
heretofore delivered to you is now proposed to be filed with the Commission.
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, (a) the Company agrees
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the time and
place and at the purchase price to the Underwriters set forth in Schedule II
hereto, the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto and, (b) in the event and to the extent that
the Underwriters shall exercise the election to purchase Optional Shares, as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
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<PAGE>
to purchase from the Company at the purchase price to the Underwriters set forth
in Schedule II hereto that portion of the number of Optional Shares as to which
such election shall have been exercised.
The Company hereby grants to each of the Underwriters the right to
purchase at their election up to the number of Optional Shares set forth
opposite the name of such Underwriter in Schedule I hereto on the terms referred
to in the paragraph above for the sole purpose of covering over-allotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised by written notice from the Representatives to the Company given
within a period of 30 calendar days after the date of this Pricing Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by the
Representatives, but in no event earlier than the First Time of Delivery or,
unless the Representatives and the Company otherwise agree in writing, no
earlier than two or later than ten business days after the date of such notice.
If the foregoing is in accordance with your understanding, please sign
and return to us four (4) counterparts hereof, and upon acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof, including the provisions of the Underwriting Agreement incorporated
herein by reference, shall constitute a binding agreement between each of the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is or will be pursuant to the
authority set forth in a form of Agreement among Underwriters, the form of which
shall be submitted to the Company for examination, upon request, but without
warranty on the part of the Representatives as to the authority of the signers
thereof.
Very truly yours,
InaCom Corp.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By:
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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<PAGE>
SCHEDULE I
Number of Maximum Number
Firm Shares of Optional Shares
to be Which May Be
Underwriter Purchased Purchased
Goldman, Sachs & Co......................
[Names of other Underwriters]............
Total ____________ ____________
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SCHEDULE II
Title of Designated Shares: Common Stock, $.10 par value
Number of Designated Shares:
Number of Firm Shares:
Maximum Number of Optional Shares:
Initial Offering Price to Public:
$______ per Share
Purchase Price by Underwriters:
$______ per Share
Commission Payable to Underwriters:
$_____ per Share in New York Clearing House (next day) funds
Form of Designated Shares:
Definitive form, to be made available for checking at least twenty-four hours
prior to the Time of Delivery at the office of The Depository Trust Company or
its designated custodian
Specified Funds for Payment of Purchase Price:
[Describe any blackout provisions with respect to the Designated Shares]
Time of Delivery:
_____ a.m. (New York City time), _________, 1997
Closing Location:
Names and Addresses of Representatives:
Designated Representatives:
Address for Notices, etc.:
[Other Terms]
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ANNEX II(a)
Form of Opinion of Counsel for Underwriters
[To be attached]
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<PAGE>
ANNEX II(b)
Form of Opinion of Company Counsel
[To be attached]
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<PAGE>
ANNEX III(a)
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act or the Exchange
Act, as applicable, and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been separately furnished to the representatives of the Underwriters
(the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's quarterly
reports on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives; and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to
in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related published rules and regulations, nothing
came to their attention that caused them to believe that the unaudited
condensed consolidated financial statements do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the Exchange Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
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<PAGE>
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, inquiries of officials of
the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(A) (i) the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus and/or included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Exchange Act and the related published rules and
regulations, or (ii) any material modifications should be made
to the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus or included in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus, for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited financial statements included or
incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;
-2-
<PAGE>
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included
or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and
its subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included or incorporated by
reference in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(F) for the period from the date of the latest
financial statements included or incorporated by reference in
the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus (excluding documents incorporated by reference), or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives or in documents incorporated by
reference in the Prospectus specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
-3-
<PAGE>
All references in this Annex III to the Prospectus shall be deemed to
refer to the Prospectus (including the documents incorporated by reference
therein) as defined in the Underwriting Agreement as of the date of the letter
delivered on the date of the Pricing Agreement for purposes of such letter and
to the Prospectus as amended or supplemented (including the documents
incorporated by reference therein) in relation to the applicable Designated
Shares for purposes of the letter delivered at the Time of Delivery for such
Designated Shares.
-4-
<PAGE>
ANNEX III(b)
[To be attached]
-1-
<PAGE>
INACOM CORP.
TO
NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION
TRUSTEE
----------------
INDENTURE
Dated as of September 30, 1997
----------------
SENIOR DEBT SECURITIES
<PAGE>
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indnture
Act Section Section
ss.310(a)(1) ................................. 609
(a)(2) ................................ 609
(a)(3) ................................ Not Applicable
(a)(4) ................................ Not Applicable
(b) ................................ 608
610
ss. 311(a) .................................. 613
(b) ................................ 613
ss. 312(a) .................................. 701
702(a)
(b) ................................ 702(b)
(c) ................................ 702(c)
ss. 313(a) .................................. 703(a)
(b) ................................ 703(a)
(c) ................................ 703(a)
(d) ................................ 703(b)
ss. 314(a) .................................. 704
(b) ................................ Not Applicable
(c)(1) ................................ 102
(c)(2) ................................ 102
(c)(3) ................................ Not Applicable
(d) ................................ Not Applicable
(e) ................................ 102
ss. 315(a) .................................. 601
................................ 603(a)
(b) ................................ 602
(c) ................................ 601
(d) ................................ 601
(e) ................................ 514
ss. 316(a)(1)(A) .................................. 512
(a)(1)(B) ................................ 513
(a)(2) ................................ Not Applicable
(b) ................................ 508
(c) ................................ 104
ss. 317(a)(1) .................................. 503
(a)(2) ................................ 504
(b) ................................ 1003
ss. 318(a) .................................. 1007
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
Parties.................................................................... 1
Recitals of the Company.................................................... 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions....................................................-1-
Act............................................................-2-
Affiliate......................................................-2-
Authenticating Agent...........................................-2-
Board of Directors.............................................-2-
Board Resolution...............................................-2-
Business Day...................................................-2-
Code...........................................................-2-
Commission.....................................................-2-
Company ......................................................-2-
Company Request................................................-2-
Corporate Trust Office.........................................-3-
corporation....................................................-3-
Defaulted Interest.............................................-3-
Depositary.....................................................-3-
Dollar.........................................................-3-
Event of Default...............................................-3-
Exchange Act...................................................-3-
Expiration Date................................................-3-
Global Security................................................-3-
Holder.........................................................-3-
Indebtedness...................................................-3-
Indenture......................................................-4-
Interest ......................................................-4-
Interest Payment Date..........................................-4-
Notice of Default..............................................-4-
Officers' Certificate..........................................-4-
Opinion of Counsel.............................................-4-
Original Issue Discount Security...............................-4-
Outstanding....................................................-4-
Paying Agent...................................................-5-
Person ........................................................-5-
-i-
<PAGE>
Page
Place of Payment...............................................-5-
Predecessor Security...........................................-5-
Record Date....................................................-5-
Redemption Date................................................-5-
Redemption Price...............................................-5-
Registered Security............................................-5-
Regular Record Date............................................-6-
Responsible Officer............................................-6-
Securities.....................................................-6-
Securities Act.................................................-6-
Security Register..............................................-6-
Security Registrar.............................................-6-
Senior Indebtedness............................................-6-
Special Record Date............................................-6-
Stated Maturity................................................-6-
Subordinated Debt Securities...................................-6-
Subordinated Indenture.........................................-6-
Subsidiary.....................................................-6-
Trustee ......................................................-7-
Trust Indenture Act............................................-7-
United States..................................................-7-
U.S. Government Obligations....................................-7-
Vice President.................................................-7-
Yield to Maturity..............................................-7-
SECTION 102. Compliance Certificates and Opinions...........................-7-
SECTION 103. Form of Documents Delivered to Trustee.........................-8-
SECTION 104. Acts of Holders; Record Dates..................................-8-
SECTION 105. Notices, Etc., to Trustee and Company.........................-10-
SECTION 106. Notice to Holders; Waiver.....................................-11-
SECTION 107. Conflict with Trust Indenture Act.............................-11-
SECTION 108. Effect of Headings and Table of Contents......................-11-
SECTION 109. Successors and Assigns........................................-11-
SECTION 110. Separability Clause...........................................-11-
SECTION 111. Benefits of Indenture.........................................-12-
SECTION 112. Governing Law.................................................-12-
SECTION 113. Legal Holidays................................................-12-
SECTION 114. Incorporators, Stockholders, Officers and Directors of the
and Directors of the Company Exempt from
Individual Liability......................................-12-
ARTICLE TWO
Security Forms
-ii-
<PAGE>
Page
SECTION 201. Forms Generally...............................................-13-
SECTION 202. Form of Trustee's Certificate of Authentication...............-13-
SECTION 203. Securities in Global Form.....................................-14-
SECTION 204. CUSIP Numbers.................................................-15-
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series..........................-15-
SECTION 302. Denominations.................................................-18-
SECTION 303. Execution, Authentication, Delivery and Dating................-19-
SECTION 304. Temporary Securities..........................................-20-
SECTION 305. Registration, Registration of Transfer and Exchange...........-22-
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities..............-23-
SECTION 307. Payment of Interest; Interest Rights Preserved................-24-
SECTION 308. Persons Deemed Owners.........................................-25-
SECTION 309. Cancellation..................................................-25-
SECTION 310. Computation of Interest.......................................-26-
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.......................-26-
SECTION 402. Application of Trust Money....................................-27-
SECTION 403. Discharge of Liability on Securities of Any Series............-28-
SECTION 404. Reinstatement.................................................-28-
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.............................................-29-
SECTION 502. Acceleration of Maturity; Rescission and Annulment............-30-
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.......................................................-31-
SECTION 504. Trustee May File Proofs of Claim..............................-32-
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities....................................................-33-
SECTION 506. Application of Money Collected................................-33-
SECTION 507. Limitation on Suits...........................................-34-
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest..........................................-34-
SECTION 509. Restoration of Rights and Remedies............................-34-
SECTION 510. Rights and Remedies Cumulative................................-35-
SECTION 511. Delay or Omission Not Waiver..................................-35-
-iii-
<PAGE>
Page
SECTION 512. Control by Holders............................................-35-
SECTION 513. Waiver of Past Defaults.......................................-35-
SECTION 514. Undertaking for Costs.........................................-36-
SECTION 515. Waiver of Stay or Extension Laws..............................-36-
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities...........................-37-
SECTION 602. Notice of Defaults............................................-38-
SECTION 603. Certain Rights of Trustee.....................................-38-
SECTION 604. Not Responsible for Recitals or Issuance of Securities........-39-
SECTION 605. May Hold Securities...........................................-39-
SECTION 606. Money Held in Trust...........................................-39-
SECTION 607. Compensation and Reimbursement................................-39-
SECTION 608. Disqualification; Conflicting Interests.......................-40-
SECTION 609. Corporate Trustee Required; Eligibility.......................-40-
SECTION 610. Resignation and Removal; Appointment of Successor.............-41-
SECTION 611. Acceptance of Appointment by Successor........................-42-
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business......................................................-43-
SECTION 613. Preferential Collection of Claims Against Company.............-44-
SECTION 614. Appointment of Authenticating Agent...........................-44-
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders.......................................................-46-
SECTION 702. Preservation of Information; Communications to Holders........-46-
SECTION 703. Reports by Trustee............................................-46-
SECTION 704. Reports by Company............................................-47-
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms..........-47-
SECTION 802. Successor Substituted.........................................-48-
-iv-
Page
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders............-48-
SECTION 902. Supplemental Indentures with Consent of Holders...............-49-
SECTION 903. Execution of Supplemental Indentures..........................-50-
SECTION 904. Effect of Supplemental Indentures.............................-50-
SECTION 905. Conformity with Trust Indenture Act...........................-51-
SECTION 906. Reference in Securities to Supplemental Indentures............-51-
SECTION 907. Notice of Supplemental Indentures.............................-51-
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest...................-51-
SECTION 1002. Maintenance of Office or Agency..............................-51-
SECTION 1003. Money for Security Payments to Be Held in Trust..............-52-
SECTION 1004. Statement by Officers as to Default..........................-53-
SECTION 1005. Existence....................................................-53-
SECTION 1006. Maintenance of Properties....................................-54-
SECTION 1007. Payment of Taxes and Other Claims............................-54-
SECTION 1008. Book-Entry System............................................-54-
SECTION 1009. Waiver of Certain Covenants..................................-54-
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Applicability of Article.....................................-55-
SECTION 1102. Election to Redeem; Notice to Trustee........................-55-
SECTION 1103. Selection by Trustee of Securities to be Redeemed............-55-
SECTION 1104. Notice of Redemption.........................................-55-
SECTION 1105. Deposit of Redemption Price..................................-56-
SECTION 1106. Securities Payable on Redemption Date........................-56-
SECTION 1107. Securities Redeemed in Part..................................-57-
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.....................................-57-
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities........-57-
SECTION 1203. Redemption of Securities for Sinking Fund....................-58-
-v-
<PAGE>
Page
ARTICLE THIRTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1301. Purposes for Which Meetings May Be Called....................-58-
SECTION 1302. Call, Notice and Place of Meetings...........................-58-
SECTION 1303. Persons Entitled to Vote at Meetings.........................-59-
SECTION 1304. Quorum; Action...............................................-59-
SECTION 1305. Determination of Voting Rights; Conduct and Adjournment
of Meetings..................................................-60-
SECTION 1306. Counting Votes and Recording Action of Meetings..............-60-
-vi-
<PAGE>
INDENTURE, dated as of September 30, 1997, between InaCom Corp., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 10810 Farnam
Drive, Omaha, Nebraska 68154, and Norwest Bank Minnesota, National Association,
a national banking association, as Trustee having its principal place of
business at 6th & Marquette, Minneapolis, Minnesota 55479 (Attention: Corporate
Trust Securities) (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its debentures, notes
or other evidences of indebtedness (herein called the "Securities"), to be
issued in one or more series as provided in this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted
<PAGE>
hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means 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 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.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, shall have been
delivered to the Trustee.
"Business Day" means, with respect to any Place of Payment or any other
place, as the case may be, each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any such day on which banking institutions in The City of New York,
New York or in such particular place are authorized or obligated by law or
executive order to close.
"Code" has the meaning specified in Section 201.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its
-2-
<PAGE>
President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office on the date hereof is located at Minneapolis, Minnesota.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act of 1934 (or
any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness", as applied to any Person, means the principal of, and
premiums, if any, and interest on (a) all indebtedness of such Person for
borrowed money (including all indebtedness evidenced by notes, bonds, debentures
or other securities sold by such Person for money), (b) all indebtedness
incurred by such Person in the acquisition (whether by way of purchase, merger,
consolidation or otherwise and whether by such Person or another Person) of any
business, real property, or other assets (except assets acquired in the ordinary
course of the conduct of the acquirer's usual business), (c) guarantees by such
Person of indebtedness described in clause (a) or (b) of any other Person, (d)
all renewals, extensions, refundings, deferrals, restructurings, amendments and
modifications of any such indebtedness, obligation or guarantee (e) all
reimbursement obligations of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (f) all capital lease obligations of such Person, and (g) all net
obligations of such Person under interest rate swap or similar agreements of
such person.
-3-
<PAGE>
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section
501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for payment or redemption of which money in
the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
-4-
<PAGE>
(iii) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid obligations
of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Payment" means any city in which a Paying Agent is located.
"Predecessor Security" of any particular Security means 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 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Security" means any Security in the form established pursuant
to Section 201 which is registered in the Security Register.
-5-
<PAGE>
"Regular Record Date" for the interest payable on any Interest Payment Date
means with respect to any series of Securities, the date specified for that
purpose as contemplated by Section 301 (whether or not a Business Day).
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary, Managing Director or
any other officer of the Trustee customarily performing functions similar to
those performed by the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
his knowledge and familiarity with the particular subject.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means Indebtedness of the Company outstanding at any
time except Indebtedness that by its terms is subordinate in right of payment to
the Subordinated Debt Securities or Indebtedness that is not otherwise senior in
right of payment to the Subordinated Debt Securities, provided that the term
"Senior Indebtedness" shall not include Indebtedness of the Company to any
Subsidiary for money borrowed or advanced from such Subsidiary.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subordinated Debt Securities" means the Subordinated Debt Securities
issuable by the Company under and pursuant to the Subordinated Indenture.
"Subordinated Indenture" means the Indenture dated as of the date hereof
relating to the issuance of Subordinated Debt Securities as originally executed
or as it may from time to time be supplemented or amended by one or more
indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, including for all purposes of said indenture and any such
supplemental indenture, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern said indenture and any such supplement
indenture, respectively.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition,
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"voting stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"United States" means the United States of America (including the States
and the District of Columbia) and its "possessions", which include Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands.
"U.S. Government Obligations" has the meaning specified in Section 401.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Yield to Maturity", when used with respect to any Original Issue Discount
Security, means the yield to maturity, if any, set forth on the face thereof.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate (including certificates provided pursuant to Section
1004) or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include, without limitation:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of such individual, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such certificate or opinion is based are
erroneous.
Any such certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
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(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) The Company may set any day as a record date for the purpose of
determining the Holders entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders, provided that
the Company may not set a record date for, and the provisions of this Section
104(d) shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in Section 104(e). If any record
date is set pursuant to this Section 104(d), the Holders on such record date,
and only such Holders, shall be entitled to take the relevant action, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Securities on
such record date. Nothing in this Section 104(d) shall be construed to prevent
the Company from setting a new record date for any action for which a record
date has previously been set pursuant to this Section 104(d) (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this Section 104(d) shall be
construed to render ineffective any action taken by Holders of the requisite
principal amount of Securities on the date such action is taken. Promptly after
any record date is set pursuant to this Section 104(d), the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder in the manner set forth in Section 106.
(e) The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in Section
502, (iii) any request to institute proceedings referred to in Section 507(2),
or (iv) any direction referred to in Section 512. If any record date is set
pursuant to this Section 104(e), the Holders on such record date, and only such
Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Securities on such record date. Nothing in this Section 104(e) shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this Section
104(e) (whereupon the record date previously set shall automatically and with no
action by any Person be cancelled and of no effect), and nothing in this Section
104(e) shall be construed to render ineffective any action taken by Holders of
the requisite principal amount of Securities on the date such action is taken.
Promptly after any record date is set pursuant to this Section 104(e), the
Trustee, at the Company's expense, shall cause notice of such record date, the
proposed action by Holders and
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the applicable Expiration Date to be given to the Company in writing and to each
Holder of Securities in the manner set forth in Section 106.
(f) With respect to any record date set pursuant to Sections 104(d) or
104(e), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder in the manner set forth in Section 106, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to Section 104(d) or 104(e), the party
hereto which set such record date shall be deemed to have initially designated
the 180th day after such record date as the Expiration Date with respect
thereto, subject to its right to change the Expiration Date as provided in this
Section 104(f). Notwithstanding the foregoing, no Expiration Date shall be later
than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
(h) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Market Services, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, and sent by facsimile to the Company to the attention of the
Treasurer at the address of the Company's principal office specified
in the first paragraph of this instrument and to facsimile number
(402) 392-3602, or at any other address or to any other facsimile
number, as the case may be, previously furnished in writing to the
Trustee by the Company.
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SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at a Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption Date
or Stated Maturity, so long as payment is made on such succeeding Business Day.
SECTION 114. Incorporators, Stockholders, Officers and Directors of the Company
Exempt from Individual Liability.
No recourse under or upon any obligation, covenant or agreement in this
Indenture or any indenture supplemental hereto or of any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, 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 this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors, as such, of the Company or
of any successor Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom; and that any and all such personal liability of every name
and nature, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
such Securities.
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ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Registered Securities, if any, of each series shall be in substantially
such form or forms (including temporary or permanent global form) as shall be
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange, the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Code"), or as may, consistently
herewith, be determined by the officers executing such Securities, as evidenced
by their execution of the Securities. If temporary Securities of any series are
issued in global form as permitted by Section 304, the form thereof shall be
established as provided in the preceding sentence. A copy of the Board
Resolution establishing the form or forms of Securities of any series (or any
such temporary Global Security) shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 303 for the
authentication and delivery of such Securities (or any such temporary Global
Security).
Any definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange on which the Securities may be quoted or listed, as the case may be,
all as determined by the officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
"This is one of the Securities referred to in the within-mentioned
Indenture.
,
as Trustee
By ____________________
Authorized Signatory"
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SECTION 203. Securities in Global Form.
(a) A supplemental indenture to the Indenture or a Board Resolution (and,
to the extent not set forth in the Board Resolution, an Officer's Certificate
detailing the adoption of terms pursuant to the Board Resolution) shall
establish whether the Securities of a series shall be issued in whole or in part
in the form of one or more Global Securities and the Depositary for such Global
Security or securities.
(b) Notwithstanding any provisions to the contrary contained in Section 305
of the Indenture and in addition thereto, any Global Security shall be
exchangeable pursuant to Section 305 of the Indenture for securities registered
in the names of Holders other than the Depositary for such Security or its
nominee only if (i) such Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a clearing agency registered under the Exchange Act,
and, in either case, the Company fails to appoint a successor Depositary within
90 days of such event, (ii) the Company executes and delivers to the Trustee an
Officer's Certificate to the effect that such Global Security shall be so
exchangeable or (iii) an event shall have happened and be continuing which is or
after notice or lapse of time or both, would be, an Event of Default with
respect to the Securities represented by such Global Security. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Securities registered in such names as the Depositary shall
direct in writing in an aggregate principal amount equal to the principal amount
of the Global Security with like tenor and terms.
Except as provided in this Section, a Global Security may not be
transferred except as a whole by the Depositary with respect to such Global
Security to a nominee of such Depositary, by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such a successor
Depositary.
(c) Any Global Security issued hereunder shall bear a legend in
substantially the following form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY,
BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH A SUCCESSOR DEPOSITARY."
(d) The Depositary, as a Holder, may appoint agents and otherwise authorize
Persons that have accounts with the Depositary to give or take any request,
demand,
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authorization, direction, notice, consent, waiver or other action which a Holder
is entitled to give or take under the Indenture.
(e) Notwithstanding the other provisions of this Indenture, unless
otherwise specified as contemplated by Section 301, payment of the principal of
and interest on any Global Security shall be made to the person specified
therein.
(f) Except as provided in Subsection (e) above, the Company, the Trustee
and any Agent shall treat a person as the Holder of such principal amount of
outstanding Securities of such series represented by a Global Security as shall
be specified in a written statement of the Depositary with respect to such
Global Security, for purposes of obtaining any consents, declarations or
directions required to be given by the Holders pursuant to this Indenture.
SECTION 204. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other elements of
identification printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officer's
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series,
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the
Securities of the series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in
lieu of, other Securities of the series pursuant to Section 304, 305,
306, 906 or 1107);
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(3) whether Securities of the series are to be issuable as
Registered Securities, whether any Securities of the series are to be
issuable initially in temporary global form and whether any Securities
of the series are to be issuable in permanent global form and, if so,
whether beneficial owners of interests in any such permanent Global
Security may exchange such interests for Securities of such series and
of like tenor of any authorized form and denomination and the
circumstances under which any such exchanges may occur, if other than
in the manner provided in Section 305, and the Depositary for any
Global Security or Securities;
(4) the manner in which, or the extent to which, or any interest
payable on a temporary Global Security on any Interest Payment Date
will be paid if other than in the manner provided in Section 304;
(5) the date or dates on which the principal (and premium, if
any) of the Securities of the series is payable or the method of
determination thereof, including, without limitation, the maturity
date or dates;
(6) the rate or rates (which may be fixed or variable or based
upon such indices as the Company may elect), or the method of
determination thereof, at which the Securities of the series shall
bear interest, if any, the date or dates from which such interest
shall accrue, the Interest Payment Dates on which such interest shall
be payable and, if other than as set forth in Section 101, the Regular
Record Date for the interest payable on any Registered Securities on
any Interest Payment Date;
(7) the place or places where, subject to the provisions of
Section 1002, the principal of (and premium, if any) and interest, if
any, on the Securities of the series shall be payable;
(8) the period or periods within which, the price or prices at
which and the terms and conditions upon which Securities of the series
may be redeemed, in whole or in part, at the option of the Company, if
the Company is to have that option;
(9) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or
periods within which, the price or prices at which and the terms and
conditions upon which, Securities of the series shall be redeemed or
purchased in whole or in part pursuant to such obligation;
(10) the denomination in which any Registered Securities of that
series shall be issuable, if other than denominations of $1,000 and
any integral multiple thereof;
(11) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which shall be
payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502;
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(12) any additional means of satisfaction and discharge of this
Indenture with respect to Securities of the series pursuant to Section
401, any additional conditions to discharge pursuant to Section 401 or
403 and the application, if any, of Section 403;
(13) any deletions or modifications of or additions to the Events
of Default set forth in Section 501 or covenants of the Company set
forth in Article Ten pertaining to the Securities of the series;
(14) the terms for conversion or exchange, if any;
(15) whether the Securities will be secured or unsecured and, if
secured, the nature and terms of the security;
(16) if other than Dollars, the currency, currencies or currency
unit or units in which such Securities will be denominated and in
which the principal of, and premium and interest, if any, thereon will
be payable;
(17) whether, and the terms and conditions on which, the Company
or a Holder may elect that, or the other circumstances under which,
payment of principal of, or premium or interest, if any, is to be made
in a currency or currencies or currency unit or units other than that
in which such Securities are denominated;
(18) if the payments of principal of or interest on the
Securities of a series are to be made in a foreign currency other than
the currency in which such Securities are denominated, the manner in
which the exchange rate with respect to such payments shall be
determined;
(19) if the amount of payments of principal of or interest on the
Securities of a series may be determined with reference to an index
based on a currency or currencies other than that in which the
Securities are denominated or designated to be payable or determined
by reference to a commodity, commodity index, stock exchange index or
financial index, the manner in which such amounts shall be determined;
(20) with respect to (16), (17), (18) and (19) above if the
referenced currency or currencies or units are other than U.S. dollars
then prior to issuance of any such Securities, the Company shall
obtain the written consent of the Trustee, which consent of the
Trustee may be withheld in the sole discretion of the Trustee, to the
currency, currencies or currency units so established;
(21) with respect to (16), (17), (18) and (19) above if the
referenced currency or currencies or units are other than U.S. dollars
then prior to issuance of any such Securities, the Company shall
obtain the written consent of the Trustee, which consent of the
Trustee may be withheld in the sole discretion of the Trustee, to the
currency, currencies or currency units so established;
(22) provisions, if any, granting special rights to the holders
of Securities of a series upon the occurrence of such events as may be
specified and the provisions, if any, relating to the subordination of
the Securities of such series to other obligations of the Company;
(23) any provision for the conversion or exchange of Securities
of a series, either at the option of the Holder thereof or the
Company, into or for another security or securities of the Company,
the security or securities into or for which, the period or periods
within which, the price or prices, including any adjustments thereto,
at which and the other terms and conditions upon which any Securities
of such series shall be converted or exchanged, in whole or in part;
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(24) if the Securities of a series are to be issued upon the
exercise of warrants, the time, manner and place for such Securities
to be authenticated and delivered;
(25) the provisions, if any, relating to any security provided
for the Securities of any series;
(26) any addition to or change in the Events of Default which
applies to any Securities of a series and any change in the right of
the Trustee or the requisite Holders of such Securities to declare the
principal amount thereof due and payable pursuant to Section 502;
(27) any addition to or change in the covenants set forth in
Article Ten which applies to Securities of such series;
(28) any depositaries, interest rate calculation agents, exchange
rate agents or other agents with respect to Securities of such series
if other than those appointed herein; and
(29) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities shall rank on a parity, and be repayable on a pari passu
basis, with all other Senior Indebtedness.
All Securities of any one series shall be substantially identical except,
in the case of Registered Securities, as to denomination and except as may
otherwise be provided in or pursuant to the Board Resolution referred to above
and (subject to Section 303) set forth, or determined in the manner provided, in
the Officer's Certificate referred to above or in any such indenture
supplemental hereto.
At the option of the Company, interest on the Securities of any series that
bears interest may be paid by mailing a check to the address of any Holder as
such address shall appear in the Securities Register.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action together
with such Board Resolution shall be certified by the Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officer's Certificate setting forth the terms of the series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in such denominations as
shall be specified and/or contemplated by Section 301. In the absence of any
such provisions with respect to the Securities of any series, the Registered
Securities of such series denominated in Dollars shall be issuable in
denominations of $1,000 and any integral multiple thereof. Unless
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otherwise provided as contemplated by Section 301 with respect to any series of
Securities, any Securities of a series denominated in a currency other than
Dollars shall be issuable in denominations that are the equivalent, as
determined by the Company by reference to the noon buying rate in The City of
New York for cable transfers for such currency, as such rate is reported or
otherwise made available by the Federal Reserve Bank of New York, on the
applicable issue date for such Securities, of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President, its Treasurer or
one of its Vice Presidents, under its corporate seal reproduced thereon or
affixed thereto attested by its Secretary or one of its Assistant Secretaries.
The signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver to the Trustee for authentication Securities
of any series executed by the Company, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities as in this
Indenture provided and not otherwise. If provided for in such procedures, such
Company Order may authorize authentication and delivery pursuant to oral or
electronic instructions from the Company or its duly authorized agent or agents,
which oral instructions shall be confirmed promptly in writing.
If the form or terms of the Securities of the series have been established
in or pursuant to one or more Board Resolutions as permitted by Sections 201 and
301, in authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 201, that such form has been
established in accordance with the provisions of this Indenture;
(b) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 301, that such terms have been
established in accordance with the provisions of this Indenture; and
(c) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute legal, valid and binding obligations
of the Company, enforceable in accordance with their terms, except as such
enforcement is subject to the effect of
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(i) bankruptcy, insolvency, reorganization or other law relating to or affecting
creditors' rights and (ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Each Registered Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security, a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309 together
with a written statement (which need not comply with Section 103 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never been
issued and sold by the Company, for all purposes of this Indenture such Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued, in
registered form, and with such appropriate insertions, omissions, substitutions
and other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
Except in the case of temporary Securities in global form (which shall be
exchanged in accordance with the provisions of the following paragraphs), if
temporary Securities of any series are issued, the Company will cause definitive
Securities of that series to be prepared without unreasonable delay. After the
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company in a Place of Payment for that series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities of any
series the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Securities of the
same series of authorized denominations. Until so exchanged the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of such series.
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Any temporary Global Security and any permanent Global Security shall,
unless otherwise provided therein, be delivered to the Depositary for credit to
the respective accounts of the beneficial owners of such Securities (or to such
other accounts as they may direct).
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary Global
Security of a series (the "Exchange Date"), the Company shall deliver to the
Trustee definitive Securities of that series in aggregate principal amount equal
to the principal amount of such temporary Global Security, executed by the
Company. On or after the Exchange Date such temporary Global Security shall be
surrendered by the Depositary to the Trustee, as the Company's agent for such
purpose, to be exchanged, in whole or from time to time in part, for definitive
Securities of that series without charge and the Trustee shall authenticate and
deliver, in exchange for each portion of such temporary Global Security, a like
aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such temporary
Global Security to be exchanged. The definitive Securities to be delivered in
exchange for any such temporary Global Security shall be in registered form or
permanent global registered form, or any combination thereof, as specified
and/or contemplated by Section 301, and if any combination thereof is so
specified, as requested by the beneficial owner thereof.
Unless otherwise specified in the temporary Global Security, the interest
of a beneficial owner of Securities of a series in a temporary Global Security
shall be exchanged on the Exchange Date for definitive Securities (and where the
form of the definitive Securities is not specified by the Holder, for an
interest in a permanent Global Security) of the same series and of like tenor
and after the Exchange Date, the interest of a beneficial owner of Securities of
a series in a temporary Global Security shall be exchanged for definitive
Securities (and where the form of the definitive Securities is not specified by
the Holder, for an interest in a permanent Global Security) of the same series
and of like tenor. Unless otherwise specified in such temporary Global Security,
any exchange shall be made free of charge to the beneficial owners of such
temporary Global Security, except that a Person receiving definitive Securities
must bear the cost of insurance, postage, transportation and the like in the
event that such Person does not take delivery of such definitive Securities in
person at the offices of the Depositary.
Until exchanged in full as hereinabove provided, the temporary Securities
of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and of like tenor
authenticated and delivered hereunder, except that, unless otherwise specified
and/or contemplated by Section 301, interest payable on a temporary Global
Security on an Interest Payment Date for Securities of such series shall be
payable to the Depositary on such Interest Payment Date, for credit without
further interest on or after such Interest Payment Date to the respective
accounts of the Persons who are the beneficial owners of such temporary Global
Security on such Interest Payment Date. Any interest so received by the
Depositary and not paid as herein provided shall be returned to the Trustee
immediately prior to the expiration of two years after such Interest Payment
Date in order to be repaid to the Company in accordance with Section 1003.
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SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept for each series of Securities at one of
the offices or agencies maintained pursuant to Section 1002 a register (the
register maintained in such office and in any other office or agency of the
Company in a Place of Payment herein referred to collectively as the "Security
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Registered Securities and of
transfers of Registered Securities of such series. The Trustee is hereby
initially appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Registered
Securities of the same series and of like tenor, of any authorized denominations
and of a like aggregate principal amount.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series and of like tenor,
of any authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency. Whenever
any Securities are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Securities which the Holder
making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified and/or
contemplated by Sections 203 or 301, any permanent Global Security shall be
exchangeable only as provided in this paragraph. If the beneficial owners of
interests in a permanent Global Security are entitled to exchange such interest
for Securities of such series and of like tenor and principal amount of another
authorized form and denomination, as specified and/or contemplated by Sections
203 or 301, then without unnecessary delay but in any event not later than the
earliest date on which such interests may be so exchanged, the Company shall
deliver to the Trustee definitive Securities of that series in an aggregate
principal amount equal to the principal amount of such permanent Global
Security, executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such permanent Global Security shall be
surrendered from time to time in accordance with instructions given to the
Trustee (which instructions shall be in writing but need not comply with Section
103 or be accompanied by an Opinion of Counsel) by the Depositary or such other
depositary as shall be specified in the Company Order with respect thereto to
the Trustee, as the Company's agent for such purpose, to be exchanged, in whole
or in part, for definitive Securities of the same series without charge and the
Trustee shall authenticate and deliver, in exchange for each portion of such
permanent Global Security, a like aggregate principal amount of other definitive
Securities of the same series of authorized denominations and of like tenor as
the portion of such permanent Global Security to be exchanged, which Securities
shall be in the form of Registered Securities; provided, however, that no such
exchanges may occur during a period beginning at the opening of business 15 days
before any selection of Securities of that series is to be redeemed and ending
on the relevant Redemption Date. Promptly following any such exchange in part,
such permanent Global Security shall be returned by the Trustee to the
Depositary or such other depositary referred to
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above in accordance with the instructions of the Company referred to above. If a
Registered Security is issued in exchange for any portion of a permanent Global
Security after the close of business at the office or agency where such exchange
occurs on (i) any Regular Record Date and before the opening of business at such
office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related proposed date for payment of Defaulted Interest, interest or Defaulted
Interest, as the case may be, will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of such Registered
Security, but will be payable on such Interest Payment Date or proposed for
payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent Global Security is payable in accordance with the
provisions of this Indenture.
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.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder 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 or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than exchange
pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities of such series selected for redemption and ending at the close of
business on the day of the mailing of the relevant notice of redemption or (ii)
to register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless,
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then, in the absence of notice to the Company or the Trustee that such Security
has been acquired by a bona fide purchaser, the Company shall execute and upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of the same series and of
like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, 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 (including
the fee and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Registered Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest. Unless otherwise provided with respect to the Securities of any
series, payment of interest may be made at the option of the Company, in the
case of Registered Securities, by check mailed or delivered to the address of
any Person entitled thereto as such address shall appear in the Security
Register.
Any interest on any Registered Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may 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 Registered Securities of
such series (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 proposed to be paid on each
Registered Security of such series and the date of the proposed
payment, and at the same time
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the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed 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 proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as provided
in this Clause (1). Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not less
than 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 Holder of Registered
Securities of such series at his address as it appears in the Security Register,
not less than 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 Registered Securities of such series (or their respective Predecessor
Securities) are 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 on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause (2), such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture, upon registration of transfer of, in exchange
for or in lieu of, any other Security, shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Registered Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 307)
interest on such Registered Security and for all other purposes whatsoever,
whether or not such Security is overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee.
All Registered Securities so delivered shall be promptly canceled by the
Trustee. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
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may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
Any temporary Global Security shall be disposed of if the entire aggregate
principal amount of the Securities represented thereby has been exchanged.
Permanent Global Securities shall not be disposed of until exchanged in full for
definitive Securities or until payment thereon is made in full.
SECTION 310. Computation of Interest.
Except as otherwise specified and/or contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360 day year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
with respect to Securities of a series, and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to Securities of such series, when
(1) either
(A) all Securities of such series previously authenticated
and delivered (other than (i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has previously been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 1003) have been delivered
to the Trustee for cancellation; or
(B) with respect to all Outstanding Securities of such
series not previously delivered to the Trustee for cancellation, the Company has
deposited or caused to be deposited with the Trustee as trust funds, under the
terms of an irrevocable trust agreement in form and substance reasonably
satisfactory to the Trustee, for that purpose money or U.S. Government
Obligations maturing as to principal and interest in such amounts and at such
times as will, together with the income to accrue thereon, without consideration
of any reinvestment thereof, be sufficient in the opinion of a nationally
recognized firm of independent public accountants, to pay and discharge the
entire indebtedness on all Outstanding Securities of such series not previously
delivered to the Trustee for cancellation for principal (and premium, if any)
and interest to the Stated Maturity or any Redemption Date contemplated by the
penultimate paragraph of this Section, as the case may be; or
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(C) the Company has properly fulfilled such other means of
satisfaction and discharge as is specified, as contemplated by Section 301, to
be applicable to the Securities of such series;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company with respect to the Outstanding
Securities of such series;
(3) the Company has complied with any other conditions specified
pursuant to Section 301 to be applicable to the discharge of
Securities of such series pursuant to this Section; and
(4) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture with respect to the Outstanding
Securities of such series have been complied with.
For the purposes of this Indenture, "U.S. Government Obligations" means
direct non-callable obligations of, or non-callable obligations the payment of
principal of and interest on which is guaranteed by, the United States of
America, or to the payment of which obligations or guarantees the full faith and
credit of the United States of America is pledged, or beneficial interests in a
trust the corpus of which consists exclusively of money or such obligations or a
combination thereof.
If any Outstanding Securities of such series are to be redeemed prior to
their Stated Maturity, whether pursuant to any optional redemption provisions or
in accordance with any mandatory sinking fund requirement, the trust agreement
shall provide therefor and the Company shall make such arrangements as are
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to the Outstanding Securities of such series pursuant to this Section,
the obligations of the Company to the Trustee under Section 607, the obligations
of the Trustee to any Authenticating Agent under Section 614 and, except for a
discharge pursuant to subclause (A) of clause (1) of this Section, the
obligations of the Company under Sections 305, 306, 404, 1001 and 1002 and the
obligations of the Trustee under Section 402 and the last paragraph of Section
1003, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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SECTION 403. Discharge of Liability on Securities of Any Series.
If this Section is specified, as contemplated by Section 301, to be
applicable to Securities of any series, the Company shall be deemed to have paid
and discharged the entire indebtedness on all the Outstanding Securities of such
series, the obligation of the Company under this Indenture and the Securities of
such series, to pay the principal of (and premium, if any) and interest on
Securities of such series, shall cease, terminate and be completely discharged
and the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging such satisfaction and discharge, when
(1) the Company has complied with the provisions of Section 401
of this Indenture (other than any additional conditions specified
pursuant to Sections 301 and 401(3)) with respect to all Outstanding
Securities of such series;
(2) the Company has delivered to the Trustee a Company Request
requesting such satisfaction and discharge;
(3) the Company has complied with any other conditions specified
pursuant to Section 301 to be applicable to the discharge of
Securities of such series pursuant to this Section; and
(4) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the discharge of
the indebtedness on the Outstanding Securities of such series have
been complied with.
Upon the satisfaction of the conditions set forth in this Section with
respect to all the Outstanding Securities of any series, the terms and
conditions of such series, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Company; provided that, the Company shall not be discharged
from any payment obligations in respect of Securities of such series which are
deemed not to be Outstanding under clause (iii) of the definition thereof if
such obligations continue to be valid obligations of the Company under
applicable law or pursuant to Section 305 or 306.
SECTION 404. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations deposited with respect to Securities of any series in
accordance with Section 401 by reason of any legal proceeding or 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 with respect to the Securities of such series and the
Securities of such series shall be revived and reinstated as though no deposit
had occurred pursuant to Section 401 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 401; provided, however, that if the Company has made any
payment of principal of (or premium, if any) or interest on any Securities
because of the reinstatement of its obligations, the Company shall be
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subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (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),
unless it is either inapplicable to a particular series or it is specifically
deleted or modified in or pursuant to the supplemental indenture or Board
Resolution establishing such series of Securities or in the form of Security for
such series:
(1) default in the payment of the principal of (or premium, if
any, on) any Security of that series at its Maturity; or
(2) default in the payment of any interest upon any Security of
that series when it becomes due and payable and continuance of such
default for a period of 30 days; or
(3) default in the deposit of any sinking fund payment, when and
as due by the terms of a Security of that series, and continuance of
such default for a period of 60 days; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 90 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) a default under any Indebtedness of the Company under any
mortgages, indentures or instruments under which the Company may have
issued, or under which there may have been secured or evidenced, any
Indebtedness for money borrowed by the Company aggregating in excess
of $5,000,000, whether such Indebtedness now exists or shall hereafter
be created, such Indebtedness is not paid at final maturity (either
upon its stated maturity or acceleration thereof) and such default in
payment or acceleration has not been cured or rescinded,
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within a period of 30 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities, a written notice
specifying such default and requiring the Company to cause such
Indebtedness to be discharged or cause such default to be cured or
waived or such acceleration to be rescinded or annulled and stating
that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(7) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect
of the Company in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by the Company to
the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking
of corporate action by the Company in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to any Securities of any series at the
time Outstanding occurs and is continuing, then in every such case the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities of (i) the series affected by such default (in the case of an Event
of Default described in Section 501 (1), (2), (3) or (4) or (ii) all series of
Securities (in the case of other Events of Default) may declare the principal
amount (or, if any such Securities are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
and any accrued but unpaid interest
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thereon of all of the Securities of the series affected by such default or all
series, as the case may be, to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) and any accrued but
unpaid interest thereon shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities of that series (or of
all series, as the case may be), by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities of that series
(or of all series, as the case may be),
(B) the principal of (and premium, if any, on) any
Securities of that series (or of all series, as the case may be) which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in such Securities (in the case
of Original Issue Discount Securities, the Securities' Yield to Maturity),
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed therefor in such
Securities (in the case of Original Issue Discount Securities, the Securities'
Yield to Maturity), and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that
series (or of all series, as the case may be), other than the
non-payment of the principal of Securities of that series (or of all
series, as the case may be) which has become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or Event of Default or
impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if default is made in the payment of (1) any
installment of interest on any Security of any series when such interest becomes
due and payable and such default continues for a period of 30 days, or (2) the
principal of (or premium, if any, on) any Security at the Maturity thereof, the
Company will, upon demand of the Trustee, pay
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to it, for the benefit of the Holders of such Securities, the whole amount then
due and payable on such Securities for principal (and premium, if any) and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal (and premium, if any) and on any
overdue interest, at the rate or rates prescribed therefor in such Securities
(or in the case of Original Issue Discount Securities, the Securities' Yield to
Maturity), and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal (or lesser amount
in the case of Original Issue Discount Securities) 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 on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (or lesser amount in the case of Original Issue Discount Securities)
(and premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to
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the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due it
for the reasonable compensation expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceedings; provided, however,
that the Trustee may, on behalf of such Holders, vote for the election of a
trustee in bankruptcy or similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such 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 respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of 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 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
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(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to such series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities of that
series;
it being understood and intended that no one or more of such Holders 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 such
Holders, or to obtain or to seek to obtain priority or preference over any other
such Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
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Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
With respect to Securities of any series, the Holders of a majority in
principal amount of the Outstanding Securities of such series 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, relating to or arising under an Event of Default described in
Section 501 (1), (2), (3) or (4), and with respect to all Securities the Holders
of a majority in principal amount of all Outstanding Securities shall have the
right to direct the time, method and place of conducting any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, not
relating to or arising under such an Event of Default, provided that in each
such case
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all
Outstanding Securities of such series waive any past default hereunder with
respect to such series and its consequences, and the Holders of a majority in
principal amount of all Outstanding Securities may on behalf of the Holders of
all Securities waive any other past default hereunder and its consequences,
except in each case a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
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(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
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, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that the provisions of this Section (to the extent
permitted by law) shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of Outstanding Securities of any series, or to
any suit instituted by any Holder of any Security for the enforcement of the
payment of the principal of, premium, if any, or interest on any Security.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not 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 had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs,
provided, however, that in no event shall the Trustee exercise a degree of care
less than that customarily exercised thereby in the ordinary course of business.
(b) Except during the continuance of an Event of Default,
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(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of the Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(c) 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 wilful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect
of paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) 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 a majority in principal amount of the
Outstanding Securities 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
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to
it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series as to which the Trustee has received written
notice, the Trustee shall give to all Holders of Securities of such series, in
the manner provided in Section 106, notice of such default, unless such default
shall have been cured or waived; provided, however, that in the case of any
default of the character specified in Section 501(4) no such notice to Holders
of Securities shall be given until at least 30 days after the occurrence of such
default. For the
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purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officers' Certificate, other certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on their part,
conclusively rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) 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, debenture,
note, other evidence of Indebtedness 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
during reasonable business hours and after reasonable notice; and
(g) 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 with due care by it
hereunder.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. 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 Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
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 otherwise
agreed with the Company in writing.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and its directors, officers,
employees and agents for, and to hold them harmless against, any loss,
liability or expense incurred without negligence or bad faith on their
part, arising out of or in connection with the acceptance or
administration of the trust hereunder, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
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To secure the Company's payment obligations under this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee including, without limitation, all money or property
held or collected by the Trustee in trust to pay the principal of, or interest
on, or any other amounts on any Securities, and such lien shall survive the
satisfaction and discharge of the Indenture and any other termination of the
Indenture including any termination under any bankruptcy law. When the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Section 501(6) or (7), the Holders by their acceptance of the
Securities hereby agree that such expenses and the compensation for such
services are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. "Trustee" for purposes of this Section shall include
any predecessor Trustee, but the negligence or bad faith of any Trustee shall
not affect the indemnification of any other Trustee.
SECTION 608. Disqualification; Conflicting Interests.
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 609. Corporate Trustee Required; Eligibility.
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, having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority, in good standing and having an office
or agency in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said 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 and a
successor shall be appointed pursuant to Section 610.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
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(c) The Trustee may be removed with respect to the Securities of one or
more series at any time by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, 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, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security 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 with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee with respect to the
Securities of one or more series for any cause, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and such successor Trustee
or Trustees shall comply with the applicable requirements of Section 611. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 611, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
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(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee with respect to the
Securities of any series to all Holders of Securities of such series in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee with respect to the Securities of such series and the address
of its Corporate Trust Office.
(g) No retiring Trustee shall be liable for the acts or omissions of any
successor Trustee hereunder.
(h) All fees, charges and expenses of the retiring Trustee payable in
accordance with this Indenture shall become immediately due and payable upon the
appointment of a successor Trustee hereunder.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges payable in accordance with this Indenture, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall
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become vested with all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates; but, on request of the Company or
any successor Trustee, such retiring Trustee shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
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 a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
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 claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents reasonably
acceptable to the Company which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
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Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent 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 an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
An Authenticating Agent hereunder shall be entitled to all of the rights,
protections and immunities of the Trustee hereunder.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
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This is one of the Securities described in the within-mentioned Indenture.
------------------------------
As Trustee
By [Authenticating Agent]
as Authenticating Agent
By: ________________________
Authorized Signatory
Notwithstanding any provision of this Section to the contrary, if at any
time any Authenticating Agent appointed hereunder with respect to any series of
Securities shall not also be acting as the Security Registrar hereunder with
respect to any series of Securities, then, in addition to all other duties of an
Authenticating Agent hereunder, such Authenticating Agent shall also be
obligated to furnish to the Security Registrar promptly all information
necessary to enable the Security Registrar to maintain at all times an accurate
and current Security Register.
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date
(or, if there is no Regular Record Date relating to that series, on January 1
and July 1), a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of that series as of such Regular Record
Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
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provided that such list need not be furnished by the Company so long as the
Trustee is acting as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of each series contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders of each series received by the Trustee in its
capacity as Security Registrar. The Trustee may destroy any list furnished to it
as provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders 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 Holder, by receiving and holding the Securities, 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 made pursuant to the Trust
Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports 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 each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee in writing if and when the Securities are listed on any
stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, 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 Securities Exchange Act of 1934 shall be filed with
the Trustee within 15 days after the same is so required to be filed with the
Commission.
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company (a) shall not consolidate with or merge into any other Person
or, directly or indirectly, convey, transfer, sell, lease or otherwise dispose
of its properties and assets substantially as an entirety to any Person, and (b)
shall not permit any Person to consolidate or merge with or into the Company or
convey, transfer, sell, lease or otherwise dispose of such Person's properties
and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell, lease or otherwise dispose
of its properties and assets substantially as an entirety to any
Person, the Person formed by such consolidation or into or with which
the Company is merged or the Person which acquires by conveyance,
transfer or sale, or which leases or otherwise acquires, the
properties and assets of the Company substantially as an entirety
shall be a corporation, limited liability company, partnership or
trust, shall be organized and validly existing under the laws of the
United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and
treating any Indebtedness which becomes due an obligation of the
Company at the time of such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation or merger of the Company with or into any other
Person, or any conveyance, transfer, sale or lease of the properties and assets
of the Company substantially as an entirety in accordance with Section 801, the
successor Person formed by such consolidation or merger or into or with which
the Company is merged or to which such
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conveyance, transfer, sale or lease is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person had been named as the Company
herein, and thereafter, except in the case of a lease, the predecessor Person
shall be relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants and
obligations of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are
to be for the benefit of less than all series of Securities, stating
that such covenants are expressly being included solely for the
benefit of such series) or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default with respect to all
or any series of the Securities (and, if such Event of Default is
applicable to less than all series of Securities, specifying the
series to which such Event of Default is applicable); or
(4) to permit or facilitate the issuance of Securities in
uncertificated form, provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series in any
material respect; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided that such action pursuant to
this Clause (5) shall not adversely affect the interests of the
Holders in any material respect; or
(6) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
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(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trust hereunder by more than one Trustee,
pursuant to the requirements of Section 611.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of all series affected by such
supplemental indenture (acting as one class) by the Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may 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 of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or the amounts payable
upon the redemption thereof, or reduce the amount of the principal of
an Original Issue Discount Security that would be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change the place of payment where, or the place or
currency in which, any Security or any premium or interest thereon or
any other amount in respect thereof is payable, or impair the right to
institute suit for the enforcement of any payment in respect of any
Security on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in
this Indenture, or
(3) modify the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York pursuant to
Section 1002, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1009, except to increase any percentage contained herein or
therein or to provide with respect to any particular series the right
to condition the effectiveness of any supplemental indenture as to
that series on the consent of the Holders of a specified percentage of
the aggregate principal amount of Outstanding Securities of such
series (which provision may be made pursuant to Section 301 without
the consent of any Holder) or to provide that certain other
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provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby or
to provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Security affected thereby.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been
included solely for the benefit of one or more particular series of
Securities, or which modifies the rights of the Holders of Securities
of such series with respect to such covenant or other provision, shall
be deemed not to affect the rights under this Indenture of the Holders
of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture and an Officers' Certificate stating
that all conditions precedent to the execution of such supplemental indenture
have been fulfilled. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act, as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture
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may be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities of such series.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Article, the Company
shall, or shall cause the Trustee to, give notice to all Holders of Securities
of such fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 106. Any failure of the Company or
the Trustee to give such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
If Securities of a series are issuable only as Registered Securities, the
Company will maintain in each Place of Payment for any series of Securities an
office or agency where Securities of that series may be presented or surrendered
for payment, where Securities of that series may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities of that series 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. 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 of the
Trustee, and the Company hereby appoints the Trustee as its office or agency to
receive such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
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If the Company shall act as its own Paying Agent with respect to any series
of Securities, it will, on or before each due date of the principal of, premium,
if any, or interest on any of the Securities of that series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
the Company will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to 10:00 a.m. on each due date of the principal
of, premium, if any, or interest on any Securities of that series, deposit with
such Paying Agent(s) a sum in immediately available funds on the payment date
sufficient to pay the principal, premium, if any, or interest so becoming due,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of any
failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) of that series in the making of any
payment of principal, premium, if any, or interest on the Securities
of that series; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the
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expense of the Company cause to be published once, in a newspaper in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, an Officers' Certificate stating whether or not
to the best knowledge of the signers thereof the Company is in compliance on
such date with all conditions and covenants under the Indenture (without regard
to any period of grace or requirement of notice provided hereunder).
The Company will deliver to the Trustee, forthwith upon becoming aware of
any default or Event of Default under this Indenture, an Officers' Certificate
specifying with particularity such default or Event of Default and further
stating what action the Company has taken, is taking or proposes to take with
respect thereto. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
Any notice required to be given under this Section shall be delivered to
the Trustee at its Corporate Trust Office.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Company shall determine reasonably and in good faith that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1007. Payment of Taxes and Other Claims.
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The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary, (2) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Company or any Subsidiary; 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.
SECTION 1008. Book-Entry System.
If the Securities cease to trade in the Depository's book-entry settlement
system, the Company covenants and agrees that it shall use reasonable efforts to
make such other book-entry arrangements that it determines are reasonable for
the Securities.
SECTION 1009. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 1006 and 1007, or any covenant added for the
benefit of any series of Securities as contemplated by Section 301 (unless
otherwise specified pursuant to Section 301) if before or after the time for
such compliance the Holders of a majority in principal amount of the Outstanding
Securities of all series affected by such omission (acting as one class) shall,
by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified and/or contemplated by Section 301 for Securities of any series) in
accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed. In the case
of any redemption of Securities prior to the expiration of any restriction
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on such redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed (other
than pursuant to Section 1107), the particular Securities to be redeemed shall
be selected not more than 30 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities of such series not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
amount of Registered Securities of such series of a denomination larger than the
minimum authorized denomination for Securities of that series or of the
principal amount of Global Securities of such series.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 20 or more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at such Holder's address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series are
to be redeemed, the identification (and, in the case of partial
redemption of any Securities, the principal amounts) of the particular
Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after
such date (or in the event of a redemption pursuant to Section 1107,
and if applicable, a statement that no interest is payable with
respect to such security),
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(5) the place or places where such Securities, are to be
surrendered for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the
case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money (which shall be in immediately available funds
on such Redemption Date) sufficient to pay the Redemption Price of, and (except
if the Redemption Date shall be an Interest Payment Date) accrued interest on,
all the Securities which are to be redeemed on that date.
SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
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,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security or, in the case of Original Issue Discount Securities, the Securities'
Yield to Maturity.
SECTION 1107. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Registered Security or Securities of the same
series and Stated Maturity, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
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ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified and/or
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". Unless otherwise provided by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption), and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to the Securities of such series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivery of or by crediting Securities of that
series pursuant to Section 1202 and will also deliver to the Trustee any
Securities to be so delivered. Not less than 30 days before each such sinking
fund payment date the Trustee shall select the Securities to be redeemed upon
such sinking fund payment date in the manner specified in Section 1103 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 1104. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Sections 1106 and 1107.
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ARTICLE THIRTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1301. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any or all series may be called at
any time and from time to time pursuant to this Article to make, give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be made, given or taken by Holders of
Securities of such series.
SECTION 1302. Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of Securities of
any series for any purpose specified in Section 1301, to be held at such times
and at such place in New York, New York, as the Trustee shall determine. Notice
of every meeting of Holders of Securities of any series, setting forth the time
and the place of such meeting and in general terms the action proposed to be
taken at such meeting, shall be given, in the manner provided in Section 106,
not less than 20 nor more than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in aggregate principal amount of the Outstanding
Securities of any series, shall have requested the Trustee for any such series
to call a meeting of the Holders of Securities of such series for any purpose
specified in Section 1301, by written request setting forth in reasonable detail
the action proposed to be taken at the meeting, and the Trustee shall not have
made the first publication of the notice of such meeting within 30 days after
receipt of such request or shall not thereafter proceed to cause the meeting to
be held as provided herein, then the Company or the Holders of Securities of
such series in the amount above specified, as the case may be, may determine the
time and the place in New York, New York, for such meeting and may call such
meeting for such purposes by giving notice thereof as provided in Subsection (a)
of this Section.
SECTION 1303. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing a proxy for a
Holder or Holders of one or more Outstanding Securities of such series by such
Holder or Holders. The only Persons who shall be entitled to be present or to
speak at any meeting of Holders of Securities of any series shall be the Persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.
SECTION 1304. Quorum; Action.
The Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of a series shall constitute a quorum for a meeting
of Holders of
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Securities of such series. In the absence of a quorum within 30 minutes of the
time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities of such series, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting. Subject to Section 1305(d), notice of the reconvening of any
adjourned meeting shall be given as provided in Section 1302(a), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly that Persons entitled to vote a majority
in principal amount of the Outstanding Securities of such series shall
constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the Holders of a majority
in aggregate principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 902, any
resolution with respect to any request, demand, authorization, direction,
notice, consent or waiver which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage that is less than a
majority in aggregate principal amount of the Outstanding Securities of a series
and may be adopted at a meeting or an adjourned meeting duly reconvened and at
which a quorum is present as aforesaid by the affirmative vote of the Holders of
such specified percentage in aggregate principal amount of the Outstanding
Securities of that series.
Except as limited by the proviso to Section 902, any resolution passed or
decision taken at any meeting of Holders of Securities of any series duly held
in accordance with this Section shall be binding on all the Holders of
Securities of such series, whether or not present or represented at the meeting.
SECTION 1305. Determination of Voting Rights; Conduct and Adjournment
of Meetings.
(a) The holdings of Securities shall be evidenced in the manner specified
in Section 104 and the appointment of any proxy shall be evidenced in the manner
specified in Section 104 or by having the signature of the person executing the
proxy witnessed or guaranteed by any trust company, bank or banker. Such
regulations may provide that written instruments appointing proxies, regular on
their face, may be presumed valid and genuine without other proof.
(b) 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 Holders of Securities as provided in Section 1302(b), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall appoint a temporary chairman. A permanent chairman and
a permanent secretary of the meeting shall be elected by vote of the Persons
entitled to vote a majority in aggregate principal amount of the Outstanding
Securities of such series represented at the meeting.
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(c) At any meeting each Holder of a Security of such series and each proxy
shall be entitled to one vote for each $1,000 principal amount of the
Outstanding Securities of such series held or represented by him; 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,
except as a Holder of a Security of such series or as a proxy.
(d) Any meeting of Holders of Securities of any series duly called pursuant
to Section 1302 at which a quorum is present may be adjourned from time to time
by Persons entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
SECTION 1306. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series 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, at least in
duplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by the secretary of the meeting and there shall be
attached to such 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 such notice was given as provided in Section 1302 and, if
applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another 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.
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This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INACOM CORP.
By: /s/ David C. Guenthner
[SEAL] Name: David C. Guenthner
Title: Executive Vice President and
Attest: Chief Financial Officer
/s/ Michael E. Steffan
Name: Michael E. Steffan
Title: Secretary
NORWEST BANK, MINNESOTA, NATIONAL
ASSOCIATION, TRUSTEE
By: /s/ Curtis D. Schwegman
Name: Curtis D. Schwegman
Title: Assistant Vice President
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FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of __________, 1997 (this
"Supplemental Indenture"), is between InaCom Corp., a corporation duly organized
and existing under the laws of the State of Delaware (the "Company"), having its
principal office at 10810 Farnam Drive, Omaha, Nebraska, 68154, and Norwest Bank
Minnesota, National Association, a national banking association (the "Trustee").
RECITALS
The Company and the Trustee are parties to that certain Indenture, dated as
of the date hereof (the "Indenture"), pursuant to which the Company is
authorized to issue its debentures, notes or other evidences of indebtedness
(the "Securities") from time to time and in one or more series as provided
therein.
Sections 301 and 901 of the Indenture provide that the characteristics,
terms, rights, powers and other conditions of any such series of Securities may
be established, without the consent of any Holders, in one or more indentures
supplemental thereto.
The Company has not yet issued any Securities under the Indenture.
The Company desires to issue $50,000,000 of Securities in the form of a
series of ____% Convertible Subordinated Debentures Due ______, 200__ (the "___%
Debentures") having the characteristics, terms, rights, powers and other
conditions set forth herein.
The Company has authorized the execution and delivery of this Supplemental
Indenture, pursuant to which the Indenture shall be supplemented and modified as
set forth herein.
All things necessary to make the % Debentures, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company and to make this Supplemental Indenture a valid
agreement of the Company, in accordance with their and its terms, have been
done.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the ___%
Debentures by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the ___% Debentures, as follows:
1. Definitions. Article One, Section 101 of the Indenture is hereby
supplemented and modified by inserting insert the following definitions in
alphabetical order in such Section.
"Change of Control" has the meaning specified in Section 1504(b).
"Closing Price Per Share" means, with respect to the Common Stock of the
Company, for any day, the reported last sales price regular way per share or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way,
<PAGE>
in either case (i) on the New York Stock Exchange or, if the Common Stock is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or (ii) if not listed on or admitted to trading on any national
securities exchange then on the Nasdaq National Market or (iii) if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on such National Market, the average of the closing bid and asked
prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Company for that purpose.
"Common Stock" means the Common Stock, par value $0.10 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 1411, shares issuable on conversion or
repurchase of % Debentures shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of %
Debentures shall include shares of all such classes, and 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.
"common stock" includes any stock of any class of capital stock 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 issuer
thereof and which is not subject to redemption by the issuer thereof.
"Company Notice" has the meaning specified in Section 1503.
"Constituent Person" has the meaning specified in Section 1411.
"Conversion Agent" means any Person authorized by the Company to convert %
Debentures in accordance with Article Fourteen. The Company has initially
appointed the Trustee as its Conversion Agent.
"Conversion Price" has the meaning specified in Section 1404.
"Conversion Rate" has the meaning specified in Section 1401.
"Expiration Time" has the meaning specified in Section 1404.
"Non-electing Share" has the meaning specified in Section 1411.
"Place of Conversion" has the meaning specified in Section 1402.
"Reference Date" has the meaning specified in Section 1404.
"Repurchase Date" has the meaning specified in Section 1501.
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"Repurchase Price" has the meaning specified in Section 1501.
"Trading Days" means (i) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business or (ii) if the Common Stock is not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Shares are quoted or (iii) if the Common Stock is not listed or admitted for
trading on any national securities exchange or quoted on the Nasdaq National
Market or any other system of automated dissemination of quotation of securities
prices, days on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock are available.
2. Form of % Debentures. Article Two, Section 201 of the Indenture is
hereby supplemented and modified by inserting the following language at the end
of such Section.
Any % Debentures which constitute Registered Securities shall be in
substantially the form set forth below.
Form of Face of % Debenture
[The following legend shall appear on the face of each Global Security for which
The Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED
TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OR SUCH
SUCCESSOR DEPOSITARY.]
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INACOM CORP.
___% CONVERTIBLE SUBORDINATED DEBENTURE
DUE ________________, 200__
No. __________ $________
InaCom Corp., a corporation duly organized and existing under the laws of
Delaware (herein called the "Company", which term includes any successor Person
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to __________________, or registered assigns, the principal sum
of _____________________ Dollars ($_______) on ____________, and to pay interest
thereon from ____________, 1997 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually in arrears on
____________ and ____________ in each year (each, an "Interest Payment Date"),
commencing ____________, 1998 at the rate of ___% per annum computed on the
basis of a 360 day year consisting of twelve 30-day months, until the principal
hereof is due, and at the rate of ___% per annum on any overdue principal and
premium, if any, and, to the extent permitted by law, on any overdue interest.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this % Convertible Subordinated Debenture (herein individually
called a "Security" or a " % Debenture" and, together with those other ___%
Convertible Subordinated Debentures Due ________________, collectively called
the " % Debentures") (or one or more Predecessor Securities is registered at the
close of business on the Regular Record Date for such interest, which shall be
the ____________ 1 or ____________ 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date. Except as otherwise
provided in the Indenture, any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Company, notice whereof shall be given to Holders of % Debentures not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any automated
quotation system or securities exchange on which the % Debentures may be listed,
and upon such notice as may be required by such quotation system or exchange, as
the case may be, all as more fully provided in the Indenture. Payments of
principal shall be made upon the surrender of this Security at the option of the
Holder at the Corporate Trust Office of the Trustee, or at such other office or
agency of the Company as may be designated by it for such purpose in the Borough
of Manhattan, The City of New York, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts; provided, however, that at the option of
the Company payment of interest may be made by check, mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register, or, upon written application by the Holder to the Security Registrar.
Except as specifically provided in the Indenture, the Company shall not be
required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any governmental or any political subdivision or
taxing authority thereof or therein.
-4-
<PAGE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
INACOM CORP.
[Corporate Seal]
By:
Title:
Name:
Title:
Form of Reverse of % Debenture
This Security is one of a duly authorized issue of % Debentures of the
Company designated as its ___% Convertible Subordinated Debentures Due
________________, limited in aggregate principal amount to $50,000,000, as such
amount may be increased, but not by an amount in excess of $7,500,000, solely as
a result of the exercise of the underwriters' over-allotment option granted by
the Company under the underwriting agreement, dated ____________, 1997, among
the Company, Goldman, Sachs & Co., J.P. Morgan & Co., and PaineWebber
Incorporated, issued and to be issued under an Indenture, dated as of September
29, 1997, as supplemented and modified by that certain First Supplemental
Indenture, dated as of ___________, 1997 (as so supplemented and modified,
herein called the "Indenture"), between the Company and Norwest Bank Minnesota,
National Association, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders of
the % Debentures and of the terms upon which the % Debentures are, and are to
be, authenticated and delivered. The
-5-
<PAGE>
% Debentures are issuable in registered form only without coupons in
denominations of $1,000 and any integral multiple thereof.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time before the close
of business on ___________, or in case this Security or a portion hereof is
called for redemption or the Holder hereof has exercised his right to require
the Company to repurchase this Security or a portion hereof, then in respect of
this Security until and including, but (unless the Company defaults in making
the payment due upon redemption or repurchase, as the case may be) not after,
the close of business on the Redemption Date or Repurchase Date, as the case may
be, to convert this Security (or any portion of the principal amount hereof that
is an integral multiple of $1,000, provided that the unconverted portion of such
principal amount is $1,000 or any integral multiple of $1,000 in excess thereof)
into fully paid and nonassessable shares of Common Stock of the Company at an
initial Conversion Rate of _____ shares of Common Stock for each $1,000
principal amount of % Debentures (or at the then current adjusted Conversion
Rate if an adjustment has been made as provided in the Indenture) by surrender
of this Security, duly endorsed or assigned to the Company or in blank and, in
case such surrender shall be made during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date (except if this Security has
been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during such period and is surrendered
for such conversion during such period (including any % Debentures or portions
thereof called for redemption on a Redemption Date that is a Regular Record Date
or an Interest Payment Date, as the case may be)), also accompanied by payment
in New York Clearing House or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted, and also the conversion notice
hereon duly executed, to the Company at the Corporate Trust Office of the
Trustee, or at such other office or agency of the Company, subject to any laws
or regulations applicable thereto and subject to the right of the Company to
terminate the appointment of any Conversion Agent (as defined below) as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, or at such other offices or agencies as the Company may designate (each a
"Conversion Agent"), provided further, that if this Security or portion hereof
has been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such succeeding Interest Payment Date and is
surrendered for conversion during such period, then the Holder of this Security
who converts this Security or a portion hereof during such period will be
entitled to receive the interest accruing hereon from the Interest Payment Date
next preceding the date of such conversion to such succeeding Interest Payment
Date and shall not be required to pay such interest upon surrender of this
Security for conversion. Subject to the provisions of the preceding sentence
and, in the case of a conversion after the close of business on the Regular
Record Date next preceding any Interest Payment Date and on or before the close
of business on such Interest Payment Date, to the right of the Holder of this
Security (or any Predecessor Security of record as of such Regular Record Date)
to receive the related installment of interest to the extent and under the
circumstances provided in the Indenture, no cash payment or adjustment is to be
made on conversion for interest accrued hereon from the Interest Payment Date
next preceding the day of conversion, or for dividends on the Common Stock
issued on
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<PAGE>
conversion hereof. The Company shall thereafter deliver to the Holder the fixed
number of shares of Common Stock (together with any cash adjustment, as provided
in the Indenture) into which this Security is convertible and such delivery will
be deemed to satisfy the Company's obligation to pay the principal amount of
this Security. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but instead of any fractional interest (calculated
to the nearest 1/100th of a share) the Company shall pay a cash adjustment as
provided in the Indenture. The Conversion Rate is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in the case
of certain consolidations or mergers to which the Company is a party or the
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, the Indenture shall be amended, without the consent
of any Holders of % Debentures, so that this Security, if then Outstanding, will
be convertible thereafter, during the period this Security shall be convertible
as specified above, only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, transfer, sale
or lease by a holder of the number of shares of Common Stock of the Company into
which this Security could have been converted immediately prior to such
consolidation, merger, conveyance, transfer, sale or lease (assuming such holder
of Common Stock is not a Constituent Person, failed to exercise any rights of
election and received per share the kind and amount received per share by a
plurality of Non-electing Shares). No adjustment in the Conversion Rate will be
made until such adjustment would require an increase or decrease of at least 1%
of such Conversion Rate, provided that any adjustment that would otherwise be
made will be carried forward and taken into account in the computation of any
subsequent adjustment.
The % Debentures are subject to redemption upon not less than 20 nor more
than 60 days' notice by mail, at any time on or after __________, 200__, as a
whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If redeemed during
the 12-month period beginning ____________ of the years indicated,
Redemption
Year Price
---- ---%
---- ---%
---- ---%
---- ---%
---- ---%
---- ---%
---- ---%
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date; provided,
however, that interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such % Debentures, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
-7-
<PAGE>
In the event of redemption, repurchase or conversion of this Security in
part only, a new Security for the unredeemed, unrepurchased or unconverted
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
In any case where the due date for the payment of the principal of,
premium, if any, or interest on a Security or the last day on which a Holder of
a Security has a right to convert his Security shall be, at any Place of Payment
or Place of Conversion, as the case may be, a day on which banking institutions
at such Place of Payment or Place of Conversion are authorized or obligated by
law or executive order to close, then payment of principal, premium, if any, or
interest, or delivery for conversion of such Security need not be made on or by
such date at such place but may be made on or by the next succeeding day at such
place which is not a day on which banking institutions are authorized or
obligated by law or executive order to close, with the same force and effect as
if made on the date for such payment or the date fixed for redemption or
repurchase, or by such last day for conversion, and no interest shall accrue on
the amount so payable for the period after such date so long as payment is made
on the next succeeding day at such place which is not a day on which banking
institutions are authorized or obligated by law or executive order to close.
If a Change of Control occurs, the Holder of this Security, at the Holder's
option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that equal to $1,000 or any integral multiple of
$1,000 in excess thereof) for cash at a Repurchase Price equal to 100% of the
principal amount thereof plus interest accrued to the Repurchase Date. At the
option of the Company, the Repurchase Price may be paid in cash or, subject to
the conditions provided in the Indenture, by delivery of shares of Common Stock
having a fair market value equal to the Repurchase Price. For purposes of this
paragraph, the fair market value of shares of Common Stock shall be determined
by the Company and shall be equal to 95% of the average of the Closing Prices
Per Share for the five consecutive Trading Days ending on and including the
third Trading Day immediately preceding the Repurchase Date. Whenever in this
Security there is a reference, in any context, to the principal of any such
Security as of any time, such reference shall be deemed to include reference to
the Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Security shall not be
construed as excluding the Repurchase Price so payable in those provisions of
this Security when such express mention is not made; provided, however, that,
for the purposes of the next paragraph, such reference shall be deemed to
include reference to the Repurchase Price only to the extent the Repurchase
Price is payable in cash.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
-8-
<PAGE>
If an Event of Default shall occur and be continuing, the principal of all
the % Debentures may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the % Debentures under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the % Debentures at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the % Debentures at
the time Outstanding, on behalf of the Holders of all the % Debentures, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security on the respective Stated Maturities expressed herein
(or in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date, as the case may be) or to convert this Security as provided in
the Indenture.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not less
than 25% in principal amount of the Outstanding ____% Debentures shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee indemnity satisfactory to it and
the Trustee shall not have received from the Holders of a majority in principal
amount of the ____% Debentures Outstanding a direction inconsistent with such
request, and shall have failed to institute any such proceeding, for 60 days
after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof, premium, if any, or interest
hereon on or after the respective due dates expressed herein or for the
enforcement of the right to convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained for that purpose pursuant to Section 1002, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new ____% Debentures, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
-9-
<PAGE>
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee, and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
-10-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT--______________
TEN ENT - as tenants by the (Cust)
entireties Custodian _____________ under Uniform
JT TEN - as joint tenants with (Minor)
right of survivorship Gifts to Minors Act ________________
and not as tenants in common (State)
Additional abbreviations may also be used
though not in the above list.
-11-
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 1501 of the Indenture, the undersigned hereby elects
to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it or
__________________ an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest accrued to the Repurchase
Date, as provided in the Indenture.
Dated:
------------------------------
------------------------------
Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor Institution
with membership in an approved signature guarantee program pursuant to
Rule 17Ad-15 under the Securities Exchange Act of 1934.
------------------------------
Signature Guaranteed
Principal amount to be repurchased
(an integral multiple of $1,000): _______________________________
Remaining principal amount following such repurchase: ____________________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
3. Form of Conversion Notice. Article Two of the Indenture is hereby
supplemented and modified by inserting the following Section 205 at the end of
such Article.
SECTION 205. Form of Conversion Notice.
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of $1,000, provided that the unconverted portion
of such principal amount is $1,000 or any integral multiple of $1,000 in excess
thereof) below designated, into shares of Common Stock in accordance with the
terms of the Indenture referred to in this Security, and directs that
-12-
<PAGE>
such shares, together with a check in payment for any fractional share and any
____% Debentures representing any unconverted principal amount hereof, be
delivered to and be registered in the name of the undersigned unless a different
name has been indicated below. If shares of Common Stock or ____% Debentures are
to be registered in the name of a Person other than the undersigned, (a) the
undersigned will pay all transfer taxes payable with respect thereto and (b)
signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934. Any amount required to be paid by the
undersigned on account of interest accompanies this Security.
Dated:________________________ _______________________________
Fill in for registration of _______________________________
shares of Common Stock if to Signature(s)
be issued, and ____% Debentures if
to be delivered, other than
to and in the name of the
registered holder:
- ------------------------------
(Name)
4. Title and Terms of % Debentures. Article Three, Section 301 of the
Indenture is hereby supplemented and modified by inserting the following
language at the end of such Section.
The aggregate principal amount of % Debentures which may be authenticated
and delivered under this Indenture is limited to $50,000,000, as such amount may
be increased, but not by an amount in excess of $7,500,000, solely as a result
of the purchase of additional % Debentures (referred to in the Underwriting
Agreement as "Optional Securities") pursuant to exercise of the underwriters'
over-allotment option granted by the Company under the underwriting agreement,
dated ____________, 1997 (the "Underwriting Agreement"), among the Company,
Goldman, Sachs & Co., J.P. Morgan & Co., and PaineWebber Incorporated
(collectively, the "Underwriters"), except for % Debentures authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other % Debentures pursuant to Section 304, 305, 306, 906, 1107, 1402 or
1503(e).
The % Debentures shall be known and designated as the "___% Convertible
Subordinated Debentures due ___________, 200 " of the Company. Their Stated
Maturity shall be ___________, 200 , and they shall bear interest at the rate of
___% per annum, from __________, 1997 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable semi-annually in arrears on ____________ and ____________ in each year,
commencing ____________, 1998, until the principal thereof is paid or made
available for payment, and, to the fullest extent permitted by law, at the rate
of ___% per annum on any overdue principal and on any overdue installment of
interest.
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<PAGE>
Upon receipt by the Trustee of an Officers' Certificate stating that the
Underwriters have elected to purchase from the Company a specified aggregate
principal amount of Optional Securities not to exceed a total of $7,500,000 for
all such elections in accordance with this paragraph pursuant to the
Underwriting Agreement, the Trustee shall authenticate and make available for
delivery such specified aggregate principal amount of such Optional Securities
to or upon a Company Request, and such specified aggregate principal amount of
such Optional Securities shall be considered part of the original aggregate
principal amount of the ____% Debentures.
The principal of (and premium, if any) and interest on the % Debentures
shall be payable at the office or agency of the Company maintained for such
purpose pursuant to Section 1002; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The % Debentures shall be redeemable in accordance with Article Eleven at
the election of the Company, as a whole or from time to time in part, at any
time on or after __________, 200 ___ at the Redemption Prices specified in the
form of Security set forth herein, together with accrued interest to the
Redemption Date.
The % Debentures are not entitled to the benefit of any sinking fund.
The % Debentures shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Thirteen.
The % Debentures shall be convertible as provided in Article Fourteen.
The % Debentures shall be subject to repurchase at the option of the
Holders upon a Change of Control as provided in Article Fifteen.
5. Conversion of % Debentures. The Indenture is hereby supplemented and
modified by inserting the following Article Fourteen therein.
ARTICLE FOURTEEN
CONVERSION OF % DEBENTURES
SECTION 1401. Conversion Privilege and Conversion Rate.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any % Debenture may be converted at any time into
fully paid and non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock of the Company at the Conversion
Rate, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on _______________,
subject, in the case of conversion of any Global Security, to any Applicable
Procedures. In case a % Debenture or portion thereof is called for redemption at
the election
-14-
<PAGE>
of the Company or the Holder thereof exercises his right to require the Company
to repurchase a % Debenture or portion thereof, such conversion right in respect
of such % Debenture, shall expire (a) at the close of business on the Redemption
Date, in the case of a % Debenture called for redemption, and (b) at the close
of business on the Repurchase Date, in the case of a % Debenture tendered for
repurchase, in each case unless the Company defaults in making the payment due
upon redemption or repurchase, as the case may be, and in each case subject as
aforesaid to any Applicable Procedures with respect to any Global Security.
The rate at which shares of Common Stock shall be delivered upon conversion
(herein called the "Conversion Rate") shall be initially ________ shares of
Common Stock for each $1,000 principal amount of ____% Debentures. The
Conversion Rate shall be adjusted in certain instances as provided in this
Article.
SECTION 1402. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any ____%
Debenture to be converted shall surrender such % Debenture, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 1002 (any city in which any
Conversion Agent is located being called herein a "Place of Conversion"),
accompanied by a duly signed conversion notice substantially in the form set
forth in Section 205 stating that the Holder elects to convert such % Debenture
or, if less than the entire principal amount thereof is to be converted, the
portion thereof to be converted. Each % Debenture surrendered for conversion (in
whole or in part) during the period from the close of business on any Regular
Record Date next preceding any Interest Payment Date to the opening of business
on such Interest Payment Date shall (except in the case of any ____% Debenture
or portion thereof which has been called for redemption on a Redemption Date, or
which is repurchasable on a Repurchase Date, occurring, in either case, within
such period) be accompanied by payment in New York Clearing House 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 of such ____% Debenture (or
part thereof, as the case may be) being surrendered for conversion. The interest
so payable on such Interest Payment Date with respect to any % Debenture (or
portion thereof, if applicable) which has been called for redemption on a
Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either
case, during the period from the close of business on any Regular Record Date
next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date, which % Debenture (or portion thereof, if applicable) is
surrendered for conversion during such period, shall be paid to the Holder of
such % Debenture being converted in an amount equal to the interest that would
have been payable on such % Debenture if such % Debenture had been converted as
of the close of business on such Interest Payment Date. The interest so payable
on such Interest Payment Date in respect of any % Debenture (or portion thereof,
as the case may be) which has not been called for redemption on a Redemption
Date, or is not eligible for repurchase on a Repurchase Date, occurring, in
either case, during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date, which % Debenture (or portion thereof, as the case may
be) is surrendered for conversion during such period, shall be paid to the
Holder of such % Debenture as of such Regular Record Date. Interest payable in
respect of any %
-15-
<PAGE>
Debenture surrendered for conversion on or after an Interest Payment Date shall
be paid to the Holder of such ____% Debenture as of the next preceding Regular
Record Date, notwithstanding the exercise of the right of conversion. Except as
provided in this paragraph and subject to the last paragraph of Section 307, no
cash payment or adjustment shall be made upon any conversion on account of any
interest accrued from the Interest Payment Date next preceding the conversion
date, in respect of any % Debenture (or part thereof, as the case may be)
surrendered for conversion, or on account of any dividends on the Common Stock
issued upon conversion. The Company's delivery to the Holder of the number of
shares of Common Stock (and cash in lieu of fractions thereof, as provided in
this Indenture) into which a % Debenture is convertible will be deemed to
satisfy the Company's obligation to pay the principal amount of the % Debenture.
% Debentures shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such % Debentures for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such ____% Debentures as Holders shall cease, and the
Person or Persons entitled to receive the Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such Common
Stock at such time. As promptly as practicable on or after the conversion date,
the Company shall issue and deliver to the Trustee, for delivery to the Holder,
a certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 1403.
In the case of any % Debenture which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new % Debenture
or ____% Debentures of authorized denominations in an aggregate principal amount
equal to the unconverted portion of the principal amount of such % Debenture. A
% Debenture may be converted in part, but only if the principal amount of such %
Debenture to be converted is any integral multiple of $1,000 and the principal
amount of such security to remain Outstanding after such conversion is equal to
$1,000 or any integral multiple of $1,000 in excess thereof.
SECTION 1403. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion of any
% Debenture or ____% Debentures. If more than one % Debenture shall be
surrendered for conversion at one time by the same Holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the ____% Debentures (or specified
portions thereof) so surrendered. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of any % Debenture or
____% Debentures (or specified portions thereof), the Company shall calculate
and pay a cash adjustment in respect of such fraction (calculated to the nearest
1/100th of a share) in an amount equal to the same fraction of the Closing Price
Per Share at the close of business on the day of conversion.
-16-
<PAGE>
SECTION 1404. Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustments from time to time as
follows:
(1) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company payable in shares of Common Stock,
the Conversion Rate in effect at the opening of business on the day following
the date fixed for the determination of shareholders entitled to receive such
dividend or other distribution shall be increased by dividing such Conversion
Rate 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 increase to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this paragraph (1), 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.
(2) In case the Company shall issue rights, options or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the current market price per
share (determined as provided in paragraph (8) of this Section) of the Common
Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants, the Conversion Rate in effect at the
opening of business on the day following the date fixed for such determination
shall be increased by dividing such Conversion Rate 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 plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (2), 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 issue any rights, options or warrants in respect of shares of Common
Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately reduced, such increase or reduction, as the
case may
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be, to become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any class
of capital stock, or other property (including securities, but excluding (i) any
rights, options or warrants referred to in paragraph (2) of this Section, (ii)
any dividend or distribution paid exclusively in cash, (iii) any dividend or
distribution referred to in paragraph (1) of this Section and (iv) any merger or
consolidation to which Section 1411 applies), the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate 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 current market
price per share (determined as provided in paragraph (8) of this Section) of the
Common Stock on the date fixed for such determination (the "Reference Date")
less the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution filed with
the Trustee) on the Reference Date of the portion of the assets, shares or
evidences of indebtedness so distributed applicable to one share of Common Stock
and the denominator shall be the current market price per share of the Common
Stock on the Reference Date, such adjustment to become effective immediately
prior to the opening of business on the day following the Reference Date.
(5) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed as part
of a distribution referred to in paragraph (4) of this Section) in an aggregate
amount that, combined together with (I) the aggregate amount of any other cash
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 paragraph (5) has been made and (II) 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 Board
Resolution) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries 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 paragraph (6) of
this Section) has been made (the "combined cash and tender amount"), exceeds 10%
of the product of the current market price per share (determined as provided in
paragraph (8) of this Section) of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such date
(the "aggregate current market price"), then, and in each such case, immediately
after the close of business on such date for determination, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate in effect immediately prior to the close of business on the
date fixed for determination of the stockholders entitled to receive such
distribution by a fraction (i) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section) of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined cash and tender
amount over 10% of such aggregate current market price divided by (y) the number
of shares of Common Stock outstanding on such date for determination and (ii)
the denominator of which shall be equal to the current market price
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per share (determined as provided in paragraph (8) of this Section) of the
Common Stock on such date for determination.
(6) In case a tender offer made by the Company or any Subsidiary for all or
any portion of the Common Stock shall expire and such tender offer or exchange
(as amended upon the expiration thereof) shall require 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 value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) that combined together with (I) 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 Board Resolution), as of the expiration
of such tender or exchange offer, of consideration payable in respect of any
other tender or exchange offer by the Company or any Subsidiary for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer and in respect of which no
adjustment pursuant to this paragraph (6) has been made and (II) the aggregate
amount of any cash distributions to all holders of the Company's Common Stock
within 12 months preceding the expiration of such tender or exchange offer and
in respect of which no adjustment pursuant to paragraph (5) of this Section has
been made (the "combined tender and cash amount") exceeds 10% of the product of
the current market price per share of the Common Stock (determined as provided
in paragraph (8) of this Section) as of the last time (the "Expiration Time")
tenders or exchanges could have been made pursuant to such tender or exchange
offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) as of 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 Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate immediately prior to close of business on the date of the
Expiration Time by a fraction (i) the numerator of which shall be equal to (A)
the product of (I) the current market price per share of the Common Stock
(determined as provided in paragraph (8) of this Section) on the date of the
Expiration Time multiplied by (II) the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) on the date of the
Expiration Time less (B) the combined tender and cash amount, and (ii) the
denominator of which shall be equal to the product of (A) the current market
price per share of the Common Stock (determined as provided in paragraph (8) of
this Section) as of the Expiration Time multiplied by (B) the number of shares
of Common Stock outstanding (including any tendered or exchanged shares) as of
the Expiration Time less the number 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").
(7) The reclassification of Common Stock into securities other than Common
Stock (other than any reclassification upon a consolidation or merger to which
Section 1411 applies) 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 paragraph (4) 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
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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 paragraph (3) of this Section).
(8) For the purpose of any computation under paragraphs (2), (4), (5) or
(6) of this Section, the current market price per share of Common Stock on any
date shall be calculated by the Company and be deemed to be the average of the
daily Closing Prices Per Share for the five consecutive Trading Days selected by
the Company commencing not more than 10 Trading Days before, and ending not
later than, the earlier of the day in question and the day before the "ex" date
with respect to the issuance or distribution requiring such computation. For
purposes of this paragraph, the term "'ex' date", when used with respect to any
issuance or distribution, means the first date on which the Common Stock trades
regular way in the applicable securities market or on the applicable securities
exchange without the right to receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least 1% in such rate;
provided, however, that any adjustments which by reason of this paragraph (9)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(10) The Company may make such increases in the Conversion Rate, for the
remaining term of the ____% Debentures or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section, as it
considers to be advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes. The Company shall have
the power to resolve any ambiguity or correct any error in this paragraph (10)
and its actions in so doing shall, absent manifest error, be final and
conclusive.
SECTION 1405. Notice of Adjustments of Conversion Rate.
Whenever the Conversion Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in accordance
with Section 1404 and shall prepare a certificate signed by the principal
accounting or financial officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall promptly be filed with the
Trustee and with each Conversion Agent; and
(2) a notice stating that the Conversion Rate has been adjusted and setting
forth the adjusted Conversion Rate shall forthwith be prepared, and as soon as
practicable after it is prepared, such notice shall be provided by the Company,
or the Company shall
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cause such notice to be provided by the Trustee to, all Holders in
accordance with Section 106.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
____% Debentures desiring inspection thereof at its office during normal
business hours.
SECTION 1406. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require any adjustment pursuant to Section 1404; or
(b) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, options or warrants to subscribe
for or purchase any shares of capital stock of any class or of any
other rights; or
(c) of any reclassification of the Common Stock of the
Company, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any stockholders of the
Company is required, or of the conveyance, sale, transfer or lease of
all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender offer);
then the Company shall cause to be filed, or the Company shall cause the Trustee
to cause to be filed, at each office or agency maintained for the purpose of
conversion of ____% Debentures pursuant to Section 1002, and the Company shall
cause to be provided, or the Company shall cause the Trustee to cause to be
provided, to all Holders in accordance with Section 106, at least 20 days (or 10
days in any case specified in clause (a) or (b) above) prior to the applicable
record, expiration or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights, options or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, rights, options or warrants are to be determined,
(y) the date on which the right to make tenders under such tender offer expires
or (z) the date on which such reclassification, consolidation, merger,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
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it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice or the notice referred to in the following paragraph
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (a) through (e) of this Section 1406. If at the time the
Trustee shall not be a Conversion Agent, a copy of such notice shall also
forthwith be filed by the Company with the Trustee.
The preceding paragraph to the contrary notwithstanding, the Company shall
cause to be filed, or the Company shall cause the Trustee to cause to be filed,
at each office or agency maintained for the purpose of conversion of ____%
Debentures pursuant to Section 1002, and the Company shall cause to be provided,
or the Company shall cause the Trustee to cause to be provided, to all Holders
in accordance with Section 106, notice of any tender offer by the Company or any
Subsidiary for all or any portion of the Common Stock on or after the time that
such notice of tender offer is provided to the public generally.
SECTION 1407. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of ____% Debentures, the full number of
shares of Common Stock then issuable upon the conversion of all Outstanding
____% Debentures.
SECTION 1408. Taxes on Conversions.
Except as provided in the next sentence, the Company will pay any and all
taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of ____% Debentures pursuant hereto. The
Company shall not, however, be required to pay any tax or duty which may be
payable in respect of (i) income of the holder or (ii) any transfer involved in
the issue and delivery of shares of Common Stock in a name other than that of
the Holder of the % Debenture or ____% Debentures to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax or duty, or has
established to the satisfaction of the Company that such tax or duty has been
paid.
SECTION 1409. Covenant as to Common Stock.
The Company agrees that all shares of Common Stock which may be delivered
upon conversion of ____% Debentures will be newly issued shares and, upon such
delivery, will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 1408, the Company will
pay all taxes, liens and charges with respect to the issue thereof.
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SECTION 1410. Cancellation of Converted % Debentures.
All ____% Debentures delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1411. Provision in Case of Consolidation, Merger or Sale of Assets.
In case of any consolidation or merger of the Company with or into any
other Person, any merger of another Person with or into the Company (other than
a merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each % Debenture then Outstanding shall have the right thereafter, during the
period such % Debenture shall be convertible as specified in Section 1401, to
convert such % Debenture only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock of the
Company into which such % Debenture might have been converted immediately prior
to such consolidation, merger, conveyance, sale, transfer or lease, assuming
such holder of Common Stock of the Company (i) is not a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer or lease (provided that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer, or lease is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation,
merger, conveyance, sale, transfer or lease by others than a Constituent Person
or an Affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-electing Share"), then for the purpose of this
Section the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance, sale, transfer or lease by the
holders of 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, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, conveyances, sales, transfers or leases.
Notice of the execution of such a supplemental indenture shall be given by the
Company, or the Company shall cause the Trustee to give such notice, to the
Holder of each % Debenture as provided in Section 106 promptly upon such
execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent shall be
under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property
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or cash receivable by Holders of ____% Debentures upon the conversion of their
____% Debentures after any such consolidation, merger, conveyance, transfer,
sale or lease or to any such adjustment, but may accept as conclusive evidence
of the correctness of any such provisions, and shall be protected in relying
upon, an Opinion of Counsel with respect thereto, which the Company shall cause
to be furnished to the Trustee upon request.
SECTION 1412. Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Article Six, and any Conversion
Agent shall not at any time be under any duty or responsibility to any Holder of
____% Debentures to determine whether any facts exist which may require any
adjustment of the Conversion Rate, or with respect to the nature or extent of
any such adjustment when made, or with respect to the method employed, or herein
or in any supplemental indenture provided to be employed, in making the same, or
whether a supplemental indenture need be entered into. Neither the Trustee,
subject to the provisions of Article Six, nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of any
Common Stock, or of any other securities or property or cash, which may at any
time be issued or delivered upon the conversion of any % Debenture; and it or
they do not make any representation with respect thereto. Neither the Trustee,
subject to the provisions of Article Six, nor any Conversion Agent shall be
responsible for any failure of the Company to make or calculate any cash payment
or to issue, transfer or deliver any shares of Common Stock or share
certificates or other securities or property or cash upon the surrender of any %
Debenture for the purpose of conversion; and the Trustee, subject to the
provisions of Article Six, and any Conversion Agent shall not be responsible for
any failure of the Company to comply with any of the covenants of the Company
contained in this Article.
6. Repurchase of % Debentures. The Indenture is hereby supplemented and
modified by inserting the following Article Fifteen therein.
ARTICLE FIFTEEN
REPURCHASE OF ____% DEBENTURES AT THE OPTION OF THE
HOLDER UPON A CHANGE OF CONTROL
SECTION 1501. Right to Require Repurchase.
In the event that a Change of Control (as hereinafter defined) shall occur,
then each Holder shall have the right, at the Holder's option, but subject to
the provisions of Section 1502, to require the Company to repurchase, and upon
the exercise of such right the Company shall repurchase, all of such Holder's
____% Debentures, or any portion of the principal amount thereof that is equal
to $1,000 or any integral multiple of $1,000 in excess thereof, on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice (as
defined in Section 1503) at a purchase price equal to 100% of the principal
amount of the ____% Debentures to be repurchased plus interest accrued to the
Repurchase Date (the "Repurchase Price"); provided, however, that installments
of interest on ____% Debentures whose Stated
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Maturity is on or prior to the Repurchase Date shall be payable to the Holders
of such ____% Debentures, or one or more Predecessor ____% Debentures,
registered as such at the close of business on the relevant Record Date
according to their terms and the provisions of Section 307. Such right to
require the repurchase of the ____% Debentures shall not continue after a
discharge of the Company from its obligations with respect to the ____%
Debentures in accordance with Article Four, unless a Change of Control shall
have occurred prior to such discharge. At the option of the Company, the
Repurchase Price may be paid (i) subject to the provisions of Section 1502(B) in
cash, or (ii) subject to the fulfillment by the Company of the conditions set
forth in Section 1502(A), by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price; provided, however, that failure of
the Company to pay the Repurchase Price on the Repurchase Date either in cash or
by delivery of shares of Common Stock shall constitute an Event of Default for
purposes of Section 501(1) hereof notwithstanding the Company's inability to
comply with the provisions of or satisfy any conditions set forth in Section
1502. Whenever in this Indenture (including Sections 202, 301, 501(1) and 508)
there is a reference, in any context, to the principal of any Security
(including, any % Debenture) as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect of such Security to
the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made; provided,
however, that for the purposes of Article Thirteen such reference shall be
deemed to include reference to the Repurchase Price only to the extent the
Repurchase Price is payable in cash.
SECTION 1502. Conditions to the Company's Election to Pay the Repurchase Price
in Common Stock or Cash.
(A) The Company may elect to pay the Repurchase Price by delivery of shares
of Common Stock pursuant to Section 1501 if and only if the following conditions
shall have been satisfied:
(i) The shares of Common Stock deliverable in payment of the Repurchase
Price shall have a fair market value as of the Repurchase Date of not less than
the Repurchase Price. For purposes of this Section, the fair market value of
shares of Common Stock shall be determined by the Company and shall be equal to
95% of the average of the Closing Prices Per Share for the five consecutive
Trading Days ending on and including the third Trading Day immediately preceding
the Repurchase Date;
(ii) The shares of Common Stock deliverable in payment of the Repurchase
Price are, or shall have been, approved for quotation on the Nasdaq National
Market or are, or shall have been, listed on a national securities exchange, in
either case, prior to the Repurchase Date; and
(iii) All shares of Common Stock deliverable in payment of the Repurchase
Price shall be issued out of the Company's authorized but unissued Common Stock
and, will upon issue, be duly and validly issued and fully paid and
nonassessable and free of any preemptive rights.
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If all of the conditions set forth in this Section 1502(A) are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
(B) The Company may elect to pay the Repurchase Price in cash if and only
if on or prior to the Repurchase Date there shall not remain any amounts
outstanding under or with respect to the Senior Indebtedness of the Company.
SECTION 1503. Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all of
the Outstanding ____% Debentures or unless all of the Outstanding ____%
Debentures shall have theretofore been converted in accordance with Article
Thirteen, on or before the 30th day after the occurrence of a Change of Control,
the Company or, at the request and expense of the Company on or before the 15th
day after such occurrence, the Trustee, shall give to all Holders, in the manner
provided in Section 106, notice (the "Company Notice") of the occurrence of the
Change of Control and of the repurchase right set forth herein arising as a
result thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and whether the Repurchase Price shall be paid by
the Company in cash or by delivery of shares of Common Stock,
(4) a description of the procedure which a Holder must follow to exercise a
repurchase right, and the place or places where such ____% Debentures are to be
surrendered for payment of the Repurchase Price and accrued interest, if any,
(5) that on the Repurchase Date the Repurchase Price, including accrued
interest, if any, will become due and payable upon each such % Debenture
designated by the Holder to be repurchased, and that interest thereon shall
cease to accrue on and after said date,
(6) the Conversion Rate then in effect, the date on which the right to
convert the principal amount of the ____% Debentures to be repurchased will
terminate and the place or places where such ____% Debentures may be surrendered
for conversion, and
(7) the place or places that the form of certificate required by Section
201 shall be delivered, and the form of such certificate.
No failure of the Company to give the foregoing notices or defect therein
shall limit any Holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of ____% Debentures.
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If any of the foregoing provisions or other provisions of this Article are
inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the Trustee
or any Paying Agent on or before the 30th day after the date of the Company
Notice (i) written notice of the Holder's exercise of such right, which notice
shall set forth the name of the Holder, the principal amount of the ____%
Debentures to be repurchased (and, if any % Debenture is to be repurchased in
part, the portion of the principal amount thereof to be repurchased and the name
of the Person in which the portion thereof to remain Outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase right is being made thereby, and, in the event that the Repurchase
Price shall be paid in shares of Common Stock, the name or names (with
addresses) in which the certificate or certificates for shares of Common Stock
shall be issued, and (ii) the ____% Debentures with respect to which the
repurchase right is being exercised. Such written notice shall be irrevocable,
except that the right of the Holder to convert the ____% Debentures with respect
to which the repurchase right is being exercised shall continue until the close
of business on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the Trustee or
the Paying Agent the Repurchase Price in cash or shares of Common Stock, as
provided above, for payment to the Holder on the Repurchase Date or, if shares
of Common Stock are to be paid, as promptly after the Repurchase Date as
practicable, together with accrued and unpaid interest to the Repurchase Date
payable with respect to the ____% Debentures as to which the purchase right has
been exercised; provided, however, that installments of interest that mature on
or prior to the Repurchase Date shall be payable in cash to the Holders of such
____% Debentures, or one or more Predecessor ____% Debentures, registered as
such at the close of business on the relevant Regular Record Date according to
the terms and provisions of Section 307.
(d) If any % Debenture (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date by the Company, the principal amount
of such % Debenture (or portion thereof, as the case may be) shall, until paid,
bear interest to the extent permitted by applicable law from the Repurchase Date
at the rate of ____% per annum, and each % Debenture shall remain convertible
into Common Stock until the principal of such % Debenture (or portion thereof,
as the case may be) shall have been paid or duly provided for.
(e) Any % Debenture which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such %
Debenture without service charge, a new % Debenture or ____% Debentures,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the % Debenture so surrendered.
(f) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the Repurchase
-27-
<PAGE>
Date and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such repurchase
shall be deemed to have become on the Repurchase Date the holder or holders of
record of the shares represented thereby; provided, however, that any surrender
for repurchase on a date when the stock transfer books of the Company shall be
closed shall constitute the Person or Persons in whose name or names the
certificate or certificates for such shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open. No payment or
adjustment shall be made for dividends or distributions on any Common Stock
issued upon repurchase of any % Debenture declared prior to the Repurchase Date.
(g) No fractions of shares shall be issued upon repurchase of ____%
Debentures. If more than one % Debenture shall be repurchased from the same
Holder and the Repurchase Price shall be payable in shares of Common Stock, the
number of full shares which shall be issuable upon such repurchase shall be
computed on the basis of the aggregate principal amount of the ____% Debentures
so repurchased. Instead of any fractional share of Common Stock which would
otherwise be issuable on the repurchase of any % Debenture or ____% Debentures,
the Company will deliver to the applicable Holder its check for the current
market value of such fractional share. The current market value of a fraction of
a share is determined by multiplying the current market price of a full share by
the fraction, and rounding the result to the nearest cent. For purposes of this
Section, the current market price of a share of Common Stock is the Closing
Price Per Share of the Common Stock on the Trading Day immediately preceding the
Repurchase Date.
(h) Any issuance and delivery of certificates for shares of Common Stock on
repurchase of ____% Debentures shall be made without charge to the Holder of
____% Debentures being repurchased for such certificates or for any tax or duty
in respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be required
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for shares of Common Stock in a name other than that of the Holder of the ____%
Debentures being repurchased, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.
(i) All ____% Debentures delivered for repurchase shall be delivered to the
Trustee, the Paying Agent or any other agents (as shall be set forth in the
Company Notice) to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 309.
-28-
<PAGE>
SECTION 1504. Certain Definitions.
For purposes of this Article,
(a) the term "beneficial owner" shall be determined in accordance with Rule
13d-3, as in effect on the date of the original execution of this Indenture,
promulgated by the Commission pursuant to the Exchange Act;
(b) a "Change of Control" shall be deemed to have occurred at the time,
after the original issuance of the ____% Debentures, of:
(i) the acquisition by any Person of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock
of the Company entitling such person to exercise 50% or more of
the total voting power of all shares of capital stock of the
Company entitled to vote generally in the elections of directors
(any shares of voting stock of which such person or group is the
beneficial owner that are not then outstanding being deemed
outstanding for purposes of calculating such percentage), other
than any such acquisition by the Company, any Subsidiary of the
Company or any employee benefit plan of the Company existing on
the date of this Indenture; or
(ii) any consolidation or merger of the Company with or into any other
Person, any merger of another Person into the Company, or any
conveyance, sale, transfer, or lease of all or substantially all
of the assets (other than (a) any such transaction (x) which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock, and (y)
pursuant to which the holders of 50% or more of the total voting
power of all shares of capital stock of the Company entitled to
vote generally in elections of directors immediately prior to
such transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares
of capital stock of the continuing or surviving corporation
entitled to vote generally in elections of directors of the
continuing or surviving corporation immediately after such
transaction and (b) a merger 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 into solely shares of common stock);
provided, however, that a Change of Control shall not be deemed to have occurred
if the Closing Price Per Share on any five Trading Days within the period of 10
consecutive Trading Days ending immediately after the later of the date of the
Change of Control or the date of the public announcement of the Change of
Control (in the case of a Change of Control under Clause (i) above) or the
period of 10 consecutive Trading Days ending immediately prior to the date of
the Change of Control (in the case of a Change of Control under Clause (ii)
above) shall equal or exceed 105% of the Conversion Price in effect on each such
Trading Day.
-29-
<PAGE>
(c) the term "Conversion Price" shall equal $1,000 divided by the
Conversion Rate; and
(d) for the purposes of Section 1504(b)(i), the term "Person" shall include
any syndicate or group which would be deemed to be a "person" under Section
13(d)(3) of the Exchange Act, as in effect on the date of the original execution
of this Indenture.
SECTION 1505. Consolidation, Merger, Etc.
In the case of any conveyance, sale, transfer, lease, or merger, to which
Section 1411 applies, in which the Common Stock of the Company is changed or
exchanged as a result into the right to receive shares of stock and other
securities or property or assets (including cash) which includes shares of
Common Stock of the Company or common stock of another person that are, or upon
issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such shares of stock and other securities, property and assets (including
cash) (as determined by the Company, which determination shall be conclusive and
binding), then the person formed by such consolidation or resulting from such
merger or combination or which acquires the properties or assets (including
cash) of the Company, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture (which shall comply with the Trust Indenture
Act as in force at the date of execution of such supplemental indenture)
modifying the provisions of this Indenture relating to the right of Holders to
cause the Company to repurchase the ____% Debentures following a Change of
Control, including, without limitation, the applicable provisions of this
Article and the definitions of the Common Stock and Change of Control, as
appropriate, and such other related definitions set forth herein as determined
in good faith by the Company (which determination shall be conclusive and
binding), to make such provisions apply to the common stock and the issuer
thereof if different from the Company and Common Stock of the Company (in lieu
of the Company and the Common Stock of the Company).
7. Effect of Supplemental Indenture. This Supplemental Indenture
supplements and modifies the Indenture only with respect to, and for purposes of
establishing the characteristics, terms, rights, powers and other conditions of,
the % Debentures; it does not supplement, modify or otherwise affect the
Indenture with respect to any other Securities. Upon execution hereof, this
Supplemental Indenture shall, upon execution, supplement and modify, and form a
part of, the Indenture with respect to the % Debentures which shall, where
applicable, be treated as a series of Securities for purposes of and under the
Indenture, and the Indenture, as modified by this Supplemental Indenture, shall
thereafter be read, taken and construed as one and the same instrument with
respect to the % Debentures.
8. Acceptance by Trustee. The Trustee accepts the modification of the
Indenture effected by this Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture.
-30-
<PAGE>
9. Trust Indenture Act. If and to the extent that any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
included in this Supplemental Indenture or in the Indenture, which provision is
required to be included in this Supplemental Indenture or the Indenture by any
of the provisions of Section 310 to 317, inclusive, of the Trust Indenture Act
of 1939, as amended, such required provision of the Trust Indenture Act of 1939,
as amended, shall control.
10. Governing Law. This Supplemental Indenture shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State.
--------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INACOM CORP.
By:______________________
[SEAL] Name:
Title:
Attest:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, TRUSTEE
By:_____________________
Name:
Title:
:
-32-
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the _______ day of _________, 1997, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is
___________________________________________________ of INACOM CORP., one of the
corporations described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he/she signed his/her name
thereto by like authority.
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On the __________ day of _________, 1997, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is _______________________________________________ of
Norwest Bank Minnesota, National Association, one of the corporations described
in and which executed the foregoing instrument; that he/she knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like authority.
Notary Public
-33-
<PAGE>
INACOM CORP.
TO
NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION
TRUSTEE
----------------
INDENTURE
Dated as of September 30, 1997
----------------
SUBORDINATED DEBT SECURITIES
<PAGE>
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
ss.310(a)(1) .......................................................609
(a)(2) .......................................................609
(a)(3) .............................................. Not Applicable
(a)(4) .............................................. Not Applicable
(b) .......................................................608
610
ss. 311(a) .......................................................613
(b) .......................................................613
ss. 312(a) .......................................................701
702(a)
(b) .......................................................702(b)
(c) .......................................................702(c)
ss. 313(a) .......................................................703(a)
(b) .......................................................703(a)
(c) .......................................................703(a)
(d) .......................................................703(b)
ss. 314(a) .....................................................704
(b) ...............................................Not Applicable
(c)(1) .......................................................102
(c)(2) .......................................................102
(c)(3) ...............................................Not Applicable
(d) ...............................................Not Applicable
(e) .......................................................102
ss. 315(a) .....................................................601
.......................................................603(a)
(b) .......................................................602
(c) .......................................................601
(d) .......................................................601
(e) .......................................................514
ss. 316(a)(1)(A) .......................................................512
(a)(1)(B) .......................................................513
(a)(2) ...............................................Not Applicable
(b) .......................................................508
(c) .......................................................104
ss. 317(a)(1) .......................................................503
(a)(2) .......................................................504
(b) .......................................................1003
ss. 318(a) .......................................................107
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
Parties...................................................................1
Recitals of the Company...................................................1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions...........................................-1-
Act...................................................-2-
Affiliate.............................................-2-
Authenticating Agent..................................-2-
Board of Directors....................................-2-
Board Resolution......................................-2-
Business Day..........................................-2-
Code..................................................-2-
Commission............................................-2-
Company...............................................-2-
Company Request.......................................-2-
Corporate Trust Office................................-3-
corporation...........................................-3-
Defaulted Interest....................................-3-
Depositary............................................-3-
Dollar................................................-3-
Event of Default......................................-3-
Exchange Act..........................................-3-
Expiration Date.......................................-3-
Global Security.......................................-3-
Holder................................................-3-
Indebtedness..........................................-3-
Indenture.............................................-4-
Interest..............................................-4-
Interest Payment Date.................................-4-
Notice of Default.....................................-4-
Officers' Certificate.................................-4-
Opinion of Counsel....................................-4-
Original Issue Discount Security......................-4-
Outstanding...........................................-4-
Paying Agent..........................................-5-
Person................................................-5-
-i-
<PAGE>
Page
Place of Payment.......................................-5-
Predecessor Security...................................-5-
Record Date............................................-5-
Redemption Date........................................-5-
Redemption Price.......................................-5-
Registered Security....................................-5-
Regular Record Date....................................-6-
Responsible Officer....................................-6-
Securities.............................................-6-
Securities Act.........................................-6-
Security Register......................................-6-
Security Registrar.....................................-6-
Senior Debt Securities.................................-6-
Senior Indebtedness....................................-6-
Senior Indenture.......................................-6-
Special Record Date....................................-6-
Stated Maturity........................................-6-
Subsidiary.............................................-6-
Trustee ..............................................-7-
Trust Indenture Act....................................-7-
United States..........................................-7-
U.S. Government Obligations............................-7-
Vice President.........................................-7-
Yield to Maturity......................................-7-
SECTION 102. Compliance Certificates and Opinions...................-7-
SECTION 103. Form of Documents Delivered to Trustee.................-8-
SECTION 104. Acts of Holders; Record Dates..........................-8-
SECTION 105. Notices, Etc., to Trustee and Company.................-10-
SECTION 106. Notice to Holders; Waiver.............................-11-
SECTION 107. Conflict with Trust Indenture Act.....................-11-
SECTION 108. Effect of Headings and Table of Contents..............-11-
SECTION 109. Successors and Assigns................................-11-
SECTION 110. Separability Clause...................................-11-
SECTION 111. Benefits of Indenture.................................-12-
SECTION 112. Governing Law.........................................-12-
SECTION 113. Legal Holidays........................................-12-
SECTION 114. Incorporators, Stockholders, Officers and Directors of the
Company Exempt from Individual Liability...........-12-
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.......................................-13-
-ii-
<PAGE>
Page
SECTION 202. Form of Trustee's Certificate of Authentication.......-13-
SECTION 203. Securities in Global Form.............................-14-
SECTION 204. CUSIP Numbers.........................................-15-
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series..................-15-
SECTION 302. Denominations.........................................-18-
SECTION 303. Execution, Authentication, Delivery and Dating........-19-
SECTION 304. Temporary Securities..................................-20-
SECTION 305. Registration, Registration of Transfer and Exchange...-22-
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities......-23-
SECTION 307. Payment of Interest; Interest Rights Preserved........-24-
SECTION 308. Persons Deemed Owners.................................-25-
SECTION 309. Cancellation..........................................-25-
SECTION 310. Computation of Interest...............................-26-
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture...............-26-
SECTION 402. Application of Trust Money............................-27-
SECTION 403. Discharge of Liability on Securities of Any Series....-28-
SECTION 404. Reinstatement.........................................-28-
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.....................................-29-
SECTION 502. Acceleration of Maturity; Rescission and Annulment....-30-
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................-31-
SECTION 504. Trustee May File Proofs of Claim......................-32-
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities........................................-33-
SECTION 506. Application of Money Collected........................-33-
SECTION 507. Limitation on Suits...................................-33-
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest..................................-34-
SECTION 509. Restoration of Rights and Remedies....................-34-
SECTION 510. Rights and Remedies Cumulative........................-35-
SECTION 511. Delay or Omission Not Waiver..........................-35-
SECTION 512. Control by Holders....................................-35-
-iii-
<PAGE>
Page
SECTION 513. Waiver of Past Defaults...............................-35-
SECTION 514. Undertaking for Costs.................................-36-
SECTION 515. Waiver of Stay or Extension Laws......................-36-
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities...................-36-
SECTION 602. Notice of Defaults....................................-38-
SECTION 603. Certain Rights of Trustee.............................-38-
SECTION 604. Not Responsible for Recitals or Issuance of Securities-39-
SECTION 605. May Hold Securities...................................-39-
SECTION 606. Money Held in Trust...................................-39-
SECTION 607. Compensation and Reimbursement........................-39-
SECTION 608. Disqualification; Conflicting Interests...............-40-
SECTION 609. Corporate Trustee Required; Eligibility...............-40-
SECTION 610. Resignation and Removal; Appointment of Successor.....-40-
SECTION 611. Acceptance of Appointment by Successor................-42-
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business..............................................-43-
SECTION 613. Preferential Collection of Claims Against Company.....-43-
SECTION 614. Appointment of Authenticating Agent...................-44-
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders................................................-45-
SECTION 702. Preservation of Information; Communications to Holders.-46-
SECTION 703. Reports by Trustee.....................................-46-
SECTION 704. Reports by Company.....................................-46-
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms...-47-
SECTION 802. Successor Substituted..................................-48-
ARTICLE NINE
-iv-
<PAGE>
Page
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.......-48-
SECTION 902. Supplemental Indentures with Consent of Holders..........-49-
SECTION 903. Execution of Supplemental Indentures.....................-50-
SECTION 904. Effect of Supplemental Indentures........................-50-
SECTION 905. Conformity with Trust Indenture Act......................-50-
SECTION 906. Reference in Securities to Supplemental Indentures.......-51-
SECTION 907. Notice of Supplemental Indentures........................-51-
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.............-51-
SECTION 1002. Maintenance of Office or Agency........................-51-
SECTION 1003. Money for Security Payments to Be Held in Trust........-52-
SECTION 1004. Statement by Officers as to Default....................-53-
SECTION 1005. Existence..............................................-53-
SECTION 1006. Maintenance of Properties..............................-53-
SECTION 1007. Payment of Taxes and Other Claims......................-54-
SECTION 1008. Book-Entry System......................................-54-
SECTION 1009. Waiver of Certain Covenants............................-54-
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Applicability of Article...............................-54-
SECTION 1102. Election to Redeem; Notice to Trustee..................-55-
SECTION 1103. Selection by Trustee of Securities to be Redeemed......-55-
SECTION 1104. Notice of Redemption...................................-55-
SECTION 1105. Deposit of Redemption Price............................-56-
SECTION 1106. Securities Payable on Redemption Date..................-56-
SECTION 1107. Securities Redeemed in Part............................-56-
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article...............................-57-
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities..-57-
SECTION 1203. Redemption of Securities for Sinking Fund..............-57-
ARTICLE THIRTEEN
-v-
<PAGE>
Page
SUBORDINATION OF SECURITIES
SECTION 1301. Securities Subordinate to Senior Indebtedness............-58-
SECTION 1302. Circumstances Requiring Prior Payment of Senior
Indebtedness.............................................-58-
SECTION 1303. Subrogation to Rights of Holders of Senior Indebtedness..-59-
SECTION 1304. Provisions Solely to Define Relative Rights..............-60-
SECTION 1305. Trustee to Effectuate Subordination......................-60-
SECTION 1306. No Waiver of Subordination Provisions....................-60-
SECTION 1307. Notice to Trustee........................................-61-
SECTION 1308. Reliance on Certificate of Liquidating Agent.............-61-
SECTION 1309. Trustee Not Fiduciary for Holders of Senior Indebtedness.-61-
SECTION 1310. Rights of Trustee as Holder of Senior Indebtedness.......-62-
SECTION 1311. Article Applicable to Paying Agent.......................-62-
ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1401. Purposes for Which Meetings May Be Called................-62-
SECTION 1402. Call, Notice and Place of Meetings.......................-62-
SECTION 1403. Persons Entitled to Vote at Meetings.....................-63-
SECTION 1404. Quorum; Action...........................................-63-
SECTION 1405. Determination of Voting Rights; Conduct and Adjournment
of Meetings..............................................-64-
SECTION 1406. Counting Votes and Recording Action of Meetings..........-64-
-vi-
<PAGE>
INDENTURE, dated as of September 30, 1997, between InaCom Corp., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 10810 Farnam
Drive, Omaha, Nebraska 68154, and Norwest Bank Minnesota, National Association,
a national banking association, as Trustee having its principal place of
business at 6th & Marquette, Minneapolis, Minnesota 55479 (Attention: Corporate
Trust Securities) (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its debentures, notes
or other evidences of indebtedness (herein called the "Securities"), to be
issued in one or more series as provided in this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted
<PAGE>
hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means 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 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.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, shall have been
delivered to the Trustee.
"Business Day" means, with respect to any Place of Payment or any other
place, as the case may be, each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any such day on which banking institutions in The City of New York,
New York or in such particular place are authorized or obligated by law or
executive order to close.
"Code" has the meaning specified in Section 201.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its
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President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office on the date hereof is located at Minneapolis, Minnesota.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act of 1934 (or
any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness", as applied to any Person, means the principal of, and
premiums, if any, and interest on (a) all indebtedness of such Person for
borrowed money (including all indebtedness evidenced by notes, bonds, debentures
or other securities sold by such Person for money), (b) all indebtedness
incurred by such Person in the acquisition (whether by way of purchase, merger,
consolidation or otherwise and whether by such Person or another Person) of any
business, real property, or other assets (except assets acquired in the ordinary
course of the conduct of the acquirer's usual business), (c) guarantees by such
Person of indebtedness described in clause (a) or (b) of any other Person, (d)
all renewals, extensions, refundings, deferrals, restructurings, amendments and
modifications of any such indebtedness, obligation or guarantee (e) all
reimbursement obligations of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (f) all capital lease obligations of such Person, and (g) all net
obligations of such Person under interest rate swap or similar agreements of
such person.
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"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section
501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for payment or redemption of which
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Securities; provided
that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and
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(iii) Securities which have been paid pursuant to
Section 306 or in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are
valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Payment" means any city in which a Paying Agent is located.
"Predecessor Security" of any particular Security means 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 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Security" means any Security in the form established pursuant
to Section 201 which is registered in the Security Register.
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"Regular Record Date" for the interest payable on any Interest Payment Date
means with respect to any series of Securities, the date specified for that
purpose as contemplated by Section 301 (whether or not a Business Day).
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary, Managing Director or
any other officer of the Trustee customarily performing functions similar to
those performed by the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
his knowledge and familiarity with the particular subject.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Debt Securities" means the Senior Debt Securities issuable by the
Company under and pursuant to the Senior Indenture.
"Senior Indebtedness" means Indebtedness of the Company outstanding at any
time except Indebtedness that by its terms is subordinate in right of payment to
the Securities or Indebtedness that is not otherwise senior in right of payment
to the Securities, provided that the term "Senior Indebtedness" shall not
include Indebtedness of the Company to any Subsidiary for money borrowed or
advanced from such Subsidiary.
"Senior Indenture" means the Indenture dated as of the date hereof relating
to the issuance of Senior Debt Securities as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental thereto entered into pursuant to the applicable provisions thereof,
including for all purposes of said indenture and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern said indenture and any such supplement indenture,
respectively.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors,
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whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"United States" means the United States of America (including the States
and the District of Columbia) and its "possessions", which include Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands.
"U.S. Government Obligations" has the meaning specified in Section 401.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Yield to Maturity", when used with respect to any Original Issue Discount
Security, means the yield to maturity, if any, set forth on the face thereof.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate (including certificates provided pursuant to Section
1004) or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include, without limitation:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such certificate or opinion is based are
erroneous.
Any such certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
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(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) The Company may set any day as a record date for the purpose of
determining the Holders entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders, provided that
the Company may not set a record date for, and the provisions of this Section
104(d) shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in Section 104(e). If any record
date is set pursuant to this Section 104(d), the Holders on such record date,
and only such Holders, shall be entitled to take the relevant action, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Securities on
such record date. Nothing in this Section 104(d) shall be construed to prevent
the Company from setting a new record date for any action for which a record
date has previously been set pursuant to this Section 104(d) (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this Section 104(d) shall be
construed to render ineffective any action taken by Holders of the requisite
principal amount of Securities on the date such action is taken. Promptly after
any record date is set pursuant to this Section 104(d), the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder in the manner set forth in Section 106.
(e) The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in Section
502, (iii) any request to institute proceedings referred to in Section 507(2),
or (iv) any direction referred to in Section 512. If any record date is set
pursuant to this Section 104(e), the Holders on such record date, and only such
Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Securities on such record date. Nothing in this Section 104(e) shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this Section
104(e) (whereupon the record date previously set shall automatically and with no
action by any Person be cancelled and of no effect), and nothing in this Section
104(e) shall be construed to render ineffective any action taken by Holders of
the requisite principal amount of Securities on the date such action is taken.
Promptly after any record date is set pursuant to this Section 104(e), the
Trustee, at the Company's expense, shall cause notice of such record date, the
proposed action by Holders and
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the applicable Expiration Date to be given to the Company in writing and to each
Holder of Securities in the manner set forth in Section 106.
(f) With respect to any record date set pursuant to Sections 104(d) or
104(e), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder in the manner set forth in Section 106, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to Section 104(d) or 104(e), the party
hereto which set such record date shall be deemed to have initially designated
the 180th day after such record date as the Expiration Date with respect
thereto, subject to its right to change the Expiration Date as provided in this
Section 104(f). Notwithstanding the foregoing, no Expiration Date shall be later
than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
(h) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Market Services, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, and sent by facsimile to the Company to the attention of the
Treasurer at the address of the Company's principal office specified in
the first paragraph of this instrument and to facsimile number (402)
392-3602, or at any other address or to any other facsimile number as
the case may be, previously furnished in writing to the Trustee by the
Company.
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SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Securities and the holders of any Senior Indebtedness, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at a Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption Date
or Stated Maturity, so long as payment is made on such succeeding Business Day.
SECTION 114. Incorporators, Stockholders, Officers and Directors of the Company
Exempt from Individual Liability.
No recourse under or upon any obligation, covenant or agreement in this
Indenture or any indenture supplemental hereto or of any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, 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 this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors, as such, of the Company or
of any successor Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom; and that any and all such personal liability of every name
and nature, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
such Securities.
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ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Registered Securities, if any, of each series shall be in substantially
such form or forms (including temporary or permanent global form) as shall be
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange, the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Code"), or as may, consistently
herewith, be determined by the officers executing such Securities, as evidenced
by their execution of the Securities. If temporary Securities of any series are
issued in global form as permitted by Section 304, the form thereof shall be
established as provided in the preceding sentence. A copy of the Board
Resolution establishing the form or forms of Securities of any series (or any
such temporary Global Security) shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 303 for the
authentication and delivery of such Securities (or any such temporary Global
Security).
Any definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange on which the Securities may be quoted or listed, as the case may be,
all as determined by the officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
"This is one of the Securities referred to in the within-mentioned
Indenture.
,
as Trustee
By ____________________
Authorized Signatory"
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SECTION 203. Securities in Global Form.
(a) A supplemental indenture to the Indenture or a Board Resolution (and,
to the extent not set forth in the Board Resolution, an Officer's Certificate
detailing the adoption of terms pursuant to the Board Resolution) shall
establish whether the Securities of a series shall be issued in whole or in part
in the form of one or more Global Securities and the Depositary for such Global
Security or securities.
(b) Notwithstanding any provisions to the contrary contained in Section 305
of the Indenture and in addition thereto, any Global Security shall be
exchangeable pursuant to Section 305 of the Indenture for securities registered
in the names of Holders other than the Depositary for such Security or its
nominee only if (i) such Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a clearing agency registered under the Exchange Act,
and, in either case, the Company fails to appoint a successor Depositary within
90 days of such event, (ii) the Company executes and delivers to the Trustee an
Officer's Certificate to the effect that such Global Security shall be so
exchangeable or (iii) an event shall have happened and be continuing which is or
after notice or lapse of time or both, would be, an Event of Default with
respect to the Securities represented by such Global Security. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Securities registered in such names as the Depositary shall
direct in writing in an aggregate principal amount equal to the principal amount
of the Global Security with like tenor and terms.
Except as provided in this Section, a Global Security may not be
transferred except as a whole by the Depositary with respect to such Global
Security to a nominee of such Depositary, by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such a successor
Depositary.
(c) Any Global Security issued hereunder shall bear a legend in
substantially the following form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY,
BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH A SUCCESSOR DEPOSITARY."
(d) The Depositary, as a Holder, may appoint agents and otherwise authorize
Persons that have accounts with the Depositary to give or take any request,
demand,
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authorization, direction, notice, consent, waiver or other action which a Holder
is entitled to give or take under the Indenture.
(e) Notwithstanding the other provisions of this Indenture, unless
otherwise specified as contemplated by Section 301, payment of the principal of
and interest on any Global Security shall be made to the person specified
therein.
(f) Except as provided in Subsection (e) above, the Company, the Trustee
and any Agent shall treat a person as the Holder of such principal amount of
outstanding Securities of such series represented by a Global Security as shall
be specified in a written statement of the Depositary with respect to such
Global Security, for purposes of obtaining any consents, declarations or
directions required to be given by the Holders pursuant to this Indenture.
SECTION 204. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other elements of
identification printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officer's
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series,
(1) the title of the Securities of the series (which
shall distinguish the Securities of the series from all other
Securities);
(2) any limit upon the aggregate principal amount of
the Securities of the series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of the series pursuant to Section 304, 305, 306, 906
or 1107);
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(3) whether Securities of the series are to be
issuable as Registered Securities, whether any Securities of the series
are to be issuable initially in temporary global form and whether any
Securities of the series are to be issuable in permanent global form
and, if so, whether beneficial owners of interests in any such
permanent Global Security may exchange such interests for Securities of
such series and of like tenor of any authorized form and denomination
and the circumstances under which any such exchanges may occur, if
other than in the manner provided in Section 305, and the Depositary
for any Global Security or Securities;
(4) the manner in which, or the extent to which, or
any interest payable on a temporary Global Security on any Interest
Payment Date will be paid if other than in the manner provided in
Section 304;
(5) the date or dates on which the principal (and
premium, if any) of the Securities of the series is payable or the
method of determination thereof, including, without limitation, the
maturity date or dates;
(6) the rate or rates (which may be fixed or variable
or based upon such indices as the Company may elect), or the method of
determination thereof, at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall
accrue, the Interest Payment Dates on which such interest shall be
payable and, if other than as set forth in Section 101, the Regular
Record Date for the interest payable on any Registered Securities on
any Interest Payment Date;
(7) the place or places where, subject to the
provisions of Section 1002, the principal of (and premium, if any) and
interest, if any, on the Securities of the series shall be payable;
(8) the period or periods within which, the price or
prices at which and the terms and conditions upon which Securities of
the series may be redeemed, in whole or in part, at the option of the
Company, if the Company is to have that option;
(9) the obligation, if any, of the Company to redeem
or purchase Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof and the
period or periods within which, the price or prices at which and the
terms and conditions upon which, Securities of the series shall be
redeemed or purchased in whole or in part pursuant to such obligation;
(10) the denomination in which any Registered
Securities of that series shall be issuable, if other than
denominations of $1,000 and any integral multiple thereof;
(11) if other than the principal amount thereof, the
portion of the principal amount of Securities of the series which shall
be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502;
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(12) any additional means of satisfaction and
discharge of this Indenture with respect to Securities of the series
pursuant to Section 401, any additional conditions to discharge
pursuant to Section 401 or 403 and the application, if any, of Section
403;
(13) any deletions or modifications of or additions
to the Events of Default set forth in Section 501 or covenants of the
Company set forth in Article Ten pertaining to the Securities of the
series;
(14) the terms for conversion or exchange, if any;
(15) whether the Securities will be secured or
unsecured and, if secured, the nature and terms of the security;
(16) if other than Dollars, the currency, currencies
or currency unit or units in which such Securities will be denominated
and in which the principal of, and premium and interest, if any,
thereon will be payable;
(17) whether, and the terms and conditions on which,
the Company or a Holder may elect that, or the other circumstances
under which, payment of principal of, or premium or interest, if any,
is to be made in a currency or currencies or currency unit or units
other than that in which such Securities are denominated;
(18) if the payments of principal of or interest on
the Securities of a series are to be made in a foreign currency other
than the currency in which such Securities are denominated, the manner
in which the exchange rate with respect to such payments shall be
determined;
(19) if the amount of payments of principal of or
interest on the Securities of a series may be determined with reference
to an index based on a currency or currencies other than that in which
the Securities are denominated or designated to be payable or
determined by reference to a commodity, commodity index, stock exchange
index or financial index, the manner in which such amounts shall be
determined;
(20) with respect to (16), (17), (18) and (19) above
if the referenced currency or currencies or units are other than U.S.
dollars then prior to issuance of any such Securities, the Company
shall obtain the written consent of the Trustee, which consent of the
Trustee may be withheld in the sole discretion of the Trustee, to the
currency, currencies or currency units so established;
(21) provisions, if any, granting special rights to
the holders of Securities of a series upon the occurrence of such
events as may be specified and the provisions, if any, relating to the
subordination of the Securities of such series to other obligations of
the Company;
(22) any provision for the conversion or exchange of
Securities of a series, either at the option of the Holder thereof or
the Company, into or for another security or securities of the Company,
the security or securities into or for which, the period or periods
within which, the price or prices, including any adjustments thereto,
at which and the other terms and conditions upon which any Securities
of such series shall be converted or exchanged, in whole or in part;
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(23) if the Securities of a series are to be issued
upon the exercise of warrants, the time, manner and place for such
Securities to be authenticated and delivered;
(24) the provisions, if any, relating to any security
provided for the Securities of any series;
(25) any addition to or change in the Events of
Default which applies to any Securities of a series and any change in
the right of the Trustee or the requisite Holders of such Securities to
declare the principal amount thereof due and payable pursuant to
Section 502;
(26) any addition to or change in the covenants set
forth in Article Ten which applies to Securities of such series;
(27) any depositaries, interest rate calculation
agents, exchange rate agents or other agents with respect to Securities
of such series if other than those appointed herein; and
(28) any other terms of the series (which terms shall
not be inconsistent with the provisions of this Indenture).
All Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Thirteen.
All Securities of any one series shall be substantially identical except,
in the case of Registered Securities, as to denomination and except as may
otherwise be provided in or pursuant to the Board Resolution referred to above
and (subject to Section 303) set forth, or determined in the manner provided, in
the Officer's Certificate referred to above or in any such indenture
supplemental hereto.
At the option of the Company, interest on the Securities of any series that
bears interest may be paid by mailing a check to the address of any Holder as
such address shall appear in the Securities Register.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action together
with such Board Resolution shall be certified by the Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officer's Certificate setting forth the terms of the series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in such denominations as
shall be specified and/or contemplated by Section 301. In the absence of any
such provisions with respect to the Securities of any series, the Registered
Securities of such series denominated in Dollars shall be issuable in
denominations of $1,000 and any integral multiple thereof. Unless
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otherwise provided as contemplated by Section 301 with respect to any series of
Securities, any Securities of a series denominated in a currency other than
Dollars shall be issuable in denominations that are the equivalent, as
determined by the Company by reference to the noon buying rate in The City of
New York for cable transfers for such currency, as such rate is reported or
otherwise made available by the Federal Reserve Bank of New York, on the
applicable issue date for such Securities, of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President, its Treasurer or
one of its Vice Presidents, under its corporate seal reproduced thereon or
affixed thereto attested by its Secretary or one of its Assistant Secretaries.
The signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver to the Trustee for authentication Securities
of any series executed by the Company, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities as in this
Indenture provided and not otherwise. If provided for in such procedures, such
Company Order may authorize authentication and delivery pursuant to oral or
electronic instructions from the Company or its duly authorized agent or agents,
which oral instructions shall be confirmed promptly in writing.
If the form or terms of the Securities of the series have been established
in or pursuant to one or more Board Resolutions as permitted by Sections 201 and
301, in authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 201, that such form has been
established in accordance with the provisions of this Indenture;
(b) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 301, that such terms have been
established in accordance with the provisions of this Indenture; and
(c) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute legal, valid and binding obligations
of the Company, enforceable in accordance with their terms, except as such
enforcement is subject to the effect of
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(i) bankruptcy, insolvency, reorganization or other law relating to or affecting
creditors' rights and (ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Each Registered Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security, a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309 together
with a written statement (which need not comply with Section 103 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never been
issued and sold by the Company, for all purposes of this Indenture such Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued, in
registered form, and with such appropriate insertions, omissions, substitutions
and other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
Except in the case of temporary Securities in global form (which shall be
exchanged in accordance with the provisions of the following paragraphs), if
temporary Securities of any series are issued, the Company will cause definitive
Securities of that series to be prepared without unreasonable delay. After the
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company in a Place of Payment for that series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities of any
series the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Securities of the
same series of authorized denominations. Until so exchanged the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of such series.
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Any temporary Global Security and any permanent Global Security shall,
unless otherwise provided therein, be delivered to the Depositary for credit to
the respective accounts of the beneficial owners of such Securities (or to such
other accounts as they may direct).
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary Global
Security of a series (the "Exchange Date"), the Company shall deliver to the
Trustee definitive Securities of that series in aggregate principal amount equal
to the principal amount of such temporary Global Security, executed by the
Company. On or after the Exchange Date such temporary Global Security shall be
surrendered by the Depositary to the Trustee, as the Company's agent for such
purpose, to be exchanged, in whole or from time to time in part, for definitive
Securities of that series without charge and the Trustee shall authenticate and
deliver, in exchange for each portion of such temporary Global Security, a like
aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such temporary
Global Security to be exchanged. The definitive Securities to be delivered in
exchange for any such temporary Global Security shall be in registered form or
permanent global registered form, or any combination thereof, as specified
and/or contemplated by Section 301, and if any combination thereof is so
specified, as requested by the beneficial owner thereof.
Unless otherwise specified in the temporary Global Security, the interest
of a beneficial owner of Securities of a series in a temporary Global Security
shall be exchanged on the Exchange Date for definitive Securities (and where the
form of the definitive Securities is not specified by the Holder, for an
interest in a permanent Global Security) of the same series and of like tenor
and after the Exchange Date, the interest of a beneficial owner of Securities of
a series in a temporary Global Security shall be exchanged for definitive
Securities (and where the form of the definitive Securities is not specified by
the Holder, for an interest in a permanent Global Security) of the same series
and of like tenor. Unless otherwise specified in such temporary Global Security,
any exchange shall be made free of charge to the beneficial owners of such
temporary Global Security, except that a Person receiving definitive Securities
must bear the cost of insurance, postage, transportation and the like in the
event that such Person does not take delivery of such definitive Securities in
person at the offices of the Depositary.
Until exchanged in full as hereinabove provided, the temporary Securities
of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and of like tenor
authenticated and delivered hereunder, except that, unless otherwise specified
and/or contemplated by Section 301, interest payable on a temporary Global
Security on an Interest Payment Date for Securities of such series shall be
payable to the Depositary on such Interest Payment Date, for credit without
further interest on or after such Interest Payment Date to the respective
accounts of the Persons who are the beneficial owners of such temporary Global
Security on such Interest Payment Date. Any interest so received by the
Depositary and not paid as herein provided shall be returned to the Trustee
immediately prior to the expiration of two years after such Interest Payment
Date in order to be repaid to the Company in accordance with Section 1003.
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SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept for each series of Securities at one of
the offices or agencies maintained pursuant to Section 1002 a register (the
register maintained in such office and in any other office or agency of the
Company in a Place of Payment herein referred to collectively as the "Security
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Registered Securities and of
transfers of Registered Securities of such series. The Trustee is hereby
initially appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Registered
Securities of the same series and of like tenor, of any authorized denominations
and of a like aggregate principal amount.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series and of like tenor,
of any authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency. Whenever
any Securities are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Securities which the Holder
making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified and/or
contemplated by Sections 203 or 301, any permanent Global Security shall be
exchangeable only as provided in this paragraph. If the beneficial owners of
interests in a permanent Global Security are entitled to exchange such interest
for Securities of such series and of like tenor and principal amount of another
authorized form and denomination, as specified and/or contemplated by Sections
203 or 301, then without unnecessary delay but in any event not later than the
earliest date on which such interests may be so exchanged, the Company shall
deliver to the Trustee definitive Securities of that series in an aggregate
principal amount equal to the principal amount of such permanent Global
Security, executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such permanent Global Security shall be
surrendered from time to time in accordance with instructions given to the
Trustee (which instructions shall be in writing but need not comply with Section
103 or be accompanied by an Opinion of Counsel) by the Depositary or such other
depositary as shall be specified in the Company Order with respect thereto to
the Trustee, as the Company's agent for such purpose, to be exchanged, in whole
or in part, for definitive Securities of the same series without charge and the
Trustee shall authenticate and deliver, in exchange for each portion of such
permanent Global Security, a like aggregate principal amount of other definitive
Securities of the same series of authorized denominations and of like tenor as
the portion of such permanent Global Security to be exchanged, which Securities
shall be in the form of Registered Securities; provided, however, that no such
exchanges may occur during a period beginning at the opening of business 15 days
before any selection of Securities of that series is to be redeemed and ending
on the relevant Redemption Date. Promptly following any such exchange in part,
such permanent Global Security shall be returned by the Trustee to the
Depositary or such other depositary referred to
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above in accordance with the instructions of the Company referred to above. If a
Registered Security is issued in exchange for any portion of a permanent Global
Security after the close of business at the office or agency where such exchange
occurs on (i) any Regular Record Date and before the opening of business at such
office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related proposed date for payment of Defaulted Interest, interest or Defaulted
Interest, as the case may be, will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of such Registered
Security, but will be payable on such Interest Payment Date or proposed for
payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent Global Security is payable in accordance with the
provisions of this Indenture.
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.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder 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 or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than exchange
pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities of such series selected for redemption and ending at the close of
business on the day of the mailing of the relevant notice of redemption or (ii)
to register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless,
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then, in the absence of notice to the Company or the Trustee that such Security
has been acquired by a bona fide purchaser, the Company shall execute and upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of the same series and of
like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, 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 (including
the fee and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Registered Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest. Unless otherwise provided with respect to the Securities of any
series, payment of interest may be made at the option of the Company, in the
case of Registered Securities, by check mailed or delivered to the address of
any Person entitled thereto as such address shall appear in the Security
Register.
Any interest on any Registered Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may 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 Registered Securities of such series (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 proposed to be paid on each Registered
Security of such series and the date of the proposed payment, and at the same
time
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the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed 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 proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as provided
in this Clause (1). Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not less
than 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 Holder of Registered
Securities of such series at his address as it appears in the Security Register,
not less than 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 Registered Securities of such series (or their respective Predecessor
Securities) are 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 on the
Registered Securities of any series in any other lawful manner not inconsistent
with the requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this Clause (2), such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture, upon registration of transfer of, in exchange
for or in lieu of, any other Security, shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Registered Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 307)
interest on such Registered Security and for all other purposes whatsoever,
whether or not such Security is overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee.
All Registered Securities so delivered shall be promptly canceled by the
Trustee. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
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may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
Any temporary Global Security shall be disposed of if the entire aggregate
principal amount of the Securities represented thereby has been exchanged.
Permanent Global Securities shall not be disposed of until exchanged in full for
definitive Securities or until payment thereon is made in full.
SECTION 310. Computation of Interest.
Except as otherwise specified and/or contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360 day year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
with respect to Securities of a series, and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to Securities of such series, when
(1) either
(A) all Securities of such series previously
authenticated and delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 306 and (ii) Securities for whose payment money has previously been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or
(B) with respect to all Outstanding Securities of
such series not previously delivered to the Trustee for cancellation, the
Company has deposited or caused to be deposited with the Trustee as trust funds,
under the terms of an irrevocable trust agreement in form and substance
reasonably satisfactory to the Trustee, for that purpose money or U.S.
Government Obligations maturing as to principal and interest in such amounts and
at such times as will, together with the income to accrue thereon, without
consideration of any reinvestment thereof, be sufficient in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the entire indebtedness on all Outstanding Securities of such series
not previously delivered to the Trustee for cancellation for principal (and
premium, if any) and interest to the Stated Maturity or any Redemption Date
contemplated by the penultimate paragraph of this Section, as the case may be;
or
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(C) the Company has properly fulfilled such other
means of satisfaction and discharge as is specified, as contemplated by Section
301, to be applicable to the Securities of such series;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to the Outstanding Securities of such
series;
(3) the Company has complied with any other conditions specified pursuant
to Section 301 to be applicable to the discharge of Securities of such series
pursuant to this Section; and
(4) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture with
respect to the Outstanding Securities of such series have been complied with.
For the purposes of this Indenture, "U.S. Government Obligations" means
direct non-callable obligations of, or non-callable obligations the payment of
principal of and interest on which is guaranteed by, the United States of
America, or to the payment of which obligations or guarantees the full faith and
credit of the United States of America is pledged, or beneficial interests in a
trust the corpus of which consists exclusively of money or such obligations or a
combination thereof.
If any Outstanding Securities of such series are to be redeemed prior to
their Stated Maturity, whether pursuant to any optional redemption provisions or
in accordance with any mandatory sinking fund requirement, the trust agreement
shall provide therefor and the Company shall make such arrangements as are
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to the Outstanding Securities of such series pursuant to this Section,
the obligations of the Company to the Trustee under Section 607, the obligations
of the Trustee to any Authenticating Agent under Section 614 and, except for a
discharge pursuant to subclause (A) of clause (1) of this Section, the
obligations of the Company under Sections 305, 306, 404, 1001 and 1002 and the
obligations of the Trustee under Section 402 and the last paragraph of Section
1003, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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SECTION 403. Discharge of Liability on Securities of Any Series.
If this Section is specified, as contemplated by Section 301, to be
applicable to Securities of any series, the Company shall be deemed to have paid
and discharged the entire indebtedness on all the Outstanding Securities of such
series, the obligation of the Company under this Indenture and the Securities of
such series, to pay the principal of (and premium, if any) and interest on
Securities of such series, shall cease, terminate and be completely discharged
and the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging such satisfaction and discharge, when
(1) the Company has complied with the provisions of Section 401 of this
Indenture (other than any additional conditions specified pursuant to Sections
301 and 401(3)) with respect to all Outstanding Securities of such series;
(2) the Company has delivered to the Trustee a Company Request requesting
such satisfaction and discharge;
(3) the Company has complied with any other conditions specified pursuant
to Section 301 to be applicable to the discharge of Securities of such series
pursuant to this Section; and
(4) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the discharge of the indebtedness on the Outstanding
Securities of such series have been complied with.
Upon the satisfaction of the conditions set forth in this Section with
respect to all the Outstanding Securities of any series, the terms and
conditions of such series, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Company; provided that, the Company shall not be discharged
from any payment obligations in respect of Securities of such series which are
deemed not to be Outstanding under clause (iii) of the definition thereof if
such obligations continue to be valid obligations of the Company under
applicable law or pursuant to Section 305 or 306.
SECTION 404. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations deposited with respect to Securities of any series in
accordance with Section 401 by reason of any legal proceeding or 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 with respect to the Securities of such series and the
Securities of such series shall be revived and reinstated as though no deposit
had occurred pursuant to Section 401 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 401; provided, however, that if the Company has made any
payment of principal of (or premium, if any) or interest on any Securities
because of the reinstatement of its obligations, the Company shall be
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subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (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),
unless it is either inapplicable to a particular series or it is specifically
deleted or modified in or pursuant to the supplemental indenture or Board
Resolution establishing such series of Securities or in the form of Security for
such series:
(1) default in the payment of the principal of (or premium, if any, on) any
Security of that series at its Maturity; or
(2) default in the payment of any interest upon any Security of that series
when it becomes due and payable and continuance of such default for a period of
30 days; or
(3) default in the deposit of any sinking fund payment, when and as due by
the terms of a Security of that series, and continuance of such default for a
period of 60 days; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(5) a default under any Indebtedness of the Company under any mortgages,
indentures or instruments under which the Company may have issued, or under
which there may have been secured or evidenced, any Indebtedness for money
borrowed by the Company aggregating in excess of $5,000,000, whether such
Indebtedness now exists or shall hereafter be created, such Indebtedness is not
paid at final maturity (either upon its stated maturity or acceleration thereof)
and such default in payment or acceleration has not been cured or rescinded,
within a period of 30 days after there shall have been given, by registered or
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certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of
the Outstanding Securities, a written notice specifying such default
and requiring the Company to cause such Indebtedness to be discharged
or cause such default to be cured or waived or such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of
Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by the Company to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to any Securities of any series at the
time Outstanding occurs and is continuing, then in every such case the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities of (i) the series affected by such default (in the case of an Event
of Default described in Section 501 (1), (2), (3) or (4) or (ii) all series of
Securities (in the case of other Events of Default) may declare the principal
amount (or, if any such Securities are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
and any accrued but unpaid interest thereon of all of the Securities of the
series affected by such default or all series, as the case
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may be, to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration such
principal amount (or specified amount) and any accrued but unpaid interest
thereon shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities of that series (or of
all series, as the case may be), by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue interest on all Securities of that
series (or of all series, as the case may be),
(B) the principal of (and premium, if any, on) any
Securities of that series (or of all series, as the case may be) which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in such Securities (in the case
of Original Issue Discount Securities, the Securities' Yield to Maturity),
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate or rates prescribed therefor
in such Securities (in the case of Original Issue Discount Securities, the
Securities' Yield to Maturity), and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series (or of
all series, as the case may be), other than the non-payment of the principal of
Securities of that series (or of all series, as the case may be) which has
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513.
No such rescission shall affect any subsequent default or Event of Default or
impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if default is made in the payment of (1) any
installment of interest on any Security of any series when such interest becomes
due and payable and such default continues for a period of 30 days, or (2) the
principal of (or premium, if any, on) any Security at the Maturity thereof, the
Company will, upon demand of the Trustee, pay
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to it, for the benefit of the Holders of such Securities, the whole amount then
due and payable on such Securities for principal (and premium, if any) and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal (and premium, if any) and on any
overdue interest, at the rate or rates prescribed therefor in such Securities
(or in the case of Original Issue Discount Securities, the Securities' Yield to
Maturity), and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal (or lesser amount
in the case of Original Issue Discount Securities) 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 on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (or lesser amount in the case of Original Issue Discount Securities)
(and premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to
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the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due it
for the reasonable compensation expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceedings; provided, however,
that the Trustee may, on behalf of such Holders, vote for the election of a
trustee in bankruptcy or similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such 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 respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of 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 607;
SECOND: To the payment of the amounts then due and unpaid for principal of
(and premium, if any) and interest on the Securities in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Securities for principal (and premium, if any) and interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
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(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to such series;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders 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 such
Holders, or to obtain or to seek to obtain priority or preference over any other
such Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
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SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
With respect to Securities of any series, the Holders of a majority in
principal amount of the Outstanding Securities of such series 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, relating to or arising under an Event of Default described in
Section 501(1), (2), (3) or (4), and with respect to all Securities the Holders
of a majority in principal amount of all Outstanding Securities shall have the
right to direct the time, method and place of conducting any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, not
relating to or arising under such an Event of Default, provided that in each
such case
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all
Outstanding Securities of such series waive any past default hereunder with
respect to such series and its consequences, and the Holders of a majority in
principal amount of all Outstanding Securities may on behalf of the Holders of
all Securities waive any other past default hereunder and its consequences,
except in each case a default
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(1) in the payment of the principal of (or premium, if any) or interest on
any Security, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
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, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that the provisions of this Section (to the extent
permitted by law) shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of Outstanding Securities of any series, or to
any suit instituted by any Holder of any Security for the enforcement of the
payment of the principal of, premium, if any, or interest on any Security.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not 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 had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs,
provided, however, that in no event shall the Trustee
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exercise a degree of care less than that customarily exercised thereby in the
ordinary course of business.
(b) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
the Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture.
(c) 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 wilful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) 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 a majority in principal amount of the
Outstanding Securities 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
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
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SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series as to which the Trustee has received written
notice, the Trustee shall give to all Holders of Securities of such series, in
the manner provided in Section 106, notice of such default, unless such default
shall have been cured or waived; provided, however, that in the case of any
default of the character specified in Section 501(4) no such notice to Holders
of Securities shall be given until at least 30 days after the occurrence of such
default. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of Indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on their part, conclusively rely upon an
Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
(f) 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, debenture, note, other evidence of Indebtedness
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
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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 during
reasonable business hours and after reasonable notice; and
(g) 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 with due care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. 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 Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
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 otherwise
agreed with the Company in writing.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
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(3) to indemnify the Trustee and its directors, officers,
employees and agents for, and to hold them harmless against, any loss,
liability or expense incurred without negligence or bad faith on their
part, arising out of or in connection with the acceptance or
administration of the trust hereunder, including the costs and expenses
of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder.
To secure the Company's payment obligations under this
Section, the Trustee shall have a lien prior to the Securities on all money or
property held or collected by the Trustee including, without limitation, all
money or property held or collected by the Trustee in trust to pay the principal
of, or interest on, or any other amounts on any Securities, and such lien shall
survive the satisfaction and discharge of the Indenture and any other
termination of the Indenture including any termination under any bankruptcy law.
When the Trustee incurs expenses or renders services in connection with an Event
of Default specified in Section 501(6) or (7), the Holders by their acceptance
of the Securities hereby agree that such expenses and the compensation for such
services are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. "Trustee" for purposes of this Section shall include
any predecessor Trustee, but the negligence or bad faith of any Trustee shall
not affect the indemnification of any other Trustee.
SECTION 608. Disqualification; Conflicting Interests.
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 609. Corporate Trustee Required; Eligibility.
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, having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority, in good standing and having an office
or agency in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said 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 and a
successor shall be appointed pursuant to Section 610.
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SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 611.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed with respect to the Securities
of one or more series at any time by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any such Holder, 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, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security 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 with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee with
respect to the Securities of one or more series for any cause, the Company, by a
Board Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the Securities of one or
more or all of such series and that at any time there shall be only one Trustee
with respect to the Securities of any particular series) and such successor
Trustee or Trustees shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or
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incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee with respect
to the Securities of any series to all Holders of Securities of such series in
the manner provided in Section 106. Each notice shall include the name of the
successor Trustee with respect to the Securities of such series and the address
of its Corporate Trust Office.
(g) No retiring Trustee shall be liable for the acts or
omissions of any successor Trustee hereunder.
(h) All fees, charges and expenses of the retiring Trustee
payable in accordance with this Indenture shall become immediately due and
payable upon the appointment of a successor Trustee hereunder.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor
Trustee with respect to all Securities, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on the request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges payable in accordance with this
Indenture, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of one or more (but not all) series, the
Company, the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the
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retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
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 a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
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
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Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents reasonably
acceptable to the Company which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent 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 an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
An Authenticating Agent hereunder shall be entitled to all of the rights,
protections and immunities of the Trustee hereunder.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
------------------------------
As Trustee
By [Authenticating Agent]
as Authenticating Agent
By: ________________________
Authorized Signatory
Notwithstanding any provision of this Section to the contrary, if at any
time any Authenticating Agent appointed hereunder with respect to any series of
Securities shall not also be acting as the Security Registrar hereunder with
respect to any series of Securities, then, in addition to all other duties of an
Authenticating Agent hereunder, such Authenticating Agent shall also be
obligated to furnish to the Security Registrar promptly all information
necessary to enable the Security Registrar to maintain at all times an accurate
and current Security Register.
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
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(a) semi-annually, not more than 15 days after each Regular
Record Date (or, if there is no Regular Record Date relating to that
series, on January 1 and July 1), a list, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders of
that series as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
provided that such list need not be furnished by the Company so long as the
Trustee is acting as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of each series
contained in the most recent list furnished to the Trustee as provided in
Section 701 and the names and addresses of Holders of each series received by
the Trustee in its capacity as Security Registrar. The Trustee may destroy any
list furnished to it as provided in Section 701 upon receipt of a new list so
furnished.
(b) The rights of Holders to communicate with other Holders
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 Holder, by receiving and holding the Securities,
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 made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
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 each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee in writing if and when the Securities are listed on any
stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may
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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 Securities Exchange Act of 1934 shall be filed with the Trustee within 15
days after the same is so required to be filed with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company (a) shall not consolidate with or merge into any other Person
or, directly or indirectly, convey, transfer, sell, lease or otherwise dispose
of its properties and assets substantially as an entirety to any Person, and (b)
shall not permit any Person to consolidate or merge with or into the Company or
convey, transfer, sell, lease or otherwise dispose of such Person's properties
and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell, lease or otherwise dispose of
its properties and assets substantially as an entirety to any Person,
the Person formed by such consolidation or into or with which the
Company is merged or the Person which acquires by conveyance, transfer
or sale, or which leases or otherwise acquires, the properties and
assets of the Company substantially as an entirety shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of (and premium, if any) and
interest on all the Securities and the performance or observance of
every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such transaction and
treating any Indebtedness which becomes due an obligation of the
Company at the time of such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
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SECTION 802. Successor Substituted.
Upon any consolidation or merger of the Company with or into any other
Person, or any conveyance, transfer, sale or lease of the properties and assets
of the Company substantially as an entirety in accordance with Section 801, the
successor Person formed by such consolidation or merger or into or with which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants and
obligations of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders of all or any series of Securities (and if such covenants
are to be for the benefit of less than all series of Securities,
stating that such covenants are expressly being included solely for
the benefit of such series) or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default with respect to
all or any series of the Securities (and, if such Event of Default is
applicable to less than all series of Securities, specifying the
series to which such Event of Default is applicable); or
(4) to permit or facilitate the issuance of Securities in
uncertificated form, provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series in any
material respect; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided that
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such action pursuant to this Clause (5) shall not adversely affect the
interests of the Holders in any material respect; or
(6) to establish the form or terms of Securities of any
series as permitted by Sections 201 and 301; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trust hereunder by more than one Trustee,
pursuant to the requirements of Section 611.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of all series affected by such
supplemental indenture (acting as one class) by the Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may 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 of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or the amounts payable
upon the redemption thereof, or reduce the amount of the principal of
an Original Issue Discount Security that would be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change the place of payment where, or the place or
currency in which, any Security or any premium or interest thereon or
any other amount in respect thereof is payable, or impair the right to
institute suit for the enforcement of any payment in respect of any
Security on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the
Outstanding Securities the consent of whose Holders is required for any
such supplemental indenture or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture
or certain defaults hereunder and their consequences) provided for in
this Indenture, or
(3) modify the obligation of the Company to maintain an
office or agency in the Borough of Manhattan, the City of New York
pursuant to Section 1002, or
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(4) modify any of the provisions of this Section, Section 513
or Section 1009, except to increase any percentage contained herein or
therein or to provide with respect to any particular series the right
to condition the effectiveness of any supplemental indenture as to
that series on the consent of the Holders of a specified percentage of
the aggregate principal amount of Outstanding Securities of such
series (which provision may be made pursuant to Section 301 without
the consent of any Holder) or to provide that certain other provisions
of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been
included solely for the benefit of one or more particular series of
Securities, or which modifies the rights of the Holders of Securities
of such series with respect to such covenant or other provision, shall
be deemed not to affect the rights under this Indenture of the Holders
of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture and an Officers' Certificate stating
that all conditions precedent to the execution of such supplemental indenture
have been fulfilled. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act, as then in effect.
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SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Article, the Company
shall, or shall cause the Trustee to, give notice to all Holders of Securities
of such fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 106. Any failure of the Company or
the Trustee to give such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
If Securities of a series are issuable only as Registered Securities, the
Company will maintain in each Place of Payment for any series of Securities an
office or agency where Securities of that series may be presented or surrendered
for payment, where Securities of that series may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities of that series 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. 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 of the
Trustee, and the Company hereby appoints the Trustee as its office or agency to
receive such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to
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maintain an office or agency in each Place of Payment for Securities of any
series for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall act as its own Paying Agent with respect to any series
of Securities, it will, on or before each due date of the principal of, premium,
if any, or interest on any of the Securities of that series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
the Company will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to 10:00 a.m. on each due date of the principal
of, premium, if any, or interest on any Securities of that series, deposit with
such Paying Agent(s) a sum in immediately available funds on the payment date
sufficient to pay the principal, premium, if any, or interest so becoming due,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of any
failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) of that series in the making of
any payment of principal, premium, if any, or interest on the
Securities of that series; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest
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has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, an Officers' Certificate stating whether or not
to the best knowledge of the signers thereof the Company is in compliance on
such date with all conditions and covenants under the Indenture (without regard
to any period of grace or requirement of notice provided hereunder).
The Company will deliver to the Trustee, forthwith upon becoming aware of
any default or Event of Default under this Indenture, an Officers' Certificate
specifying with particularity such default or Event of Default and further
stating what action the Company has taken, is taking or proposes to take with
respect thereto. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
Any notice required to be given under this Section shall be delivered to
the Trustee at its Corporate Trust Office.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Company shall determine reasonably and in good faith that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
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nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1007. 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 taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary, (2) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Company or any Subsidiary; 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.
SECTION 1008. Book-Entry System.
If the Securities cease to trade in the Depository's book-entry settlement
system, the Company covenants and agrees that it shall use reasonable efforts to
make such other book-entry arrangements that it determines are reasonable for
the Securities.
SECTION 1009. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 1006 and 1007, or any covenant added for the
benefit of any series of Securities as contemplated by Section 301 (unless
otherwise specified pursuant to Section 301) if before or after the time for
such compliance the Holders of a majority in principal amount of the Outstanding
Securities of all series affected by such omission (acting as one class) shall,
by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified and/or contemplated by Section 301 for Securities of any series) in
accordance with this Article.
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SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed. In the case
of any redemption of Securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed (other
than pursuant to Section 1107), the particular Securities to be redeemed shall
be selected not more than 30 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities of such series not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
amount of Registered Securities of such series of a denomination larger than the
minimum authorized denomination for Securities of that series or of the
principal amount of Global Securities of such series.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 20 or more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at such Holder's address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series
are to be redeemed, the identification (and, in the case of partial
redemption of any Securities, the principal amounts) of the particular
Securities to be redeemed,
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(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after
such date (or in the event of a redemption pursuant to Section 1107,
and if applicable, a statement that no interest is payable with respect
to such security),
(5) the place or places where such Securities, are to be
surrendered for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the
case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money (which shall be in immediately available funds
on such Redemption Date) sufficient to pay the Redemption Price of, and (except
if the Redemption Date shall be an Interest Payment Date) accrued interest on,
all the Securities which are to be redeemed on that date.
SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
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,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security or, in the case of Original Issue Discount Securities, the Securities'
Yield to Maturity.
SECTION 1107. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the
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Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new Registered
Security or Securities of the same series and Stated Maturity, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified and/or
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". Unless otherwise provided by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption), and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to the Securities of such series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivery of or by crediting Securities of that
series
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pursuant to Section 1202 and will also deliver to the Trustee any Securities to
be so delivered. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 1103 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 1104. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, whether upon original issue or upon transfer or assignment,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth, the payment of the principal of (and premium, if any) and interest on
each and all of the Securities is hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness.
SECTION 1302. Circumstances Requiring Prior Payment of Senior Indebtedness.
In the event of any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether in bankruptcy,
reorganization, insolvency, receivership or similar proceeding, then the holders
of Senior Indebtedness shall be entitled to receive payment in full of all
amounts due or to become due on or in respect of all Senior Indebtedness before
the Holders of the Securities are entitled to receive any payment on account of
principal of (or premium, if any) or interest on the Securities.
Unless otherwise provided in Section 301, no payment in respect of
Securities shall be made if, at the time of such payment, there exists a default
in payment of all or any portion of any Senior Indebtedness, and such default
shall not have been cured or waived in writing or the benefits of this sentence
waived in writing by or on behalf of the holders of such Senior Indebtedness. In
addition, unless otherwise provided in Section 301, during the continuation of
any event of default (other than a default referred to in the immediately
preceding sentence) with respect to any Senior Indebtedness permitting the
holders to accelerate the maturity thereof and upon written notice thereof given
to the Trustee, with a copy to the Company (the delivery of which shall not
affect the validity of the notice to the Trustee), by any holder of such Senior
Indebtedness or its representative, then, unless and until such an event of
default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company with respect to the principal of or
interest on the Securities or to acquire any of the Securities or on account of
the redemption provisions for the Securities; provided, however, that if the
holders of the Senior Indebtedness to which the default relates have not
declared such Senior Indebtedness to be immediately due and payable within 90
days after the occurrence of such default (or have declared such Senior
Indebtedness to be immediately due
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and payable and within such period have rescinded such declaration of
acceleration), then the Company shall resume making any and all required
payments in respect of the Securities (including any missed payments). Only one
payment blockage period under the immediately preceding sentence may be
commenced within any consecutive 270-day period with respect to the Securities.
No event of default which existed or was continuing on the date of the
commencement of any 90-day payment blockage period with respect to the Senior
Indebtedness initiating such payment blockage period shall be, or be made, the
basis for the commencement of a second payment blockage period by a Holder or
representative of such Senior Indebtedness whether or not within a period of 270
consecutive days unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days (and, in the case of any such
waiver, no payment shall be made by the Company to the holders of Senior
Indebtedness in connection with such waiver other than amounts due pursuant to
the terms of the Senior Indebtedness as in effect at the time of such default).
In the event that, notwithstanding the foregoing, the Trustee or the Holder
of any Security shall have received any payment or distribution of any kind or
character, whether in cash, property or securities, before all Senior
Indebtedness is paid in full or payment thereof provided for, and if such fact
shall then have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, agent or other Person making payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
Nothing in this Section shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
In addition, nothing in this Section shall prevent the Company from making
or the Trustee from receiving or applying any payment in connection with the
redemption of Securities if the first publication of notice of such redemption
(whether by mail or otherwise in accordance with this Indenture) has been made,
and the Trustee has received such payment from the Company, prior to the
occurrence of any of the contingencies specified in the first two paragraphs of
this Section.
SECTION 1303. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, 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) to the rights of the holders of such Senior
Indebtedness to receive payments or distributions from the Company applicable to
the Senior Indebtedness until the principal of (and premium, if any) and
interest on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness to which the holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments pursuant to
the provisions of this Article to the holders of Senior Indebtedness by Holders
of the Securities or the Trustee, shall, as between the Company, its creditors
other than holders of Senior
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Indebtedness, and the Holders of the Securities be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
SECTION 1304. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one
hand, and the holders of Senior Indebtedness, on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as between the Company 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 against the Company of the Holders of the Securities and creditors of the
Company other than the holders of 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 of the holders of
Senior Indebtedness to receive cash, property or securities of the Company
otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1305. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof, whether upon original
issue or upon transfer or assignment, authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 1306. No Waiver of Subordination Provisions.
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 any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Holders of the Securities, without incurring
responsibility to the Holders of the Securities and without impairing or
releasing the subordination provided in this Article or the obligations of the
Holders of the Securities to the holders of Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment of, or
renew or alter, Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding, (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness, (iii) release any Person liable in any manner for
the collection of Senior Indebtedness, or (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
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SECTION 1307. Notice to Trustee.
The Company shall give prompt written notice to the Trustee in the form of
an Officers' Certificate of any fact known to the Company which would prohibit
the making of any payment of money to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article. Notwithstanding the
provisions of this Article 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 to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article, unless and until the
Trustee shall have received at its Corporate Trust Office written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor at least two Business Days prior to such payment date; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601, shall be entitled in all respects to assume that no
such facts exist.
Subject to the provisions of Section 601, the Trustee shall be entitled to
rely on the delivery to it of a written notice by 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 holder of Senior Indebtedness or
a trustee on behalf of any such holder. 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 Article, 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, 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 1308. Reliance on Certificate of Liquidating Agent.
Upon any payment or distribution referred to in this Article, the Trustee,
subject to the provisions of Section 601, and the Holders of the Securities
shall be entitled to rely upon any order or decree entered by any court of
competent jurisdiction in which a dissolution, winding up or total or partial
liquidation or reorganization of the Company is pending, or a certificate of the
trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for
the benefit of creditors, 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, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 1309. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of the Securities or to
the Company or to any other Person cash, property or securities to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
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<PAGE>
SECTION 1310. Rights of Trustee as Holder of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
SECTION 1311. Article Applicable to Paying Agent.
In case 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 in such case (unless the context shall otherwise
require) 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 this Section shall not apply to the Company or any Affiliate of the Company
if it or such Affiliate acts as Paying Agent.
ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1401. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any or all series may be called at
any time and from time to time pursuant to this Article to make, give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be made, given or taken by Holders of
Securities of such series.
SECTION 1402. Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of Securities of
any series for any purpose specified in Section 1401, to be held at such times
and at such place in New York, New York, as the Trustee shall determine. Notice
of every meeting of Holders of Securities of any series, setting forth the time
and the place of such meeting and in general terms the action proposed to be
taken at such meeting, shall be given, in the manner provided in Section 106,
not less than 20 nor more than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in aggregate principal amount of the Outstanding
Securities of any series, shall have requested the Trustee for any such series
to call a meeting of the Holders of Securities of such series for any purpose
specified in Section 1401, by written request setting forth in reasonable detail
the action proposed to be taken at the meeting, and the Trustee shall not have
made the first publication of the notice of such meeting within 30 days after
receipt of such request or shall not thereafter proceed to cause the meeting to
be held as provided herein, then the Company or the Holders of Securities of
such series in the amount above specified, as
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<PAGE>
the case may be, may determine the time and the place in New York, New York, for
such meeting and may call such meeting for such purposes by giving notice
thereof as provided in Subsection (a) of this Section.
SECTION 1403. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing a proxy for a
Holder or Holders of one or more Outstanding Securities of such series by such
Holder or Holders. The only Persons who shall be entitled to be present or to
speak at any meeting of Holders of Securities of any series shall be the Persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.
SECTION 1404. Quorum; Action.
The Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of a series shall constitute a quorum for a meeting
of Holders of Securities of such series. In the absence of a quorum within 30
minutes of the time appointed for any such meeting, the meeting shall, if
convened at the request of Holders of Securities of such series, be dissolved.
In any other case, the meeting may be adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting. Subject to Section 1405(d), notice of the reconvening of any
adjourned meeting shall be given as provided in Section 1402(a), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly that Persons entitled to vote a majority
in principal amount of the Outstanding Securities of such series shall
constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the Holders of a majority
in aggregate principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 902, any
resolution with respect to any request, demand, authorization, direction,
notice, consent or waiver which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage that is less than a
majority in aggregate principal amount of the Outstanding Securities of a series
and may be adopted at a meeting or an adjourned meeting duly reconvened and at
which a quorum is present as aforesaid by the affirmative vote of the Holders of
such specified percentage in aggregate principal amount of the Outstanding
Securities of that series.
Except as limited by the proviso to Section 902, any resolution passed or
decision taken at any meeting of Holders of Securities of any series duly held
in accordance with this Section shall be binding on all the Holders of
Securities of such series, whether or not present or represented at the meeting.
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<PAGE>
SECTION 1405. Determination of Voting Rights; Conduct and
Adjournment of Meetings.
(a) The holdings of Securities shall be evidenced in the manner specified
in Section 104 and the appointment of any proxy shall be evidenced in the manner
specified in Section 104 or by having the signature of the person executing the
proxy witnessed or guaranteed by any trust company, bank or banker. Such
regulations may provide that written instruments appointing proxies, regular on
their face, may be presumed valid and genuine without other proof.
(b) 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 Holders of Securities as provided in Section 1402(b), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall appoint a temporary chairman. A permanent chairman and
a permanent secretary of the meeting shall be elected by vote of the Persons
entitled to vote a majority in aggregate principal amount of the Outstanding
Securities of such series represented at the meeting.
(c) At any meeting each Holder of a Security of such series and each proxy
shall be entitled to one vote for each $1,000 principal amount of the
Outstanding Securities of such series held or represented by him; 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,
except as a Holder of a Security of such series or as a proxy.
(d) Any meeting of Holders of Securities of any series duly called pursuant
to Section 1402 at which a quorum is present may be adjourned from time to time
by Persons entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
SECTION 1406. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series 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, at least in
duplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by the secretary of the meeting and there shall be
attached to such 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 such notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached
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<PAGE>
thereto the ballots voted at the meeting. Any record so signed and verified
shall be conclusive evidence of the matters therein stated.
--------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INACOM CORP.
/s/ David C. Guenthner
By:________________________________
[SEAL] Name: David C. Guenthner
Title: Executive Vice President and
Attest: Chief Financial Officer
/s/ Michael E. Steffan
- --------------------------
Name: Michael E. Steffan
Title: Secretary
NORWEST BANK, MINNESOTA, NATIONAL
ASSOCIATION, TRUSTEE
/s/ Curtis D. Schwegman
By:______________________________
Name: Curtis D. Schwegman
Title: Assistant Vice President
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<PAGE>
-67-
<PAGE>
EXHIBIT 5.1
McGRATH, NORTH, MULLIN & KRATZ, P.C.
SUITE 1400 ONE CENTRAL PARK PLAZA
222 SOUTH 15th STREET
OMAHA, NEBRASKA 68102
(402) 341-3070
September 29, 1997
InaCom Corp.
10810 Farnam Drive
Omaha, Nebraska 68154
Gentlemen:
InaCom Corp. (the "Company") proposes to file with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, a registration
statement on Form S-3 (the "Registration Statement") covering up to $300,000,000
in securities including the proposed issuance from time to time of common stock,
preferred stock and debt securities (collectively the "Securities"). Such of the
Securities which are debt securities (the "Debt Securities") are to be issued in
one or more series from time to time under one or more indentures (each an
"Indenture"), forms of which appear as exhibits to the Registration Statement.
In connection with the foregoing, we have examined corporate records of the
Company and such other documents and materials as we considered relevant to the
opinions set forth below, and have made such investigation of matters of law and
fact as we have considered appropriate.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and existing under the laws
of the state of Delaware and all necessary corporate action on the part of the
Company has been taken to authorize the registration of the Securities.
2. The Securities when sold, as contemplated in the Registration Statement,
will be legally issued, fully paid and non-assessable.
3. The execution and delivery of each Indenture by the Company has been
duly authorized, and subject to compliance with the procedures specified in each
Indenture relating to the authorization of the several series of Debt
Securities, the issuance of the Debt Securities in such series will be duly
authorized, and when each Indenture has been duly executed and delivered by the
Company and the Debt Securities of a series has been so authorized and executed
by the Company, authenticated by the applicable trustee and delivered against
payment therefor, the Debt Securities of such series will constitute legally
issued and valid obligations of the Company.
<PAGE>
This opinion is delivered solely in connection with the filing of the
Registration Statement by the Company and may not be used for any other purpose
without our consent.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name in the section entitled "Legal Matters" of
the Registration Statement.
Very truly yours,
McGRATH, NORTH, MULLIN & KRATZ, P.C.
/s/ David L. Hefflinger
FOR THE FIRM
<PAGE>
<TABLE>
Exhibit 12
Ratios of Earnings to Fixed Charges
Fiscal Year Ended December Twenty-Six Weeks Ended
June 29, June 28,
1994(1) 1995 1996(2) 1996 1997
------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) from
continuing operations...... $1,680,397 $2,047,215 $2,885,019 $1,316,307 $1,657,705
Add provision for income. 85,406 95,476 136,888 58,340 108,238
taxes
and services.......... 34,736 57,653 80,148 37,294 47,961
= ---------- ---------- ---------- ---------- ---------
Total......... 1,800,539 2,200,344 3,102,055 1,411,941 1,813,904
========== ========== ========== ========== =========
Fixed Charges:
Interest................ 113,797 122,386 162,651 74,316 92,080
Interest factor portion. 52,506 67,599 103,228 42,790 79,858
of rentals
Total fixed charges... 7,516 13,821 17,480 8,208 10,179
---------- ---------- ---------- ---------- ---------
173,819 203,806 283,359 125,314 182,117
========== ========== ========== ========== =========
Earnings
Computer products....... (659) 5,418 9,703 4,102 4,883
Computer services....... 2,527 5,272 7,381 2,796 5,691
Communication products
and services.......... 77 1,017 1,649 516 1,380
---------- ---------- ---------- ---------- ---------
$ 1,945 $ 11,707 $ 18,733 $ 7,414 $ 11,954
========== ========== ========== ========== =========
(1) Gross margin and net earnings exclude the impact of non-recurring charges recognized in the second quarter of 1994.
(2) Net earnings include the impact of $991,000 non-recurring charges in the fourth quarter of 1996.
</TABLE>
<PAGE>
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
InaCom Corp.:
We consent to incorporation by reference in the Registration Statement on Form
S-3 of InaCom Corp. of our report dated February 21, 1997 relating to the
consolidated balance sheets of InaCom Corp. and subsidiaries as of December 28,
1996 and December 30, 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows and related financial statement
schedule for each of the years in the three-year period ended December 28, 1996,
which report appears in the December 28, 1996 Annual Report on Form 10-K of
Inacom Corp. and to the reference to our firm under the heading "Experts" in the
Prospectus.
We also consent to the use of our reports included in the Common Stock and ___%
Convertible Subordinated Debentures due _______ Prospectus Supplements to the
aforementioned Registration Statement and to the reference to our firm under the
headings "Experts" and "Selected Consolidated Financial Data" in the Prospectus
Supplements.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
September 29, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 25th day of September, 1997.
/s/ James Q. Crowe
_______________________
James Crowe
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 23rd day of September, 1997.
/s/ Joseph Auerbach
_______________________
Joseph Auerbach
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 29th day of September, 1997.
/s/ W. Grant Gregory
_________________________
W. Grant Gregory
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 22nd day of September, 1997.
/s/ Rick Inatome
______________________
Rick Inatome
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 29th day of September, 1997.
/s/ Joseph Inatome
_________________________
Joseph Inatome
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 23rd day of September, 1997.
/s/ Gary Schwendiman
_______________________
Gary Schwendiman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as her true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for her and in her name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as she might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
this 25th day of September, 1997.
/s/ Linda Wilson
_______________________
Linda Wilson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom
Corp. constitutes and appoints each of Bill L. Fairfield and David C. Guenthner
as his true and lawful attorney-in-fact and agent, with each having full power
of substitution and resubstitution, for him and in his name, place and stead in
any and all capacities, to execute a registration statement on Form S-3 for the
registration under the Securities Act of 1933 of up to $300,000,000 of debt
securities, common stock and preferred stock of InaCom Corp. and any and all
amendments and post-effective amendments and supplements to the registration
statement and any and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission,
granting unto each of such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 24th day of September, 1997.
/s/ Mogens C. Bay
_______________________
Mogens Bay
<PAGE>
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)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S.Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Name, address and telephone number of Agent for Service)
InaCom Corp.
(Exact name of obligor as specified in its charter)
Delaware 47-0681813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10810 Farnam Drive 68154
(Address of principal executive offices) (Zip code)
Senior Indenture
Subordinated Debentures issued pursuant to
Subordinated Indenture
(Title of the indenture securities)
1
<PAGE>
Item 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.
Comptroller of the Currency
Treasury Department
Washington, D.C.
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.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1, pursuant to General
Instruction B, because the obligor is not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits List below all exhibits filed as a part of this
Statement of Eligibility.
Exhibit 1 a. A copy of the Articles of Association of the trustee now
in effect.*
Exhibit 2 a. A copy of the certificate of authority of the trustee to
commence business issued June 28, 1872, by the
Comptroller of the Currency to The Northwestern National
Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being titled
Northwestern National Bank and Trust Company of
Minneapolis.*
c. A copy of the certificate of the Acting Comptroller of
the Currency dated January 12, 1943, as to change of
corporate title of Northwestern National Bank and Trust
Company of Minneapolis to Northwestern National Bank of
Minneapolis.*
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change effective
May 1, 1983 from Northwestern National Bank of
Minneapolis to Norwest Bank Minneapolis, National
Association.*
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e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller of
the Currency certifying approval of consolidation and
merger effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with various other
banks under the title of "Norwest Bank Minnesota,
National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. onsolidated Reports of Condition and Income of the trustee as
of June 30, 1997. (P)
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
*Incorporated by reference to the corresponding numbered exhibits to the
form T-1 filed as Exhibit 25 to registration statement number 33-66026.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 29th day of September, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Curtis D. Schwegman
------------------------------
Name: Curtis D. Schwegman
Title: Corporate Trust Officer
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EXHIBIT 6
September 29, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Curtis D. Schwegman
------------------------------
Name: Curtis D. Schwegman
Title: Corporate Trust Officer
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