UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 17, 1999
Date of Report (Date of earliest event reported)
InaCom Corp.
(Exact name of registrant as specified in its charter)
Delaware 0-16114 47-0681813
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
10810 Farnam Drive, Suite 200, Omaha Nebraska 68154
(Address of principal executive offices) (Zip Code)
(402) 758-3900
Registrant's telephone number, including area code
------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
INTRODUCTION
InaCom Corp. ("InaCom") filed a Form 8-K dated February 17, 1999 reporting
a merger pursuant to which Vanstar Corporation became a wholly-owned subsidiary
of InaCom (the "Merger"). The Form 8-K is hereby amended to add the financial
information required by Item 7(a) and Item 7(b) of Form 8-K. Further, additional
information with respect to InaCom is reported under Item 5 below.
Item 5. OTHER EVENTS.
A. Supplemental Consolidated Financial Statements
In addition to the financial information described under Item
7, InaCom is filing Selected Financial Data, Quarterly Financial Data,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Audited Supplemental Consolidated Financial Statements as set
forth below as Annex A. On February 17, 1999, InaCom consummated the Merger. The
Merger was accounted for as a pooling of interests and, accordingly, the
Supplemental Consolidated Financial Statements reflect the combined financial
positions and results of operations and cash flows of InaCom and Vanstar for all
periods presented. Upon publication of InaCom's Consolidated Financial
Statements for a period which includes February 17, 1999, the Supplemental
Consolidated Financial Statements will become the historical consolidated
financial statements of InaCom. See Note 2 to the Supplemental Consolidated
Financial Statements.
B. InaCom Special Stockholders' Meeting and Stock Issuance
On February 17, 1999, a special meeting of stockholders of InaCom was
held and stockholders voted approval on the following three items:
Proposal 1: Approval of the issuance of shares of Common Stock, par
value $.10 per share, of InaCom to stockholders of Vanstar
Corporation, a Delaware corporation ("Vanstar") pursuant to
the Agreement and Plan of Merger (the "Merger Agreement")
dated as of October 8, 1998, among Vanstar, InaCom and
InaCom Acquisition, Inc., a Delaware corporation and wholly
owned subsidiary of InaCom, as contemplated by the Merger
Agreement.
FOR 12,565,626 AGAINST 162,183 ABSTAIN 23,893
Proposal 2: Approval of an amendment to the Certificate of Incorporation
of InaCom to increase the number of authorized shares of
InaCom Common Stock.
FOR 12,405,801 AGAINST 327,765 ABSTAIN 18,136
<PAGE>
Proposal 3 Approval of an increase of 10,000,000 shares of InaCom
Common Stock authorized for issuance under the 1997 InaCom
Stock Plan.
FOR 9,096,698 AGAINST 3,630,692 ABSTAIN 24,312
On December 31, 1998 there were 16,768,473 shares of InaCom common
stock outstanding. In connection with the exchange of certificates of Vanstar
common stock for InaCom common stock as a result of the Merger, InaCom will
issue approximately 28,026,816 shares of InaCom common stock (provided, however,
that cash will be paid in lieu of any fractional shares a former Vanstar
stockholder would otherwise be entitled to). Therefore, as a result of the
Merger, InaCom will have approximately 44.7 million shares of common stock
outstanding.
Stock options issued under Vanstar's stock option plans were assumed by
InaCom in the Merger and entitle the holders to purchase an aggregate of
approximately 3,813,348 shares of InaCom common stock upon exercise of such
options.
C. New Directors
On February 17, 1999, the InaCom Board of Directors increased its size
from 9 to 13 members and elected the following four individuals to the Board,
all pursuant to the Merger Agreement: William Y. Tauscher, William H. Janeway,
Richard H. Bard, John R. Oltman.
D. Certificate of Incorporation and Bylaws
The Certificate of Incorporation of InaCom, as amended on February 17,
1999 to increase the number of authorized shares of common stock to 100,000,000,
is attached hereto as Exhibit 3.1. The by-laws of InaCom, as amended on February
17, 1999, are attached hereto as Exhibit 3.2.
E. Registration Rights Agreement
Warburg, Pincus Capital Company, L.P. ("Warburg") and William Y.
Tauscher have entered into a registration rights agreement with InaCom covering
the shares of InaCom common stock that each received in the Merger. The
registration rights agreement covers 10,548,800 shares of InaCom common stock
received by Warburg and 1,277,062 shares of InaCom common stock received by Mr.
Tauscher in the Merger. Such shares are subject to the resale restrictions of
Rule 145 of the Securities Act of 1933 and, in order to partly address these
restrictions, the agreement grants certain rights to Warburg to cause InaCom to
register Warburg's shares of InaCom common stock under the Securities Act of
1933, thereby permitting public resale free of such restrictions. Warburg is
entitled to make up to two demands that InaCom register shares of InaCom common
stock held by Warburg, representing at least 18% of the shares received by
Warburg in connection with the Merger on each occasion. Mr. Tauscher may elect
to include not less than 50% of the shares received by him in the Merger in any
demand registration by Warburg if the resales of the InaCom common stock are
made in an underwritten offering. Subject to certain limitations, if InaCom
proposes to register InaCom common stock under the Securities Act of 1933 (other
than certain registrations for business acquisitions or employee stock benefit
plans), Warburg and Mr. Tauscher will have certain rights to include shares
received by them in the Merger in the registration. If Warburg distributes its
shares of InaCom common stock received in the Merger to its limited partners and
general partner, Warburg may require InaCom to file a registration statement
under the Securities Act of 1933 providing for resales by the limited partners
and the general partner of Warburg; however, InaCom is not required to maintain
the effectiveness of such registration statement beyond the first anniversary of
the Merger. The registration rights of Warburg and Mr. Tauscher terminate when
Warburg is permitted to sell all of its shares of InaCom common stock received
in the Merger under Rule 144 of the Securities Act of 1933 during any 90-day
period. The registration rights agreement is attached hereto as Exhibit 4.1.
F. Vanstar's Trust Convertible Preferred Securities
In October 1996, Vanstar Financing Trust (the "Issuer Trust"), a
special purpose financing trust formed by Vanstar, issued 4,025,000 6 3/4% trust
convertible preferred securities (having an aggregate liquidation value of
$201,250,000) in an offering exempt from the registration provisions of the
Securities Act of 1933. At the same time, Vanstar acquired 124,484 6 3/4% trust
convertible common securities from the Issuer Trust (having an aggregate
liquidation value of $6,224,200). The preferred securities and the common
securities represent undivided beneficial interests in the assets of the Issuer
Trust which consist solely of $207,474,200 aggregate principal amount of
Vanstar's 6 3/4% convertible subordinated debentures due 2016.
The Issuer Trust does not and will not have any independent operations.
It was created for the sole and limited purpose of issuing the preferred
securities and the common securities and investing the proceeds thereof in the
Vanstar debentures. Vanstar is obligated to make all payments of funds due under
the Vanstar debentures which, in turn, are remitted to the holders of the
preferred securities and the common securities in the form of a quarterly
dividend. To the extent that the Issuer Trust receives payments on the Vanstar
debentures, but does not, for whatever reason, pass the full amount on to the
holders of the preferred securities and common securities, Vanstar will be fully
bound to pay directly any amount not so passed on.
Prior to the Merger, the preferred securities entitled the holder to
convert each share of preferred security into 1.739 shares of Vanstar common
stock. As a result of the Merger, each of the preferred securities entitles the
holder to purchase from InaCom a number of shares of InaCom common stock that
equals the Merger exchange ratio of .64 multiplied by 1.739 (the conversion
ratio previously applicable to the preferred securities). The following chart
sets forth the changes in conversion rights of the preferred securities:
Vanstar Trust Convertible Preferred Securities
<TABLE>
Pre-Merger Post-Merger
<S> <C> <C>
Exercisable for..................... Vanstar common stock InaCom common stock
Conversion ratio.................... 1.739 shares of common per 1.113 shares of common per
preferred security preferred security
Conversion price.................... $28.75 per $50.00 $44.92 per $50.00
preferred security preferred security
</TABLE>
As of February 17, 1999, InaCom guaranteed, on a subordinated basis,
distributions and other payments due in respect of the preferred securities (the
"Guarantee"). In addition, InaCom entered into a supplemental indenture ("First
Supplemental Indenture") pursuant to which it has assumed as a joint and several
obligor with Vanstar, liability for the payment of principal, premium, if any,
and interest on the Vanstar debentures, as well as the obligation to deliver
shares of InaCom common stock upon conversion of the preferred securities as
described above. The Supplemental Indenture is attached hereto as Exhibit 4.5.
The Guarantee, when taken together with InaCom's obligations under the First
Supplemental Indenture in respect of the Vanstar debentures, provides a full and
unconditional guarantee of the amounts due on the preferred securities.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following auditors report and financial statements are from Item 8
of Vanstar's Annual Report on Form 10-K, as amended, for the fiscal year ended
April 30, 1998 and are attached hereto as Exhibit 99.1:
Report of Independent Auditors
Consolidated Balance Sheets - April 30, 1998 and April 30, 1997
Consolidated Statements of Income - Three Year Period Ended April
30, 1998
Consolidated Statements of Stockholders' Equity - Three Year
Period Ended April 30, 1998
Consolidated Statements of Cash Flow - Three Year Period Ended
April 30, 1998
Notes to Consolidated Financial Statements - Three Year Period
Ended April 30, 1998
The following financial statements are from Vanstar's Quarterly Report
for the quarter ended October 31, 1998 and are attached hereto as Exhibit 99.2:
Consolidated Balance Sheets as of October 31, 1998 and April 30,
1998
Consolidated Statements of Income for the Three and Six Months
Ended October 31, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the Six Months
Ended October 31, 1998
Consolidated Statements of Cash Flows for the Six Months Ended
October 31, 1998 and 1997
Notes to Consolidated Financial Statements
<PAGE>
(b) Pro Forma Financial Information.
The unaudited pro forma combined financial information required by Item
7(b) are attached hereto as Exhibit 99.3.
(c) Exhibits.
3.1 InaCom Certificate of Incorporation as amended to date.
3.2 InaCom Bylaws as amended to date.
4.1 Registration Rights Agreement between InaCom Corp. and
Warburg, Pincus Capital Company, L.P. dated as of October 8,
1998.
4.2 Indenture dated as of October 2, 1996 between Vanstar
Corporation as issuer and Wilmington Trust Company as
trustee.
4.3 Form of 6 3/4% Preferred Securities.
4.4 Form of 6 3/4% Convertible Subordinated Debentures Due 2016.
4.5 First Supplemental Indenture dated as of February 17, 1999
to Indenture dated as of October 2, 1996.
10.1 Separation, Consulting and Noncompetition Agreement dated
October 8, 1998 between InaCom Corp. and William Y.
Tauscher.
12 Statement re: Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
99.1 Fiscal Year-End Financial Statement of Business Acquired.
99.2 Quarter-End Financial Statements of Business Acquired.
99.3 Pro Forma Financial Information.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INACOM CORP.
March 3, 1999 /s/ David C. Guenthner
By:______________________
David C. Guenthner
Executive Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
ANNEX A
Page
<S> <C>
(a) Selected Financial Data......................................................................... 9
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................10
(c) Quarterly Financial Data........................................................................19
(d) Supplemental Consolidated Financial Statements..................................................20
Independent Auditors Report.....................................................................21
Consolidated Statements of Operations - Three-Year Period Ended
December 26, 1998.............................................................................22
Consolidated Balance Sheets - December 26, 1998 and
December 27, 1997.............................................................................23
Consolidated Statements of Stockholders' Equity - Three-Year Period
Ended December 26, 1998.......................................................................24
Consolidated Statements of Cash Flow - Three-Year Period
Ended December 26, 1998.......................................................................25
Notes to Consolidated Financial Statements - Three-Year Period
Ended December 26, 1998.......................................................................26
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
Supplemental Selected Consolidated Financial Data - Dollars in thousands except
per share data
<TABLE>
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Income statement data:
Revenue $6,887,414 $6,735,104 $5,316,841 $4,084,979 $3,231,124
Net earnings (loss) from continuing operations (8,560) 65,403 47,540 19,221 (504)
Earnings (loss) per share from continuing operations
Basic ($0.19) $1.66 $1.27 $0.61 ($0.02)
Diluted ($0.19) $1.57 $1.21 $0.59 ($0.02)
Balance sheet data:
Total assets 1,880,984 2,052,499 1,609,023 1,454,246 1,240,844
Long-term debt, less current maturities of long-term debt 201,941 143,837 61,196 325,944 379,861
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding solely
convertible subordinated debt securities of the Company 194,974 194,739 194,518 - -
Stockholders' equity 565,224 533,164 343,801 274,818 157,708
OTHER INFORMATION:
Common stock closing market prices:
High $36.75 $40.13 $39.25 $15.25 $21.00
Low $15.13 $20.00 $13.25 $7.00 $6.87
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</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of the Financial Condition and Results
of Operations contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company management.
Such statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including the Risk Factors described in InaCom's Registration Statement on Form
S-4 (333-70649). Should one or more of such risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as believed, estimated or expected.
Introduction
The following discussion and analysis relates to the Supplemental Consolidated
Financial Statements of InaCom Corp. and its subsidiaries (the "Company" or
"InaCom") for the three-years ended December 26, 1998. On February 17, 1999,
Vanstar Corporation ("Vanstar") became a wholly-owned subsidiary of the Company
and each share of Vanstar common stock was converted into the right to receive
.64 shares of InaCom common stock. In connection with the transaction, InaCom
issued approximately 28.0 million shares of InaCom common stock.
The transaction was accounted for as a pooling of interests and accordingly, the
Supplemental Consolidated Financial Statements reflect the combined financial
position and results of operations and cash flows of the Company and Vanstar for
all periods presented. Upon publication of the Company's Consolidated Financial
Statements for a period which includes the consummation of the merger (February
17, 1999), the Supplemental Consolidated Financial Statements will become the
historical consolidated financial statements of the Company. See Note 2 to the
Supplemental Consolidated Financial Statements.
<PAGE>
Results of Operations
The following table sets forth for the indicated periods, revenues, gross
margins and net earnings (loss) before distribution on convertible preferred
securities, and the mix of revenues, gross margins and net earnings (loss)
before distribution on convertible preferred securities for each of the
Company's operating segments.
<TABLE>
Summary of Operating Results
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December
1998 (1) 1997 1996 (2) 1998 (1) 1997 1996 (2)
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Products $6,018,823 $5,993,536 $4,809,590 87.4% 89.0% 90.5%
Services 868,591 741,568 507,251 12.6% 11.0% 9.5%
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
Total $6,887,414 $6,735,104 $5,316,841 100.0% 100.0% 100.0%
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
Gross Margin:
Products $415,279 $437,774 $358,738 54.8% 58.9% 63.6%
Services 342,939 305,902 205,368 45.2% 41.1% 36.4%
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
Total $758,218 $743,676 $564,106 100.0% 100.0% 100.0%
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
Earnings (loss) before distribution on preferred securities:
Products ($15,934) $48,411 $29,376 N/A 65.1% 55.8%
Services 16,290 25,904 23,308 N/A 34.9% 44.2%
- ----------------------------------- ------------------------------------------ -------------------------------
- ----------------------------------- ------------------------------------------ -------------------------------
Total $356 $74,315 $52,684 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------
(1) Earnings (loss) before distribution on preferred securities includes the
impact of restructuring and unusual charges of $45.3 million in 1998.
(2) Earnings (loss) before distribution on preferred securities includes the
impact of non-recurring charges of $1.0 million in 1996.
</TABLE>
The following table sets forth for the indicated periods, the gross margin
percentage of the two operating segments and the consolidated gross margin
percentage of the Company.
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- -----------------------------------------------------------------------------
<TABLE>
Fiscal Year Ended December
-----------------------------------------
-----------------------------------------
1998 1997 1996
------------ ------------- ------------
------------ ------------- ------------
<S> <C> <C> <C>
Gross Margin:
Products 6.9% 7.3% 7.5%
Services 39.5% 41.3% 40.5%
Consolidated Gross Margin 11.0% 11.0% 10.6%
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
1998 COMPARED TO 1997
Revenues
Revenues for 1998 increased $152.3 million or 2.3% to $6.9 billion when
comparing the fiscal year ended December 26, 1998 with the fiscal year ended
December 27, 1997. Revenue growth resulted primarily from an increase in
services revenue. Services revenues increased $127.0 million or 17.1% over 1997
while product revenues increased $25.3 million or 0.4% over 1997.
Revenues from services increased as a result of increased demand for service
offerings, increased sales efforts for such service offerings, and the inclusion
of these services with increasing product sales. The total increase was $127.0
million, which includes $121.0 million attributable to an increase in services
sales through the client direct side of the business.
Product revenues increased primarily as a result of an increase in products
shipped directly to end-user clients. Product revenues through the client direct
side of the business increased $117.9 million or 2.8% compared to 1997. This
increase was partially offset by a decrease in product revenues through the
independent dealer channel. Product revenues through the independent dealer
channel decreased $92.7 million or 5.0% compared to 1997. A number of factors
contributed to the decline in revenues in the independent dealer channel. The
Company increased its efforts on the client direct side of the business in 1998
while de-emphasizing the high volume, lower-margin distribution business.
Pricing pressures and changes in vendor funding also made the independent dealer
market less profitable in 1998. Product availability issues along with dealers
reducing their inventory levels in response to changes in the terms and
conditions offered by the manufacturers also contributed to the decline in the
independent dealer revenues.
Gross Margins
The Company's consolidated gross margin percentage in 1998 was unchanged from
1997. A change in the revenue mix to include more of the higher-margin services
sales was offset by a decrease in the products gross margin percentage. The
gross margin percentage on products decreased in 1998 compared to 1997 as a
result of increased competition, increases in freight charges, and decreases in
vendor rebates. This decrease was only partially offset by a change in the mix
to include more of the higher-margin client direct business as compared to
lower-margin independent dealer business.
The gross margin percentage on services decreased in 1998 compared to 1997. This
decrease was attributable to lower utilization rates realized by services
specialists hired in 1998. The lower utilization rates of the newly hired
services specialists were primarily a result of the learning process before such
specialists become a fully utilized and billable resource. This decrease was
partially offset by more rapid growth in higher-margin technology support and
integration services offerings compared to lower-margin technology procurement
services in 1998 versus 1997.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased $88.4 million or
15.7% in 1998. SG&A as a percent of revenues increased to 9.5% in 1998 versus
8.4% in 1997. Excluding the impact of $30.3 million in unusual charges
recognized by the Company in 1998 (see "Restructuring and Unusual Charges"),
SG&A increased $58.1 million or 10.3%. SG&A as a percent of revenues, excluding
the impact of the unusual charges, increased to 9.0% in 1998 versus 8.4% in
1997. The increase in SG&A and SG&A as a percent of revenues was primarily due
to a decrease in vendor rebates and a change in the revenue mix to include more
services revenues which carries higher SG&A expenses than does products
revenues.
Restructuring and Unusual Charges
The Company incurred restructuring charges of $12.0 million during 1998 which
includes the cost of involuntary employee separation benefits, facility closures
and consolidations, and related costs associated with business realignment and
<PAGE>
restructuring actions. Facility closure costs are approximately $6.0 million and
include future lease payments, costs to abandon or dispose of property and
equipment and write-off of capitalized software net of estimates of sublease
revenues and disposal values. Employee separation benefits are approximately
$3.0 million and include severance, medical, and other benefits for
approximately 250 permanent full-time employees. Business realignment costs
relate to the decision to exit the discrete training business as the Company
focuses on its core competencies as part of the realignment of certain of the
Company's operating units, contract termination costs, and other related costs
and are approximately $3.0 million.
Unusual charges not qualifying as restructuring charges totaled $33.3 million,
of which $30.3 million are reflected in selling, general and administrative
expenses and $3.0 million are reflected in direct costs. These unusual charges
consist primarily of the write-off of certain equipment and capitalized
software, costs to liquidate excess spare parts and certain inventory
adjustments. Capitalized software and lease costs of $9.0 million include the
write-off of systems associated with the centralized dispatch and scheduling
functions and obsolete hardware and software due to the upgrade of call
technology implemented by the Company. The Company also liquidated excess spare
parts due to the centralization of its spare parts management and the
outsourcing of a substantial portion of its spare parts procurement and repair
to a single vendor resulting in a net charge of $16.5 million. Inventory
adjustments of $5.4 million include costs associated with the early return of
certain inventory items to a major vendor in an effort to reduce interest
expense and additional inventory reserves to record inventory at lower of cost
or market due to the reduced price protection available from major vendors as
part of the supply chain reengineering. Other items of $2.4 million consist
primarily of the incentive pay to retain certain employees during the
restructuring activities and costs associated with the termination of certain
marketing commitments.
Financing Expense
Financing expense for 1998 increased by $6.2 million to $66.5 million. Financing
expense increased primarily as a result of higher average daily borrowings, the
temporary use of more expensive financing during the transition to the Company's
new financing agreements in the second quarter of 1998, and a financing charge
recognized in the third quarter of 1998. The pre-tax financing charge of $1.3
million, recognized under Statement of Financial Accounting Standard (SFAS) No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," related to the sale of assets under an accounts
receivable securitization completed in July 1998. The increase in average daily
borrowings was partially offset by a decrease in the average daily borrowing
rate (excluding the impact of the temporary financing and the financing charge).
The increase in average daily borrowings during 1998 resulted from financing an
increase in accounts receivable which resulted from an increase in revenues and
vendor receivables during this period. The decrease in the average daily
borrowing rate in 1998 (excluding the impact of the temporary financing and the
financing charge) resulted primarily from the issuance of $86.25 million of 4.5%
convertible subordinated debentures in November 1997 (see "Liquidity and Capital
Resources"), the Company's new financing agreements, and the favorable borrowing
rates in the financial markets.
Distribution on Convertible Preferred Securities of Trust, Net of Tax
In October 1996, the Vanstar Financing Trust (the "Trust"), a special purpose
financing trust formed by Vanstar, issued 4,025,000 6 3/4% trust convertible
preferred securities. Distributions on preferred securities accrue at an annual
rate of 6 3/4% of the liquidation value of $50 per security ($201,250,000 in the
aggregate) and are included in "Distributions on convertible preferred
securities of Trust, net of income taxes" in the Consolidated Statements of
Operations.
Net Earnings (Loss)
Net earnings (loss) are reported after giving effect to the distributions on
convertible preferred securities, which were $8.9 million in both 1998 and 1997.
Including the impact of the financing charge under SFAS No. 125 (see "Financing
Expense") and the restructuring and unusual charges recorded by the Company (see
<PAGE>
"Restructuring and Unusual Charges"), the net loss was $8.6 million, or $0.19
per diluted share, in 1998 compared to net earnings of $65.4 million, or $1.57
per diluted share, in 1997. Excluding the financing charge under SFAS No. 125 of
$0.7 million after-tax and the restructuring and unusual charges of $45.3
million, net earnings were $37.5 million, or $0.85 per diluted share, in 1998.
These decreases resulted from the factors discussed above.
1997 COMPARED TO 1996
Revenues
Revenues for 1997 increased $1.4 billion or 26.7% to $6.7 billion when comparing
the fiscal year ended December 27, 1997 with the fiscal year ended December 28,
1996. Revenue growth resulted from an increase in all revenue components.
Product revenues increased $1.2 billion or 24.6% over 1996 and revenues from
services increased $234.3 million or 46.2% over 1996.
Product revenues increased primarily as a result of an increase in products
shipped directly to the end-user, successful sales and marketing efforts, and
overall industry growth. Product revenues through the client direct side of the
business increased $944.7 million or 29.4% compared to 1996 and product revenues
through the independent dealer channel increased $239.2 million or 14.9%
compared to 1996.
Revenues from services increased as a result of increased demand for service
offerings, increased sales efforts for such service offerings, and the inclusion
of these services with increasing product sales. The total increase was $234.3
million, which includes $230.3 million attributable to an increase in sales
through the client direct side of the business.
Gross Margins
The increase in the Company's gross margin percentage for 1997 was primarily due
to the change in the revenue mix to include more of the higher-margin services
revenue versus lower-margin products revenue. The decrease in the gross margin
percentage for products in 1997 was primarily due to a decrease in the gross
margin percentage on product sales through the independent dealer channel. This
decrease was partially offset by an increase in the gross margin percentage on
product sales through the client direct side of the business. The increase in
gross margin percentage for services resulted primarily from a change in the mix
of services to include more of the higher-margin technology integration services
partially offset by a decrease in technology support services and an increase in
lower-margin technology procurement services.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased $118.8 million or
26.7% in 1997. SG&A as a percent of revenues was unchanged at 8.4% in 1997 and
1996. The increase in SG&A spending was primarily due to the increased volume of
products and services revenues.
Financing Expense
Financing expense for 1997 increased by $25.5 million to $60.3 million.
Financing expense increased primarily due to higher average daily borrowings
partially offset by lower borrowing rates. The increase in the average daily
borrowings resulted primarily from the additional financing required to support
additional accounts receivable and higher inventory levels. The decrease in the
borrowing rate resulted from the Company selling additional accounts receivable
through asset securitization programs, the issuance of $55.25 million of 6.0%
convertible subordinated debentures in June 1996 for which a full year's benefit
was realized in 1997, the issuance of $86.25 million of 4.5% convertible
subordinated debentures in November 1997, and favorable borrowing rates in the
financial markets (see "Liquidity and Capital Resources").
<PAGE>
Net Earnings
Net earnings are reported after giving effect to the distributions on
convertible preferred securities, which were $8.9 million in 1997 and $5.1
million in 1996. Net earnings for 1997 increased 37.6% to $65.4 million compared
to net earnings of $47.5 million, which included non-recurring charges of $1.0
million, for 1996. Earnings per share increased to $1.57 per diluted share from
the $1.21 per diluted share, which includes non-recurring charges of $0.02 per
diluted share, reported for 1996. The increase resulted from the factors
discussed above.
Non-Material 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 a non-recurring charge of $1.0
million to net earnings related to the business combinations during the fourth
quarter of 1996. The effect of the non-material poolings was to increase
stockholders' equity by approximately $0.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided through a $350.0 million
line of credit under a financing agreement with IBMCC, a senior secured
revolving credit facility with Deutsche Bank of up to $250.0 million, and asset
securitization programs with JP Morgan and Nesbitt Burns aggregating up to
$425.0 million. Capital resources also include $201.3 million in
Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust holding solely convertible subordinated debt securities of the
Company and $141.5 million of convertible subordinated debentures.
As a result of the February 1999 merger between InaCom and Vanstar, all amounts
outstanding under the $350.0 million financing agreement, the $250.0 million
senior secured revolving credit facility, and the $425.0 million asset
securitization programs became immediately due and payable. The Company has
received written waivers precluding such debt acceleration under each of the
agreements from the parties to these agreements. In addition, as a result of the
merger, the Company will give notice to the holders of $141.5 million of
convertible subordinated debentures that a holder can require the Company to
repurchase such holder's debentures at 100% of the principal amount plus accrued
and unpaid interest. The holders may only exercise such repurchase option during
the 30-day period following the date of the notice.
The Company has a $350.0 million line of credit under its financing agreement
with IBMCC. On December 26, 1998, the Company had $247.4 million outstanding
under that facility, of which $70.9 million was included in accounts payable and
$176.5 million was classified as short-term borrowings. Borrowings under the
line of credit are subject to certain borrowing base limitations and are secured
by portions of the Company's inventory, accounts receivable, and certain other
assets. On December 26, 1998, amounts borrowed under the line of credit carried
an interest rate of 6.8% based on LIBOR. The line of credit expires March 31,
1999. The Company presently plans to allow this line of credit to expire, and to
replace the interest-bearing working capital portion with the senior secured
bank facility and to transfer the non-interest bearing floor planning portion to
the Company's existing $400.0 million floor planning facility with IBMCC.
The senior secured revolving credit facility, which expires in April 2002, was
entered into in April 1998 for $200.0 million and was increased in August 1998
to $250.0 million. Certain inventory and assets of the Company secure this
facility. On December 26, 1998, $60.0 million was outstanding under this
facility with an interest rate of 6.6% based on LIBOR.
In December 1996, the Company established an asset securitization facility,
which currently provides the Company with up to $175.0 million in available
<PAGE>
credit. Pursuant to this asset securitization facility, the Company sells an
undivided percentage ownership interest in certain accounts receivable. As of
December 26, 1998, the proceeds of this receivable sale transaction totaled
$175.0 million. On December 26, 1998, the implicit interest rate on the
receivable sale transaction was 5.5%.
In July 1998, the Company entered into another asset securitization facility to
fund up to $250.0 million by selling certain direct division trade 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. On December 26, 1998, $231.0 million was
funded under the program. On December 26, 1998, the implicit interest rate on
the receivable sale transaction was 5.7%.
The $141.5 million of convertible subordinated debentures consists of $86.25
million of 4.5% convertible subordinated debentures issued in November 1997 and
$55.25 million of 6.0% convertible subordinated debentures issued in June 1996.
The 1997 debentures are due November 1, 2004 and are convertible into common
stock of the Company at a conversion rate of 25.235 shares per each $1,000
principal amount of debentures (equivalent to a conversion price of $39.63 per
share), subject to adjustments under certain circumstances. The 1997 debentures
are not redeemable by the Company prior to November 1, 2001; thereafter the
Company may redeem the debentures at various premiums to principal amount. The
1997 debentures may also be redeemed at the option of the holder 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 merger
between InaCom and Vanstar is a Change in Control. As a result, the Company will
give notice to the holders of the 1997 debentures that a holder can require
InaCom to repurchase such holder's debentures at 100% of the principal amount
plus accrued and unpaid interest. The holders may only exercise such repurchase
option during the 30-day period following the date of the notice. Subject to
certain conditions, InaCom will either pay the repurchase price in cash or in
InaCom common stock valued at 95% of the average of the closing prices of InaCom
common stock for a five trading day period ending on the third trading day
preceding the repurchase date.
The 1996 debentures are due June 15, 2006 and are convertible into common stock
of the Company at a conversion price of $24.00 per share, subject to adjustments
under certain circumstances. The 1996 debentures are not redeemable by the
Company prior to June 16, 2000; thereafter the Company may redeem the debentures
at various premiums to principal amount. The 1996 debentures may also be
redeemed at the option of the holder 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 merger between InaCom and Vanstar is a
Change in Control. As a result, the Company will give notice to the holders of
the 1996 debentures that a holder can require InaCom to repurchase such holder's
debentures at 100% of the principal amount plus accrued and unpaid interest. The
holders may only exercise such repurchase option during the 30-day period
following the date of notice.
In October 1996, the Company's subsidiary trust issued certain preferred
securities, raising gross proceeds of $201.3 million. The holders of the
preferred securities are entitled to cumulative cash distributions at an annual
rate of 6 3/4% of the liquidation amount of $50 per security. The distributions
are payable quarterly in arrears in the aggregate amount of approximately $3.5
million per quarter. The aggregate net proceeds to the Company from this
offering totaled $194.4 million after selling expenses, discounts, and
commissions. The preferred securities are convertible at the option of the
holder into InaCom common stock at a conversion rate of 1.113 shares of InaCom
common stock for each preferred security (equivalent to a conversion price of
$44.92 per share).
Long-term debt was 26.3% of total long-term debt and equity on December 26, 1998
versus 21.2% on December 27, 1997. The decrease was a result of an increase in
equity due to the issuance of additional shares of common stock, primarily in
relation to business combinations.
<PAGE>
The Company's credit facilities contain certain restrictive covenants, including
the maintenance of minimum levels of working capital and net worth, limitations
on the amount of funded debt and interest expense, limitations on incurring
additional indebtedness, and restrictions on the amount of dividends the Company
can pay to stockholders. As of December 26, 1998, the Company was in compliance
with or had received written waivers for the covenants contained in these
agreements.
The Company occasionally uses derivative financial instruments to limit the
effect of increases in the interest rates on certain floating-rate debt. The
Company does not hold or issue derivative financial instruments for trading
purposes. As of December 26, 1998 the Company had two separate interest rate
swap agreements each for an aggregate notional amount of $100 million with
unrelated financial institutions, which were entered into in September 1998 and
November 1998 and resulted in certain floating-rate interest payment obligations
becoming fixed-rate interest payment obligations at 5.2% and 4.7%, respectively.
The September 1998 interest rate swap agreement is a one-year agreement with a
one-year extension at the provider's option. The November 1998 interest rate
swap is a four-year agreement with a call provision at the provider's option
after three years. An interest rate swap agreement entered into in January 1997
carrying a fixed-rate interest payment obligation at 5.8% for an aggregate
notional amount of $100 million expired in January 1998, an interest rate swap
agreement entered into in October 1997 carrying a fixed-rate interest payment
obligation of 5.7% for an aggregate notional amount of $100 million was
terminated in September 1998, and an interest rate swap agreement entered into
in March 1998 carrying a fixed-rate interest payment obligation of 5.7% for an
aggregate notional amount of $100 million was terminated in November 1998 As a
result of the above mentioned swap agreements, financing expense was increased
by approximately $0.2 million in 1998.
During 1998, the Company generated $207.6 million of cash from operations.
Inventory decreased by $454.3 million during 1998 with a portion of the decrease
offset by a decrease in accounts payable of $188.2 million. Accounts receivable
increased $157.6 million during 1998. Inventory decreased primarily as a result
of the vendors' changes in terms and conditions and the Company's efforts in
managing its inventory levels. Accounts payable decreased as a result of the
decrease in inventory levels. Accounts receivable increased as a result of an
increase in vendor receivables.
The Company used $147.9 million in cash for investing activities in 1998. Cash
of $73.3 million was used to purchase fixtures and equipment. Cash of $57.2
million was used for business combinations and contingent payments related to
business combinations (See Note 2 - Business Combinations in Notes to
Supplemental Consolidated Financial Statements).
Net cash used in financing activities in 1998 totaled $55.5 million, of which
$60.6 million was used to repay short-term borrowings and $7.3 million was used
to repay long-term debt. This was partially offset by the $6.3 million in cash
that was provided by the issuance of stock under employee stock plans and the
$6.0 million in cash that was provided from the sale of additional trade
accounts receivable.
The Company believes the funding expected to be generated from operations and
provided by the credit facilities existing on December 26, 1998 will be
sufficient to meet working capital and capital investment needs in 1999.
YEAR 2000
InaCom began preparing its computer-based systems for year 2000 ("Y2K") computer
software compliance issues in 1996. Historically, certain computer programs were
written using two digits rather than four to define the applicable year. As a
result, software may recognize a date using the two digits "00" as 1900 rather
than the year 2000. Computer programs that do not recognize the proper date
could generate erroneous data or cause systems to fail. InaCom's Y2K project
covers both traditional computer systems and infrastructure ("IT Systems") and
computer-based hardware and software, facilities and equipment ("Non-IT
Systems"). InaCom's Y2K project has six phases: inventory, assessment,
renovation, testing, implementation and contingency planning.
InaCom completed the remediation of its critical business systems during the
fourth quarter of 1998. InaCom expects to replace any non-compliant IT Systems
<PAGE>
by the end of the first quarter of 1999, with testing and implementation
completed by the end of the second quarter of 1999. InaCom will replace
non-compliant systems acquired pursuant to the Vanstar merger in the third
quarter of 1999. InaCom has also completed an inventory and assessment of its
Non-IT Systems, which are primarily located at its distribution centers and
office locations. InaCom expects to replace any non-compliant systems by the end
of the first quarter of 1999, with testing and implementation completed by the
end of the second quarter of 1999.
InaCom's Y2K project also considers the readiness of significant customers and
vendors. Such significant vendors have indicated to InaCom an expectation to be
Y2K compliant. However, the non-compliance of such vendors could impair the
ability of InaCom to obtain necessary products or to sell or provide services to
its customers. Disruptions of the computer systems of InaCom's vendors could
have a material adverse effect on InaCom's financial conditions and results of
operations for the period of such disruption.
InaCom believes that the most reasonably likely worst case Y2K scenario is that
a small number of vendors will be unable to supply components for a short time
after January 1, 2000, with a resulting disruption of product shipments and
services to InaCom's customers. As part of its Y2K process, InaCom is developing
contingency plans with respect to such a scenario and the vendors who are either
unable or unwilling to develop remediation plans to become Y2K compliant.
InaCom's contingency plans will contain a combination of actions including
stockpiling of products and components and selective resourcing of business to
Y2K compliant vendors.
InaCom had incurred approximately $5.1 million of Y2K project expenses as of
December 26, 1998. Future expenses are estimated to include approximately $1.3
million of additional costs. Such cost estimates are based upon presently
available information and may change as InaCom continues with its Y2K project.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
SUPPLEMENTAL FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Weighted Average Closing Stock
Net per Share Shares Outstanding Market Price
------------------- ---------------------- ------------------
Gross Net ------------------- ---------------------- ------------------
Revenues Margin Earnings Basic Diluted Basic Diluted High Low
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
First $1,671,888 $182,650 $16,737 $0.39 $0.37 42,700 48,200 $32.75 $23.44
Second 1,841,387 197,604 11,857 0.27 0.26 43,300 48,900 36.75 26.00
Third 1,658,116 187,599 (12,887) (0.29) (0.29) 44,600 44,600 33.63 16.38
Fourth 1,716,023 190,365 (24,267) (0.54) (0.54) 44,800 44,800 20.75 15.13
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
Year $6,887,414 $758,218 ($8,560) ($0.19) ($0.19) 43,900 43,900 $36.75 $15.13
============== ============== =========== ========= ======== ========== ========== ======== ========
============== ============== =========== ========= ======== ========== ========== ======== ========
1997
First $1,522,324 $161,667 $11,805 $0.31 $0.29 38,500 41,800 $40.13 $20.63
Second 1,713,963 186,669 16,009 0.41 0.39 39,000 42,500 32.50 20.00
Third 1,716,698 192,399 17,686 0.45 0.43 39,300 42,500 37.63 31.13
Fourth 1,782,119 202,941 19,903 0.48 0.45 41,300 45,900 39.38 24.38
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
-------------- -------------- ----------- --------- -------- ---------- ---------- -------- --------
Year $6,735,104 $743,676 $65,403 $1.66 $1.57 39,500 43,000 $40.13 $20.00
============== ============== =========== ========= ======== ========== ========== ======== ========
============== ============== =========== ========= ======== ========== ========== ======== ========
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE
IMPACT OF VANSTAR MERGER)
Supplemental Consolidated Financial Statements
December 26, 1998 and December 27, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
InaCom Corp.:
We have audited the accompanying supplemental consolidated financial statements
of InaCom Corp. and subsidiaries as of December 26, 1998 and December 27, 1997,
and the related supplemental consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 26, 1998. In connection with our audits of the
supplemental consolidated financial statements, we have also audited the
supplemental financial statement schedule for the three-year period ended
December 26, 1998. These supplemental consolidated financial statements and
supplemental financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
supplemental consolidated financial statements and supplemental consolidated
financial statement schedule based on our audits. We did not audit the financial
statements of Vanstar Corporation ("Vanstar") prior to 1998, a company acquired
in February 1999 in a business combination accounted for as a
pooling-of-interests. Such statements are included in the consolidated financial
statements of the Company and reflect total assets constituting 53.3 percent as
of December 27, 1997 and total revenues constituting 42.1 percent and 41.7
percent for the years ended December 27, 1997 and December 28, 1996,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Vanstar, is based solely on
the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of InaCom Corp. and Vanstar on February 17, 1999, which has been
accounted for as a pooling-of-interests as described in Note 2 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation. However, they will become the historical
consolidated financial statements of InaCom Corp. and subsidiaries after
financial statements covering the date of consummation of the business
combination are issued.
In our opinion, based on our audit and report of other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of InaCom Corp. and
subsidiaries as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 26, 1998, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination. Also in our
opinion, the related supplemental financial statement schedule, when considered
in relation to the supplemental 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 19, 1999
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
Three-year period ended December 26, 1998
(Amounts in thousands, except per share data)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Products $6,018,823 $5,993,536 $4,809,590
Services 868,591 741,568 507,251
- ---------------------------------------------------------------------------------------------------------------------
6,887,414 6,735,104 5,316,841
- ---------------------------------------------------------------------------------------------------------------------
Direct costs:
Products 5,603,544 5,555,762 4,450,852
Services 525,652 435,666 301,883
- ---------------------------------------------------------------------------------------------------------------------
6,129,196 5,991,428 4,752,735
- ---------------------------------------------------------------------------------------------------------------------
Gross margin 758,218 743,676 564,106
Selling, general and administrative expenses 651,835 563,399 444,626
Restructuring charges 12,009 - -
- ---------------------------------------------------------------------------------------------------------------------
Operating income 94,374 180,277 119,480
Financing expense, net 66,513 60,311 34,768
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and distributions on preferred
securities of trust 27,861 119,966 84,712
Income tax expense 27,505 45,651 32,028
- ---------------------------------------------------------------------------------------------------------------------
Earnings before distributions on preferred securities of trust 356 74,315 52,684
Distributions on preferred securities of trust, less taxes of $4,668; $5,013;
and $2,893 in 1998, 1997, and 1996, respectively 8,916 8,912 5,144
- ---------------------------------------------------------------------------------------------------------------------
Net earnings (loss) ($8,560) $65,403 $47,540
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic ($0.19) $1.66 $1.27
Diluted ($0.19) $1.57 $1.21
- ---------------------------------------------------------------------------------------------------------------------
Common shares and equivalents outstanding:
Basic 43,900 39,500 37,500
Diluted 43,900 43,000 40,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
December 26, 1998 and December 27, 1997
(Amounts in thousands, except share data)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
Assets 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $69,939 $62,068
Accounts receivable, less allowance for doubtful accounts of $15,381 in 1998 and
$14,203 in 1997 705,305 594,819
Inventories 485,283 899,836
Other current assets 33,090 21,735
Deferred income taxes 26,255 23,714
- ---------------------------------------------------------------------------------------------------------------
Total current assets 1,319,872 1,602,172
- ---------------------------------------------------------------------------------------------------------------
Property and equipment, at cost 379,292 352,238
Less accumulated depreciation 182,162 144,493
- ---------------------------------------------------------------------------------------------------------------
Net property and equipment 197,130 207,745
- ---------------------------------------------------------------------------------------------------------------
Other assets, net of accumulated amortization of $18,086 in 1998 and $17,732 in 1997 49,520 47,375
Cost in excess of net assets of businesses acquired,
net of accumulated amortization of $33,863 in 1998 and $21,775 in 1997 314,462 195,207
- ---------------------------------------------------------------------------------------------------------------
$1,880,984 $2,052,499
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $554,217 $699,700
Notes payable and current maturities of long-term debt 179,829 314,151
Income taxes payable 3,937 5,908
Other current liabilities 179,684 159,831
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 917,667 1,179,590
- ---------------------------------------------------------------------------------------------------------------
Other long-term liabilities 1,178 1,169
Long-term debt, less current maturities 201,941 143,837
Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trust holding solely convertible subordinated debt securities
of the Company 194,974 194,739
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 100,000,000 shares;
issued shares 44,795,289 in 1998 and 42,658,028 in 1997 4,480 4,266
Additional paid-in capital 407,159 346,870
Accumulated other comprehensive income (2,480) (374)
Retained earnings 157,302 182,402
- ---------------------------------------------------------------------------------------------------------------
566,461 533,164
Unearned restricted stock (1,237) -
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 565,224 533,164
- ---------------------------------------------------------------------------------------------------------------
$1,880,984 $2,052,499
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three-year period ended December 26, 1998
(Amounts in thousands)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common stock Additional other Unearned Total
------------- paid-in Treasury comprehensive Retained restricted stockholders'
Shares Amount capital Stock income earnings stock equity
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1995 36,745 $3,675 $202,315 ($161) $ - $69,459 ($470) $274,818
Comprehensive income, net of tax:
Net earnings - - - - - 47,540 - 47,540
Foreign currency translation adjustment - - - - - - - -
Unrealized gain on available for sale
security - - - - 1,373 - - 1,373
------------
------------
Comprehensive income 48,913
Shares issued in connection
with business combinations 691 69 6,581 - - - - 6,650
Shares issued under stock plans, net of tax 750 75 12,652 161 - - - 12,888
effect
Amortization of unearned restricted stock - - - - - - 455 455
Other 118 12 65 - - - - 77
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 38,304 3,831 221,613 - 1,373 116,999 (15) 343,801
Comprehensive income, net of tax:
Net earnings - - - - - 65,403 - 65,403
Foreign currency translation adjustment - - - - (167) - - (167)
Unrealized loss on available for sale
security - - - - (1,580) - - (1,580)
------------
------------
Comprehensive income 63,656
Shares issued through public offering,
net of offering expenditures 3,000 300 92,650 - - - - 92,950
Shares issued in connection
with business combinations 860 86 24,397 - - - - 24,483
Shares issued under stock plans, net of tax
effect 494 49 8,210 - - - - 8,259
Amortization of unearned restricted stock - - - - - - 15 15
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 42,658 4,266 346,870 - (374) 182,402 - 533,164
Adjustments to conform company year - ends (161) (16) (2,785) - (1,117) (16,540) - (20,458)
Comprehensive income, net of tax:
Net loss - - - - - (8,560) - (8,560)
Foreign currency translation adjustment - - - - 38 - - 38
Unrealized loss on available for sale
security - - - - (1,027) - - (1,027)
------------
------------
Comprehensive income (9,549)
Shares issued in connection
with business combinations 1,785 179 53,789 - - - - 53,968
Shares issued in connection
with equity investment 54 5 1,457 - - - - 1,462
Shares issued under stock plans, net of tax
effect 459 46 7,828 - - - (1,529) 6,345
Amortization of unearned restricted stock - - - - - - 292 292
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 26, 1998 44,795 $4,480 $407,159 - ($2,480) $157,302 ($1,237) $565,224
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial
statements
<PAGE>
INACOM CORP. AND SUBSIDIARIES (INCLUDES RETROACTIVE IMPACT OF VANSTAR MERGER)
Supplemental Consolidated Statements of Cash Flows
Three-year period ended December 26, 1998
(Amounts in thousands)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($8,560) $65,403 $47,540
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 78,121 58,403 39,553
Noncash restructuring and unusual charges 39,053 - -
Changes in assets and liabilities, net
of effects from business combinations:
Accounts receivable (153,557) (197,486) (143,479)
Inventories 454,282 (98,168) (65,418)
Other current assets (14,329) 3,737 (6,073)
Accounts payable (188,226) (30,148) 14,663
Other liabilities 18,809 2,509 (2,885)
Income taxes (17,972) (4,902) 20,600
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 207,621 (200,652) (95,499)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business combinations (57,211) (49,011) (60,112)
Proceeds from sale of building - - 3,125
Additions to property and equipment (73,332) (106,531) (51,464)
Other (17,337) (14,184) (25,435)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (147,880) (169,726) (133,886)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from (payments of) notes payable (60,554) 93,179 (151,576)
Proceeds from issuance of convertible preferred
securities of trust, net - - 194,320
Proceeds from receivables sold 6,000 125,000 175,000
Principal payments on long-term debt (7,286) (10,121) (55,596)
Proceeds from offering of public stock - 92,950 -
Proceeds from long-term debt - 86,250 55,250
Proceeds from employee stock plans 6,345 8,259 12,888
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (55,495) 395,517 230,286
- ---------------------------------------------------------------------------------------------------------------------
Change in accumulated other comprehensive income 38 (167) -
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,284 24,972 901
Adjustment to conform company year ends 3,587 - -
Cash and cash equivalents, beginning of year 62,068 37,096 36,195
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $69,939 $62,068 $37,096
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The supplemental consolidated financial statements include the accounts of
InaCom Corp. (Company) and its wholly-owned subsidiaries. The Company is a
single-source provider of information technology products and technology
management services designed to enhance the productivity of information systems
primarily of Fortune 1000 clients. The Company offers a comprehensive range of
integrated life cycle services to manage the entire technology life cycle. The
Company sells its products and services through a marketing network of
company-owned business centers throughout the United States that focus on
serving large corporations. The Company also has a network of value-added
resellers that typically have regional, industry, or specific product focus. All
significant intercompany balances and transactions have been eliminated in
consolidation.
On February 17, 1999, subsequent to the Company's fiscal year ended December 26,
1998, the Company issued 0.64 shares of common stock for each share of Vanstar
common stock outstanding which was approximately 28.0 million shares of its
common stock for all the outstanding common stock of Vanstar Corp. Vanstar Corp.
("Vanstar") is a provider of products and services to Fortune 1000 companies and
other large enterprises which enable those customers to build, manage and
enhance their personal computer networks. This business combination was
accounted for as a pooling-of-interests combination and, accordingly, the
Company's supplemental consolidated financial statements have been restated to
include the accounts and results of Vanstar as if the companies had operated
together from the beginning of the earliest period presented.
(b) 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, spare parts,
and related materials. Periodically, the Company assesses the appropriateness of
the inventory valuations giving consideration to obsolete, slow-moving and
nonsalable inventory.
In order to adequately service its customers, the Company is required to
maintain quantities of consumable and repairable parts ("spare parts") for
extended periods of time. Based on historical experience, the Company determines
an allocation of the spare parts to both current inventories and property and
equipment.
(c) Other Assets
Other assets include vendor authorization rights, long-term notes receivable,
and other long term investments which are valued at cost. Vendor authorization
rights are being amortized over their contractual life of ten years.
Available-for-sale securities are also included in other assets and are being
valued at market with any unrealized gain or loss included as a component of
other comprehensive income, net of income taxes.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Cost in Excess of Net Assets of Business Acquired
The excess of the cost over the fair value of assets of businesses acquired is
being amortized on a straight-line basis over the expected periods to be
benefited, generally over twenty to twenty-five 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.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(e) Depreciation
Depreciation on property and equipment is calculated on the straight-line method
over the estimated useful lives of the respective assets ranging from three to
thirty-nine years using the straight-line method.
(f) 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 and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years 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.
(g) 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 or ratably if performed over a service contract period.
Deferred revenue primarily represents unrecognized service revenue.
(h) Advertising and Promotional Costs
Advertising and promotional costs are expensed as incurred and amounted to $19.1
million, $18.7 million, and $16.9 million for each of the three years ended
December 26, 1998, respectively.
(i) Marketing Development Funds
Primary vendors of the Company provide various incentives, in cash or credit
against obligations, for promoting and marketing their product offerings.
Beginning in May 1998, funds or credits received became primarily based on the
sales of the vendors' 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 5% of
sales.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Risks and Uncertainties
Financial instruments, which potentially expose the Company to a concentration
of credit risk, principally consist of accounts receivable. The Company sells
products to a large number of customers in many different industries and various
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.
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.
(k) Financial Instruments
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, and notes payable and short-term borrowings approximate fair
value because of the short maturity of these instruments. The fair values of the
convertible subordinated debentures 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 convertible subordinated debentures approximates book
value. The carrying value of the preferred securities (see Note 8 Convertible
Preferred Securities of Trust) approximates their fair value based upon quoted
market prices.
The Company occasionally uses derivative financial instruments to limit the
effect of increases in the interest rates on certain floating-rate debt. The
Company does not hold or issue derivative financial instruments for trading
purposes. As of December 26, 1998 the Company had two separate interest rate
swap agreements for an aggregate notional amount of $100 million each with
unrelated financial institutions, which were entered into in September 1998 and
November 1998 and resulted in certain floating-rate interest payment obligations
becoming fixed-rate interest payment obligations at 5.2% and 4.7%, respectively.
The September 1998 interest rate swap agreement is a one-year agreement with a
one-year extension at the provider's option. The November 1998 interest rate
swap is a four-year agreement with a call provision at the provider's option
after three years. An interest rate swap agreement entered into in January 1997
carrying a fixed-rate interest payment obligation of 5.8%, for an aggregate
notional amount of $100 million expired in January 1998, an interest rate swap
agreement entered into in October 1997 carrying a fixed-rate interest payment
obligation of 5.7%, for an aggregate notional amount of $100 million was
terminated in September 1998, and an interest rate swap agreement entered into
in March 1998 carrying a fixed-rate interest payment obligation of 5.7%, for an
aggregate notional amount of $100 million was terminated in November 1998. As a
result of the above mentioned swap agreements, financing expense was increased
by approximately $0.2 million in 1998. The fair value of the swap agreements as
of December 26, 1998 was $1.1 million.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) 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
On February 17, 1999, subsequent to the Company's fiscal year ended December 26,
1998, the Company issued 0.64 shares of common stock for each share of Vanstar
common stock outstanding which was approximately 28.0 million shares of the
Company's common stock for all the outstanding common stock of Vanstar Corp.
Vanstar Corp. ("Vanstar") is a provider of products and services to Fortune 1000
companies and other large enterprises which enable those customers to build,
manage and enhance their personal computer networks. This business combination
was accounted for as a pooling-of-interests combination and, accordingly, the
Company's supplemental consolidated financial statements have been restated to
include the accounts and results of Vanstar as if the companies had operated
together from the beginning of the earliest period presented.
The Company expects to record a material pre-tax charge following consummation
of the Vanstar merger to cover (1) the direct costs of the merger during the
first quarter of 1999 (including the fees of financial advisors, legal counsel,
and independent auditors), (2) the cost of integrating certain aspects of the
businesses of the Company and Vanstar, (3) the cost of canceling certain
purchase commitments, (4) the costs of employee terminations and facility
expenses to eliminate duplicative functions and locations, and (5) other merger
related items. This pre-tax charge is estimated to be in the range of $120 to
$155 million. The after-tax impact of this charge is estimated to be in the
range of $83 to $107 million. The estimated charges and nature of the costs
included therein as well as the periods in which these costs are recorded are
subject to change as the Company's integration plan is more fully developed and
more accurate estimates become available. The accompanying supplemental
consolidated financial statements do not reflect such charges.
Prior to the combination, Vanstar's fiscal year ended April 30. In recording the
pooling-of-interests combination, Vanstar's financial statements for the twelve
months ended December 26, 1998, were combined with the Company's financial
statements for the same period and Vanstar's financial statements for its years
ended April 30, 1998 and 1997 were combined with the Company's financial
statements for its fiscal years ended December 27, 1997 and December 28, 1996,
respectively. Vanstar's unaudited results of operations for the four months
ended April 30, 1998, included revenues of $942.0 million and net income of
$16.5 million. An adjustment has been made to stockholders' equity as of
December 26, 1998, to eliminate the effect of including Vanstar's results of
operations for the four months ended April 30, 1998, in both the years ended
December 26, 1998 and December 27, 1997.
In 1996, the Company acquired Mentor Technologies, Ltd., an Ohio limited
partnership ("Mentor Technologies") and Contract Data Services, Inc., a North
Carolina corporation ("CDS"). The total consideration given in 1996 for these
business combinations was 771,114 shares of common stock. These business
combinations were accounted for as poolings of interests and accordingly, the
Company's supplemental consolidated financial statements have been restated to
include the accounts and results of Mentor and CDS.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(2) BUSINESS COMBINATIONS (Continued)
In December 1996, the Company effected two additional 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 these business combinations. The Company recognized a non-recurring
charge of $1.0 million to net earnings related to the business combinations
during the fourth quarter of 1996. The effect of the non-material poolings was
to increase stockholders' equity by approximately $0.6 million in 1996.
In 1998, the Company completed several business combinations and made contingent
payments in relation to business combinations completed in 1998, 1997 and 1996.
The total consideration given in 1998 for business combinations, including
contingent payments, was $57.2 million in cash and 1,785,170 shares of common
stock. The excess purchase price over the estimated fair value of the net assets
acquired was $135.5 million in 1998; the excess is being amortized using the
straight-line method over twenty years. The business combinations accounted for
as purchases reflect the operations of the acquired entities since the
respective acquisition dates.
During 1997 and 1996 the Company completed several acquisitions in transactions
accounted for as purchases. The total consideration given for the 1997
acquisitions was $73.4 million in cash and 892,708 shares of common stock. The
total consideration given for the 1996 acquisitions was $61.1 million in cash
and 327,495 shares of common stock. The excess purchase price over the estimated
fair value of the net assets acquired was $95.8 million in 1997 and $37.9
million in 1996; the excess is being amortized using the straight-line method
over twenty years to twenty-five years.
In connection with certain acquisitions, the Company may be required to make
additional payments that are contingent upon the acquired businesses achieving
certain performance criteria. The Company made additional payments in 1998 of
$4.2 million in cash and 226,780 shares of common stock and additional payments
in 1997 of $2.3 million in cash and 76,800 shares of common stock. These
additional payments have been recorded as cost in excess of net assets of
businesses acquired.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(2) BUSINESS COMBINATIONS (Continued)
The following unaudited pro forma financial information presents the combined
results of operations of the Company as if the acquisitions described above for
1998 and 1997 accounted for as purchase transactions had occurred as of the
beginning of the year preceding the consummation of the transaction after giving
effect to certain adjustments. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and the acquired entities constituted a single entity during such
periods.
<TABLE>
- ---------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $6,931,836 $7,023,916 $5,706,330
Net Earnings (7,119) 63,376 45,260
Basic earnings per share ($0.16) $1.53 $1.18
Diluted earnings per share ($0.16) $1.46 $1.13
- ---------------------------------------------------------------------------------------
</TABLE>
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment stated at cost is as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land, buildings and improvements $48,538 $48,998
Furniture, fixtures and equipment 85,866 77,590
Computer equipment 189,057 162,263
Computer parts held for repair and exchange 55,831 63,387
- ----------------------------------------------------------------------------------------------------------
$379,292 $352,238
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(4) RESTRUCTURING AND UNUSUAL CHARGES
In August 1998, the Company announced a program to reduce expenses in line with
expected revenue and industry dynamics. The program included both items that
qualify as restructuring costs as defined by Emerging Issues Task Force 94-3 and
other unusual charges. This program to reduce expenses included a reduction in
workforce and elimination of some of its facilities through consolidation during
the second quarter in accordance with approved management plans. The Company
also wrote-off equipment and systems associated with the support of certain
finance functions that were affected by the realignment of the business into two
operating units and the reduction of workforce. In addition, the Company
wrote-off redundant equipment and systems associated with the centralized
service dispatch and scheduling functions. The Company also liquidated excess
spare parts due to the centralization of its spare parts management and the
outsourcing of a substantial portion of its spare parts procurement and repair
to a single vendor. Restructuring and unusual charges totaled $45.3 million, of
which $39.1 million related to noncash charges such as duplicated facilities and
spare parts and software write-offs. The remaining $6.2 million related to cash
payments made to employees for incentives and severance.
Restructuring Charges
Restructuring charges of $12.0 million include the cost of facility closures and
consolidations, involuntary employee separation benefits, and related costs
associated with business realignment and restructuring actions in accordance
with approved management plans. Facility closure costs of $6.0 million include
future lease payments, costs to abandon or dispose of property and equipment and
capitalized software, net of estimates of sublease revenues and disposal values.
Employee separation benefits of $3.0 million include severance, medical, and
other benefits for approximately 250 permanent full-time employees. Reductions
occurred in virtually all areas of the Company. Business realignment costs
relate to the decision to exit the discrete training business as the Company
focuses on its core competencies as part of the realignment of the Company into
two distinct operating units, contract termination costs and other related costs
and are $3.0 million. There are no remaining restructuring reserves.
Unusual Charges
Unusual charges not qualifying as restructuring charges totaled $33.3 million,
of which $30.3 million are reflected in selling, general and administrative
expenses and $3.0 million are reflected in direct costs. These unusual charges
consist primarily of the write-off of certain equipment and capitalized
software, costs to liquidate excess spare parts and certain inventory
adjustments. Capitalized software and lease costs of $9.0 million include the
write-off of systems associated with the centralized dispatch and scheduling
functions and obsolete hardware and software due to the upgrade of call
technology implemented by the Company. The Company also liquidated excess spare
parts due to the centralization of its spare parts management and the
outsourcing of a substantial portion of its spare parts procurement and repair
to a single vendor, resulting in a net charge of $16.5 million. Inventory
adjustments of $5.4 million include costs associated with the early return of
certain inventory items to a major vendor in an effort to reduce interest
expense and additional inventory reserves to record inventory at lower of cost
or market due to the reduced price protection available from major vendors as
part of the supply chain reengineering. Other items of $2.4 million consist
primarily of the incentive pay to retain certain employees during the
restructuring activities and costs associated with the termination of certain
marketing commitments.
As the Company implements its strategic plan to respond to current industry
dynamics, there can be no assurance that additional restructuring actions will
not be required. In addition, there can be no assurance that the estimated costs
of the restructuring program will not change.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(5) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
- -------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $21,514 $41,238 $10,095
State 4,695 6,679 1,588
Deferred:
Federal (2,502) (6,949) 15,528
State (870) (330) 1,924
- -------------------------------------------------------------------------------------------------
$22,837 $40,638 $29,135
- -------------------------------------------------------------------------------------------------
</TABLE>
The above income tax expense is presented net of tax benefits related to
distributions on preferred securities of trust.
The reconciliation of the statutory federal income tax rate and the effective
tax rate are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax $4,997 $37,115 $26,836
State income taxes, net of federal benefit 2,486 4,127 2,958
Change in estimate related to prior year tax returns 12,651 - -
Other 2,703 (604) (659)
- -------------------------------------------------------------------------------------------------
$22,837 $40,638 $29,135
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(5) INCOME TAXES (Continued)
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>
- -------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Valuation reserves $23,149 $22,866
Accrued expenses not deducted until paid 12,990 5,784
Other 3,383 3,893
- -------------------------------------------------------------------------------------------------
Total deferred tax assets 39,522 32,543
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities
Vendor discounts 5,453 2,374
Depreciation 5,797 5,600
Other 1,777 1,446
- -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 13,027 9,420
- -------------------------------------------------------------------------------------------------
Net deferred tax assets $26,495 $23,123
- -------------------------------------------------------------------------------------------------
</TABLE>
There was no valuation allowance for deferred tax assets at December 26, 1998 or
December 27, 1997.
(6) DEBT
A summary of debt follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable $236,500 $308,351
Obligations under capital leases 3,770 7,479
Convertible subordinated debentures 141,500 141,500
Other - 658
- ----------------------------------------------------------------------------------------------------------
Total outstanding debt 381,770 457,988
Less current maturities 179,829 314,151
- ----------------------------------------------------------------------------------------------------------
Long-term debt, excluding current maturities $201,941 $143,837
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(6) DEBT (Continued)
The Company's primary sources of liquidity are provided through a $350.0 million
line of credit under a financing agreement with IBMCC, a senior secured
revolving credit facility with Deutsche Bank of up to $250.0 million, and asset
securitization programs with JP Morgan and Nesbitt Burns aggregating up to
$425.0 million (see Note 7 to Supplement Consolidated Financial Statements
Accounts Receivable and Credit Arrangements). Capital resources also include
$201.3 million in Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely convertible subordinated debt
securities of the Company (see Note 8 to Supplement Consolidated Financial
Statements - Preferred Securities of Trust) and $141.5 million of convertible
subordinated debentures.
As a result of the February 1999 merger between InaCom and Vanstar, all amounts
outstanding under the $350.0 million financing agreement, the $250.0 million
senior secured revolving credit facility, and the $425.0 million asset
securitization programs became immediately due and payable. The Company has
received written waivers precluding such debt acceleration under each of the
agreements from the parties to these agreements. In addition, as a result of the
merger, the Company will give notice to the holders of $141.5 million of
convertible subordinated debentures that a holder can require the Company to
repurchase such holder's debentures at 100% of the principal amount plus accrued
and unpaid interest in cash or stock. The holders may only exercise such
repurchase option during the 30-day period following the date of the notice.
On December 26, 1998, the Company had $247.4 million outstanding under its
facility with IBMCC, of which $70.9 million was included in accounts payable and
$176.5 million was classified as short-term borrowings. Borrowings under the
line of credit are subject to certain borrowing base limitations and are secured
by portions of the Company's inventory, accounts receivable, and certain other
assets. On December 26, 1998, amounts borrowed under the line of credit carried
an interest rate of 6.8% based on LIBOR. The line of credit expires March 31,
1999. The Company presently plans to allow this line of credit to expire, and to
replace the interest-bearing working capital portion with the senior secured
bank facility and to transfer the non-interest bearing floor planning portion to
the Company's existing $400.0 million floor planning facility with IBMCC.
The senior secured revolving credit facility, which expires in April 2002, was
entered into in April 1998 for $200.0 million and was increased in August 1998
to $250.0 million. Certain inventory and assets of the Company secure this
facility. On December 26, 1998, $60.0 million was outstanding under this
facility with an interest rate of 6.6% based on LIBOR. The amounts outstanding
under this facility have been classified as long-term debt based on the terms of
the agreement.
The $141.5 million of convertible subordinated debentures consists of $86.25
million of 4.5% convertible subordinated debentures issued in November 1997 and
$55.25 million of 6.0% convertible subordinated debentures issued in June 1996.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(6) DEBT (Continued)
The 1997 debentures are due November 1, 2004 and are convertible into common
stock of the Company at a conversion rate of 25.235 shares per each $1,000
principal amount of debentures (equivalent to a conversion price of $39.63 per
share), subject to adjustments under certain circumstances. The 1997 debentures
are not redeemable by the Company prior to November 1, 2001; thereafter the
Company may redeem the debentures at various premiums to principal amount. The
1997 debentures may also be redeemed at the option of the holder 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 merger
between InaCom and Vanstar is a Change in Control. As a result, the Company will
give notice to the holders of the 1997 debentures that a holder can require
InaCom to repurchase such holder's debentures at 100% of the principal amount
plus accrued and unpaid interest. The holders may only exercise such repurchase
option during the 30-day period following the date of the notice. Subject to
certain conditions, InaCom will either pay the repurchase price in cash or in
InaCom common stock valued at 95% of the average of the closing prices of InaCom
common stock for a five trading day period ending on the third trading day
preceding the repurchase date.
The 1996 debentures are due June 15, 2006 and are convertible into common stock
of the Company at a conversion price of $24.00 per share, subject to adjustments
under certain circumstances. The 1996 debentures are not redeemable by the
Company prior to June 16, 2000; thereafter the Company may redeem the debentures
at various premiums to principal amount. The 1996 debentures may also be
redeemed at the option of the holder 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 merger between InaCom and Vanstar is a
Change in Control. As a result, the Company will give notice to the holders of
the 1996 debentures that a holder can require InaCom to repurchase such holder's
debentures at 100% of the principal amount plus accrued and unpaid interest. The
holders may only exercise such repurchase option during the 30-day period
following the date of notice.
The 1997 and 1996 debentures have been classified as long term debt because the
Company has the ability and intent to refinance the debentures under the
long-term senior secured revolving credit facility or the debentures will be
repaid in the Company's common stock.
Aggregate maturities of long-term debt for the next five years are as follows:
$179.8 million in 1999; $0.3 million in 2000; $0.1 million in 2001; $201.5
million in 2002 and $0.0 million in 2003.
(7) ACCOUNTS RECEIVABLE AND CREDIT ARRANGEMENTS
The Company currently has two separate asset securitization programs which
allows for funding of up to $250.0 million and $175.0 million, respectively. The
agreements are with two separate, unrelated financial institutions and the
Company, through separate, non-consolidated wholly-owned special purpose
corporations. In connection with these asset securitization programs, the
Company sells on a revolving basis, certain pooled receivables to special
purpose corporations which in turn sells a percentage ownership interest in the
pooled receivables to a commercial paper conduit sponsored by two separate
financial institutions. These transactions have been recorded as a sale in
accordance with Statement of Financial Accounting Standards (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. The Company is retained as servicer of the pooled receivables.
Although management believes that the servicing revenues earned will be adequate
compensation for performing the services, estimating the fair value of the
servicing asset was not considered practicable. Consequently, a servicing asset
has not been recognized. The gross proceeds resulting from the sale of the
percentage
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(7) ACCOUNTS RECEIVABLE AND CREDIT ARRANGEMENTS (Continued)
ownership interests in the pooled receivables totaled $406.0 million as of
December 26, 1998 and $374.6 millions as of December 27, 1997. The proceeds are
reflected as a reduction in accounts receivable. Changes in the amount of pooled
receivables sold are included in cash flows from financing activities in the
consolidated statements of cash flows. Upon the February 17, 1999 consummation
of the merger between Inacom and Vanstar, all amounts outstanding under the
asset securitization agreements were accelerated and immediately due. Prior to
the consummation of the merger, the Company received written waivers from the
parties to the agreements. On December 26, 1998, the implicit interest rate on
the receivable sale transactions were 5.7% and 5.5%.
The Company also has floor plan agreements to take advantage of vendor financing
programs. 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 $1.0 million on December 26, 1998 and $2.4 million on December
27, 1997 relating to these agreements.
(8) CONVERTIBLE PREFERRED SECURITIES OF TRUST
During 1996, the trust, of which the Company owns all of the common trust
securities, issued 4,025,000 preferred securities. The preferred securities have
a liquidation value of $50 per security and are convertible at any time at the
option of the holder into shares of InaCom common stock at a conversion rate of
1.113 shares for each preferred security, subject to adjustment in certain
circumstances. Distributions on preferred securities accrue at an annual rate of
6 3/4% of the liquidation value of $50 per preferred security and are included
in "Distributions on convertible preferred securities of trust, less income
taxes" in the consolidated statements of income. The proceeds of the private
placement, which totaled $194.4 million (net of initial purchasers' discounts
and offering expenses totaling $6.9 million) are classified as Company-obligated
mandatorily redeemable convertible preferred securities of a subsidiary trust
holding solely convertible subordinated debt securities of the Company on the
supplemental consolidated balance sheets. The Company has entered into several
contractual arrangements (the "Back-up Undertakings") for the purpose of fully
and unconditionally supporting the trust's payment of distributions, redemption
payments and liquidation payments with respect to the preferred securities.
Considered together, the Back-up Undertakings constitute a full and
unconditional guarantee by the Company of the trust's obligations on the
preferred securities.
The trust invested the proceeds of the offering in the debentures issued by the
Company. The debentures bear interest at 6 3/4% per annum, generally payable
quarterly on January 1, April 1, July 1 and October 1. The debentures are
redeemable by the Company, in whole or in part, on or after October 5, 1999 at
designated redemption prices. If the Company redeems the debentures, the trust
must redeem the preferred securities on a pro rata basis having an aggregate
liquidation value equal to the aggregate principal amount of the debentures
redeemed. The sole assets of the trust are the debentures, which have an
aggregate principal amount of $207.5 million. The debentures and related income
statement effects are eliminated in the Company's supplemental consolidated
financial statements.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(9) COMPREHENSIVE INCOME
Effective for the year ended December 26, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income in a full set of general purpose financial statements,
however, the adoption of this statement has no impact on the Company's net
income or stockholders' equity. Comprehensive income includes net income plus
items that, under generally accepted accounting principles, are excluded from
net income and are reflected as a component of equity, such as currency
translation adjustments and unrealized gains and losses on available-for-sale
securities. SFAS No. 130 also requires the accumulated balance of other
comprehensive income to be displayed separately from retained earnings and
additional paid-in capital in the equity section of the statement of financial
position. Prior period financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
<TABLE>
- ------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized (losses) on securities ($2,351) ($207)
Foreign currency translation adjustments (129) (167)
- ------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) ($2,480) ($374)
- ------------------------------------------------------------------------------------------------------
</TABLE>
The components of comprehensive income are presented net of related income tax.
The tax benefit related to other comprehensive income (loss) items was $0.4
million and $0.7 million in 1998 and 1997, respectively. The tax benefit related
primarily to the unrealized loss on available for sale securities.
(10) LEASES
The Company leases certain premises which include the general offices, warehouse
facilities and Company-owned branches, and equipment under a combination of
operating and capital leases. Operating lease terms range from monthly to ten
years and generally provide for renewal options.
Rent expense for operating leases was approximately $48.2 million, $41.4
million, and $31.5 million for the three years ended December 26, 1998,
respectively.
Future minimum operating lease obligations for the years 1999 through 2003 are
$32.6 million, $27.2 million, $21.5 million, $16.8 million, and $12.5 million,
respectively. It is anticipated that leases will be renewed or replaced as they
expire such that future annual lease obligations will approximate rent expense
for 1998.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(11) EMPLOYEE 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.
The Company makes annual contributions to the qualified plan, based on
participants' annual pay. Participants may also elect to make contributions to
the plan. The Company matches employee contributions up to limits prescribed by
the IRC. Company contributions to the plan approximated $9.0 million in 1998,
$7.2 million in 1997, and $4.6 million in 1996.
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.
(12) LITIGATION
On July 3, 1997, a trust claiming to have purchased shares of Vanstar common
stock filed suit in Superior Court of the State of California. The suit is
entitled O'Neal Trust v. Vanstar Corporation, et al., Case No. CV767266. On
January 21, 1998, the same plaintiff along with others claiming to have
purchased shares of Vanstar common stock, filed suit in the United States
District Court for the Northern District of California, making allegations
virtually identical to those in the earlier suit. The recent suit is captioned
O'Neal Trust, et al. v. Vanstar Corporation, et al., Case No. C-98-0216 MJJ.
Both suits named as defendant Vanstar and certain former directors and officers
of Vanstar. The complaints in both suits generally allege, among other things,
that the defendants made false or misleading statements or concealed information
regarding Vanstar and that the plaintiffs, as holders of the Vanstar common
stock, suffered damage as a result. The plaintiffs in both suits seek class
action status, purporting to represent a class of purchasers of Vanstar common
stock between March 11, 1996 and March 14, 1997, and seek damages in an
unspecified amount, together with other relief. The complaint in the first suit
purports to state a cause of action under California law; the complaint in the
recent suit purports to state two causes of action under the Securities Exchange
Act of 1934. On July 23, 1998, the California Superior Court dismissed the state
court complaint as to certain defendants. The Company believes that the
plaintiffs' allegations in both suits are without merit and intends to defend
the suits vigorously. The ultimate outcome of this matter is not presently
determinable.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Management believes that the ultimate resolution of
all matters will not have a material adverse effect on the Company's
consolidated financial statements.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(13) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Financing expenses and income taxes paid are summarized as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financing expenses paid $ 66,485 $ 60,259 $ 40,982
Distributions on preferred securities of Trust 13,584 13,584 6,943
Income taxes paid $ 35,255 $ 25,603 $ 11,562
- ----------------------------------------------------------------------------------------------
</TABLE>
Components of cash used for acquisitions as reflected in the consolidated
statements of cash flows are summarized as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired, including goodwill $ 146,563 $ 179,546 $ 88,854
Liabilities assumed (35,384) (106,052) (22,092)
Fair value of common stock issued (53,968) (24,483) (6,650)
- ----------------------------------------------------------------------------------------------
Cash paid, net of cash acquired $ 57,211 $ 49,011 $ 60,112
- ----------------------------------------------------------------------------------------------
</TABLE>
(14) STOCK OPTION AND AWARD PROGRAMS
Prior to January 1, 1996, the Company accounted for its stock option plans 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 1998, 1997 and 1996. In 1996, the Company adopted SFAS 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. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net earnings
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
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 SFAS No. 123.
The Company has three stock plans approved by the shareholders in 1997, 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 two to five years, and the
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(14) STOCK OPTION AND AWARD PROGRAMS (Continued)
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.
On December 26, 1998, the Company had approximately 780,000 shares available for
issuance pursuant to subsequent grants under the plans. On February 17, 1999,
the 1997 stock plan was amended in conjunction with the shareholder approval of
the Vanstar merger agreement. The amendment increased the amount of shares
issuable under the 1997 plan by 10.0 million shares, of which approximately 3.8
million shares were used to convert Vanstar options assumed in the merger.
Additional information as to shares subject to options is as follows:
<TABLE>
- -----------------------------------------------------------------------------
Number of Weighted Average
Options Exercose Price
- -----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 30, 1995 3,241,880 $8.58
Granted 1,032,980 $22.69
Exercised (515,080) $8.43
Canceled (217,480) $9.49
- -----------------------------------------------------------------------------
Options outstanding at December 28, 1996 3,542,300 $12.66
Granted 1,839,270 $22.46
Exercised (229,140) $8.87
Canceled (516,720) $14.22
- -----------------------------------------------------------------------------
Options outstanding at December 27, 1997 4,635,710 $16.56
Granted 594,440 $22.09
Exercised (123,010) $10.26
Canceled (182,745) $23.82
- -----------------------------------------------------------------------------
Options outstanding at December 26, 1998 4,924,395 $16.65
- -----------------------------------------------------------------------------
Exercisable at December 26, 1998 2,814,914 $14.12
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Options Outstanding at December 26, 1998 Exercisable at December 26, 1998
---------------------------------------------------- ------------------------------------
---------------------------------------------------- ------------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Option Number of Remaining Exercise Price Number of Exercise Price
Exercise Price Options Contractual Life Per Option Options Per Option
- ----------------------- ---------------------------------------------------- ------------------------------------
- ----------------------- ---------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$.28 to 8.00 1,685,417 4.55 Years $ 5.52 1,450,817 $ 5.67
8.00 to 15.63 1,326,750 6.60 Years 13.62 638,728 13.14
15.83 to 37.30 1,912,228 8.23 Years 25.04 725,369 25.42
- ----------------------- ---------------------------------------------------- ------------------------------------
- ----------------------- ---------------------------------------------------- ------------------------------------
$.28 to 37.30 4,924,395 6.79 Years $ 16.65 2,814,914 $ 14.12
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(14) STOCK OPTION AND AWARD PROGRAMS (Continued)
Stock Purchase Plan
The Company provided an employee stock purchase plan (the "Stock Purchase Plan")
allowing eligible employees to purchase shares of common stock. The Stock
Purchase Plan was intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
total number of shares of common stock authorized for issuance under the plan
was 640,000. All full-time employees of the Company were eligible to
participate, subject to certain limited exceptions. The Stock Purchase Plan
provided a means for the Company's employees to purchase stock through payroll
deductions of up to 10% of their gross compensation. The purchase price for
shares offered under the Stock Purchase Plan was equal to 85% of the lower of
the closing price of the common stock on the first or last day of the six month
offer period. During fiscal year 1998 and 1997, the Company sold 260,000 and
249,000 shares, respectively, of common stock under the Stock Purchase Plan. The
Stock Purchase Plan was terminated on January 31, 1999.
Pro-forma Information
Pro-forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The
following weighted-average fair values for these options were estimated at the
date of grant using a Black-Scholes option-pricing model with these
weighted-average assumptions for 1998, 1997 and 1996:
<TABLE>
- ------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair Value of Options Granted During the Year $ 7.85 $ 14.47 $ 8.54
Risk-free Interest Rate 5.4% 5.9% 6.1%
Expected Dividend Yield 0.0% 0.0% 0.0%
Expected Volatility Factor 71.0% 83.0% 82.0%
Expected Life 2.3 years 2.8 years 2.3 years
- ------------------------------------------------------------------------------------------------
</TABLE>
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 supplemental
consolidated financial statements. Had the Company recorded compensation cost
based on the fair value at the grant date for its stock options under SFAS
Statement No 123, the Company's net earnings (loss) for 1998, 1997 and 1996
would have been increased (reduced) by approximately 106.0 %, (11.7%), and
(13.4%), respectively, and the Company's diluted earnings (loss) per share for
1998, 1997 and 1996 would have been increased (reduced) by approximately 111.4%,
(14.5%), and (14.9%), respectively.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(14) STOCK OPTION AND AWARD PROGRAMS (Continued)
Pro forma net income reflects only options granted in 1998, 1997, 1996, and
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS Statement No. 123 is not reflected in the pro forma net
earnings amounts presented above, because compensation cost is reflected over
the options' vesting periods for the 1998, 1997, 1996 and 1995 options,
respectively. Compensation costs for options granted prior to January 1, 1995
are not considered.
Vanstar options, converted to InaCom options following the February 1999 merger,
and per share prices are reported pursuant to the 0.64 to 1.0 exchange ratio as
specified in the merger agreement for all periods presented.
(15) SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", in 1998 which changes the way the Company
reports information about its operating segments. The information for 1997 and
1996 is presented to conform to the 1998 presentation. The Company has various
management teams and infrastructures which offer different products and
services. The Company has identified two reportable segments: products and
services. The product segment includes the sales of desktops, laptops, servers,
monitors, printers, operating systems software, phone systems, voice mail, voice
processing, data network equipment and multiple small office-home offerings. The
services segment includes sales of integrated life cycle services which
encompasses: technology planning, procurement, integration, support, and
management. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(15) SEGMENT INFORMATION (Continued)
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The "Other" column includes corporate related
items and items which cannot practicably be identified within a business unit to
a reportable segment.
<TABLE>
- -------------------------------------------------------------------------------------------------------
Product Services Other Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 6,018,823 $868,591 - $ 6,887,414
Segment earnings before taxes (3,608) 31,469 - 27,861
Total assets 1,195,933 280,762 404,289 1,880,984
Total current liabilities 635,318 68,174 274,175 977,667
- -------------------------------------------------------------------------------------------------------
1997
Revenues 5,993,536 741,568 - 6,735,104
Segment earnings before taxes 77,208 42,758 - 119,966
Total assets 1,490,468 278,966 283,065 2,052,499
Total current liabilities 702,574 59,025 417,991 1,179,590
- -------------------------------------------------------------------------------------------------------
1996
Revenues 4,809,590 507,251 - 5,316,841
Segment earnings before taxes 47,030 37,682 - 84,712
Total assets 1,202,440 277,190 129,393 1,609,023
Total current liabilities $ 629,696 $ 69,734 $305,892 $ 1,005,322
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
Notes to Supplemental Consolidated Financial Statements Three-year period ended
December 26, 1998 (Columnar dollar amounts in thousands, except per share data)
(16) EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
are computed using the weighted average number of shares of common stock
outstanding and dilutive potential common stock outstanding during the period.
The earnings per share calculation is as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net earnings ($8,560) $65,403 $47,540
-------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 43,900 39,500 37,500
-------------------------------------------------------------------------------------------------------
Basic earnings per share ($0.19) $1.66 $1.27
- ----------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
Net earnings ($8,560) $65,403 $47,540
Net after-tax interest savings on convertible subordinated debentures - 2,271 1,057
-------------------------------------------------------------------------------------------------------
Net earnings used in diluted earnings per share calculation (8,560) 67,674 48,597
-------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 43,900 39,500 37,500
Common equivalent shares from stock options and
convertible subordinated debentures - 3,500 2,500
-------------------------------------------------------------------------------------------------------
Shares used in diluted earnings per share calculation 43,900 43,000 40,000
-------------------------------------------------------------------------------------------------------
Diluted earnings per share ($0.19) $1.57 $1.21
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1998 diluted earnings per share equals basic earnings per share. As a result of
the net loss, calculating diluted earning per share by adding back the net
after-tax interest savings and including the dilutive potential common shares
would have resulted in diluted earnings per share being anti-dilutive.
Vanstar shares are reported pursuant to the 0.64 to 1.0 exchange ratio as
specified in the February 1999 merger for all periods presented.
<PAGE>
SCHEDULE
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
- ------------------------------------------------------------------------------------------------------
Balance at Charged to
Beginning Cost and Amounts Balance at
of Period Expenses Written Off End of Period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 26, 1998
Allowance for Doubtful Accounts $14,203 $6,164 $4,986 $15,381
Fiscal Year Ended December 27, 1997
Allowance for Doubtful Accounts 12,637 4,744 3,178 14,203
Fiscal Year Ended December 28, 1996
Allowance for Doubtful Accounts 18,349 (1,079) 4,633 12,637
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Balance at Charged to
Beginning Cost and Amounts Balance at
of Period Expenses Written Off End of Period
- ------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 26, 1998
Inventory Reserve $14,273 $9,637 $4,648 $19,262
Fiscal Year Ended December 27, 1997
Inventory Reserve 15,739 3,205 4,671 14,273
Fiscal Year Ended December 28, 1996
Inventory Reserve 15,222 5,791 5,274 15,739
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Balance at Charged to
Beginning Cost and Amounts Balance at
of Period Expenses Written Off End of Period
- ------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 26, 1998
Restructuring Reserve $- $12,009 $12,009 $-
Fiscal Year Ended December 27, 1997
Restructuring Reserve - - - -
Fiscal Year Ended December 28, 1996
Restructuring Reserve - - - -
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying auditors' report.
<PAGE>
INDEX TO EXHIBITS
Exhibit
3.1 InaCom Certificate of Incorporation as amended to date.
3.2 InaCom Bylaws as amended to date.
4.1 Registration Rights Agreement between InaCom Corp. and Warburg, Pincus
Capital Company, L.P. dated as of October 8, 1998.
4.2 Indenture dated as of October 2, 1996 between Vanstar Corporation as
issuer and Wilmington Trust Company as trustee.
4.3 Form of 6 3/4% Preferred Securities.
4.4 Form of 6 3/4% Convertible Subordinated Debentures Due 2016.
4.5 First Supplemental Indenture dated as of February 17, 1999 to
Indenture dated as of October 2, 1996.
10.1 Separation, Consulting and Noncompetition Agreement dated October 8,
1998 between InaCom Corp. and William Y. Tauscher.
12 Statement re: Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick LLP.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
99.1 Fiscal Year-End Financial Statement of Business Acquired.
99.2 Quarter-End Financial Statements of Business Acquired.
99.3 Pro Forma Financial Information.
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VALCOM, INC.
The undersigned corporation hereby amends and restates its Certificate of
incorporation in its entirety. The corporation's present name and the name under
which it was originally incorporated is VALCOM, INC. The date of filing of its
original Certificate of Incorporation with the Secretary of State of Delaware
was February 11, 1985. In accordance with Sections 228 and 141 of the General
Corporation Law of the State of Delaware, a written Consent in Lieu of Special
Joint Meeting of the Board of Directors and Shareholders was executed on May 27,
1987, by the sole shareholder and all of the directors of the corporation duly
adopting amendments to the Certificate of Incorporation and this Restated
Certificate of Incorporation in its entirety. The Restated Certificate of
Incorporation was adopted in accordance with the provisions of Section 245 of
the General Corporation Law of the State of Delaware.
ARTICLE I
NAME
The name of the corporation is VALCOM, INC.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
Its registered office in the State of Delaware is located at Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle.
The registered agent in charge thereof at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSE
The purpose of the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Law of Delaware.
ARTICLE IV
AUTHORIZED SHARES
The total number of shares which this corporation shall have authority to issue
is Eleven Million (11,000,000) shares, divided into Ten Million (10,000,000)
shares of Common Stock of a par value of Ten Cents ($0.10) per share and One
Million (1,000,000) shares of Class A Preferred Stock of a par value of One
Dollar ($1.00) per share.
<PAGE>
The Class A Preferred Stock of this corporation may be divided into and issued
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 Board of Directors. The authority of the 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 Class A Preferred Stock; and (vi) whether shares have
voting rights.
ARTICLE V
DIRECTORS' POWERS
The directors shall have power to make and alter or amend the By-laws, to fix
the amount to be reserved as working capital, and to authorize and cause to be
executed mortgages and liens, without limitation as to the amount, upon the
property and franchise of the corporation.
ARTICLE VI
INTEREST OF DIRECTORS IN TRANSACTIONS
In absence of fraud, no contract or other transaction between the corporation
and any other person, corporation, firm, syndicate, association, partnership, or
joint venture shall be wholly or partially invalidated or otherwise affected by
reason of the fact that one or more of the directors of the corporation are or
become directors or officers of such other corporation, firm, syndicate, or
association, or members of such partnership or joint venture, or are pecuniarily
or otherwise interested in such contractual transaction; provided, that the fact
such director or directors of the corporation are so situated or so interested
or both, shall be disclosed or shall have been known to the Board of Directors
of the corporation. Any director or directors of the corporation who is also a
director or officer of such other corporation, firm, syndicate, or association,
or a member of such partnership, or contract or transaction, may be counted for
the purpose of determining the existence of a quorum at any meeting of the Board
of Directors of the corporation which shall authorize any such contract or
transaction and in the absence of fraud, and as long as he acts in good faith,
any such director may vote thereat to authorize any such contract or transaction
with like force and effect as if he were not a director or officer of such other
corporation, firm, syndicate, or association, or a member of such partnership,
or joint venture or pecuniarily or otherwise interested in such contract or
transaction.
ARTICLE VII
INDEMNIFICATION
The corporation shall, to the extent required, and may, to the extent permitted
by Section 102 and Section 145 of Delaware General Corporation Law as amended
from time to time, indemnify and reimburse all persons whom it may indemnify and
reimburse pursuant thereto. With respect to acts or omissions occurring on or
after May 27, 1987, no director shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any
transactions from which the director derived an improper personal benefit.
Notwithstanding the foregoing, the indemnification provided for in this Article
VII shall not be deemed exclusive of any other rights to which those entitled to
receive indemnification or reimbursement hereunder may be entitled under any
By-law of this corporation, agreement, vote or consent of stockholders or
disinterested directors or otherwise.
IN WITNESS WHEREOF, VALCOM, INC. has caused this Restated Certificate of
Incorporation to be signed by BILL L. FAIRFIELD, its President, and attested by
MICHAEL A. STEFFAN, its Secretary, this 27th day of May, 1987.
VALCOM, INC.
By: /s/ Bill L. Fairfield
----------------------------
BILL L. FAIRFIELD,
President
ATTEST:
By: /s/ Michael A. Steffan
----------------------------
MICHAEL A. STEFFAN,
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ValCom, Inc., a corporation existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the Shareholder and the Board of Directors of ValCom, Inc., by
unanimous joint written consent of said Shareholder and Directors, duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said Corporation as follows:
"BE IT RESOLVED, that the Certificate of Incorporation of the Corporation be
amended so as to delete the first paragraph of Article VII of said Certificate
in its entirety and insert in place thereof the following paragraph:
The corporation shall, to the extent required, and may, to the
extent permitted by Section 102 and Section 145 of Delaware
General Corporation Law, indemnify and reimburse all persons whom
it may indemnify and reimburse pursuant thereto. With respect to
acts or omissions occurring on or after May 27, 1987, no director
shall be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
provided, however, that this provision shall not eliminate or
limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law; or (iv) for
any transactions from which the director derived an improper
personal benefit.
SECOND: That said amendment was duly adopted in accordance with the provisions
of Sections 242, 228 and 141(f) of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said ValCom, Inc. has caused this Certificate to be signed
by Bill L. Fairfield, President, and attested by Michael A. Steffan, its
Secretary, this 14th day of August, 1987.
VALCOM, INC.
ATTEST:
/s/ Michael A. Steffan By: /s/ Bill L. Fairfield
- ------------------------------ -------------------------
Michael A. Steffan, Bill L. Fairfield,
Secretary President
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VALCOM, INC.
VALCOM, INC., a corporation organized and existing under the General Corporation
Law of the State of Delaware ("Corporation"), does hereby certify that the
amendment to the Corporation's Certificate of Incorporation set forth in the
following resolution, as approved by the Corporation's Board of Directors and
stockholders, was duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware:
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking ARTICLE I in its entirety and replacing therefor:
ARTICLE I
NAME
The name of the corporation shall be InaCom Corp."
IN WITNESS WHEREOF, VALCOM, INC. has caused this Certificate to be signed and
attested by its duly authorized officers this 5th day of August, 1991.
VALCOM, INC.
By: /s/ Bill L. Fairfield
------------------------------
BILL L. FAIRFIELD,
President
ATTEST:
/s/ Michael A. Steffan
MICHAEL A. STEFFAN,
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INACOM CORP.
INACOM CORP., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That at a meeting of the Board of Directors of INACOM CORP. a resolution
was duly adopted setting forth a proposed amendment to the Certificate of
Incorporation of said corporation declaring said amendment to be advisable and
calling for a meeting of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
"RESOLVED, that the Board of Directors declare it advisable that the
first sentence of ARTICLE IV of the Certificate of Incorporation
entitled "AUTHORIZED SHARES" be amended in accordance with Exhibit "A"
attached hereto to reflect an increase in the total number of shares
which this corporation shall have authority to issue from 11,000,000
shares to 31,000,000 shares by increasing the authorized Common Stock
par value of $.10 per share from 10,000,000 shares to 30,000,000
shares."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware on March 30, 1993, at which meeting the necessary number of
shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said INACOM CORP. has caused this Certificate to be signed
by BILL L. FAIRFIELD, its President, and attested to by MICHAEL A. STEFFAN, its
Secretary, this 30th day of March, 1993.
INACOM CORP.
ATTEST:
/s/ Michael A. Steffan By: /s/ Bill L. Fairfield
- --------------------------- -------------------------
MICHAEL A. STEFFAN, BILL L. FAIRFIELD,
Secretary President
<PAGE>
EXHIBIT "A"
ARTICLE IV
AUTHORIZED SHARES
(FIRST SENTENCE)
The total number of shares which this corporation shall have the authority to
issue is Thirty-One Million (31,000,000) shares, divided into Thirty Million
(30,000,000) shares of Common Stock of a par value of Ten Cents ($.10) per share
and One Million (1,000,000) shares of Class A Preferred Stock of a par value of
One Dollar ($1.00) per share.
The remainder of this Article shall remain unchanged in its entirety.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INACOM CORP.
INACOM CORP., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), pursuant to the provisions of the
General Corporation Law of the State of Delaware (the "DGCL"), does hereby
certify as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first sentence of ARTICLE IV of the Certificate of
Incorporation in its present form and substituting therefor a new first sentence
of ARTICLE IV in the following form:
"The total number of shares which this corporation shall have the
authority to issue is One Hundred One Million (101,000,000) shares,
divided into One Hundred Million (100,000,000) shares of Common
Stock of a par value of Ten Cents ($.10) per share and One Million
(1,000,000) shares of Class A Preferred Stock of a par value of One
Dollar ($1.00) per share."
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on
this 17th day of February, 1999.
INACOM CORP.
/s/ Bill L. Fairfield
By:
BILL L. FAIRFIELD
President
<PAGE>
Exhibit 3.2
BY-LAWS
OF
INACOM CORP.
ARTICLE I. OFFICES
The principal office of the corporation shall be located in Omaha,
Nebraska. The corporation may have such other offices, either within or without
the State of Delaware as the Board of Directors may designate or as the business
of the corporation may require from time to time.
ARTICLE II. STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders shall
be on a date and at an hour determined by the Board of Directors for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called by the Board of Directors.
Section 3. Place and Time of Meeting. The Board of Directors may
designate the time at any place, either within or without the State of Delaware,
as the time and place of the meeting for any annual meeting or for any special
meeting called by the Board of Directors.
Section 4. Notice of Meeting. Notice of a meeting of stockholders stating
the place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than sixty days before the date of the meeting by or at the
direction of the President or the Secretary to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to the stockholder at
his address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid. Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the notice of meeting. Any previously scheduled meeting of the stockholders
may be postponed, and (unless the Certificate of Incorporation otherwise
provides) any special meeting of the stockholders may be cancelled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or stockholders entitled to receive payments of any
dividend, or an order to make a determination of stockholders for any other
proper purpose, the Board of Directors of the corporation shall fix in advance a
date as the record date for any such determination of stockholders, such date in
any case to be not less than ten days nor more than sixty days prior to the date
on which the particular action, requiring such determination of stockholders, is
to be taken. If no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days, prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of
the meeting. The stock transfer book containing the most recently made complete
list of stockholders shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, the Chairman or a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
purported withdrawal from the meeting of enough stockholders to leave less than
a quorum.
Section 8. Proxies; Voting. At all meetings of stockholders, a
stockholder may vote by proxy. Such proxy shall be filed with the Secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy.
Section 9. Voting of Shares. In each meeting of stockholders except as
otherwise provided by statute or the Certificate of Incorporation, every holder
of record of stock entitled to vote shall be entitled to one vote in person or
by proxy for each share of such stock standing in such holder's name on the
corporation's list of stockholders as provided in Section 6 above. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect a director. All other elections and questions
shall, unless otherwise provided by the Certificate of Incorporation, these
By-Laws, the rules or regulations of NASD or any stock exchange applicable to
the corporation, as otherwise provided by law or pursuant to any regulation
applicable to the corporation or its securities, be decided by the affirmative
vote of the holders of a majority of the shares of stock of the corporation
which are present in person or by proxy and entitled to vote thereon.
Section 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by such person, either in person or by proxy, without a transfer of such
shares into such person's name. Shares standing in the name of a trustee or
trustees may be voted by such person, either in person or by proxy, but no
trustee shall be entitled to vote shares held by such person without a transfer
of such shares into such trustee's name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into such receiver's name if authority so
to do be contained in an appropriate order of the court by which such receiver
was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until such shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time or the presence of a quorum at a meeting. Nothing herein shall
be construed as limiting the right of the corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Section 11. Notice of Stockholder Business. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
by any stockholder of the corporation who was a stockholder of record at the
time of giving of notice provided for in Section 4, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 11. For business to be properly brought before an annual meeting by a
stockholder, a stockholder must have given timely notice thereof in writing to
the Secretary of the corporation and such business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 90 nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event the date of the annual meeting is advanced by more than 30 days, or
delayed by more than 60 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or mailed and received not earlier
than the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth
day following the date on which public announcement of the date of such meeting
is first made. In no event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a description of the
business desired to be brought before the annual meeting, the text of the
proposal or business (including the text of any resolutions proposed for
consideration and in the event that such business includes a proposal to amend
the By-Laws of the corporation, the language of the proposed amendment), and the
reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's list of stockholders, of the
stockholder proposing such business, and the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, (c) the class and number of
shares of the corporation which are owned of record and beneficially by the
stockholder and the beneficial owner, if any, (d) any material interest of the
stockholder and beneficial owner, if any, in such business, stockholder and
beneficial owner, if any, in such business, (e) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
propose such business and (f) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends to (i)
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the corporation's outstanding capital stock required to approve or
adopt the proposal and/or (ii) otherwise solicit proxies from stockholders in
support of such proposal. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 11. The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section 11, and if the Chairman should so determine, shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 12. Notice of Director Nominees at an Annual Meeting. Only
persons who are nominated with the procedures set forth in these By-Laws shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the corporation may be made at an annual meeting of
stockholders (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the corporation who was a stockholder of record at the time of
giving of notice provided for in Section 4, who is entitled to vote at the
annual meeting and who complies with the notice procedures set forth in this
Section 12. Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 90 nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event the date of the annual meeting is advanced by more than 30 days, or
delayed by more than 60 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or mailed and received not earlier
than the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth
day following the date on which public announcement of the date of such meeting
is first made. In no event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to applicable federal law (including such person's written consent to
be named as a nominee and to serving as the director if elected); and (b) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination is made, (i) the name and address, as they appear on the
corporation's list of stockholders, of such stockholder and the name and address
of the beneficial owner, if any, (ii) the class and number of shares of the
corporation which are owned of record and beneficially by such stockholder and
the beneficial owner, if any, (iii) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
nomination, and (iv) a representation whether the stockholder or the beneficial
owner, if any, intends or is part of a group which intends to (a) deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the corporation's outstanding capital stock required to elect the nominee and/or
(b) otherwise solicit proxies from stockholders in support of such nomination.
At the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in the By-Laws. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the By-Laws, and if the
Chairman should so determine, shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 13. Notice of Stockholder Nominees at a Special Meeting. Only
such business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the corporation's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any stockholder
of the corporation who is a stockholder of record at the time of giving of
notice provided for in Section 4, who shall be entitled to vote at the special
meeting and who complies with the notice procedures set forth in Section 12. In
the event the corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 12 shall be delivered to the Secretary
at the principal executive offices of the corporation not earlier than the close
of business on the 120th day prior to such special meeting and not later than
the close of business on the later of the 90th day prior to such special meeting
or the 10th day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment or postponement of a special meeting commence a
new time period (or extend any time period) for the giving of a stockholder's
notice as described above.
Section 14. Inspectors of Elections. The Board of Directors by resolution
shall appoint one or more inspectors, which inspector or inspectors may include
individuals who serve the corporation in other capacities, including, without
limitation, as officers, employees, agents or representatives, to act at the
meetings of stockholders and make a written report thereof. One or more persons
may be designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate has been appointed to act or is able to act at
a meeting of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law.
Section 15. Conduct of Meetings. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the Chairman of any meeting of
stockholders shall have the right and authority to convene and to adjourn the
meeting, to prescribe such rules, regulations and procedures and to do all such
acts, as in the judgment of such Chairman, are appropriate for the proper
conduct of the meeting. Unless and to the extent determined by the Board of
Directors or the Chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with any prescribed rules of parliamentary
procedure.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors. In addition to the powers and
authorities by these By-Laws expressly conferred upon them, the Board of
Directors may exercise all such powers of the corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 2. Number, Tenure and Qualifications. The number of directors of
the corporation shall be fixed by resolution of the Board of Directors and may
be altered from time to time by a majority vote of the members of the Board of
Directors present at any regular or special meeting of the Board. Each director
shall hold office until the next annual meeting of the stockholders and until a
successor shall have been elected and qualified. The Board of Directors may
designate one of its members to serve as Chairman of the Board of Directors.
Such Chairman shall serve as chairman of all meetings of stockholders and
directors.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
shall be held on the same date as the annual meeting of stockholders. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of Delaware, for the holding of additional regular meetings.
Section 4. Special Meetings. Special meetings of the Board of Directors
unless otherwise prescribed by statute, may be called by or at the request of
the President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of Delaware as the place for holding any
special meeting of the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting of the Board of
Directors shall be given at least three (3) days in advance thereof. Notices of
meetings of the Board of Directors may be given by mail or may (and, if three or
fewer days notice is given, shall) be given by telegram, telephone, personal
delivery, telecopier or other means of electronic transmission. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram or by
telecopy, such notice shall be deemed to be delivered when transmitted. Any
director may waive notice of any meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed in
accordance with Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such number is present at a meeting, these directors present may adjourn
the meeting from time to time without further notice.
Section 7. Manner of Acting. Except as otherwise required by applicable
law, the act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors may
be taken without a meeting if a written consent thereto is signed by all members
of the Board and such written consent is filed with the minutes of the
proceedings of the Board. A consent in lieu of meeting may be made either by one
consent signed by all the directors or by individual consents signed by each
director. The directors may also meet by means of conference telephone or
similar communications equipment as provided by Delaware law.
Section 8. Vacancies. Vacancies in the Board of Directors and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum. Directors so chosen shall hold office until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the full Board of Directors shall shorten
the term of any incumbent director.
Section 9. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors and/or other remuneration as Director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless a
dissent shall be entered in the minutes of the meeting or unless such person
shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 11. Executive Committee. An Executive Committee of two or more
Directors may be designated by the Board of Directors. The Executive Committee,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors, except that such Committee shall not
have the authority of the Board of Directors in reference to: (1) amending the
Articles of Incorporation, (2) approving a plan of merger or consolidation, (3)
recommending to the stockholders the sale, lease or exchange of all or
substantially all the property and assets of the corporation, (4) recommending
to the stockholders the voluntary dissolution of the corporation, (5) declaring
any dividend in cash or in kind or authorizing any distribution of any shares of
capital stock of the corporation or rights to purchase any capital stock of the
corporation.
Section 12. Additional Committees. Such other committees may be
designated by the Board of Directors as the Board of Directors may deem
necessary. Such committees shall perform such functions as shall be assigned to
them and shall be compensated for such functions, as shall be determined by the
Board of Directors.
ARTICLE IV. OFFICERS
Section 1. Number. The officers of the corporation shall consist of a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices may be held by the same person.
Section 2. Election and Term of Office. The officers of the corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the stockholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until such officer's
successor shall have been duly elected and shall have qualified or until such
officer's death or until such officer shall resign or shall have been removed in
the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Vacancies. A vacancy in an office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. The President. The President shall be the principal
executive officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation The President may sign, with the Secretary or any
other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. The Vice President. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors at the time of their election, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President may sign, with the Secretary or an Assistant Secretary, certificates
for shares of the corporation; and shall perform such other duties as from time
to time may be assigned by the President or the Board of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the minutes of
the stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep a register of the
post office address of each stockholder which shall be furnished to the
Secretary by such stockholder; (e) sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned by the President or by the Board of Directors.
Section 8. The Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. The
Treasurer shall: (a) have charge and custody of and be responsible for all funds
and securities of the corporation; receive and give receipts for monies due and
payable to the corporation from any source whatsoever, and deposit all such
monies in the name of the corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with provisions of Article V of
these By-Laws; and (b) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
by the President or by the Board of Directors.
Section 9. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of Directors, may sign with
the President or a Vice President certificates for shares of the corporation,
the issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such person is also a director
of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
and in such banks, trust companies or other depositaries as the Board of
Directors may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes.
ARTICLE VII. INDEMNIFICATION
Section 1. Actions by Others. The corporation shall indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if 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 the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe the conduct was criminal. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the conduct was criminal.
Section 2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation, as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if 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 the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
Section 3. Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
Section 4. Specific Authorization. Any indemnification under Sections 1
and 2 of this Article (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections 1 and 2. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5. Advance of Expenses. Expenses incurred by an elected officer
or director in defending a civil or criminal action, suit or proceeding shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
elected officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as authorized
in this Article. Such expenses incurred by other officers, employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 6. Right of Indemnity Not Exclusive. The indemnification and
advancement of expenses provided by or granted pursuant to the Certificate of
Incorporation or these By-Laws shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 7. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
the status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article, Section 145 of the General Corporation Law of the State of Delaware, or
otherwise.
Section 8. Employee Benefit Plans. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation" as
referred to in this Article.
Section 9. Invalidity of any Provisions of this Article. The invalidity
of unenforceability of any provision of this Article shall not affect the
validity or unenforceability of the remaining provisions of this Article.
Section 10. Continuation of Indemnification. The indemnification and
advancement of expenses, to the extent provided by or granted pursuant to this
Article, these By-Laws, or the Certificate of Incorporation shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
All rights to indemnification provided by or granted pursuant to this Article,
these By-Laws, or the Certificate of Incorporation shall be deemed to be a
contract between the corporation and each director, officer, employee, or agent
of the corporation who serves or served in such capacity at any time while this
Article VII is in effect. Any repeal or modification of this Article VII shall
not in any way diminish any rights to indemnification of such director, officer,
employee or agent, or the obligations of the corporation arising hereunder.
Section 11. Certain Claims. Notwithstanding Section 1 and Section 2 of
this Article VII, the corporation shall be required to indemnify a person
described in the first sentence of Section 1 or Section 2 of this Article VII in
connection with an action, suit or proceeding (or part thereof) commenced by
such a person only if the commencement of such proceeding (or part thereof) by
such person was authorized by the Board of Directors.
ARTICLE VIII. FISCAL YEAR
The fiscal year of the corporation shall end on the last Saturday of
December of each year.
ARTICLE IX. DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Certificate of Incorporation.
ARTICLE X. WAIVER OF NOTICE
Whenever any notice is required to be given to any stockholder or
director of the corporation under the provisions of these By-Laws or under the
provisions of the Certificate of Incorporation or under the provisions of the
Delaware Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XI. AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may
be adopted by the Board of Directors at any regular or special meeting of the
Board of Directors.
2/17/99
Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of October 8, 1998 by and among InaCom Corp., a Delaware
corporation (the "Company"), Warburg, Pincus Capital Company, L.P.
("Stockholder") and William Y. Tauscher ("Tauscher").
RECITALS
The Stockholder and Tauscher may acquire shares of common stock of the
Company pursuant to a certain Agreement and Plan of Merger dated October 8, 1998
by and between the Company and Vanstar Corporation (the "Merger Agreement").
The parties desire to provide for certain registration rights with
respect to such shares of common stock.
AGREEMENT
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
Common Stock: Common stock $.10 par value, of the Company
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Prospectus: The prospectus included in the Registration Statement, as
amended or supplemented by any amendment or prospectus supplement, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
Registration Statement: Any registration statement of the Company
which covers resales of the Shares pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shares: (i) shares of Common Stock acquired by the Stockholder
pursuant to the Merger Agreement and (ii) securities of the Company issued or
issuable with respect to the shares referred to in (i) received by the
Stockholder by way of a dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
Tauscher Shares: shares of Common Stock acquired by Tauscher pursuant
to the Merger Agreement.
2. Registration.
2.1 Request for Demand Registration. If the Company shall
receive from the Stockholder at any time, a written request (with a copy
delivered by the Company to Tauscher) that the Company file a registration
statement ("Registration Statement") to effect any registration with respect to
all or a part of the Shares in an underwritten public offering of the Shares,
the Company will:
(A) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Shares; provided that the Company shall not be obligated to
effect, or take any action to effect, any such registration pursuant to
this Section 2.1(A):
(1) In any particular jurisdiction in which
the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance,
unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules
or regulations thereunder;
(2) After the Company has effected two (2)
such registrations pursuant to this Section 2.1 (A) and such
registrations have been declared or ordered effective and the sales of
all such Shares shall have closed;
(3) If the Shares requested by the
Stockholder to be registered pursuant to such request are less than 18%
of the Shares acquired by the Stockholder pursuant to the Merger
Agreement;
(4) Prior to the later of (i) the date which
is three months following the date of the closing of the Merger, or
(ii) the date on which the Company has published (within the meaning of
Accounting Series Release No. 135, as amended, of the SEC) financial
results covering at least 30 days of combined operations of the Company
and Vanstar Corporation.
(5) More than once during (i) the first
twelve months following the date of the closing of the Merger, or (ii)
the second twelve months following the date of the closing of the
Merger;
(6) If the Company shall furnish to the
Stockholder a certificate signed by the Chief Executive Officer of the
Company, stating that in the good faith judgment of the Board of
Directors of the Company it would be significantly detrimental to the
Company and its shareholders for such Registration Statement to be
filed and it is therefore essential to defer the filing of such
Registration Statement, the Company shall have the right to defer such
filing for a period of not more than four months after receipt of the
request of the Stockholder; provided, however, that the Company may not
exercise this right more than once in any six-month period; or
(7) If at the time of the Stockholder's
request, the Company is engaged, or has fixed plans to engage within 60
days of the time of such request, in an underwritten public offering of
securities of the Company, if the underwriter advises the Company that
the registration of the Shares for resale pursuant to this Agreement
would interfere with the successful marketing (including pricing) of
the securities of the Company proposed to be sold in such underwritten
offering.
The Registration Statement filed pursuant to the request of
the Stockholder may include the Tauscher Shares if Tauscher elects to
participate as provided in Section 2.2 below.
The Company may elect to use Form S-3, if available to the
Company, to satisfy the registration pursuant to this Section 2.1 if the
managing underwriter of the offering does not believe that the use of such form
will impair the pricing or marketing of the securities to be underwritten.
2.2 Tauscher Participation. Tauscher may elect to include no
less than 50% of the Tauscher Shares in an underwritten offering of the Shares
provided under Section 2.1 above by delivering written notice to the Company and
Stockholder no later than three business days following delivery of the written
request by Stockholder to the Company.
The Tauscher Shares may only be included in the underwriting
to the extent the holder or holders thereof accept the further applicable
provisions of this Section 2.2. Notwithstanding any other provision of this
Section 2.2, if the underwriter advises the Stockholder in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Shares and the Tauscher Shares shall be excluded on a pro rata
basis from the registration to the extent so required by such limitation.
2.3 Piggyback Registration. If the Company at any time
proposes to register Common Stock under the Securities Act either for its own
account or for the account of other stockholders, other than (A) a registration
relating solely to employee benefit plans, (B) a registration relating solely to
a Commission Rule 145 transaction, (C) a registration on any registration form
which does not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Shares, or (D) a "shelf" registration statement pursuant to
Rule 415 under the Securities Act that is filed in accordance with agreements
entered into by the Company with other holders of its equity securities in
connection with the Company's acquisition (by any manner) of any business or any
corporation, partnership, association or other business organization or division
thereof, it shall promptly give written notice to the Stockholder and Tauscher
of its intention and, upon the written request of the Stockholder and/or
Tauscher, given within 15 days after delivery of any such notice by the Company
to include in such registration Shares or Tauscher Shares (which requests shall
specify the number of Shares and Tauscher Shares, respectively, proposed to be
included in such registration), the Company shall use its best efforts to cause
all such Shares and/or Tauscher Shares to be included in such registration on
the same terms and conditions as the securities otherwise being sold in such
registration; provided, however, the Company may exclude from registration some
or all of the Shares and Tauscher Shares to the extent the managing underwriter
advises the Company that the inclusion of all of the shares proposed to be
included in such registration would interfere with the successful marketing
(including pricing) of the Common Stock proposed to be registered by the
Company. The Company shall so advise Stockholder and Tauscher of such exclusion
of shares and the number of Shares and Tauscher Shares proposed to be included
in such registration shall be allocated in the following manner: the Common
Stock held by officers and directors shall be excluded from such registration
and underwriting to the extent required by such limitation, and, if a limitation
on the number of Shares and Tauscher Shares is still required, the number of
shares that may be included in the registration and underwriting by the
Stockholder, Tauscher and other stockholders shall be reduced on a pro rata
basis, (other than securities held by other stockholders who by contractual
right demanded such registration).
<PAGE>
2.4 Shelf Registration. If the Company shall receive a written
request from the Stockholder for the Company to file a registration statement
(the Company may elect to use Form S-3, if available to the Company) for a shelf
registration with respect to a distribution of Shares by the Stockholder to its
limited partners and general partner and resales of the Shares by such limited
partners and general partner pursuant to Rule 415 of the Securities Act, then
the Company shall take reasonable actions to effect one such registration, as
soon as practicable, subject to the reasonable cooperation of the Stockholder,
and its limited partners and general partner. The effectiveness of such
registration statement, if filed, shall be maintained until the first
anniversary of the closing of the Merger. The Company shall not be obligated to
effect, or take any action to effect, any such registration pursuant to this
Section 2.4:
<PAGE>
(1) In any particular jurisdiction in which the
Company would be required to execute a general consent to
service of process in effecting such registration,
qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or
regulations thereunder; and
(2) Prior to the later of (i) the date which is three
months following the date of the closing of the Merger, or
(ii) the date on which the Company has published (within the
meaning of Accounting Series Release No. 135, as amended, of
the SEC) financial results covering at least 30 days of
combined operations of the Company and Vanstar Corporation.
2.5 Expiration. The Stockholder's registration rights under
Sections 2.1 and 2.3 and Tauscher's registration rights under Sections 2.2 and
2.3 shall expire if, in the opinion of counsel to the Company, all of the Shares
may be sold by the Stockholder under Rule 144 (without giving effect to the
provisions of 144(k)) during any 90-day period.
3. Registration Procedures. If and whenever the Company is
under an obligation pursuant to the provisions of this Agreement to effect the
registration of the Shares, the Company shall:
(a) Before filing the Registration Statement or
Prospectus pursuant to Section 2.1 or any amendments or supplements thereto
(other than documents that would be incorporated or deemed to be incorporated
therein by reference and that the Company is required by applicable securities
laws or stock exchange requirements to file) the Company shall furnish to the
Stockholder and Tauscher (if he has elected to participate pursuant to Section
2.2) and their respective counsel, copies of all such documents proposed to be
filed, which documents will be subject to the review of the Stockholder and
Tauscher (if he has elected to participate pursuant to Section 2.2) and their
respective counsel, and the Company shall not file the Registration Statement to
which the Stockholder and Tauscher (if he has elected to participate in the
offering) and their respective counsel shall reasonably object in writing within
two full Business Days. The underwriter who will administer any underwritten
offering of the Shares (and if included, the Tauscher Shares) shall be selected
by InaCom, and for registrations pursuant to Section 2.1 and 2.4, shall be
subject to the consent of the Stockholder (which shall not be unreasonably
withheld).
(b) Use its best efforts to prepare and file with the
SEC such amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective
for the applicable period specified in Section 2; cause the related Prospectus
to be supplemented by any required supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of the Shares during the applicable period.
(c) Notify the Stockholder (and Tauscher, if he has
elected to participate pursuant to Section 2.2) (i) when the Prospectus or the
Registration Statement has been filed with the SEC, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information, (iii) of the issuance by
the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in the Registration Statement or Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue or which would require the making of any changes in the Registration
Statement or Prospectus in order that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to state any
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, and (vi) of the Company's determination that a post-effective
amendment to the Registration Statement would be appropriate.
(d) Make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement , or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Shares for sale in any jurisdiction, as
promptly as practicable.
(e) Furnish to the Stockholder and its counsel (and
Tauscher and his counsel, if he has elected to participate pursuant to Section
2.2), without charge, and when filed one conformed copy each of the Registration
Statement and any amendment thereto, including financial statements but
excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits (unless requested in writing by the
Stockholder or Tauscher).
(f) Deliver to the Stockholder and underwriter (and
Tauscher, if he has elected to participate in the underwritten offering),
without charge, as many copies of the Prospectus (including a preliminary
prospectus, if any) and any amendment or supplement thereto as reasonably
requested; and the Company hereby consents to the use of such Prospectus or each
amendment or supplement thereto by the Stockholder and the underwriter in
connection with the offering and sale of the Shares in the manner described in
the Prospectus.
(g) Prior to any public offering of Shares or the
Tauscher Shares, use its best efforts to register or qualify or cooperate with
the Stockholder in connection with the registration or qualification (or
exemption from such registration or qualification) of the Shares and the
Tauscher Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as the Stockholder (or Tauscher if he
elects to participate pursuant to Section 2.2) or the underwriter reasonably
request in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period the Registration Statement is required to
be kept effective and do any and all other acts or things necessary or advisable
to enable the disposition of the Shares in such jurisdictions, provided, that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in suits or to taxation in any
such jurisdiction where it is not then so subject.
(h) Use its best efforts to cause the Shares to be
registered with or approved by such other governmental agencies or authorities
within the United States, as may be necessary to enable the Stockholder and
Tauscher to consummate the disposition of the Shares, subject to the proviso
contained in (g) above.
(i) Immediately upon the existence of any fact or the
occurrence of any event as a result of which the Registration Statement shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or a Prospectus shall contain any untrue statement of a material
fact or omit to state any 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, promptly prepare and file a
post-effective amendment to each Registration Statement or a supplement to the
related Prospectus or any document incorporated therein by reference or file any
other required document (such as a Current Report on Form 8-K) that would be
incorporated by reference into the Registration Statement so that the
Registration Statement shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and so that the Prospectus will not
contain any untrue statement of a material fact or omit to state any 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, as
thereafter delivered to the purchasers of the Shares and Tauscher Shares being
sold thereunder, and, in the case of a post-effective amendment to the
Registration Statement, use its best efforts to cause it to become effective as
soon as practicable.
(j) Enter into an underwriting agreement in form, scope
and substance as is customary in underwritten offerings and take all such other
actions in connection therewith (including, those reasonably requested by the
underwriter) in order to expedite or facilitate the disposition of the Shares
and Tauscher Shares and in such connection, (i) make such representations and
warranties, subject to the Company's ability to do so, to the Stockholder (and
Tauscher if he elects to participate pursuant to Section 2.2) and the
underwriter with respect to the business of the Company and its subsidiaries,
the Registration Statement, Prospectus and documents incorporated by reference
or deemed incorporated by reference, if any, in each case, in form, substance
and scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) use its best efforts
to obtain the opinion of counsel to the Company, which counsel and opinions (in
form, scope and substance) shall be addressed to the underwriter covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriter; (iii) use
its best efforts to obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other certified public accountants of any subsidiary of the Company or any
business acquired or to be acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriter, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings; and (iv) deliver
such documents and certificates as may be reasonably requested by the
Stockholder (and Tauscher if he elects to participate pursuant to Section 2.2)
and the underwriter to evidence the continued validity of the representations
and warranties of the Company and its subsidiaries made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement entered into by the Company.
(k) If requested in connection with a disposition of
Shares or the Tauscher Shares pursuant to the Registration Statement, make
available for inspection by the Stockholder (and Tauscher if he elects to
participate pursuant to Section 2.2) and the underwriter and any attorney or
accountant retained by the Stockholder (and Tauscher if he elects to participate
pursuant to Section 2.2) or underwriter, financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the executive officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
disposition; subject to reasonable assurances by each such person that such
information will only be used in connection with matters relating to the
Registration Statement.
(l) Comply with all applicable rules and regulations of
the SEC and make generally available to its security holders earning statements
(which need not be audited) satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated under
the Securities Act) no later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a fiscal
year), commencing on the first day of the first fiscal quarter of the Company
commencing after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(m) Cooperate with the Stockholder (and Tauscher if he
elects to participate pursuant to Section 2.2) to facilitate the timely
preparation and delivery of certificates representing the Shares to be sold and
not bearing any restrictive legends; and enable such Shares to be in such
denominations and registered in such names as the Stockholder may request.
4. Stockholder's and Tauscher's Obligations.
4.1 Stockholder Information. The Stockholder agrees to
promptly after the Company's reasonable request, furnish such information
regarding the Stockholder and the distribution of the Shares as may be required
to be included in the Registration Statement or the Prospectus as the Company
may reasonably request. The Stockholder further agrees to furnish promptly to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company not misleading. Any sale of any
Shares by the Stockholder shall constitute a representation and warranty by the
Stockholder that the information relating to the Stockholder and its plan of
distribution is as set forth in the Prospectus delivered by the Stockholder in
connection with such disposition, that such Prospectus does not as of the time
of such sale contain any untrue statement of a material fact relating to the
Stockholder or its plan of distribution and that such Prospectus does not as of
the time of such sale omit to state any material fact relating to the
Stockholder or its plan of distribution necessary to make the statements in such
Prospectus, in light of the circumstances under which they were made, not
misleading.
4.2 Tauscher Information. Tauscher agrees, if he elects to
participate in the underwritten public offering of the Shares, to promptly after
the Company's reasonable request, furnish such information regarding Tauscher
and the distribution of the Tauscher Shares as may be required to be included in
the Registration Statement or the Prospectus as the Company may reasonably
request. Tauscher further agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company not misleading. Any sale of the Tauscher Shares by
Tauscher shall constitute a representation and warranty by Tauscher that the
information relating to Tauscher and the plan of distribution as it relates to
the Tauscher Shares is as set forth in the Prospectus delivered by Tauscher in
connection with such disposition, that such Prospectus does not as of the time
of such sale contain any untrue statement of a material fact relating to
Tauscher or the plan of distribution as it relates to the Tauscher Shares and
that such Prospectus does not as of the time of such sale omit to state any
material fact relating to Tauscher or it plan of distribution necessary to make
the statements in such Prospectus, in light of the circumstances under which
they were made, not misleading.
4.3 Holdback. If the Company at any time shall register
securities for sale to the public in an underwritten offering, upon written
notice by the Company and the underwriter (and provided that the Company's
directors and executive officers are also subject to the following hold back),
the Stockholder shall not sell publicly, make any short sale of, grant any
option to the purchase of, or otherwise dispose publicly of, any Shares without
the prior written consent of the Company (which consent shall not be
unreasonably withheld) for a period designated by the Company in writing to the
Stockholder, which period shall not begin more than ten days prior to the
effectiveness of the Registration Statement pursuant to which such underwritten
public offering shall be made and shall not last more than 120 days after the
effective date of such Registration Statement. The Stockholder agrees not to
distribute Shares to the general partner, unless such general partner agrees to
be bound by this provision provided, that if the holdback is requested by the
Company during any time the shelf Registration Statement is effective pursuant
to Section 2.4, the effectiveness of such Registration Statement with respect to
the general partner shall be maintained beyond the first anniversary of the
Merger by the length of time of the holdback.
4.4 Stockholder/Tauscher. Notwithstanding anything herein, (i)
Tauscher shall not be responsible for, and his rights hereunder shall not be
affected by, the performance or nonperformance of Stockholder's obligations
hereunder and (ii) Stockholder shall not be responsible for, and Stockholder's
rights hereunder shall not be affected by, the performance or nonperformance of
Tauscher's obligations hereunder.
5. Registration Expenses. All fees and expenses incident to or
incurred by the Company's in performance of or compliance with this Agreement
shall be borne by the Company whether or not the Registration Statement becomes
effective. Such fees and expenses shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
of compliance with federal securities or Blue Sky laws), (ii) printing expenses,
(iii) fees and disbursements of counsel for the Company, (iv) fees and
disbursements of all independent certified public accountants referred to in
Section 3(j)(iii) hereof (including the expenses of any special audit and "cold
comfort" letters required by or incident to such performance) and (v) fees and
expenses for counsel to the Stockholder in a amount not to exceed $10,000. In
addition, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any person, including
special experts, retained by the Company. Notwithstanding the provisions of this
Section 5, the Stockholder and Tauscher shall pay all of their respective
underwriting discounts, concessions and commissions with respect to the Shares
or Tauscher Shares, and, to the extent not provided for in this Section 5, fees
and expenses of their counsel.
6. Indemnification.
(a) Indemnification by the Company. (i) The Company
shall indemnify and hold harmless the Stockholder, its directors, officers,
employees, agents or affiliates and each person, if any, who controls the
Stockholder (within the meaning of either Section 15 of the Securities Act or
Section 20(a) of the Exchange Act) if he elects to participate in the
underwritten offering of the Shares, from and against all losses, liabilities,
claims, damages (or actions or proceedings whether commenced or threatened) and
expenses (including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or claim)
(collectively, "Losses"), arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses arise out of or are based upon the information relating to the
Stockholder furnished to the Company in writing by the Stockholder expressly for
use therein; provided, that the Company shall not be liable to the Stockholder
(or any person controlling the Stockholder) to the extent that any such Losses
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any preliminary prospectus if either
(A)(i) subject to the Company's compliance with Section 3(f) hereof, the
Stockholder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale by the Stockholder to the
person asserting the claim from which such Losses arise and (ii) the Prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (B)(x) such untrue statement or alleged untrue
statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and (y) having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, the Stockholder thereafter fails to deliver such Prospectus as so
amended or supplemented, with or prior to the delivery of written confirmation
of the sale of the Shares to the person asserting the claim from which such
Losses arise. The Company shall also indemnify the underwriter and each person
who controls such person (within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act) to the same extent and with the same
limitations as provided above with respect to the indemnification of the
Stockholder.
(ii) The Company shall indemnify and hold harmless
Tauscher, if he elects pursuant to Section 2.2 to participate in the
underwritten public offering, from and against all Losses arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such Losses arise out of or are based upon the information
relating to Tauscher furnished to the Company in writing by Tauscher expressly
for use therein; provided, that the Company shall not be liable to Tauscher to
the extent that any such Losses arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if either (A)(i) subject to the Compliance with
Section 3(f) hereof, Tauscher failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale by Tauscher to
the person asserting the claim from which such Losses arise and (ii) the
Prospectus would have corrected such untrue statement or alleged untrue
statement or such omission or alleged omission, or (B)(x) such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, Tauscher thereafter fails to deliver such Prospectus as
so amended or supplemented, with or prior to the delivery of written
confirmation of the sale of the Shares to the person asserting the claim from
which such Losses arise. The Company shall also indemnify the underwriter and
each person who controls such person (within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act) to the same extent and with
the same limitations as provided above with respect to the indemnification of
Tauscher.
(b) Indemnification by the Stockholder and Tauscher.
(i) The Stockholder agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement, and each person, if
any, who controls the Company (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act), from and against all Losses
arising out of or based upon any untrue statement of a material fact contained
in any Registration Statement, Prospectus or preliminary prospectus or arising
out of or based upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information relating to the Stockholder so furnished in writing
by the Stockholder to the Company expressly for use in such Registration
Statement or Prospectus of preliminary prospectus.
(ii) Tauscher agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the Registration Statement, and
each person, if any, who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act), from and
against all Losses arising out of or based upon any untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or arising out of or based upon any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information relating to Tauscher so furnished in
writing by Tauscher to the Company expressly for use in such Registration
Statement or Prospectus of preliminary prospectus.
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one firm (in addition to
any local counsel) for the Stockholder, Tauscher and all persons, if any, who
control the Stockholder or Tauscher within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, and (b) the fees and
expenses of more than one firm (in addition to any local counsel) for the
Company, its directors, its officers who sign a Registration Statement and each
person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section
6(f) is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party 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 indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The foregoing indemnity agreement of the parties is
subject to the condition that, insofar as they relate to any loss, claim
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus or file with the Commission at the time the
Registration Statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity or contribution agreement shall not inure to the
benefit of any underwriter or Stockholder or Tauscher if a copy of the Final
Prospectus was furnished to the underwriter and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
7. Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act ("Rule
144"), at all times;
(ii) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iii) so long as the Stockholder owns any Shares, furnish to
the Stockholder upon request, a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, a copy of
the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as the Stockholder may reasonably
request in availing itself of any rule or regulation of the Commission
allowing the Stockholder to sell any such securities without
registration.
8. Miscellaneous.
(a) No Conflicting Agreements. The Company has not, as
of the date hereof, and shall not, on or after the date of this Agreement, enter
into any agreement with respect to its securities which conflicts with the
rights granted to the Stockholder of Shares in this Agreement. The Company
represents and warrants that the rights granted to the Stockholder hereunder do
not in any way conflict with the rights granted to the stockholders of the
Company's securities under any other agreements.
(b) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, except by written consent of the parties.
(c) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing and shall be deemed
given (i) when made, if made by hand delivery, (ii) upon confirmation, if made
by telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(a) if to the Stockholder, to:
Warburg, Pincus Capital Company, L.P.
466 Lexington Avenue
New York, NY 10017
Attention: William Janeway
and Stewart Gross
Fax No: 212-878-9200
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: Jack H. Nusbaum, Esq.
Fax No: 212-728-8111
(b) if to Tauscher, to:
William Y. Tauscher
c/o Vanstar Corporation
1100 Abernathy Road
Building 500, Suite 1200
Atlanta, Georgia 30328
Fax: (770) 522-4587
with a copy to:
Arter & Hadden, LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201-4605
Attention: Stan Huller
Fax: (214) 741-7139
(c) if to the Company, to:
InaCom Corp.
10810 Farnam Drive
Omaha, NE 68154
Attention: Chief Financial Officer
Telecopy No.: (402) 758-3619
with a copy to:
McGrath, North, Mullin & Kratz, P.C.
1400 One Central Park Plaza
Omaha, NE 68102
Attention: David L. Hefflinger
Telecopy No.: (402) 341-0216
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(d) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, provided, that the Stockholder may not assign its registration rights
hereunder without the written consent of the Company which consent cannot be
unreasonably withheld.
(e) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(h) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated thereby, and the parties hereto
shall use their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, illegal, void or unenforceable.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company to the Stockholder. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such registration rights.
(j) Further Assurances. Each of the parties hereto
shall use all best efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things reasonably necessary, proper or
advisable under applicable law, and execute and deliver such documents and other
papers, as may be required to carry out the provisions of this Agreement and the
other documents contemplated hereby and consummate and make effective the
transactions contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
INACOM CORP.
/s/ BILL L. FAIRFIELD
By:
Name: Bill L. Fairfield
Title: President and Chief
Executive Officer
Accepted as of the date first above written:
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: Warburg, Pincus & Co.,
its general partner
/s/ S. Gross
By:____________________________
General Partner
Accepted as of the date first above written:
/s/ WILLIAM Y. TAUSCHER
- -----------------------------------
William Y. Tauscher
<PAGE>
Exhibit 4.2
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VANSTAR CORPORATION,
AS ISSUER
TO
WILMINGTON TRUST COMPANY,
AS TRUSTEE
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INDENTURE
DATED AS OF OCTOBER 2, 1996
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$180,412,350
(SUBJECT TO INCREASE TO UP TO $207,474,200 IN
THE EVENT AN OVER-ALLOTMENT OPTION IS EXERCISED)
6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2016
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<PAGE>
VANSTAR CORPORATION
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310
THROUGH 318 OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE ACT SECTION INDENTURE SECTION
Section 310. . . . . . . . . . .. . . . . . . . . . . . . . .(a) (1) 609
(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .609
(a) (3) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 608, 610
Section 311. . . . . . . . . . . . . . . . . . . . . . . . . . . .(a) 613
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .613
Section 312. . . . . . . . . . . . .. . . . . . . . . . . . . . .(a) 701, 702(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(c)
Section 313. . . . . . . . . . . . . . . . . . . . . . . . . . . .(a) 703(a)
(a) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . .101
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(b)
Section 314. . . . . . . . . . . . . . . . . . . . . . . . . . . .(a) 704
(b) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
(d) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Section 315. . . . . . . . . . . . .. . . . . . . . . . . . . . .(a) 601
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .602
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .601
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .601
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .514
Section 316. . . . . . . . . . . . . . . . . . . . . . . . . . . .(a) 101
(a) (1) (A) . . . . . . . . . . . . . . . . . . . . . . 502, 512
(a) (1) (B) . . . . . . . . . . . . . . . . . . . . . . . . .513
(a) (2) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .508
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 104(c)
Section 317. . . . . . . . . . . . . . . . . . . . . . . . . .(a) (1) 503, 504
(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .504
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(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .402, 1003
Section 318. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(a) 107
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Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
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TABLE OF CONTENTS
PAGE
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RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE - Definitions and Other Provisions of General Application. . . . . 2
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . .10
SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . . . .10
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . .11
SECTION 105. Notices, Etc., to Trustee and the Company . . . . . . . . .12
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . .12
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . .13
SECTION 108. Effect of Headings and Table of Contents. . . . . . . . . .13
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . . .13
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . .13
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . .13
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE TWO - Security Forms . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . .14
SECTION 202. Initial Issuance to Property Trustee. . . . . . . . . . . .14
ARTICLE THREE - The Securities . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . .16
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 303. Execution, Authentication, Delivery and Date. . . . . . . .17
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . . . .18
SECTION 305. Registration, Registration of Transfer and Exchange . . . .18
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . . .19
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . .20
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . .21
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 310. Right of Set Off. . . . . . . . . . . . . . . . . . . . . .22
SECTION 311. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 312. Option to Extend Interest Payment Period. . . . . . . . . .22
SECTION 313. Paying Agent, Security Registrar and Conversion Agent . . .24
SECTION 314. Global Security . . . . . . . . . . . . . . . . . . . . . .24
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE FOUR - Satisfaction and Discharge. . . . . . . . . . . . . . . . . . .25
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . .25
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . .26
ARTICLE FIVE - Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . .26
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . .28
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . .29
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities. . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 506. Application of Money Collected. . . . . . . . . . . . . . .30
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . .30
SECTION 508. Unconditional Right of Holders to Receive Principal and
Interest and Convert. . . . . . . . . . . . . . . . . . . .31
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . .31
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . .31
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . .32
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . .32
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . .32
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . .33
SECTION 515. Waiver of Stay or Extension Laws. . . . . . . . . . . . . .33
SECTION 516. Enforcement by Holders of Preferred Securities. . . . . . .33
ARTICLE SIX - The Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . .34
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . .34
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . .34
SECTION 604. Not Responsible for Recitals or Issuance of Securities. . .35
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . .35
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . .35
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . . . .36
SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . .36
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . .36
SECTION 610. Resignation and Removal; Appointment of Successor . . . . .37
SECTION 611. Acceptance of Appointment by Successor. . . . . . . . . . .38
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business. . . . . . . . . . . . . . . . . . . . . . . . . .38
SECTION 613. Preferential Collection of Claims Against Company . . . . .39
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE SEVEN - Holders' Lists and Reports by Trustee and Company. . . . . . .39
SECTION 701. Company to Furnish Trustee Names and Addressees of Holders.39
SECTION 702. Preservation of Information; Communications to Holders. . .39
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . .40
SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . . . .40
ARTICLE EIGHT - Consolidation, Merger, Conveyance, Transfer or Lease . . . . .40
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. . . .40
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . .41
ARTICLE NINE - Supplemental Indentures . . . . . . . . . . . . . . . . . . . .42
SECTION 901. Supplemental Indentures without Consent of Holders. . . . .42
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . .42
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . .44
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . .44
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . .44
SECTION 906. Reference in Securities to Supplemental Indentures. . . . .44
ARTICLE TEN - Covenants; Representations and Warranties. . . . . . . . . . . .44
SECTION 1001. Payment of Principal and Interest. . . . . . . . . . . . .44
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . . .45
SECTION 1003. Money for Security Payments to Be Held in Trust. . . . . .45
SECTION 1004. Statement by Officers as to Default. . . . . . . . . . . .46
SECTION 1005. Limitation on Dividends; Transactions with Affiliates;
Covenants as to the Trust. . . . . . . . . . . . . . . . .46
SECTION 1006. Payment of Expenses of the Trust . . . . . . . . . . . . .47
SECTION 1007. Registration Rights. . . . . . . . . . . . . . . . . . . .48
SECTION 1008. Rule 144A Information Requirement. . . . . . . . . . . . .48
SECTION 1009. Listing the Securities . . . . . . . . . . . . . . . . . .48
ARTICLE ELEVEN - Redemption of Securities. . . . . . . . . . . . . . . . . . .49
SECTION 1101. Right of Redemption. . . . . . . . . . . . . . . . . . . .49
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . .49
SECTION 1103. Election to Redeem; Notice to Trustee. . . . . . . . . . .49
SECTION 1104. Selection by Trustee of Securities to Be Redeemed. . . . .50
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . .50
SECTION 1106. Deposit of Redemption Price. . . . . . . . . . . . . . . .51
SECTION 1107. Securities Payable on Redemption Date. . . . . . . . . . .51
SECTION 1108. Securities Redeemed in Part. . . . . . . . . . . . . . . .51
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TABLE OF CONTENTS
(CONTINUED)
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SECTION 1109. Optional Redemption. . . . . . . . . . . . . . . . . . . .52
SECTION 1110. Tax Event Redemption . . . . . . . . . . . . . . . . . . .53
SECTION 1111. No Sinking Fund. . . . . . . . . . . . . . . . . . . . . .53
ARTICLE TWELVE - Subordination of Securities . . . . . . . . . . . . . . . . .53
SECTION 1201. Agreement to Subordinate . . . . . . . . . . . . . . . . .53
SECTION 1202. Default on Senior Indebtedness . . . . . . . . . . . . . .54
SECTION 1203. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . .54
SECTION 1204. Subrogation. . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 1205. Trustee to Effectuate Subordination. . . . . . . . . . . .56
SECTION 1206. Notice by the Company. . . . . . . . . . . . . . . . . . .56
SECTION 1207. Rights of the Trustee; Holders of Senior Indebtedness. . .57
SECTION 1208. Subordination May Not Be Impaired. . . . . . . . . . . . .58
SECTION 1209. Certain Conversions Deemed Payment . . . . . . . . . . . .58
SECTION 1210. Article Applicable to Paying Agents. . . . . . . . . . . .59
ARTICLE THIRTEEN - Conversion of Securities. . . . . . . . . . . . . . . . . .59
SECTION 1301. Conversion Rights. . . . . . . . . . . . . . . . . . . . .59
SECTION 1302. Conversion Procedures. . . . . . . . . . . . . . . . . . .59
SECTION 1303. Conversion Price Adjustments . . . . . . . . . . . . . . .61
SECTION 1304. Fundamental Change . . . . . . . . . . . . . . . . . . . .65
SECTION 1305. Notice of Adjustments of Conversion Price. . . . . . . . .67
SECTION 1306. Prior Notice of Certain Events . . . . . . . . . . . . . .68
SECTION 1307. Certain Defined Terms. . . . . . . . . . . . . . . . . . .68
SECTION 1308. Dividend or Interest Reinvestment Plans. . . . . . . . . .70
SECTION 1309. Certain Additional Rights. . . . . . . . . . . . . . . . .70
SECTION 1310. Restrictions on Common Stock Issuable Upon Conversion. . .71
SECTION 1311. Trustee Not Responsible for Determining Conversion Price
or Adjustments . . . . . . . . . . . . . . . . . . . . . .71
ARTICLE FOURTEEN - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .72
SECTION 1401. No Recourse; Immunity of Incorporators, Stockholders,
Officers and Directors . . . . . . . . . . . . . . . . . .72
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INDENTURE, dated as of October 2, 1996, between Vanstar Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 5964 West Las
Positas, Pleasanton, California 94588-9012, and Wilmington Trust Company, a
Delaware banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, Vanstar Financing Trust, a Delaware business trust (the "Trust"),
formed under the Amended and Restated Declaration of Trust among the Company, as
sponsor, Wilmington Trust Company, as property trustee (the "Property Trustee"),
Wilmington Trust Company, as Delaware trustee (the "Delaware Trustee") and John
R. Dunican, Jr., as regular trustee (the "Regular Trustee"), dated as of October
2, 1996 (the "Declaration"), pursuant to the Purchase Agreement (the "Purchase
Agreement"), dated September 26, 1996, among the Company, the Trust and the
Initial Purchasers named therein, will issue and sell up to 3,500,000 (or
4,025,000 if the over-allotment option is exercised) of its 6 3/4% Trust
Convertible Preferred Securities (the "Preferred Securities") with a liquidation
amount of $50 per Preferred Security having an aggregate liquidation amount with
respect to the assets of the Trust of $175,000,000 (or $201,250,000 if the over-
allotment option is exercised);
WHEREAS, the Regular Trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company or one of Company's subsidiaries Common
Securities evidencing an ownership interest in the Trust, registered in the name
of the Company or one of Company's subsidiaries, in an aggregate amount equal to
three percent of the capitalization of the Trust, equivalent to 108,247 Common
Securities (or 124,484 Common Securities if the over-allotment option is
exercised), with a liquidation amount of $50 per Common Security, having an
aggregate liquidation amount with respect to the assets of the Trust of
$5,412,350 (or $6,224,200 if the over-allotment option is exercised) (the
"Common Securities"), pursuant to the Purchase Agreement of Common Securities,
dated as of October 2, 1996, between the Trust and the Company;
WHEREAS, the Trust will use the proceeds from the sale of the Preferred
Securities and the Common Securities to purchase from the Company the Securities
(as defined below) in an aggregate principal amount of $180,412,350 (or
$207,474,200 if the over-allotment option is exercised);
WHEREAS, the Company is guaranteeing the payment of distributions on the
Preferred Securities, and payment of the Redemption Price and payments on
liquidation with respect to the Preferred Securities, to the extent provided in
the Preferred Securities Guarantee Agreement (the "Guarantee") between the
Company and Wilmington Trust Company, as guarantee trustee, for the benefit of
the holders of the Preferred Securities from time to time;
WHEREAS, the Company has duly authorized the creation of an issue of 6 3/4%
Convertible Subordinated Debentures due 2016 (the "Securities"), of
substantially the tenor and amount hereinafter set forth and to provide therefor
the Company has duly authorized the execution and delivery of this Indenture;
and
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WHEREAS, so long as the Trust is a Holder of Securities, and any Preferred
Securities are outstanding, the Declaration provides that the holders of
Preferred Securities may cause the Conversion Agent to (a) exchange such
Preferred Securities for Securities held by the Trust and (b) immediately
convert such Securities into Common Stock;
WHEREAS 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 as
of the relevant date; and
(4) except as otherwise indicated, 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(a).
"ADDITIONAL INTEREST" has the meaning specified in Section 301.
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"ADDITIONAL PAYMENTS" means Compounded Interest and Additional Interest, if
any.
"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.
"AGENT" means any Registrar, Paying Agent, Conversion Agent or co-
registrar.
"BOARD OF DIRECTORS" means the board of directors of the Company or any
duly authorized committee of such board.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the
applicable Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"BUSINESS DAY" means any day other than a day on which banking institutions
in New York, New York, San Francisco, California or in Wilmington, Delaware are
authorized or required by law to close.
"CLOSING PRICE" has the meaning specified in Section 1307(b).
"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.
"COMMON SECURITIES" has the meaning specified in the recitals to this
Instrument.
"COMMON SECURITIES GUARANTEE" means any guarantee that the Company may
enter into that operates, directly or indirectly, for the benefit of holders of
Common Securities of the Trust.
"COMMON STOCK" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company pursuant to its terms.
However, subject to the provisions of Article Thirteen, shares issuable on
conversion of Securities shall include only shares of the class designated as
Common Stock of the Company at the date of this instrument or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or
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involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company pursuant to their terms; PROVIDED, that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable on conversion shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"COMPANY" 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'S REQUEST" or "COMPANY'S ORDER" means a written request or order
delivered to the Trustee and signed in the name of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or a Vice President,
and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"COMPOUNDED INTEREST" has the meaning specified in Section 312(a) .
"CONVERSION AGENT" means the Person appointed to act on behalf of the
holders of Preferred Securities in effecting the conversion of Preferred
Securities as and in the manner set forth in the Declaration and Section 1302
hereof.
"CONVERSION DATE" has the meaning specified in Section 1302(a).
"CORPORATE TRUST OFFICE" means the principal office of the Trustee in the
State of Delaware, at which at any particular time its corporate trust business
shall be administered and which at the date of this Indenture is Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration.
"DECLARATION" has the meaning specified in the Recitals of this instrument.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DELAWARE TRUSTEE" has the meaning given it in the Recitals of this
instrument.
"DEPOSITARY" means, with respect to any Securities issued in the form of
one or more Global Security, a clearing agency registered under the Exchange Act
that is dedicated to act as Depositary for the Securities.
"DIRECT ACTION" means a proceeding directly instituted by a holder of
Preferred Securities for enforcement of payment to such holder of the principal
of or interest on the Securities having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the respective due date specified in the Securities, if a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of the
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Company to pay interest or principal on the Securities on the date such interest
or principal is otherwise payable (or in the case of redemption, on the
redemption date.)
"DISSOLUTION EVENT" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Declaration and the Securities held by the Property Trustee are to be
distributed to the holders of Trust Securities issued by the Trust PRO RATA in
accordance with the Declaration.
"DISSOLUTION TAX OPINION" has the meaning specified in the Declaration.
"EFFECTIVENESS PERIOD" has the meaning specified in Section 1007.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.
"EXPIRATION TIME" has the meaning specified in Section 1303(e).
"EXTENSION PERIOD" has the meaning specified in Section 312(a).
"GLOBAL SECURITY" has the meaning specified in Section 314(a)(i).
"GUARANTEE" has the meaning specified in the Recitals to this instrument.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register.
"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.
"INITIAL PURCHASERS," with respect to the Preferred Securities, means
Robertson, Stephens & Company LLC, Alex. Brown & Sons Incorporated, Donaldson
Lufkin & Jenrette Securities Corporation and The Robinson-Humphrey Company, Inc.
"INTEREST PAYMENT DATE" has the meaning specified in Section 301.
"INVESTMENT COMPANY EVENT" has the meaning specified in the Declaration.
"LIQUIDATED DAMAGES" has the meaning specified in Section 1007.
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"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.
"MINISTERIAL ACTION" has the meaning specified in Section 1110.
"90-DAY PERIOD" has the meaning specified in Section 1110.
"NO RECOGNITION OPINION" has the meaning specified in the Declaration.
"NON BOOK-ENTRY PREFERRED SECURITIES" has the meaning specified in Section
314(a)(ii).
"NOTICE OF CONVERSION" means the notice to be given by a holder of
Preferred Securities to the Conversion Agent directing the Conversion Agent to
exchange such Preferred Securities for Securities and to convert such Securities
into Common Stock on behalf of such holder.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, the 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 shall be
reasonably acceptable to the Trustee.
"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 canceled by the Trustee or
delivered to the Trustee for cancellation; (ii) Securities for whose payment or
redemption 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 Paying Agent on
its own behalf) 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 (iii) Securities that have been paid pursuant to Section 306,
converted into Common Stock pursuant to Section 1301, 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 the Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other Company upon the
Securities or any Affiliate of the Company controlled by the Company shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such
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request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee 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 controlled by the Company.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"PERSON" means any individual, corporation, company, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"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.
"PREFERRED SECURITIES" has the meaning specified in the Recitals to this
instrument.
"PREFERRED STOCK" means the Company's Preferred Stock, $.01 per share par
value.
"PROPERTY TRUSTEE" has the meaning specified in the Recitals of this
instrument.
"PURCHASE AGREEMENT" has the meaning specified in the Recitals to this
instrument.
"PURCHASED SHARES" has the meaning specified in Section 1303 (e) .
"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.
"REDEMPTION TAX OPINION" has the meaning set forth in the Declaration.
"REFERENCE DATE" has the meaning specified in Section 1303 (c).
"REGISTRABLE SECURITIES" has the meaning specified in Section 1007.
"REGISTRATION DEFAULT" has the meaning specified in Section 1007.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in Section 1007.
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"REGULAR RECORD DATE" has the meaning specified in Section 301.
"REGULAR TRUSTEES" has the meaning specified in the Declaration.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"RESTRICTED SECURITIES LEGEND" has the meaning specified in Section 202.
"SECURITIES" has the meaning specified in the Recitals to this instrument.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings
specified in Section 305(a).
"SENIOR INDEBTEDNESS" means in respect of the Company (i) the principal,
premium, if any, and interest in respect of (A) indebtedness of such obligor for
money borrowed and (B) indebtedness evidenced by securities, debentures, bonds,
notes or other similar instruments issued by such obligor or credit facilities
with lending institutions or commercial lenders, (ii) all capital lease
obligations of such obligor, (iii) all obligations of such obligor issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) commitment or standby fees due and
payable to lending institutions with respect to credit facilities available to
the Company, (vi) obligations under interest rate and currency swaps, floors,
caps and other arrangements intended to fix interest rate obligations; (vii) all
obligations of the type referred to in clauses (i) through (vi) above of other
persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, and (viii) all obligations of the type referred
to in clauses (i) through (vii) above of other persons secured by any lien on
any property or asset of such obligor (whether or not such obligation is assumed
by such obligor), except for (1) the Securities, (2) any such indebtedness that
is by its terms subordinated to or PARI PASSU with the Securities and (3) any
indebtedness between or among such obligor or its affiliates, including all
other debt securities and guarantees in respect of those debt securities issued
to any other trust, or a trustee of such trust, partnership, or other entity
affiliated with the Company that is, directly or indirectly, a financing vehicle
of the Company (a "Financing Entity") in connection with the issuance by such
Financing Entity of preferred securities or other securities which rank PARI
PASSU with, or junior to, the Preferred
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Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
"SHELF REGISTRATION STATEMENT" has the meaning specified in Section 1007.
"SIGNIFICANT SUBSIDIARY" has the meaning specified in Rule 1-02(w) of
Regulation S-X under the Securities Act of 1933.
"SPECIAL EVENT" has the meaning specified in the Declaration.
"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, together with any accrued and unpaid
interest (including Compounded Interest), of such Security or such installment
of interest is due and payable.
"SUBSIDIARY" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"TAX EVENT" has the meaning specified in the Declaration.
"TRADING DAY" has the meaning specified in Section 1307(h).
"TRUST" has the meaning specified in the Recitals to this instrument.
"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.
"TRUST SECURITIES" means Common Securities and Preferred Securities.
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"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."
"VOTING STOCK" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to take any action under any
provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act or
reasonably requested by the Trustee in connection with such application or
request. Each such certificate or opinion shall be given in the form of an
Officers, Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include
(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;
(3) a statement that, in the opinion of each 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.
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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 his 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.
(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 or the Company, as the case may be, deems or deem
sufficient.
(c) The Company may, in the circumstances permitted by the Trust Indenture
Act, fix any day as the record date for the purpose of determining the Holders
of Outstanding Securities entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted to be given or taken by Holders. If not set
by the Company prior to the first solicitation of a Holder made by any
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Person in respect of any such action, or, in the case of any such vote, prior to
such vote, the record date for any such action or vote shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 701) prior to such first solicitation or vote, as
the case may be. With regard to any record date, only the Holders on such date
(or their duly designated proxies) shall be entitled to give or take, or vote
on, the relevant action.
(d) The ownership of Securities shall be proved by the Security Register.
(e) 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.
(f) Without limiting the foregoing, a Holder entitled hereunder to give or
take any such action 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 different part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND THE 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 Trust
Administration, 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, to the Company addressed to it
at its principal offices specified in the first paragraph of this instrument or
at any other address previously furnished in writing to the Trustee by the
Company.
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 such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the
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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. Any notice
when mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. 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 to be 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.
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, the holders of Preferred
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Securities (to the extent provided herein) 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, WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal or conversion of the Securities need not be made on such date, but may
be made on the next succeeding Business Day (except that, if such Business Day
is in the next succeeding calendar year, such Interest Payment Date, Redemption
Date or Stated Maturity, as the case may be, shall be the immediately preceding
Business Day) with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity or on such last day for
conversion, PROVIDED, that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificates of authentication shall be
substantially in the form of Exhibit A which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). The Company shall
furnish any such legend not contained in Exhibit A to the Trustee in writing.
Each Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Exhibit A are part of the terms of
this Indenture and to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The definitive Securities shall be typewritten or printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Securities may
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be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 202. INITIAL ISSUANCE TO PROPERTY TRUSTEE.
The Securities initially issued to the Property Trustee of the Trust shall
be in the form of one or more individual certificates in definitive, fully
registered form without distribution coupons and shall bear the following legend
(the "Restricted Securities Legend") unless the Company determines otherwise in
accordance with applicable law:
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS THREE YEARS AFTER (OR SUCH SHORTER PERIOD UNDER RULE
144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR RULE) THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH VANSTAR CORPORATION (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT
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TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities that may be authenticated and
delivered under this Indenture is limited to the sum of (a) $180,412,350 and (b)
such aggregate principal amount (which may not exceed $207,474,200 aggregate
principal amount) of Securities, if any, as shall be purchased by the Trust
pursuant to an over-allotment option in accordance with the terms and provisions
of the Purchase Agreement except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 304, 305, 306, 906, 1108 or 1301.
The Securities shall be known and designated as the "6 3/4% Convertible
Subordinated Debentures due 2016" of the Company. Their Stated Maturity shall be
October 1, 2016, and they shall bear interest at the rate of 6 3/4% per annum,
from October 2, 1996 or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to deferral as set forth herein), in arrears, on
January 1, April 1, July 1 and October 1 (each an "Interest Payment Date") of
each year, commencing January 1, 1997 until the principal thereof is paid or
made available for payment, and they shall be paid to the Person in whose name
the Security is registered at the close of business on the regular record date
for such interest installment, which shall be the close of business on the
Business Day immediately preceding such Interest Payment Date; PROVIDED,
HOWEVER, that for so long as the Securities are held by the Trust or the
Property Trustee of the Trust, if any Preferred Securities (or if the Trust is
liquidated in connection with a Special Event, any Securities) are held in
certificated form, the Record Date for each Interest Payment Date shall be 15
days prior to such Interest Payment Date (in each case, a "Regular Record
Date"). Interest will compound quarterly and will accrue at the rate of 6 3/4%
per annum on any interest installment in arrears for more than one quarter or
during an extension of an interest payment period as set forth in Section 312
hereof.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. Except as provided in the following
sentence, the amount of interest payable for any period shorter than a full
quarterly period for which interest is computed
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will be computed on the basis of the actual number of days elapsed. In the event
that any date on which interest is payable on the Securities is not a Business
Day, then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
If at any time while the Property Trustee is the Holder of any Securities,
the Trust or the Property Trustee is required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Securities held by the Property Trustee, such amounts as shall be
required so that the net amounts received and retained by the Trust and the
Property Trustee after paying any such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
The principal of and interest on the Securities shall be payable at the
office or agency in the United States maintained by the Company for such purpose
and at any other office or agency maintained by the Company for such purpose in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that
unless the Securities are held by the Trust or any successor permissible under
the Declaration, 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 Securities shall be redeemable as provided in Article Eleven hereof.
The Securities shall be convertible as provided in Article Thirteen hereof.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $50 and integral multiples thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATE.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries or its Treasurer or one of its
Assistant Treasurers. The signature of any of these officers on the Securities
may be manual or facsimile.
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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 Securities executed by the Company to the
Trustee for authentication, together with Company's Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such
Company's Order shall authenticate and make available for delivery such
Securities as provided in this Indenture, and not otherwise.
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.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon receipt of an Company's 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 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.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) GENERAL.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security
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Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee is hereby appointed "Security Registrar" for the purpose
of registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
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 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
exchanges pursuant to Section 304, 906, 1108 or 1301 not involving any transfer.
The Company shall not be required (i) in the case of a partial redemption
of the Securities, to issue, register the transfer of or exchange any Security
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Securities selected for redemption
under Section 1104 and ending at the close of business on the day of such
mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
(b) TRANSFER PROCEDURES AND RESTRICTIONS.
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The Securities may not be transferred except in compliance with the
Restricted Securities Legend unless otherwise determined by the Company in
accordance with applicable law. Upon any distribution of the Securities to the
holders of the Preferred Securities in accordance with the Declaration, the
Company and the Trustee shall enter into a supplemental indenture pursuant to
Section 901(f) to provide for transfer procedures and restrictions with respect
to the Securities substantially similar to those contained in the Declaration to
the extent applicable in the circumstances existing at the time of such
distribution.
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 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, 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 the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
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 fees and expenses of the Trustee) connected therewith.
Every new Security 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 duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies of the Holders with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
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Interest on any 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, subject to any right to defer the
payment of Interest hereunder.
Any interest on any Security 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 Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time 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 in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 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 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 Securities (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 in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, 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, 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 or in exchange
for or in lieu of any other Security shall
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carry the rights to interest accrued and unpaid, and to accrue (including in
each such case Compounded Interest), which were carried by such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) 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 such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security that is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable, and the Company shall
not make nor be required to make any other payment, adjustment or allowance with
respect to accrued but unpaid interest (including Additional Interest,
Compounded Interest and Liquidated Damages) on the Securities being converted,
which shall be deemed to be paid in full.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a 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 Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and (subject to Section
307) interest (including Additional Interest, Compounded Interest and Liquidated
Damages) on such Security and for all other purposes whatsoever, whether or not
such Security be 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 conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
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 an Company's
Order; PROVIDED, HOWEVER, that the Trustee shall not be required to destroy the
certificates representing such canceled Securities.
SECTION 310. RIGHT OF SET OFF.
Notwithstanding anything to the contrary in this Indenture, the Company
shall have the right to set off any payment it is otherwise required to make
hereunder to the extent the
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Company has theretofore made, or is concurrently on the date of such payment
making, a payment under the Guarantee.
SECTION 311. CUSIP NUMBERS.
The Company, as 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 identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
SECTION 312. OPTION TO EXTEND INTEREST PAYMENT PERIOD.
(a) The Company shall have the right at any time during the term of the
Securities to defer interest payments from time to time by extending the
interest payment period for successive periods (each, an "Extension Period") not
exceeding 20 consecutive quarters for each such period; PROVIDED, no Extension
Period may extend beyond the maturity date of the Securities. At the end of each
Extension Period, the Company shall be responsible for the payment of, and the
Company shall pay all interest then accrued and unpaid (including Additional
Interest and Liquidated Damages) together with interest thereon compounded
quarterly at the rate specified for the Securities to the extent permitted by
applicable law ("Compounded Interest"); PROVIDED, that during any Extension
Period, the Company shall not, and shall not allow any of its Subsidiaries
(other than, with respect to clause (i) below only, its wholly-owned
Subsidiaries) to, (i) declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (except for (1) dividends or distributions
in shares of Common Stock on Common Stock or on the Preferred Stock, (2)
purchases or acquisitions of shares of Common Stock made in connection with any
employee benefit plan of the Company or its subsidiaries in the ordinary course
of business or pursuant to employment agreements with officers or employees of
the Company or its subsidiaries entered into in the ordinary course of business,
provided that such repurchases by the Company made from officers or employees of
the Company or its subsidiaries pursuant to employment agreements shall be made
at a price not to exceed the market value on the date of any such repurchase and
shall not exceed $1 million in the aggregate for all such employees and
officers, (3) conversions or exchanges of shares of common stock of any one
class into shares of common stock of another class or (4) purchases of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of any of the Company's securities being
converted or exchanged), (ii) make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem, any debt securities issued
by the Company that rank junior to or PARI PASSU with the Securities and (iii)
make any guarantee payments with respect to the foregoing. Prior to the
termination of any such Extension Period, the Company may further extend such
Extension Period; PROVIDED, that such Extension Period together with all
previous and further extensions thereof may not exceed
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20 consecutive quarters and may not extend beyond the maturity of the
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the above requirements. No interest during an Extension Period, except at the
end thereof, shall be due and payable.
(b) If the Property Trustee is the sole Holder of the Securities at the
time the Company selects an Extension Period, the Company shall give written
notice to the Regular Trustees, the Property Trustee and the Trustee of its
selection of such Extension Period at least one Business Day prior to the
earlier of (i) the date the distributions on the Preferred Securities are
payable or (ii) if the Preferred Securities are listed on the New York Stock
Exchange, Inc. ("NYSE") or other stock exchange or quotation system, the date
the Trust is required to give notice to the NYSE or other applicable self-
regulatory organization or to holders of the Preferred Securities of the record
date or the date such distributions are payable, but in any event not less than
ten Business Days prior to such record date.
(c) The Trustee shall promptly give notice of the Company's selection of
such Extension Period to the holders of the Preferred Securities. If the
Property Trustee is not the sole Holder at the time the Company selects an
Extension Period, the Company shall give the Holders and the Trustee written
notice of its selection of such Extension Period at least ten Business Days
prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) if
the Preferred Securities are listed on the NYSE or other stock exchange or
quotation system, the date the Company is required to give notice to the NYSE or
other applicable self-regulatory organization or to Holders of the Securities on
the record or payment date of such related interest payment, but in any event
not less than two Business Days prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs (b) and
(c) hereof shall be counted as one of the 20 quarters permitted in the maximum
Extension Period permitted under paragraph (a) hereof.
SECTION 313. PAYING AGENT, SECURITY REGISTRAR AND CONVERSION AGENT.
The Trustee will initially act as Paying Agent, Security Registrar and
Conversion Agent. The Company may change any Paying Agent, Security Registrar,
co-registrar or, with the consent of the Trust, Conversion Agent without prior
notice. The Company or any of its Affiliates may act in any such capacity.
SECTION 314. GLOBAL SECURITY.
(a) In connection with a Dissolution Event,
(i) the Securities in certificated form (other than as set forth in
clause (ii) below) may be presented to the Trustee by the Property Trustee in
exchange for a global Security in an aggregate principal amount equal to the
aggregate principal amount of all Outstanding Securities (a "Global Security"),
to be registered in the name of the Depositary, or
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its nominee, and delivered by the Trustee to the Depositary for crediting to the
accounts of its participants pursuant to the instructions of the Regular
Trustees. The Company upon any such presentation shall execute a Global Security
in such aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with this Indenture. Payments on the
Securities issued as a Global Security will be made to the Depositary; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, the Securities in non book-entry certificated form may be
presented to the Trustee by the Property Trustee and any certificate which
represents Preferred Securities (a "Preferred Security Certificate") other than
Preferred Securities held by the Depositary or its nominee ("Non Book-Entry
Preferred Securities") will be deemed to represent beneficial interests in
Securities presented to the Trustee by the Property Trustee having an aggregate
principal amount equal to the aggregate liquidation amount of the Non Book-Entry
Preferred Securities until such Preferred Security Certificates are presented to
the Security Registrar for transfer or reissuance at which time such Preferred
Security Certificates will be canceled and a Security, registered in the name of
the holder of the Preferred Security Certificate or the transferee of the holder
of such Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Security Certificate canceled, will be executed by the Company and delivered to
the Trustee for authentication and delivery in accordance with this Indenture.
On issue of such Securities, Securities with an equivalent aggregate principal
amount that were presented by the Property Trustee to the Trustee will be deemed
to have been canceled.
(b) If (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, (ii) the Depositary, at any time, ceases
to be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (iii) the Company, in its sole
discretion, determine that such Global Security shall be so exchangeable or (iv)
there shall have occurred an Event of Default with respect to such Securities,
as the case may be, the Company will execute, and, subject to Article Three of
this Indenture, the Trustee, upon written notice from the Company and receipt of
an Company's Order, will authenticate and deliver the Securities in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Security
in exchange for such Global Security. In addition, upon an Event of Default or
if the Company shall at any time determine that the Securities shall no longer
be represented by a Global Security, the Company will execute, and subject to
Section 305 of this Indenture, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will authenticate and
make available for delivery the Securities in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount equal
to the principal amount of the Global Security in exchange for such Global
Security. Upon the exchange of the Global Security for such Securities in
definitive registered form without coupons, in authorized denominations, the
Global Security shall be canceled by the Trustee. Such Securities in definitive
registered form issued in exchange for the Global Security shall be registered
in such names and in such
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authorized denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Securities to the Depositary for delivery to the
Persons in whose names such Securities are so registered.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of the
Company and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore 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 theretofore 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) all such Securities not theretofore delivered to the Trustee
for cancellation have become due and payable, and the Company has deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal and interest (including Compounded Interest and Liquidated Damages) to
the date of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that, in their opinion, all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
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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 interest for
whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company promptly following such conversion or, if sooner, upon receipt of an
Company's Request.
ARTICLE FIVE
Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events that has occurred and is continuing (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):
(1) failure for 30 days to pay interest on the Securities, including
any Additional Interest, Compounded Interest and Liquidated Damages in respect
thereof, when due; PROVIDED that a valid extension of an interest payment period
will not constitute a default in the payment of interest (including any
Additional Interest, Compounded Interest or Liquidated Damages) for this
purpose;
(2) failure to pay principal of or premium, if any, on the Securities
when due whether at maturity, upon redemption, by declaration or otherwise;
(3) failure by the Company to deliver shares of its Common Stock upon
an election by a holder of Preferred Securities to convert such Preferred
Securities;
(4) failure to observe or perform in all material respects any other
covenant contained in the Indenture for 60 days after notice to the Company by
the Trustee or by the Holders of not less than 25% in aggregate Outstanding
principal amount of the Securities;
(5) entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization
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or other similar law or (B) a decree or order adjudging the Company or any of
its Significant Subsidiaries a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or its Significant Subsidiary, as the case may
be, under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or its Significant Subsidiary, as the case may be, or of
substantially all of the property of the Company or its Significant Subsidiary,
as the case may be, 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;
(6) the commencement by the Company or any of its Significant
Subsidiaries 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 the Company or any of its Significant Subsidiaries to the entry of a
decree or order for relief in respect of itself 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 the Company or its Significant Subsidiary,
as the case may be, or the filing by the Company or any of its Significant
Subsidiaries of a petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by the Company or any
of its Significant Subsidiaries 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 its
Significant Subsidiary, as the case may be, or of substantially all of the
property of Company, or the making by the Company or any of its Significant
Subsidiaries of a general assignment for the benefit of creditors, or the
admission by the Company or any of its Significant Subsidiaries in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company or any of its Significant Subsidiaries in
furtherance of any such action;
(7) the voluntary or involuntary dissolution, winding up or
termination of the Trust, except in connection with (i) the distribution of
Securities to holders of Preferred Securities in liquidation of the Trust upon
the redemption of all of the outstanding Preferred Securities of the Trust or
(ii) certain mergers, consolidations or amalgamations, each as permitted by the
Declaration; or
(8) DEFAULT UNDER ANY BOND, DEBENTURE OR ANY OTHER EVIDENCE OF
INDEBTEDNESS FOR MONEY BORROWED BY THE COMPANY OR ANY OF ITS SIGNIFICANT
SUBSIDIARIES HAVING AN AGGREGATE OUTSTANDING PRINCIPAL AMOUNT IN EXCESS OF $20
MILLION, WHICH DEFAULT SHALL HAVE RESULTED IN SUCH INDEBTEDNESS BEING
ACCELERATED, OR FAILURE TO PAY WHEN DUE (BEYOND ANY APPLICABLE GRACE PERIODS)
ANY SUCH INDEBTEDNESS, WITHOUT SUCH INDEBTEDNESS BEING DISCHARGED, SUCH
ACCELERATION HAVING BEEN RESCINDED OR ANNULLED OR SUCH FAILURE TO PAY HAVING
BEEN CURED OR WAIVED, WITHIN 30 DAYS AFTER RECEIPT OF NOTICE THEREOF BY THE
COMPANY FROM THE TRUSTEE OR BY THE COMPANY
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AND THE TRUSTEE FROM THE HOLDERS OF NOT LESS THAN 25% IN AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT OF THE SECURITIES.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities, all
accrued interest thereon and any other amounts payable hereunder 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, all accrued
interest and such other amounts shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article hereinafter, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, 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 (including any Additional Interest,
Compounded Interest and Liquidated Damages) on all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Securities, and
(C) 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, other than the non-payment of the principal
of and/or interest on and/or all other amounts in respect of Securities which
have 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 impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if:
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(1) default is made in the payment of any interest (including any
Additional Interest or Compounded Interest) on any Security when such interest
becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of any Security at
the Maturity thereof,
the Company will upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
securities for principal and interest (including any Additional Payments and
Liquidated Damages) and, to the extent that payment thereof shall be legally
enforceable, interest on any overdue principal and on any overdue interest
(including any Additional Payments and Liquidated Damages), at the rate borne by
the Securities, 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 an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders 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 any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys 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 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.
No provision of this Indenture 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 proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
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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 interest
(including any Additional Payments and Liquidated Damages), 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; and
SECOND: To the payment of the amounts then due and unpaid for principal of
and interest (including any Additional Payments and Liquidated Damages) 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 interest (including
any Compounded Interest), respectively.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security 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
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) if the Trust is not the sole holder of the Outstanding Securities,
the Holders of at least 25% in aggregate 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 reasonable
indemnity 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
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(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;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other 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 AND INTEREST
AND CONVERT.
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 (subject to Section 307) interest (including any
Additional Payments and Liquidated Damages) on such Security on the Stated
Maturity expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to convert such Security in accordance with Article
Thirteen and to institute suit for the enforcement of any such payment and right
to convert, 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.
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.
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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.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; PROVIDED, that
(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.
Subject to Section 902 hereof, the Holders of greater than 50% in principal
amount of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of, premium, if any, or interest
(including any Additional Payments and Liquidated Damages) on any Security
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest (including any Additional Payments and Liquidated
Damages) and principal due otherwise than by acceleration has been deposited
with the Trustee); 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; PROVIDED, HOWEVER, that if the Securities are
held by the Trust or a trustee of the Trust, such waiver shall not be effective
until the holders of greater than 50% in liquidation amount of Trust Securities
shall have consented to such waiver; PROVIDED, FURTHER, that if the consent of
the Holder of each Outstanding Security is required, such waiver shall not be
effective until each holder of the Trust Securities shall have consented to such
waiver.
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.
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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 neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee or in
any suit for the enforcement of the right to receive the principal of and
interest (including any Additional Payments) on any Security or to convert any
Security in accordance with Article Thirteen.
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 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.
SECTION 516. ENFORCEMENT BY HOLDERS OF PREFERRED SECURITIES.
Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such Event of Default is attributable to the
failure of the Company to pay interest or principal on the Securities on the
date such interest or principal is otherwise payable, the Company acknowledges
that, in such event, a holder of Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified in the
Securities. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of Preferred Securities. Notwithstanding any payment made to such holder
of Preferred Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of or interest on the
Securities held by the Trust or the Property Trustee and the Company shall be
subrogated to the rights of the holders of such Preferred Securities with
respect to payments on the Preferred Securities to the extent of any payments
made by the Company to any such holders in any Direct Action. Except as set
forth elsewhere herein or in the Declaration, the holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the Holders.
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ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, 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 adequate indemnity against
such risk or liability is not reasonably assured to it. 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.
The Trustee shall give the Holders notice of any default hereunder as and
to the extent provided by the Trust Indenture Act; PROVIDED, however, that in
the case of any default of the character specified in Section 501(4), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. 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, 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 an Company's Request or Company's 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 its part, rely upon
an Officers' Certificate;
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(d) the Trustee may consult with counsel of its choice 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 reasonable security or indemnity 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 reasonable
examination of the books, records and premises of the Company, personally or by
agent or attorney;
(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; and
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith, without negligence or willful
misconduct, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
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 the Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, 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 or any Affiliate thereof with the same rights it would have if
it were not Trustee, Paying Agent, Security Registrar, or such other agent.
SECTION 606. MONEY HELD IN TRUST.
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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.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(a) to pay to the Trustee from time to time such reasonable compensation as
the Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder;
(b) except as otherwise expressly provided herein, to reimburse the Trustee
upon its request for all reasonable expenses, fees, 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
(c) to indemnify the Trustee and any predecessor Trustee for, and to hold
it harmless against, any loss, liability, claim, action, suit, cost, damage or
reasonable expense, including taxes (other than taxes based on the income of the
Trustee), incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this trust, including
the reasonable 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.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
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 and has a
combined capital and surplus of at least $50,000,000 and has (or has an
affiliate that has) its Corporate Trust Office in New York,
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New York. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of its federal, state, District of
Columbia or territorial supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such Person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 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 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.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and 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 removal, the removed Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(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 Board Resolution may
remove the Trustee, 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 and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee 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 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.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder 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; PROVIDED, that on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
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. Upon request of any such successor Trustee, the
Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
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, 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
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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).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSEES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) quarterly, within one Business Day prior to January 1, April 1, July 1
and October 1 of each year, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of a date not more than 15
days prior to the delivery thereof, 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;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar and PROVIDED that the Company shall not be
obligated to provide a list of Holders at any time such list of Holders does not
differ from the most recent list of Holders given to the Trustee by the Company
or the Securities are represented by one or more Global Securities.
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 contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders 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.
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(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 of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act or this Indenture.
SECTION 703. REPORTS BY TRUSTEE.
(a) Within 60 days after October 15 of each year, commencing October 15,
1996, the Trustee shall transmit by mail to the Holders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to
the 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 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
the 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 Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of their covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
The Company shall also provide to the Trustee on a timely basis such
information as the Trustee requires to enable the Trustee to prepare and file
any form required to be submitted by the Company with the Internal Revenue
Service and the holders of the Preferred Securities relating to original issue
discount, including, without limitation, Form 1099-OID or any successor form.
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge with or into any other
Person or, directly or indirectly, convey, transfer or lease all or
substantially all its assets substantially as an entirety to any Person, unless:
(a) the Person formed by such consolidation or into which the Company is
merged (if the Company is not the survivor) or the Person which acquires by
conveyance, transfer or lease, all or substantially all the Company's assets
substantially as an entirety shall be a corporation, 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 reasonably
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 and shall have provided for conversion rights in
accordance with Article Thirteen;
(b) immediately after giving effect to 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
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that, in their opinion, 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.
This Section shall only apply to (i) a merger or consolidation in which the
Company is not the surviving corporation, and (ii) to conveyances, leases and
transfers by the Company as transferor or lessor.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of all or substantially
all the Company's assets substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer 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 the predecessor Person
shall be relieved of all obligations and covenants under this Indenture and the
Securities.
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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:
(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Securities; or
(b) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company; or
(c) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Article Thirteen; or
(d) 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;
(e) to comply with the requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act; or
(f) to make provision for transfer procedures, certification, book-entry
provisions, the form of restricted securities legends, if any, to be placed on
Securities, and all other matters required pursuant to Section 305(b) or
otherwise necessary, desirable or appropriate in connection with the issuance of
Securities to holders of Preferred Securities in the event of a distribution of
Securities by the Trust if a Special Event occurs and is continuing.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of greater than 50% in principal amount of
the Outstanding Securities, by 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 under this Indenture; PROVIDED, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
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(a) extend the Stated Maturity of the principal of, or any installment of
interest (including any Additional Payments or Liquidated Damages) on, any
Security, or reduce the principal amount thereof, or reduce the rate or extend
the time for payment of interest thereon (including any Additional Payments or
Liquidated Damages), or reduce any premium payable upon the redemption thereof,
or change the place of payment where, or the coin or currency in which, any
Security or interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or adversely
affect the right to convert any Security as provided in Article Thirteen (except
as permitted by Section 901(c)) or modify the provisions of Article Twelve with
respect to the subordination of the Notes in a manner adverse to the Holders in
any material respect,
(b) 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
(c) modify any of the provisions of this Section or Section 513, except to
increase any such percentage 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; PROVIDED that if the Securities are held
by the Trust or a trustee of the Trust, such supplemental indenture shall not be
effective until the holders of greater than 50% in liquidation amount of Trust
Securities shall have consented to such supplemental indenture; PROVIDED,
further, that if the consent of the Holder of each Outstanding Security is
required, such supplemental indenture shall not be effective as to a given
holder of Trust Securities of the Trust until such holder of the Trust
Securities of the Trust shall have consented to such supplemental indenture.
Notwithstanding the foregoing, the Company may not amend the Indenture to
remove the rights of holders of Preferred Securities to institute a Direct
Action pursuant to Section 516 without the consent of each Holder of Preferred
Securities.
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.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; PROVIDED that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
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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. 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; PROVIDED, that this
requirement shall not constitute an admission or acknowledgment by any party
hereto that any qualification is required prior to the time this Indenture and
the Trustee are required by the Trust Indenture Act to be so qualified.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities 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 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. Failure to undertake the foregoing shall have no effect
on such supplemental indenture.
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
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The Company will duly and punctually pay the principal of and interest
(including any Additional Payments and Liquidated Damages) on the Securities in
accordance with the terms of the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location and any change in the location, of any 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 appoint the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in the United States) where the Securities 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 obligations to maintain an office or
agency in the United States 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 at any time act as its own Paying Agent, it will, on
or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of their action or failure so to
act.
Whenever the Company shall have one or more Paying Agents other than the
Company, the Company will, prior to each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
such amount, 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 such action or 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 (i) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent and (ii) during the continuance of any default by the
Company (or any other obligor upon the Securities) in the making of any payment
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in respect of the Securities, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent as such.
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 the
Company's 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 terms 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 or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company upon the Company's
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of any such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, unless an abandoned
property law designates another person, 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.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the
material terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 1005. LIMITATION ON DIVIDENDS; TRANSACTIONS WITH AFFILIATES; COVENANTS
AS TO THE TRUST.
(a) The Company covenants that so long as the Securities are Outstanding,
if (i) there shall have occurred and be continuing any event that with the
giving of notice or the lapse of time or both, would constitute an Event of
Default, (ii) the Company shall be in default with respect to its payment of any
obligations under the Guarantee, or (iii) the Company has exercised its option
to defer interest payments on the Securities by extending the interest payment
period and such period, or any extension thereof, shall be continuing, then the
Company shall not, and shall not allow any of its Subsidiaries (other than, with
respect to clause (x) below only, its wholly-owned Subsidiaries) to, (x) declare
or pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(except for (i) dividends or distributions in shares of Common Stock on Common
Stock or on the Preferred Stock, (ii) purchases or acquisitions of
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shares of Common Stock made in connection with any employee benefit plan of the
Company or its subsidiaries in the ordinary course of business or pursuant to
employment agreements with officers or employees of the Company or its
subsidiaries entered into in the ordinary course of business, provided that such
repurchases by the Company made from officers or employees of the Company or its
subsidiaries pursuant to employment agreements shall be made at a price not to
exceed the market value on the date of any such repurchase and shall not exceed
$1 million in the aggregate for all such employees and officers, (iii)
conversions or exchanges of shares of Common Stock of one class into shares of
Common Stock of another class or (iv) purchases of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of any of the Company's securities being converted or exchanged), (y)
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank junior
to or PARI PASSU with the Securities (except by conversion into or exchange for
shares of its capital stock), and (z) make any guarantee payments with respect
to the foregoing (other than such payments made pursuant to the Guarantee).
(b) The Company also covenants and agrees (i) that it shall directly or
indirectly maintain 100% ownership of the Common Securities of the Trust;
PROVIDED, HOWEVER, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities (ii) NOT TO CAUSE
OR PERMIT THE DISSOLUTION, WINDING-UP OR TERMINATION OF THE TRUST, EXCEPT IN
CONNECTION WITH A DISTRIBUTION OF THE SECURITIES TO THE HOLDERS OF PREFERRED
SECURITIES IN LIQUIDATION OF THE TRUST OR IN CONNECTION WITH CERTAIN MERGERS,
CONSOLIDATIONS OR AMALGAMATIONS PERMITTED BY THE DECLARATION AND (iii) that it
shall use its reasonable efforts, consistent with the terms and provisions of
the Declaration, to cause the Trust (x) to remain a statutory business trust,
except in connection with the distribution of the Securities to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States Federal income tax purposes.
SECTION 1006. PAYMENT OF EXPENSES OF THE TRUST.
In connection with the offering, sale and issuance of the Securities to the
Property Trustee in connection with the sale of the Trust Securities by the
Trust, the Company shall be responsible for the payment of:
(a) all costs, fees and expenses relating to the offering, sale and
issuance of the Securities, including commissions to the Initial Purchasers
payable pursuant to the Purchase Agreement and compensation of the Trustee under
the Indenture in accordance with the provisions of Section 607 of the Indenture;
(b) all debts and obligations (other than with respect to the Trust
Securities) of the Trust, all costs and expenses of the Trust (including, but
not limited to, costs and expenses relating to the organization of the Trust,
the offering, sale and issuance of the Trust Securities
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(including commissions to the Initial Purchasers in connection therewith), the
fees and expenses of the Property Trustee and the Delaware Trustee (including
the payment of counsel fees and expenses), the costs and expenses relating to
the operation of the Trust, including without limitation, costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing and disposition of Trust assets); and
(c) all taxes (other than United States withholding taxes attributable to
the Trust or its assets) and all liabilities, costs and expenses with respect to
such taxes of the Trust.
SECTION 1007. REGISTRATION RIGHTS.
The holders of the Preferred Securities, the Securities, the Guarantee and
the shares of Common Stock of the Company issuable upon conversion of the
Securities (collectively, the "Registrable Securities") are entitled to the
benefits of a Registration Rights Agreement, dated as of October 2, 1996, among
the Company and the Initial Purchasers (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company has agreed for the
benefit of the holders of Registrable Securities that (i) it will, at its cost,
within 75 calendar days after the date of issuance of the Preferred Securities,
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to the resales of the Registrable Securities, (ii)
it will use reasonable efforts to cause such Shelf Registration Statement to be
declared effective by the Commission within 135 calendar days after the date of
issuance of the Registrable Securities and (iii) the Company will use reasonable
efforts to maintain such Shelf Registration Statement continuously effective
under the Securities Act until the third anniversary of the effectiveness of the
Shelf Registration Statement or such earlier date as is provided in the
Registration Rights Agreement (the "Effectiveness Period"). Reference is made to
the Registration Rights Agreement for a description of, among other things, the
circumstances under which a "Registration Default" may be declared if such Shelf
Registration Statement is not filed or declared effective within the specified
periods of time, and additional interest "Liquidated Damages" may accrue and by
payable on the Securities as a result of such a Registration Default, which
provisions are hereby incorporated herein by such reference.
SECTION 1008. RULE 144A INFORMATION REQUIREMENT.
During the period beginning on the latest date of the original issuance of
the Securities and ending on Resale Restriction Termination Date (as defined in
the legend set forth in Section 202), the Company covenants and agrees that it
shall, during any period in which it is not subject to Section 13 or 15(d) under
the Exchange Act, make available to any holder or beneficial holder of
Securities or any Common Stock issued upon conversion thereof which continue to
be restricted securities in connection with any sale thereof and any prospective
purchaser of Securities or such Common Stock from such holder or beneficial
holder, the information required pursuant to Rule 144A(d)(4) under the
Securities Act upon the request of
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any holder or beneficial holder of the Securities or such Common Stock and it
will take such further action as any holder or beneficial holder of such
Securities or such Common Stock may reasonably request, all to the extent
required from time to time to enable such holder or beneficial holder to sell
its Securities or Common Stock without registration under the Securities Act
within the limitation of the exemption provided by Rule 144A, as such Rule may
be amended from time to time. Upon the request of any holder or any beneficial
holder of the Securities or such Common Stock, the Company will deliver to such
holder a written statement as to whether it has complied with such requirements.
SECTION 1009. LISTING THE SECURITIES.
In the event that the Securities are distributed to the holders of
Preferred Securities, the Company will use its best efforts to list the
Securities on the NYSE or on such other national securities exchange or
automated quotation system on which the Preferred Securities are then listed or
quoted.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Securities may be redeemed at the election of the Company, in whole
or in part, at any time or from time to time after October 5, 1999, at the
Redemption Prices set forth in Section 1109 below upon not less than 30 or more
than 60 days' notice. The Company may not redeem fewer than all of the
outstanding Securities unless all accrued and unpaid Distributions have been
paid on all Securities for all quarterly Distribution periods terminating on or
before the date of redemption. The Trust may not redeem fewer than all the
outstanding Securities unless all accrued and unpaid Distributions have been
paid on all Securities for all quarterly Distribution periods terminating on or
before the date of redemption.
(b) As set forth more fully in Section 1110 below, the Securities may also
be redeemed, in whole (but not in part), at the election of the Company at any
time within 90 days following the occurrence of a Tax Event (in whole but not in
part); PROVIDED, HOWEVER, that if, at the time there is available to the Company
or the Trust the opportunity to eliminate, within such 90-day period, the Tax
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure, which in the sole
judgment of the Company has or will cause no adverse effect on the Trust, the
holders of the Trust Securities or the Company or will involve no material cost,
then the Company or the Trust shall pursue such measure in lieu of redemption.
SECTION 1102. APPLICABILITY OF ARTICLE.
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Redemption of Securities at the election of the Company, as permitted by
Section 1101, shall be made in accordance with such provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem Securities pursuant to Section 1101
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 30 days and no more than 60
days prior to the Redemption Date fixed by the Company, notify the Trustee in
writing of such Redemption Date and of the principal amount of Securities to be
redeemed and provide a copy of the notice of redemption given to Holders of
Securities to be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed (unless such redemption
affects only a single Security), the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities 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 (equal to $50 or any integral multiple
thereof) of the principal amount of the Securities.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security, whether such Security is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security.
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 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 nor 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 identify the Securities to be redeemed
(including, if relevant, the CUSIP or ISIN number) and shall state:
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(a) the Redemption Date,
(b) the Redemption Price,
(c) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and that interest thereon will
cease to accrue on and after said date, and
(d) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
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 Request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
On or 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 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.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 307) be paid to the Company upon the Company's Request
or, if then held by the Company, shall be discharged from such trust.
SECTION 1107. 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
(including Additional Payments and Liquidated Damages, if any) 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 the terms and the
provisions of Section 307.
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If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid, bear interest from the
Redemption Date at the rate borne by the Security.
SECTION 1108. SECURITIES REDEEMED IN PART.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before any selection for redemption
of Securities and ending at the close of business on the earliest date on which
the relevant notice of redemption is deemed to have been given to all holders of
Securities to be so redeemed and (ii) register the transfer of or exchange any
Securities so selected for redemption, in whole or in part, except for the
unredeemed portion of any Securities being redeemed in part.
Any 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 make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, 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.
SECTION 1109. OPTIONAL REDEMPTION.
(a) The Company shall have the right to redeem the Securities, in whole or
in part, at any time or from time to time on or after October 5, 1999 upon not
less than 30 nor more than 60 days' notice, at a redemption price equal at the
following optional redemption prices (expressed as a percentage of the principal
amount of Securities) if redeemed during the 12-month period beginning October 1
of the respective years shown below (October 5, in the case of 1999):
Percentage of
Year Principal Year Amount
-------------------- ---------------------
1999 . . . . . . . . . . . . . . . 104.725%
2000 . . . . . . . . . . . . . . . 104.050
2001 . . . . . . . . . . . . . . . 103.375
2002 . . . . . . . . . . . . . . . 102.700
2003 . . . . . . . . . . . . . . . 102.025
2004 . . . . . . . . . . . . . . . 101.350
2005 . . . . . . . . . . . . . . . 100.675
2006 and thereafter. . . . . . . . 100.000
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plus any accrued and unpaid interest, including Additional Payments and
Liquidated Damages, if any, to the Redemption Date.
Any redemption pursuant to this Section 1109 shall be made pursuant to the
provisions of Sections 1101 through 1108 hereof.
(b) If a partial redemption of the Securities would result in the delisting
of the Preferred Securities issued by the Trust from any national securities
exchange or other organization on which the Preferred Securities are listed, the
Company shall not be permitted to effect such partial redemption and may only
redeem the Securities in whole.
SECTION 1110. TAX EVENT REDEMPTION.
If a Tax Event has occurred and is continuing and:
(a) The Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular Trustees shall
have been informed by tax counsel rendering the Dissolution Tax Opinion that a
No Recognition Opinion cannot be delivered to the Trust, then, notwithstanding
Section 1109(a) but subject to Section 1109(b), the Company shall have the right
upon not less than 30 days nor more than 60 days notice to the Holders of the
Securities to redeem the Securities in whole (but not in part) for cash at the
redemption price that would then be applicable in accordance with Section
1109(a) (or, in the case of the period commencing on the date of issuance of the
Securities through October 4, 1997 and the twelve month periods commencing
October 5, 1997 and October 5, 1998, the product of 106.750%, 106.075% and
105.400%, respectively, times $50), in each case plus accrued and unpaid
interest and Additional Payments and Liquidated Damages, if any, within 90 days
following the occurrence of such Tax Event (the "90-Day Period"); PROVIDED,
HOWEVER, that if, at the time there is available to the Company or the Trust the
opportunity to eliminate within the 90-Day Period, the Tax Event by taking some
ministerial action ("Ministerial Action"), such as filing a form or making an
election, or pursuing some other similar reasonable measure which, in the sole
judgment of the Company, has or will cause no adverse effect on the Company, the
Trust or the holders of the Trust Securities and will involve no material cost,
the Company or the Trust shall pursue such Ministerial Action or other measure
in lieu of redemption, and PROVIDED, FURTHER, that the Company shall have no
right to redeem the Securities while the Trust is pursuing any Ministerial
Action. The redemption payment, including accrued and unpaid interest, including
Additional Payments, if any, shall be made prior to 12:00 noon, New York time,
on the date of such redemption or such earlier time as the Company determine,
PROVIDED, that the Company shall deposit with the Trustee an amount sufficient
to make such redemption payment by 10:00 a.m. on the date such redemption
payment is to be made.
SECTION 1111. NO SINKING FUND.
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The Securities are not entitled to the benefit of any sinking fund.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each Holder of Securities by such
Holder's acceptance thereof likewise covenants and agrees, that all Securities
shall be issued subject to the provisions of this Article Twelve; and each
Holder of a Security, whether upon original issue or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions. The payment by the
Company of the principal of, premium, if any, and interest (including Additional
Payments) on all Securities issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of all existing and future Senior Indebtedness,
whether outstanding at the date of this Indenture or thereafter incurred;
provided however, that no provision of this Article Twelve shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 1202. DEFAULT ON SENIOR INDEBTEDNESS.
In the event and during the continuation of any default by the Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness continuing beyond the period of grace, if any, specified in
the instrument evidencing such Senior Indebtedness, unless and until such
default shall have been cured or waived or shall have ceased to exist, and in
the event that the maturity of any Senior Indebtedness has been accelerated
because of a default, then no payment shall be made by the Company with respect
to the principal of (including redemption payments, if any), premium, if any, or
interest on the Securities.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 1202, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing within 90 days of
such payment of the amounts then due and owing on the Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of Senior Indebtedness.
SECTION 1203. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
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Upon any payment by the Company or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding up or liquidation or reorganization of the
Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Indebtedness must be paid in full
before any payment is made on account of the principal (and premium, if any) or
interest on the Securities; and upon any such dissolution or winding up or
liquidation or reorganization, any payment by the Company, or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee would be entitled, except for
the provisions of this Article Twelve, shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Holders or by the Trustee under
this Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the Holders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee or the Holders before all Senior Indebtedness is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article Twelve, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article Twelve with
respect to the Securities to the payment of all Senior Indebtedness which may at
the time be outstanding; provided, that (i) such Senior Indebtedness is assumed
by the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company
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following the conveyance, transfer or lease of all or substantially all its
properties and assets on a consolidated basis to another Person upon the terms
and conditions provided for in Article Eight hereof shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Section 1203 if such other Person shall, as a part of such consolidation,
merger" conveyance, transfer or lease, comply with the conditions stated in
Article Eight hereof. Nothing in Section 1202 or in this Section 1203 shall
apply to claims of, or payments to, the Trustee under or pursuant to Section 607
hereof.
SECTION 1204. SUBROGATION.
Subject to the payment in full of all Senior Indebtedness, the rights of
the Holders shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company, as the case may be, applicable to such Senior
Indebtedness until the principal of (and premium, if any,) and interest on the
Securities shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of such Senior Indebtedness of any
cash, property or securities to which the Holders or the Trustee would be
entitled except for the provisions of this Article Twelve, and no payment over
pursuant to the provisions of this Article Twelve, to or for the benefit of the
holders of such Senior Indebtedness by Holders or the Trustee, shall, as between
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article Twelve
are and are intended solely for the purposes of defining the relative rights of
the Holders, on the one hand, and the holders of such Senior Indebtedness on the
other hand.
Nothing contained in this Article Twelve or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of (and premium, if any) and interest on the Securities as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders and
creditors of the Company, as the case may be, other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Twelve of the holders of such Senior Indebtedness in respect of cash, property
or securities of the Company, as the case may be, received upon the exercise of
any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article Twelve, the Trustee, subject to the provisions of Section 603, and
the Holders, shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders,
for the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior
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Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 1205. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder by such Holder's acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Twelve and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes.
SECTION 1206. NOTICE BY THE COMPANY.
The Company shall give prompt written notice to a Responsible Officer of
the Trustee of any fact known to the Company which would prohibit the making of
any payment of monies to or by the Trustee in respect of the Securities pursuant
to the provisions of this Article Twelve. Notwithstanding the provisions of this
Article Twelve or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provision of this Article Twelve, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof at
the Corporate Trust Office of the Trustee from the Company or a holder or
holders of Senior Indebtedness or from any trustee therefor; and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 603 hereof, shall be entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section 1206 at least two Business Days prior to the
date upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (and premium, if
any) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purposes for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
The Trustee, subject to the provisions of Section 603, 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 such Senior
Indebtedness or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article Twelve, 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 right of such
Person under this Article
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Twelve, 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 1207. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article Twelve in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of such Senior Indebtedness and, subject
to the provisions of Section 603, the Trustee shall not be liable to any holder
of such Senior Indebtedness if it shall pay over or deliver to Holders, the
Company or any other Person money or assets to which any holder of such Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
With respect to the holders of Senior Indebtedness, the Trustee undertakes ,to
perform or to observe only such of its covenants or obligations as are
specifically set forth in this Article Twelve and no implied covenants or
obligations with respect to holders of Senior Indebtedness shall be read into
this Indenture against the Trustee.
SECTION 1208. SUBORDINATION MAY NOT BE IMPAIRED.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.
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 Trustee or the Holders, without incurring
responsibility to the holders of the Securities and without impairing or
releasing the subordination provided in this Article Twelve or the obligations
hereunder 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 or extend the time of payment of, or renew or alter, such
Senior Indebtedness, or otherwise amend or supplement in any manner such Senior
Indebtedness or any instrument evidencing the same or any agreement under which
such Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Senior Indebtedness; (iii) release any Person liable in any manner for the
collection of such Senior
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Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
SECTION 1209. CERTAIN CONVERSIONS DEEMED PAYMENT.
For the purposes of this Article Twelve only, (1) the issuance and delivery
of junior securities upon conversion of Securities in accordance with Article
Thirteen shall not be deemed to constitute a payment or distribution on account
of the principal of (or premium, if any) or interest on Securities or on account
of the purchase or other acquisition of Securities, and (2) the payment,
issuance or delivery of cash (except in satisfaction of fractional shares),
property or securities (other than junior securities) upon conversion of a
Security shall be deemed to constitute payment on account of the principal of
such Security. For the purposes of this Section 1209, the term "junior
securities" means (a) shares of any stock of any class of the Company, or (b)
securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article Twelve or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the Holders, the right, which is
absolute and unconditional, of the Holder to convert such Security in accordance
with Article Thirteen.
SECTION 1210. ARTICLE APPLICABLE TO PAYING AGENTS.
If at any time any paying agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall (unless the context otherwise requires) be construed
as extending to and including such paying agent within its meaning as fully for
all intents and purposes as if such paying agent were named in this Article in
addition to or in place of the Trustee; PROVIDED, HOWEVER, that the first
paragraph of Section 1207 shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as paying agent.
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. CONVERSION RIGHTS.
Subject to and upon compliance with the provisions of this Article, the
Securities are convertible, at the option of the Holder, at any time on or
before the close of business on the Business Day immediately preceding the date
of repayment of such Securities, whether at maturity or upon redemption (either
at the option of the Company or pursuant to a Tax Event), into the number of
fully paid and nonassessable shares of Common Stock obtained by dividing $50 per
Security by the applicable conversion price (initially $28.75 per share of
Common Stock for each Security), rounded to the nearest one thousand of one
share (equivalent to conversion
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rate of 1.739 Shares per share of Common Stock per Security), subject to
adjustment as described in this Article Thirteen. A Holder may convert any
portion of the principal amount of the Securities into that number of fully paid
and nonassessable shares of Common Stock (calculated as to each conversion to
the nearest 1/1000th of a share) obtained by dividing the principal amount of
the Securities to be converted by such conversion price. In case a Security or
portion thereof is called for redemption, such conversion right in respect of
the Security or portion so called shall expire at the close of business on the
Business Day immediately preceding the corresponding Redemption Date, unless the
Company defaults in making the payment due upon redemption. The Company shall at
all times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of the Securities, free from any
preemptive or other similar rights, such number of shares of Common Stock as
shall from time to time be issuable upon the conversion of all the Securities
then outstanding.
SECTION 1302. CONVERSION PROCEDURES.
(a) In order to convert all or a portion of the Securities, the Holder
thereof shall deliver to the Conversion Agent an irrevocable Notice of
Conversion setting forth the principal amount of Securities to be converted,
together with the name or names, if other than the Holder, in which the shares
of Common Stock should be issued upon conversion and, if such Securities are
definitive Securities, surrender to the Conversion Agent the Securities to be
converted, duly endorsed or assigned to the Company or in blank. In addition, a
holder of Preferred Securities may exercise its right under the Declaration to
convert such Preferred Securities into Common Stock by delivering to the
Conversion Agent an irrevocable Notice of Conversion setting forth the
information called for by the preceding sentence and directing the Conversion
Agent (i) to exchange such Preferred Security for a portion of the Securities
held by the Trust (at an exchange rate of $50 principal amount of Securities for
each Preferred Security) and (ii) to immediately convert such Securities, on
behalf of such holder, into Common Stock of the Company pursuant to this Article
Thirteen and, if such Preferred Securities are in definitive form, surrendering
such Preferred Securities, duly endorsed or assigned to the Company or in blank.
So long as any Preferred Securities are Outstanding, the Trust shall not convert
any Securities except pursuant to a Notice of Conversion delivered to the
Conversion Agent by a holder of Preferred Securities.
If a Notice of Conversion is delivered on or after the Regular Record Date
and prior to the subsequent Interest Payment Date, the Holder will be entitled
to receive the interest payable on the subsequent Interest Payment Date on the
portion of Securities to be converted notwithstanding the conversion thereof
prior to such Interest Payment Date. Except as otherwise provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is on or after the date of conversion of such
Security shall not be payable, and the Company shall not make nor be required to
make any other payment, adjustment or allowance with respect to accrued but
unpaid interest on the Securities being converted, which shall be deemed to be
paid in full. Each conversion shall be deemed to have been effected immediately
prior to the close of business on the day on which the Notice of
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Conversion was received (the "Conversion Date") by the Conversion Agent from the
Holder or from a holder of the Preferred Securities effecting a conversion
thereof pursuant to its conversion rights under the Declaration, as the case may
be. The Person or Persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock as of the Conversion Date and such Person or
Persons will cease to be a record holder or record holders of the Securities on
that date. As promptly as practicable on or after the Conversion Date, the
Company shall issue and deliver at the office of the Conversion Agent, unless
otherwise directed by the Holder in the Notice of Conversion, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same. The Conversion
Agent shall deliver such certificate or certificates to such Person or Persons.
(b) The Company's delivery upon conversion of the fixed number of shares of
Common Stock into which the Securities are convertible (together with the cash
payment, if any, in lieu of fractional shares) shall be deemed to satisfy the
Company's obligation to pay the principal amount at Maturity of the portion of
Securities so converted and any unpaid interest (including Compounded Interest,
Additional Interest and Liquidated Damages) accrued on such Securities at the
time of such conversion.
(c) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a
cash adjustment in an amount equal to the same fraction of the last reported
sale price of such fractional interest on the date on which the Securities or
Preferred Securities, as the case may be, were duly surrendered to the
Conversion Agent for conversion, or, if such day is not a Trading Day, on the
next Trading Day, and the Conversion Agent in turn will make such payment, if
any, to the Holder or the holder of the Preferred Securities so converted.
(d) In the event of the conversion of any Security in part only, a new
Security or Securities for the unconverted portion thereof will be issued in the
name of the Holder thereof upon the cancellation of the Security converted in
part in accordance with Section 305.
(e) In effecting the conversion transactions described in this Section, the
Conversion Agent is acting as agent of the holders of Preferred Securities (in
the exchange of Preferred Securities for Securities) and as agent of the Holders
of Securities (in the conversion of Securities into Common Stock), as the case
may be, directing it to effect such conversion transactions. The Conversion
Agent is hereby authorized (i) to exchange Securities held by the Trust from
time to time for Preferred Securities in connection with the conversion of such
Preferred Securities in accordance with this Article Thirteen and (ii) to
convert all or a portion of the Securities into Common Stock and thereupon to
deliver such shares of Common Stock in accordance with the provisions of this
Article Thirteen and to deliver to the Trust a new Security or Securities for
any resulting unconverted principal amount.
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(f) All shares of Common Stock delivered upon any conversion of Securities
required to bear the Restricted Securities Legend shall bear a restrictive
legend substantially in the form of the legend required to be set forth on such
Securities and shall be subject to the restrictions on transfer provided in such
legend and in Section 305(b) hereof. Neither the Trustee nor the Conversion
Agent shall have any responsibility for the inclusion or content of any such
restrictive legend on such Common Stock; PROVIDED, however, that the Trustee or
the Conversion Agent shall have provided to the Company or to the Company's
transfer agent for such Common Stock, prior to or concurrently with a request to
the Company to deliver to such Conversion Agent certificates for such Common
Stock, written notice that the Securities delivered for conversion are
Securities required to bear the Restricted Securities Legend.
SECTION 1303. CONVERSION PRICE ADJUSTMENTS.
The conversion price shall be subject to adjustment (without duplication)
from time to time as follows:
(a) In case the Company shall, while any of the Securities are Outstanding,
(i) pay a dividend or make a distribution with respect to its Common Stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares or (iv) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company, the conversion privilege and the
conversion price in effect immediately prior to such action shall be adjusted so
that the Holder of any Securities thereafter surrendered for conversion shall be
entitled to receive the number of shares of capital stock of the Company which
he would have owned immediately following such action had such Securities been
converted immediately prior thereto. An adjustment made pursuant to this
subsection (a) shall become effective immediately after the record date in the
case of a dividend or other distribution and shall become effective immediately
after the effective date in case of a subdivision, combination or
reclassification (or immediately after the record date if a record date shall
have been established for such event). If, as a result of an adjustment made
pursuant to this subsection (a), the Holder of any Security thereafter
surrendered for conversion shall become entitled to receive shares of two or
more classes or series of capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a Board
Resolution filed with the Trustee) shall determine the allocation of the
adjusted conversion price between or among shares of such classes or series of
capital stock. In the event that such dividend, distribution, subdivision,
combination or issuance is not so paid or made, the conversion price shall again
be adjusted to be the conversion price which would then be in effect if such
record date had not been fixed.
(b) In case the Company shall, while any of the Securities are Outstanding,
issue rights or warrants to all holders of its Common Stock entitling them (for
a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of Common Stock at a price per share less than
the current market price per share of Common Stock (as determined pursuant to
subsection (f) below) on the record date mentioned below, the conversion price
for the Securities shall be adjusted so that the same shall equal the price
determined by
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multiplying the conversion price in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered for subscription or purchase
would purchase at such current market price, and of which the denominator shall
be the number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. For the purposes of this subsection, the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company shall not issue any
rights or warrants in respect of shares of Common Stock held in the treasury of
the Company. In case any rights or warrants referred to in this subsection in
respect of which an adjustment shall have been made shall expire unexercised
within 45 days after the same shall have been distributed or issued by the
Company, the conversion price shall be readjusted at the time of such expiration
to the conversion price that would have been in effect if no adjustment had been
made on account of the distribution or issuance of such expired rights or
warrants.
(c) Subject to the last sentence of this subparagraph, 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 or series of capital stock,
cash or assets (including securities, but excluding any rights or warrants
referred to in subparagraph (b), any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in subparagraph (a) of this
Section 1303), the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph (c) by a fraction of which the numerator shall
be the current market price per share (determined as provided in subparagraph
(f)) of the Common Stock on the date fixed for the payment of such distribution
(the "Reference Date") less the fair market value (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors), on the Reference Date, of the
portion of the evidences of indebtedness, shares of capital stock, cash and
assets so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such reduction to become effective immediately prior to the opening of business
on the day following the Reference Date. In the event that such dividend or
distribution is not so paid or made, the conversion price shall again be
adjusted to be the conversion price which would then be in effect if such
dividend or distribution had not occurred. If the Board of Directors determines
the fair market value of any distribution for purposes of this subparagraph (c)
by reference to the actual or when issued trading market for any securities
comprising such distribution, it must in doing so consider the prices in such
market over the same period used in computing the current market price per share
of Common Stock (determined as provided in subparagraph (f)). For purposes of
this subparagraph (c), any dividend or distribution that includes shares of
Common Stock or rights or warrants to subscribe for or purchase shares of Common
Stock shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, shares of capital stock, cash or assets
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other than such shares of Common Stock or such rights or warrants (making any
conversion price reduction required by this subparagraph (c)) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (making any further conversion price reduction required
by subparagraph (a) or (b)), except (A) the Reference Date of such dividend or
distribution as defined in this subparagraph shall be substituted as (a) "the
record date in the case of a dividend or other distribution," and (b) "the
record date for the determination of stockholders entitled to receive such
rights or warrants" and (c) "the date fixed for such determination" within the
meaning of subparagraphs (a) and (b) and (B) any shares of Common Stock included
in such dividend or distribution shall not be deemed outstanding for purposes of
computing any adjustment of the conversion price in subparagraph (a).
(d) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in cash (excluding all regular cash dividends,
if the annualized amount thereof per share of Common Stock does not exceed 10%
of the current market price per share, determined as provided in subparagraph
(f), of the Common Stock on the Trading Day immediately preceding the date of
declaration of such dividend), the conversion price shall be reduced so that the
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph by a fraction of which the numerator shall be
the current market price per share (determined as provided in subparagraph (f))
of the Common Stock on the date fixed for the payment of such distribution less
the amount of cash so distributed (excluding that portion of such distribution
that does not exceed 10% of the current market price per share, determined as
provided above) applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the day
following the date fixed for the payment of such distribution; PROVIDED,
HOWEVER, that in the event the portion of the cash so distributed applicable to
one share of Common Stock is equal to or greater than the current market price
per share (as defined in subparagraph (f)) of the Common Stock on the record
date mentioned above (excluding that portion of such distribution that does not
exceed 10% of the current market price per share, determined as provided above),
in lieu of the foregoing adjustment, adequate provision shall be made so that
each Holder of shares of Securities shall have the right to receive upon
conversion the amount of cash such Holder would have received had such Holder
converted each share of the Securities immediately prior to the record date for
the distribution of the cash (less that portion of such distribution that does
not exceed 10% of the current market price per share, determined as provided
above). In the event that such dividend or distribution is not so paid or made,
the conversion price shall again be adjusted to be the conversion price which
would then be in effect if such record date had not been fixed.
(e) In case a tender or exchange offer (other than an odd-lot offer) made
by the Company or any Subsidiary of the Company for all or any portion of the
Common Stock shall expire and such tender or exchange offer shall involve the
payment by the Company or such Subsidiary of consideration per share of Common
Stock having a fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors) at the last time (the "Expiration Time")
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tenders or exchanges may be made pursuant to such tender or exchange offer (as
it shall have been amended) that exceeds the current market price per share
(determined as provided in subparagraph (f)) of the Common Stock on the Trading
Day next succeeding the Expiration Time, the conversion price shall be reduced
so that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this subparagraph (e) by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding (including
any tendered or exchanged shares) at the Expiration Time multiplied by the
current market price per share (determined as provided in subparagraph (f)) of
the Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") (excluding that portion of such
consideration that does not exceed the current market price per share,
determined as provided above) and (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) at the Expiration Time and
the current market price per share (determined as provided in subparagraph (f))
of the Common Stock on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time. In the event that such tender or exchange
offer is not so made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such record date had not been
fixed.
(f) For the purpose of any computation under subparagraphs (b), (c), (d) or
(e), the current market price per share of Common Stock on any date in question
shall be deemed to be the average of the daily Closing Prices for the five
consecutive Trading Days selected by the Company commencing not more than 20
Trading Days before, and ending not later than, the earlier of the day in
question or, if applicable, the day before the "ex" date with respect to the
issuance or distribution requiring such computation; PROVIDED, HOWEVER, that if
another event occurs that would require an adjustment pursuant to subparagraph
(a) through (e), inclusive, the Board of Directors may make such adjustments to
the Closing Prices during such five Trading Day period as it deems appropriate
to effectuate the intent of the adjustments in this Section 1303, in which case
any such determination by the Board of Directors shall be set forth in a Board
Resolution and shall be conclusive. For purposes of this paragraph, the term
"ex" date, (1) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the NYSE, or if the
security is not listed on the NYSE, the Nasdaq National Market or on such
successor securities exchange or inter-dealer quotation system as the Common
Stock may be listed or in the relevant market from which the Closing Prices were
obtained without the right to receive such issuance or distribution, and (2)
when used with respect to any tender or exchange offer means the first date on
which the Common Stock trades regular way on such securities exchange or inter-
dealer quotation system or in such market after the Expiration Time of such
offer.
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(g) The Company may make such reductions in the conversion price, in
addition to those required by subparagraphs (a) through (e), as it considers to
be advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes. The Company from time to time may reduce the conversion price by
any amount for any period of time if the period is at least twenty (20) days,
the reduction is irrevocable during the period, and the Board of Directors of
the Company shall have made a determination that such reduction would be in the
best interest of the Company, which determination shall be conclusive. Whenever
the conversion price is reduced pursuant to the preceding sentence, the Company
shall mail to holders of record of the Securities a notice of the reduction at
least fifteen (15) days prior to the date the reduced conversion price takes
effect, and such notice shall state the reduced conversion price and the period
it will be in effect.
(h) No adjustment of the conversion price shall be required upon the
issuance of any shares of Common Stock pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional amounts in shares of
Common Stock under any such plan. No adjustment in the conversion price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in the conversion price; PROVIDED, however, that any adjustments which
by reason of this subparagraph are not required to be made shall be carried
forward and taken into account in determining whether any subsequent adjustment
shall be required.
(i) If any action would require adjustment of the conversion price pursuant
to more than one of the provisions described above, only one adjustment shall be
made and such adjustment shall be the amount of adjustment that has the highest
absolute value to the Holder of the Securities.
SECTION 1304. FUNDAMENTAL CHANGE.
(a) In the event that the Company shall be a party to any transaction
(including without limitation (i) any recapitalization or reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another Person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (iii) any sale or transfer of all or substantially all of the
assets of the Company or (iv) any compulsory share exchange) pursuant to which
either shares of Common Stock shall be converted into the right to receive other
securities, cash or other property, or, in the case of a sale or transfer of all
or substantially all of the assets of the Company, the holders of Common Stock
shall be entitled to receive other securities, cash or other property, then
lawful provision shall be made as part of the terms of such transaction whereby
the Holder of each Security then outstanding shall have the right thereafter to
convert such Security only into:
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(1) in the case of any such transaction that does not constitute a
Common Stock Fundamental Change (as defined below) and subject to funds being
legally available for such purpose under applicable law at the time of such
conversion, the kind and amount of the securities, cash or other property that
would have been receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock issuable upon conversion of such Security
immediately prior to such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange, after giving effect, in the case of
any Non-Stock Fundamental Change (as defined below), to any adjustment in the
Conversion Price in accordance with Section 1304(c)(1); and
(2) in the case of any such transaction that constitutes a Common
Stock Fundamental Change, common stock of the kind received by holders of Common
Stock as a result of such Common Stock Fundamental Change in an amount
determined in accordance with Section 1304(c)(2).
(b) The Company or the Person formed by such consolidation or resulting
from such merger or that acquired such assets or that acquires the Company's
shares, as the case may be, shall expressly assume all obligations under this
Indenture, the Declaration, the Guarantee and all Outstanding Securities by
entering into a supplemental indenture to this Indenture and by becoming a party
to the Declaration and the Guarantee (as applicable) to amend each of such
agreements to provide for such right provided for above with respect to the
Securities and the Preferred Securities. Such amendments and supplements shall
provide for adjustments which, for events subsequent to the effective date of
such agreement, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article Thirteen. The above provisions shall
similarly apply to successive transactions of the foregoing type.
(c) Notwithstanding any other provision of this Section 1304 to the
contrary, but without duplication with Section 1303, if any Fundamental Change
(as defined below) occurs, then the Conversion Price in effect will be adjusted
immediately after such Fundamental Change as follows:
(1) in the case of a Non-Stock Fundamental Change, the Conversion
Price of the Securities immediately following such Non-Stock Fundamental Change
shall be the lower of (A) the Conversion Price in effect immediately prior to
such Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to Section 1303, and (B) the product of (1) the
greater of the Applicable Price (as defined in Section 1307) and the then
applicable Reference Market Price (as defined in Section 1307) and (2) a
fraction, the numerator of which is $50 and the denominator of which is (x) the
amount of the Redemption Price set forth in Section 1109 for $50 in principal
amount of Securities if the Redemption Date were the date of such Non-Stock
Fundamental Change (or, for the period commencing on the first date of original
issuance of the Preferred Securities and to October 1, 1997 and the twelve month
periods commencing October 1, 1997, October 1, 1998 and October 1, 1999, the
product of 106.750%, 106.075%, 105.400% and 104.725%, respectively, times $50)
plus (y) any then-
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accrued and unpaid interest, including Additional Interest, Compounded Interest
and Liquidated Damages, if any on one Preferred Security; and
(2) in the case of a Common Stock Fundamental Change, the conversion
price of the Securities immediately following such Common Stock Fundamental
Change shall be the conversion price in effect immediately prior to such Common
Stock Fundamental Change, but after giving effect to any other prior adjustments
effected pursuant to Section 1303, multiplied by a fraction, the numerator of
which is the Purchaser Stock Price (as defined in Section 1307) and the
denominator of which is the Applicable Price; PROVIDED, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Common Stock is common stock of the
successor, acquiror or other third party (and cash, if any, paid with respect to
any fractional interests in such common stock resulting from such Common Stock
Fundamental Change) and (B) all of the Common Stock shall have been exchanged
for, converted into or acquired for, common stock of the successor, acquiror or
other third party (and any cash with respect to fractional interests or with
respect to appraisal or similar rights), the conversion price of the Securities
immediately following such Common Stock Fundamental Change shall be the
conversion price in effect immediately prior to such Common Stock Fundamental
Change multiplied by a fraction, the numerator of which is one and the
denominator of which is the number of shares of common stock of the successor,
acquiror or other third party received by a holder of one share of Common Stock
as a result of such Common Stock Fundamental Change.
SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price and shall
prepare a certificate signed by the Chief Financial Officer or the Treasurer of
the Company setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Trustee, the Conversion Agent and
the transfer agent for the Preferred Securities and the Securities; and
(b) a notice stating the conversion price has been adjusted and setting
forth the adjusted conversion price shall as soon as practicable be mailed by
the Company to all record holders of Preferred Securities and the Securities at
their last addresses as they appear upon the stock transfer books of the Company
and the Trust.
SECTION 1306. PRIOR NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall (1) declare any dividend (or any other distribution)
on its Common Stock, other than (A) a dividend payable in shares of Common Stock
or (B) a dividend payable in cash that would not require an adjustment pursuant
to Section 1303(c) or (d) or (2)
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authorize a tender or exchange offer that would require an adjustment pursuant
to Section 1303(e);
(b) the Company shall authorize the granting to all holders of Common Stock
of rights or warrants to subscribe for or purchase any shares of stock of any
class or series or of any other rights or warrants;
(c) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company shall be required, or of the sale or transfer
of all or substantially all of the assets of the Company or of any compulsory
share exchange whereby the Common Stock is converted into other securities, cash
or other property; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then the Company shall (a) if any Preferred Securities are outstanding, cause to
be filed with the transfer agent for the Preferred Securities, and shall cause
to be mailed to the holders of record of the Preferred Securities, at their last
addresses as they shall appear upon the stock transfer books the Trust or (b)
shall cause to be mailed to all Holders at their last addresses as they shall
appear in the Security Register, at least 15 days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record (if any) is to be taken for the purpose of such dividend, distribution,
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which 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, sale,
transfer, share exchange, dissolution, liquidation or winding up (but no failure
to mail such notice or any defect therein or in the mailing thereof shall affect
the validity of the corporate action required to be specified in such notice).
SECTION 1307. CERTAIN DEFINED TERMS.
The following definitions shall apply to terms used in this Article
Thirteen:
(a) "APPLICABLE PRICE" means (i) in the event of a Non-Stock Fundamental
Change in which the holders of Common Stock receive only cash, the amount of
cash received by a holder of one share of Common Stock and (ii) in the event of
any other Fundamental Change, the average of the daily Closing Price for one
share of Common Stock during the 10 Trading Days immediately prior to the record
date for the determination of the holders of Common Stock
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entitled to receive cash, securities, property or other assets in connection
with such Fundamental Change or, if there is no such record date, prior to the
date upon which the holders of Common Stock shall have the right to receive such
cash, securities, property or other assets.
(b) "CLOSING PRICE" of any common stock on any day shall mean the last
reported sale price regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked prices regular
way of such common stock, in each case on the NYSE Composite Tape or, if the
common stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange or interdealer quotation system on which
such common stock is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange or inter-dealer
quotation system, the average of the closing bid and asked prices as furnished
by any NYSE member firm selected from time to time by the Board of Directors of
the Company for that purpose or, if not so available in such manner, as
otherwise determined in good faith by the Board of Directors.
(c) "COMMON STOCK FUNDAMENTAL CHANGE" means any Fundamental Change in which
more than 50% of the value (as determined in good faith by the Board of
Directors) of the consideration received by holders of Common Stock consists of
common stock, that, for the 10 Trading Days immediately prior to such
Fundamental Change, has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or quoted on the
Nasdaq Stock Market; PROVIDED, HOWEVER, that a Fundamental Change shall not be a
Common Stock Fundamental Change unless either (i) the Company continues to exist
after the occurrence of such Fundamental Change and the outstanding Securities
continue to exist as outstanding Securities or (ii) not later than the
occurrence of such Fundamental Change, all obligations of the Company under this
Indenture, the Declaration, the Guarantee and all outstanding Securities are
expressly assumed by the Person succeeding to the business of the Company by
becoming a party to the Declaration and the Guarantee and by entering into a
supplemental indenture to this Indenture (as applicable), which obligations
shall include the right of the holders of the Preferred Securities to convert
the Preferred Securities (and the Securities) into the common stock of such
successor entity and providing for adjustments that, for events subsequent to
the effective date thereof, shall be as nearly equivalent as may be practicable
to the relevant adjustments provided for in this Article Thirteen.
(d) "FUNDAMENTAL CHANGE" means the occurrence of any transaction or event
or series of transactions or events pursuant to which all or substantially all
of the Common Stock shall be exchanged for, converted into, acquired for or
shall constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); PROVIDED, however, in the case of any such series of transactions or
events, for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the Common
Stock shall have been exchanged for, converted into or acquired for, or shall
constitute solely the right to receive, such cash, securities, property or other
assets, but the adjustment shall be based upon the consideration that the
holders of Common Stock received in the transaction or event as a result of
which more than 50% of the
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Common Stock outstanding shall have been exchanged for, converted into or
acquired for, or shall constitute solely the right to receive, such cash,
securities, property or other assets.
(e) "NON-STOCK FUNDAMENTAL CHANGE", means any Fundamental Change other than
a Common Stock Fundamental Change.
(f) "PURCHASER STOCK PRICE" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of the
common stock received by holders of Common Stock in such Common Stock
Fundamental Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of Common Stock entitled to receive
such common stock or, if there is no such date, prior to the date upon which the
holders of Common Stock shall have the right to receive such common stock.
(g) "REFERENCE MARKET PRICE" initially means $16.25 and, in the event of
any adjustment to the conversion price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price of $28.75 per share.
(h) "TRADING DAY" shall mean a day on which securities are traded on the
national securities exchange or quotation system used to determine the Closing
Price.
SECTION 1308. DIVIDEND OR INTEREST REINVESTMENT PLANS.
Notwithstanding the foregoing provisions, the issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under any such plan, and the issuance
of any shares of Common Stock or options or rights to purchase such shares
pursuant to any employee benefit plan or program of the Company or pursuant to
any option, warrant, right or exercisable, exchangeable or convertible security
outstanding as of the date the Securities were first issued, shall not be deemed
to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the conversion
price in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company except as specifically described in this
Article Thirteen.
SECTION 1309. CERTAIN ADDITIONAL RIGHTS.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in Section 1303(c) or 1303(d)
(including, without limitation, dividends or distributions referred to in the
last sentence of Section 1303(c)), the Holder, upon the conversion thereof
subsequent to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution and prior to the
effectiveness of the
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conversion price adjustment in respect of such distribution, shall also be
entitled to receive for each share of Common Stock into which the Securities are
converted, the portion of the shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock; PROVIDED, HOWEVER, that, at
the election of the Company (whose election shall be evidenced by a resolution
of the Board of Directors) with respect to all Holders so converting, the
Company may, in lieu of distributing to such Holder any portion of such
distribution not consisting of cash or securities of the Company, pay such
Holder an amount in cash equal to the fair market value thereof (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors). If any conversion of
Securities described in the immediately preceding sentence occurs prior to the
payment date for a distribution to holders of Common Stock which the Holder of
Securities so converted is entitled to receive in accordance with the
immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
Holder a due bill for the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets to which such Holder is so
entitled, PROVIDED, that such due bill (i) meets any applicable requirements of
the principal national securities exchange or other market on which the Common
Stock is then traded and (ii) requires payment or delivery of such shares of
Common Stock, rights, warrants, evidences of indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery thereof to
holders of shares of Common Stock receiving such distribution.
SECTION 1310. RESTRICTIONS ON COMMON STOCK ISSUABLE UPON CONVERSION.
(a) Shares of Common Stock to be issued upon conversion of a Security in
respect of Preferred Securities bearing a Restricted Securities Legend (as
defined in the Declaration) shall bear such restrictive legends as the Company
may provide in accordance with applicable law.
(b) If shares of Common Stock to be issued upon conversion of a Security in
respect of Preferred Securities bearing a Restricted Securities Legend are to be
registered in a name other than that of the holder of such Preferred Security,
then the Person in whose name such shares of Common Stock are to be registered
must deliver to the Conversion Agent a certificate satisfactory to the Company
and signed by such Person, as to compliance with the restrictions on transfer
applicable to such Preferred Security. Neither the Trustee nor any Conversion
Agent or Registrar shall be required to register in a name other than that of
the Holder shares of Common Stock issued upon conversion of any such Security in
respect of such Preferred Securities not so accompanied by a properly completed
certificate.
SECTION 1311. TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR
ADJUSTMENTS.
Neither the Trustee nor any Conversion Agent shall at any time be under any
duty or responsibility to any Holder of any Security to determine whether any
facts exist which may require any adjustment of the conversion price, 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
-73-
<PAGE>
supplemental indenture provided to be employed, in making the same. Neither the
Trustee nor any Conversion Agent shall be accountable with respect to the
validity or value (or the kind of account) of any shares of Common Stock or of
any securities or property, which may at any time be issued or delivered upon
the conversion of any Security; and neither the Trustee nor any Conversion Agent
makes any representation with respect thereto. Neither the Trustee nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of Common Stock or
stock certificates or other securities or property upon the surrender of any
Security for the purpose of conversion, or, except as expressly herein provided,
to comply with any of the covenants of the Company contained in Article Ten or
this Article Thirteen.
ARTICLE FOURTEEN
Miscellaneous
SECTION 1401. NO RECOURSE; IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, 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, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that 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 predecessor or successor corporation, 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 issuance of such Securities.
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.
-74-
<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.
VANSTAR CORPORATION
By: /s/ H. CHRISTOPHER COVINGTON
---------------------------------------
Name: H. Christopher Covington
-------------------------------------
Title: Senior Vice President, General
Counsel and Secretary
------------------------------------
WILMINGTON TRUST COMPANY, as Trustee
By: /s/ JAMES P. LAWLER
---------------------------------------
Name: James P. Lawler
-------------------------------------
Title: Vice President
------------------------------------
-75-
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ALAMEDA )
On October 2, 1996 before me personally came H. Christopher Covington, to
me known, who, being by me duly sworn, did depose and say that he/she is the
Senior Vice President, General Counsel and Secretary of Vanstar Corporation, one
of the corporations described in and which executed the foregoing instrument;
and that he/she signed his/her name thereto by authority of the Board of
Directors of such corporation.
By: /s/ JOHN J. DONOHUE
-----------------------------------
Notary Public State of California
No.
-----------------------------------
Qualified in __________________ County
Certificate Filed in _____________ County
Commission Expires ______________ 199__
-76-
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ALAMEDA )
On October 2, 1996 before me personally came James P. Lawler, to me known,
who, being by me duly sworn, did depose and say that he/she is the Vice
President of Wilmington Trust Company, one of the corporations described in and
which executed the foregoing instrument; and that he/she signed his/her name
thereto by authority of the Board of Directors of such corporation.
By: /s/ JOHN J. DONOHUE
-----------------------------------
Notary Public State of California
No.
-----------------------------------
Qualified in __________________ County
Certificate Filed in ______________ County
Commission Expires _________________ 199__
-77-
<PAGE>
EXHIBIT A
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS THREE YEARS AFTER (OR SUCH SHORTER PERIOD UNDER RULE
144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR RULE) THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH VANSTAR CORPORATION (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENTS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT
TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
A-1
<PAGE>
VANSTAR CORPORATION
6 3/4% Convertible Subordinated
Debenture due 2016
No. $
-------------------------- -----------------------
CUSIP No.
VANSTAR CORPORATION, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company", which terms include
any successor corporation under the Indenture hereinafter referred to) for value
received, hereby promises to pay to _____________________________________ , or
registered assigns, the principal sum [indicated on Schedule A hereof]* [of
_______________ Dollars]** ($ ) on October 1, 2016.
Interest Payment Dates: January 1, April 1, July 1 and October 1,
commencing January 1, 1997
Regular Record Dates: the close of business on the Business Day immediately
preceding each Interest Payment Date, except as
otherwise provided in clause 4 set forth on the
reverse side of this Security
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.
- --------------
*Applicable to Global Securities only.
**Applicable to certificated Securities only.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
VANSTAR CORPORATION
By:
----------------------------------
Title:
----------------------------------
[Seal]
Attest:
- --------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: WILMINGTON TRUST COMPANY,
as Trustee
By:
----------------------------------
Authorized Signatory
A-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
VANSTAR CORPORATION
6 3/4% Convertible Subordinated
Debenture due 2016*
(1) INTEREST. Vanstar Corporation, a Delaware corporation (the
"Company"), is the issuer of this 6 3/4% Convertible Subordinated Debenture due
2016 (the "Security") limited in aggregate principal amount to $180,412,350 (or
$207,474,200 if the over-allotment option is exercised), issued under the
Indenture hereinafter referred to. The Company promises to pay interest on the
Securities in cash from October 2, 1996 or from the most recent interest payment
date to which interest has been paid or duly provided for, quarterly (subject to
deferral for up to 20 consecutive quarters as described in Section 3 hereof) in
arrears on January 1, April 1, July 1, and October 1 of each year (each such
date, an "Interest Payment Date"), commencing January 1, 1997, at the rate of 6
3/4% per annum (subject to increase as provided in Section 12 hereto) PLUS
Additional Interest, Compound Interest and Liquidated Damages if any, until the
principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. Except as provided in the following
sentence, the amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed on the basis of
the actual number of days elapsed. In the event that any date on which interest
is payable on the Securities is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date.
(2) ADDITIONAL INTEREST. The Company shall pay to Vanstar Financing
Trust (and its permitted successors or assigns under the Declaration) (the
"Trust") such amounts as shall be required so that the net amounts received and
retained by the Trust after paying any taxes, duties, assessments or other
governmental charges of whatever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority ("Additional
Interest") will be not less than the amounts the Trust would have received had
no such taxes, duties, assessment or governmental charges been imposed.
- -------------
*All terms used in this Security which are defined in the Indenture or in
the Declaration attached as Annex A thereto shall have the meanings assigned to
them in the Indenture or the Declaration, as the case may be.
A-4
<PAGE>
(3) OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company shall have
the right at any time during the term of the Securities to defer interest
payments from time to time by extending the interest payment period for
successive periods (each, an "Extension Period") not exceeding 20 consecutive
quarters for each such period; PROVIDED, no Extension Period may extend beyond
the maturity date of the Securities. At the end of each Extension Period, the
Company shall be responsible for the payment of, and the Company shall pay all
interest then accrued and unpaid (including Additional Interest and Liquidated
Damages) together with interest thereon compounded quarterly at the rate
specified for the Securities to the extent permitted by applicable law
("Compounded Interest"); PROVIDED, that during any Extension Period, the Company
shall not, and shall not allow any of its Subsidiaries (other than, with respect
to clause (i) below only, its wholly owned Subsidiaries) to, (i) declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(except for (1) dividends or distributions in shares of Common Stock on Common
Stock or on the Preferred Stock, (2) purchases or acquisitions of shares of
Common Stock made in connection with any employee benefit plan of the Company or
its subsidiaries in the ordinary course of business or pursuant to employment
agreements with officers or employees of the Company or its subsidiaries entered
into in the ordinary course of business, provided that such repurchases by the
Company made from officers or employees of the Company or its subsidiaries
pursuant to employment agreements shall be made at a price not to exceed market
value on the date of any such repurchase and shall not exceed $1 million in the
aggregate for all such employees and officers, (3) conversions or exchanges of
shares of Common Stock of any one class into shares of Common Stock of another
class or (4) purchases of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of any of the
Company's securities being converted or exchanged), (ii) make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem, any
debt securities issued by the Company that rank junior to or PARI PASSU with the
Securities and (iii) make any guarantee payments with respect to the foregoing.
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; PROVIDED, that such Extension Period together with
all previous and further extensions thereof may not exceed 20 consecutive
quarters and may not extend beyond the maturity of the Securities. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the above requirements.
No interest during an Extension Period, except at the end thereof, shall be due
and payable.
If the Property Trustee is the sole holder of the Securities at the
time the Company selects an Extension Period, the Company shall give notice to
the Regular Trustees, the Property Trustee and the Trustee of its selection of
such Extension Period at least one Business Day prior to the earlier of (i) the
date the distributions on the Preferred Securities are payable or (ii) if the
Preferred Securities are listed on the New York Stock Exchange, Inc. ("NYSE") or
other stock exchange or quotation system, the date the Trust is required to give
notice to the NYSE or other applicable self-regulatory organization or to
holders of the Preferred Securities on the record date or the date such
distributions are payable, but in any event not less than ten Business Days
prior to such record date.
A-5
<PAGE>
If the Property Trustee is not the sole holder of the Securities at
the time the Company selects an Extension Period, the Company shall give the
Holders and the Trustee notice of its selection of an Extension Period at least
ten Business Days prior to the earlier of (i) the next succeeding Interest
Payment Date or (ii) if the Preferred Securities are listed on the NYSE or other
stock exchange or quotation system, the date the Company is required to give
notice to NYSE or other applicable self-regulatory organization or to holders of
the Securities on the record or payment date of such related interest payment,
but in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to the second and
third paragraphs of this Section 3 shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under the first paragraph of
this Section 3.
(4) METHOD OF PAYMENT. 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 Security (or one or more
Predecessor Securities) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the Business Day immediately preceding each Interest Payment Date; provided,
however, that, for so long as the Securities are held by the Trust or the
Property Trustee of the Trust, if any Preferred Securities (or if the Trust is
liquidated in connection with Special Event, any Securities) are held in
certificated form, the Record Date for each Interest Payment Date shall be 15
days prior to such Interest Payment Date (in each case, a "Regular Record
Date"). Any such interest not so punctually paid or duly provided for shall
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
Trustee, notice of which shall be given to Holders of Securities 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 securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made
at the office or agency of the Company maintained for that purpose in New York,
New York, in such coin or currency of the United States of America as at the
time of payment is legal tender for 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.
(5) PAYING AGENT, SECURITY REGISTRAR AND CONVERSION AGENT. The Trustee
will act as Paying Agent, Security Registrar and Conversion Agent. The Company
may change any Paying Agent, Security Registrar, co-registrar or, with the
consent of the Trust, Conversion Agent without prior notice. The Company or any
of its Affiliates may act in any such capacity.
A-6
<PAGE>
(6) INDENTURE. The Company issued the Securities under an indenture,
dated as of October 2, 1996 (the "Indenture"), between the Company and
Wilmington Trust Company, 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 Trustee, the Company and the Holders, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-
77bbbb) ("TIA") as in effect on the date of the Indenture. The Securities are
subject to, and qualified by, all such terms, certain of which are summarized
hereon, and Holders are referred to the Indenture and the TIA for a statement of
such terms. The Securities are unsecured general obligations of the Company
limited to $180,412,350 in aggregate principal amount (or $207,474,200 if the
overallotment option is exercised). 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 interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed or to convert this Security as provided
in the Indenture.
(7) OPTIONAL REDEMPTION. The Securities are redeemable, in whole or in
part, at the Company's, option at any time and from time to time on or after
October 5, 1999, upon not less than 30 nor more than 60 days' notice, at the
following optional redemption prices (expressed as a percentage of the principal
amount of the Securities) if redeemed during the 12-month period beginning
October 1 of the year shown below (October 5, in the case of 1999):
Percentage of
Year Principal Year Amount
--------------- ---------------------
2000 . . . . . . . . . . . . . . . 104.050%
2001 . . . . . . . . . . . . . . . 103.375
2002 . . . . . . . . . . . . . . . 102.700
2003 . . . . . . . . . . . . . . . 102.025
2004 . . . . . . . . . . . . . . . 101.350
2005 . . . . . . . . . . . . . . . 100.675
2006 and thereafter . . . . . . . 100.000
plus, in each case, accrued and unpaid interest, including Additional Interest,
Compounded Interest and Liquidated Damages, if any, to the Redemption Date. On
or after the Redemption Date, interest will cease to accrue on the Securities,
or portion thereof, called for redemption.
(8) OPTIONAL REDEMPTION UPON TAX EVENT. The Securities are subject to
redemption in whole (but not in part), at any time within 90 days thereafter, if
a Tax Event (as defined in the Declaration) shall occur and be continuing, at
the applicable redemption price set forth above (or, for the period commencing
on the date of issuance of the Securities through October 4, 1997 and the twelve
month periods commencing October 5, 1997 and October 5, 1998, the product of
106.750%, 106.075% and 105.400%, respectively, times $50), in each
A-7
<PAGE>
case plus accrued but unpaid interest, including Additional Interest, Compounded
Interest and Liquidated Damages, if any, to the Redemption Date. Any redemption
pursuant to this Section 8 will be made upon not less than 30 nor more than 60
days' notice.
(9) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
the Securities to be redeemed at his address of record. The Securities in
denominations larger than $50 may be redeemed in part but only in integral
multiples of $50. In the event of a redemption of less than all of the
Securities, the Securities will be chosen for redemption by the Trustee in
accordance with the Indenture. On and after the Redemption Date, interest ceases
to accrue on the Securities or portions of them called for redemption. If this
Security is redeemed subsequent to a Regular Record Date with respect to any
Interest Payment Date specified above and on or prior to such Interest Payment
Date, then any accrued interest will be paid to the person in whose name this
Security is registered at the close of business on such record date.
(10) REDEMPTION. The Securities will mature on October 1, 2016, and
may be redeemed, in whole or in part, at any time after October 5, 1999 as set
forth above or at any time in certain circumstances upon the occurrence of a Tax
Event as set forth above. Upon the repayment of the Securities, whether at
maturity or upon redemption, the proceeds from such repayment or payment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Securities so repaid or redeemed at the
applicable redemption price together with accrued and unpaid distributions
through the date of redemption; PROVIDED, that holders of the Trust Securities
shall be given not less than 30 nor more than 60 days notice of such redemption.
Upon the repayment of the Securities at maturity or upon any acceleration,
earlier redemption or otherwise, the proceeds from such repayment will be
applied to redeem the Preferred Securities, in whole, upon not less than 30 nor
more than 60 days' notice. There are no sinking fund payments with respect to
the Securities.
(11) CONVERSION. The Holder of any Security has the right, exercisable
at any time prior to the close of business (New York time) on the Business Day
immediately preceding the date of repayment of such Security whether at maturity
or upon redemption (either at the option of the Company or pursuant to a Tax
Event), to convert the principal amount thereof (or any portion thereof that is
an integral multiple of $50) into the number of shares of Common Stock obtained
by dividing $50 per Security by the applicable conversion price (initially
$28.75 per share of Common Stock for each Security) (equivalent to a conversion
rate of 1.739 shares per share of Common Stock of the Company per Security),
subject to adjustment under certain circumstances as set forth in the Indenture.
To convert a Security, a Holder must (1) complete and sign a
conversion notice substantially in the form attached hereto, (2) surrender the
Security to a Conversion Agent, (3) furnish appropriate endorsements or transfer
documents if required by the Security Registrar or Conversion Agent and (4) pay
any transfer or similar tax, if required. Upon conversion, no adjustment or
payment will be made for interest or dividends, but if any Holder surrenders a
Security for conversion after the close of business on the Regular Record Date
for the payment
A-8
<PAGE>
of an installment of interest and prior to the opening of business on the next
Interest Payment Date, then, notwithstanding such conversion, the interest
payable on such Interest Payment Date will be paid to the registered Holder of
such Security on such Regular Record Date. In such event, such Security, when
surrendered for conversion, need not be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the portion so
converted. The number of shares issuable upon conversion of a Security is
determined by dividing the principal amount of the Security converted by the
conversion price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest. The Outstanding principal amount of any Security shall be reduced by
the portion of the principal amount thereof converted into shares of Common
Stock.
(12) REGISTRATION RIGHTS. The holders of the Preferred Securities, the
Securities, the Guarantee and the shares of Common Stock of the Company issuable
upon conversion of the Securities (collectively, the "REGISTRABLE SECURITIES")
are entitled to the benefits of a Registration Rights Agreement, dated as of
October 2, 1996, among the Company, the Trust and the Initial Purchasers (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company has agreed for the benefit of the holders of Registrable Securities
that (i) it will, at its cost, within 75 days after the date of issuance of the
Registrable Securities, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales of the
Registrable Securities, (ii) it will use its reasonable efforts to cause, such
Shelf Registration Statement to be declared effective by the Commission within
135 days after the date of issuance of the Registrable Securities and (iii) the
Company will use its reasonable efforts to maintain such Shelf Registration
Statement continuously effective under the Securities Act until the third
anniversary of the effectiveness of the Shelf Registration Statement or such
earlier date as is provided in the Registration Rights Agreement. Reference is
made to the Registration Rights Agreement for a description of, among other
things, the circumstances under which a "Registration Default" may be declared
if such Shelf Registration Statement is not filed or is not declared effective
within a specified period of time, and additional interest "Liquidated Damages"
may accrue and by payable on the Securities as a result of such a Registration
Default.
(13) REGISTRATION, TRANSFER, EXCHANGE AND DENOMINATIONS. 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 in New York, New York or Wilmington, Delaware, 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 Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $50 and integral multiples thereof. No service charge shall be
made for any
A-9
<PAGE>
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. In the event of redemption or conversion of this Security in
part only, a new Security or Securities for the unredeemed or unconverted
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
(14) PERSONS DEEMED OWNERS. Except as provided in Section 4 hereof,
the registered Holder of a Security may be treated as its owner for all
purposes.
(15) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, holders of
Securities entitled to the money must look to the Company for payment unless an
abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
(16) DEFAULTS AND REMEDIES. The Securities shall have the Events of
Default as set forth in Section 501 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee by notice to the Company, or the holders of at least 25% in
aggregate principal amount of the then Outstanding Securities by notice to the
Company and the Trustee, may declare all the Securities to be due and payable
immediately.
The holders of a majority in principal amount of the Securities then
Outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if the rescission is prior to a judgment or decree for the payment
of the money due has been obtained by the Trustee as provided in the Indenture
and if all existing Events of Default have been cured or waived except
nonpayment of principal and/or interest that has become due solely because of
the acceleration. Holders may not enforce the Indenture or the Securities except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then Outstanding Securities issued under the
Indenture may direct the Trustee in its exercise of any trust or power. The
Company must furnish annually compliance certificates to the Trustee. The above
description of Events of Default and remedies is qualified by reference to, and
subject in its entirety by, the more complete description thereof contained in
the Indenture.
(17) AMENDMENTS, SUPPLEMENTS AND WAIVERS. 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 Securities under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities,
A-10
<PAGE>
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 herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
(18) TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual
or any other capacity may become the owner or pledgee of the Securities and may
otherwise deal with the Company or an Affiliate with the same rights it would
have, as if it were not Trustee, subject to certain limitations provided for in
the Indenture and in the TIA. Any Agent may do the same with like rights.
(19) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(20) GOVERNING LAW. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
(21) AUTHENTICATION. The Securities shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Vanstar Corporation
5964 West Las Positas Boulevard
Pleasanton, California 94588-9012
Attention of: Chief Financial Officer
Facsimile: (510) 734-0760
A-11
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature: -----------------------------
(Sign exactly as your name appears on the
other side of this Security)
Date: ---------------------------------------
Signature Guarantee:* -----------------------
[Include the following if the Security bears a Restricted Securities Legend --
In connection with any transfer of any of the Securities evidenced by this
certificate, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer;
or
(2) / / transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
- ------------------
*Signature must be guaranteed by a commercial bank, trust company or member
firm of the NYSE.
<PAGE>
(3) / / transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(4) / / transferred pursuant to another available exemption from
the registration requirements of the Securities Act of 1933; or
(5) / / transferred pursuant to an effective Shelf Registration
Statement.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3) or (4) is
checked, the Trustee may require, prior to registering any such transfer of the
Securities such legal opinions, certifications and other information as the
Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
-----------------------------------
Signature
Signature Guarantee:*
- ----------------------------- --------------------------------- ]
Signature must be guaranteed
Signature
- --------------------------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
------------------------- ---------------------------------------
NOTICE: To be executed by an executive
officer.]
- --------------
*Signature must be guaranteed by a commercial bank, trust company or member
firm of the NYSE.
-2-
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $__________.
The following increases or decreases in the principal amount of this Global
Security have been made:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
AMOUNT OF INCREASE IN
PRINCIPAL AMOUNT OF THIS
GLOBAL SECURITY INCLUDING AMOUNT OF DECREASE IN PRINCIPAL AMOUNT OF THIS SIGNATURE OF AUTHORIZED
UPON EXERCISE OF OVER- PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY FOLLOWING OFFICER OF TRUSTEE OR
DATE MADE ALLOTMENT OPTION GLOBAL SECURITY SUCH DECREASE OR INCREASE SECURITIES CUSTODIAN
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
ELECTION TO CONVERT
To: Vanstar Corporation
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into Common
Stock of Vanstar Corporation in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated in the assignment below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Any holder, upon the exercise of its conversion rights in accordance with
the terms of the Indenture and the Security, agrees to be bound by the terms of
the Registration Rights Agreement relating to the Common Stock issuable upon
conversion of the Securities.
Date:
-------------------------
in whole _____ Portions of Security to be in part converted
in part _____ ($50 or integral multiples thereof):
$
-----------------------------------------
-------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
-------------------------------------------
-------------------------------------------
-------------------------------------------
Signature Guarantee:*
---------------------
- ------------------
*Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
<PAGE>
EXHIBIT A-1
FORM OF PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
[Include if Preferred Security is in global form and the Depository Trust
Company is the U. S. Depositary--UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, 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 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.]
[Include if Preferred Security is in global form--TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO
BELOW.]
THIS SECURITY, ANY CONVERTIBLE DEBENTURE ISSUED IN EXCHANGE FOR THIS
SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS THREE YEARS AFTER (OR SUCH SHORTER PERIOD UNDER RULE
144A UNDER THE SECURITIES ACT OR ANY SUCCESSOR RULE) THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH VANSTAR CORPORATION (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS
A1-1
<PAGE>
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
Certificate Number Number of Preferred Securities
[CUSIP NO [ ]]
[ISIN NO. [ ]]
Preferred Securities
of
Vanstar Financing Trust
6 3/4% Trust Convertible Preferred Securities
(liquidation amount $50 per Trust Convertible Preferred Security)
A1-2
<PAGE>
Vanstar Financing Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby certifies that _________________
______________ (the "Holder") is the registered owner of ______________(______)
) preferred securities of the Trust representing undivided beneficial interests
in the assets of the Trust designated the 6 3/4% Trust Convertible Preferred
Securities (liquidation amount $50 per Trust Convertible Preferred Security)
(the "Preferred Securities"). The Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of October 2, 1996, as the same may
be amended from time to time (the "Declaration"), including the designation of
the terms of the Preferred Securities as set forth in Annex I to the
Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits of
the Preferred Securities Guarantee to the extent provided therein. The Sponsor
will provide a copy of the Declaration, the Preferred Securities Guarantee and
the Indenture to a Holder without charge upon written request to the Trust at
its principal place of business.
Reference is hereby made to select provisions of the Preferred Securities
set forth on the reverse hereof, which select provisions shall for all purposes
have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Preferred Securities as
evidence of indirect beneficial ownership in the Debentures.
A1-3
<PAGE>
Unless the Property Trustee's Certificate of Authentication hereon has been
properly executed, these Preferred Securities shall not be entitled to any
benefit under the Declaration or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Trust has executed this certificate on __________
__, 1996.
VANSTAR FINANCING TRUST
By:
---------------------------------------
Name:
Title: Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the within-mentioned
Declaration.
Dated: ___________________, _____
WILMINGTON TRUST COMPANY
as Property Trustee
By:
---------------------------------------
Authorized Signatory
A1-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a rate
per annum of 6 3/4% (the "Coupon Rate") of the stated liquidation amount of $50
per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distribution" as
used herein includes any such interest including Additional Interest, Compounded
Interest and Liquidated Damages payable unless otherwise stated, and any premium
and/or principal on the Debentures. A Distribution is payable only to the extent
that payments are made in respect of the Debentures held by the Property Trustee
and to the extent the Property Trustee has funds available therefor. The amount
of Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the Preferred
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on January 1, April 1, July 1 and
October 1 of each year, commencing on January 1, 1997, to Holders of record
fifteen (15) days prior to such payment dates, which payment dates shall
correspond to the interest payment dates on the Debentures. The Debenture Issuer
has the right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for successive
periods not exceeding 20 consecutive quarters (each an "Extension Period")
during which Extension Period no interest shall be due and payable on the
Debentures; PROVIDED, that no Extension Period shall extend beyond the date of
maturity of the Debentures. As a consequence of such extension, Distributions
will also be deferred. Despite such extension, quarterly Distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at the Coupon Rate compounded quarterly during any such Extension Period.
Prior to the termination of any such Extension Period, the Debenture Issuer may
further extend such Extension Period; PROVIDED, that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the first record
date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
The Preferred Securities shall be convertible into shares of Common Stock
of Vanstar Corporation, through (i) the exchange of Preferred Securities for a
portion of the Debentures and (ii) the immediate conversion of such Debentures
into Common Stock of Vanstar Corporation, in the manner and according to the
terms set forth in the Declaration.
A1-5
<PAGE>
CONVERSION REQUEST
To: Wilmington Trust Company
as Property Trustee of
Vanstar Financing Trust
The undersigned owner of these Preferred Securities hereby irrevocably
exercises the option to convert these Preferred Securities, or the portion below
designated, into Common Stock of VANSTAR CORPORATION (the "Vanstar Common
Stock") in accordance with the terms of the Amended and Restated Declaration of
Trust (the "Declaration"), dated as of October 2, 1996, by John J. Dunican, Jr.,
as Regular Trustee, Wilmington Trust Company, as Delaware Trustee, Wilmington
Trust Company, as Property Trustee, Vanstar Corporation, as Sponsor, and by the
Holders, from time to time, of individual beneficial interests in the Trust to
be issued pursuant to the Declaration. Pursuant to the aforementioned exercise
of the option to convert these Preferred Securities, the undersigned hereby
directs the Conversion Agent (as that term is defined in the Declaration) to (i)
exchange such Preferred Securities for a portion of the Debentures (as that term
is defined in the Declaration) held by the Trust (at the rate of exchange
specified in the terms of the Preferred Securities set forth as Annex I to the
Declaration) and (ii) immediately convert such Debentures, on behalf of the
undersigned, into Vanstar Common Stock (at the conversion rate specified in the
terms of the Preferred Securities set forth as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A1-6
<PAGE>
Any holder, upon the exercise of its conversion rights in accordance with
the terms of the Declaration and the Preferred Securities, agrees to be bound by
the terms of the Registration Rights Agreement relating to the Vanstar Common
Stock issuable upon conversion of the Preferred Securities.
Date:__________________, ____
in whole ___ in part ___
Number of Preferred Securities to be
converted:
------------------------------------------
If a name or names other than the
undersigned, please indicate in the spaces
below the name or names in which the shares
of Vanstar Common Stock are to be issued,
along with the address or addresses of such
person or persons:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number:
------------------------------------------
------------------------------------------
------------------------------------------
Signature Guarantee:*
-------------------
- ------------------------
* Signature Guarantee:(Signature must be guaranteed by an "eligible
guarantor institution" that is, a bank, stockbroker, savings and loan
association or credit union meeting the requirements of the Registrar,
which requirements include membership or participation in the
Securities Transfer Agents Medallion Program ("STAMP") or such other
"signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for,
A1-7
<PAGE>
ASSIGNMENT FORM
To assign this Preferred Security, fill in the form below:
(I) or (we) assign and transfer this Preferred Security to
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
agent to transfer this Preferred Security on the books of the Company. The agent
may substitute another to act for him.
Your Signature:
--------------------------------
(Sign exactly as your name appears on the other
side of this Security)
Date:
------------------------------------------
Signature Guarantee:
---------------------------
[Include the following if the Preferred Security bears a Restricted Securities
Legend --
In connection with any transfer of any of the Preferred Securities evidenced by
this certificate, the undersigned confirms that such Preferred Securities are
being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer; or
(2) / / transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933; or
- ------------------------
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.)
** Signature must be guaranteed by a commercial bank, trust company or member
firm of the NYSE.
A1-8
<PAGE>
(3) / / transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(4) / / transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933; or
(5) / / transferred pursuant to an effective Shelf Registration
Statement.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Preferred Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3) or
(4) is checked, the Trustee may require, prior to registering any such transfer
of the Preferred Securities such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act.
-------------------------------------
Signature
Signature Guarantee:*
- ---------------------------------- -------------------------------------]
Signature must be guaranteed Signature
- -----------------------------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Preferred Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:------------------------ ------------------------------------------
NOTICE: To be executed by an executive
officer.]
- ---------------------
*Signature must be guaranteed by a commercial bank, trust company or member
firm of the NYSE.
A1-9
Exhibit 4.4
EXHIBIT B
SPECIMEN OF DEBENTURE
[FORM OF FACE OF SECURITY]
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS THREE YEARS AFTER (OR SUCH SHORTER PERIOD UNDER RULE
144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR RULE) THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH VANSTAR CORPORATION (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENTS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT
TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
-1-
<PAGE>
VANSTAR CORPORATION
6 3/4% Convertible Subordinated
Debenture due 2016
No.________ $_________________ CUSIP No. VANSTAR CORPORATION, a corporation
duly organized and existing under the laws of the State of Delaware (herein
called the "Company", which terms include any successor corporation under the
Indenture hereinafter referred to) for value received, hereby promises to pay to
__________________________________________, or registered assigns, the principal
sum [indicated on Schedule A hereof]* [of ____________________________ Dollars]
($ ) on October 1, 2016.
Interest Payment Dates: January 1, April 1, July 1 and October 1,
commencing January 1, 1997
Regular Record Dates: the close of business on the Business Day
immediately preceding each Interest Payment Date,
except as otherwise provided in clause 4 set forth
on the reverse side of this Security
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.
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* Applicable to Global Securities only.
** Applicable to certificated Securities only.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
VANSTAR CORPORATION
By:
--------------------------------------------
Title:
-----------------------------------------
[Seal]
Attest:
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated: WILMINGTON TRUST COMPANY,
as Trustee
By:
--------------------------------------------
Authorized Signatory
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<PAGE>
[FORM OF REVERSE OF SECURITY]
VANSTAR CORPORATION
6 3/4% Convertible Subordinated
Debenture due 2016*
(i) INTEREST. Vanstar Corporation, a Delaware corporation (the
"Company"), is the issuer of this 6 3/4% Convertible Subordinated Debenture due
2016 (the "Security") limited in aggregate principal amount to $180,412,350 (or
$207,474,200 if the over-allotment option is exercised), issued under the
Indenture hereinafter referred to. The Company promises to pay interest on the
Securities in cash from October 2, 1996 or from the most recent interest payment
date to which interest has been paid or duly provided for, quarterly (subject to
deferral for up to 20 consecutive quarters as described in Section 3 hereof) in
arrears on January 1, April 1, July 1, and October 1 of each year (each such
date, an "Interest Payment Date"), commencing January 1, 1997, at the rate of 6
3/4% per annum (subject to increase as provided in Section 12 hereto) PLUS
Additional Interest, Compound Interest and Liquidated Damages if any, until the
principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. Except as provided in the following
sentence, the amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed on the basis of
the actual number of days elapsed. In the event that any date on which interest
is payable on the Securities is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date.
(ii) ADDITIONAL INTEREST. The Company shall pay to Vanstar Financing
Trust (and its permitted successors or assigns under the Declaration) (the
"Trust") such amounts as shall be required so that the net amounts received and
retained by the Trust after paying any taxes, duties, assessments or other
governmental charges of whatever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority ("Additional
Interest") will be not less than the amounts the Trust would have received had
no such taxes, duties, assessment or governmental charges been imposed.
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* All terms used in this Security which are defined in the Indenture or in
the Declaration attached as Annex A thereto shall have the meanings assigned to
them in the Indenture or the Declaration, as the case may be.
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<PAGE>
(iii) OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company shall have
the right at any time during the term of the Securities to defer interest
payments from time to time by extending the interest payment period for
successive periods (each, an "Extension Period") not exceeding 20 consecutive
quarters for each such period; PROVIDED, no Extension Period may extend beyond
the maturity date of the Securities. At the end of each Extension Period, the
Company shall be responsible for the payment of, and the Company shall pay all
interest then accrued and unpaid (including Additional Interest and Liquidated
Damages) together with interest thereon compounded quarterly at the rate
specified for the Securities to the extent permitted by applicable law
("Compounded Interest"); PROVIDED, that during any Extension Period, the Company
shall not, and shall not allow any of its Subsidiaries (other than, with respect
to clause (i) below only, its wholly owned Subsidiaries) to, (i) declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(except for (1) dividends or distributions in shares of Common Stock on Common
Stock or on the Preferred Stock, (2) purchases or acquisitions of shares of
Common Stock made in connection with any employee benefit plan of the Company or
its subsidiaries in the ordinary course of business or pursuant to employment
agreements with officers or employees of the Company or its subsidiaries entered
into in the ordinary course of business, provided that such repurchases by the
Company made from officers or employees of the Company or its subsidiaries
pursuant to employment agreements shall be made at a price not to exceed market
value on the date of any such repurchase and shall not exceed $1 million in the
aggregate for all such employees and officers, (3) conversions or exchanges of
shares of Common Stock of any one class into shares of Common Stock of another
class or (4) purchases of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of any of the
Company's securities being converted or exchanged), (ii) make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem, any
debt securities issued by the Company that rank junior to or PARI PASSU with the
Securities and (iii) make any guarantee payments with respect to the foregoing.
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; PROVIDED, that such Extension Period together with
all previous and further extensions thereof may not exceed 20 consecutive
quarters and may not extend beyond the maturity of the Securities. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the above requirements.
No interest during an Extension Period, except at the end thereof, shall be due
and payable.
If the Property Trustee is the sole holder of the Securities at the time
the Company selects an Extension Period, the Company shall give notice to the
Regular Trustees, the Property Trustee and the Trustee of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the distributions on the Preferred Securities are payable or (ii) if the
Preferred Securities are listed on the New York Stock Exchange, Inc. ("NYSE") or
other stock exchange or quotation system, the date the Trust is required to give
notice to the NYSE or other applicable self-regulatory organization or to
holders of the Preferred Securities on the record date or the date such
distributions are payable, but in any event not less than ten Business Days
prior to such record date.
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<PAGE>
If the Property Trustee is not the sole holder of the Securities at the
time the Company selects an Extension Period, the Company shall give the Holders
and the Trustee notice of its selection of an Extension Period at least ten
Business Days prior to the earlier of (i) the next succeeding Interest Payment
Date or (ii) if the Preferred Securities are listed on the NYSE or other stock
exchange or quotation system, the date the Company is required to give notice to
NYSE or other applicable self-regulatory organization or to holders of the
Securities on the record or payment date of such related interest payment, but
in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to the second and third
paragraphs of this Section 3 shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under the first paragraph of
this Section 3.
(iv) METHOD OF PAYMENT. 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 Security (or one or more
Predecessor Securities) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the Business Day immediately preceding each Interest Payment Date; provided,
however, that, for so long as the Securities are held by the Trust or the
Property Trustee of the Trust, if any Preferred Securities (or if the Trust is
liquidated in connection with Special Event, any Securities) are held in
certificated form, the Record Date for each Interest Payment Date shall be 15
days prior to such Interest Payment Date (in each case, a "Regular Record
Date"). Any such interest not so punctually paid or duly provided for shall
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
Trustee, notice of which shall be given to Holders of Securities 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 securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made at
the office or agency of the Company maintained for that purpose in New York, New
York, in such coin or currency of the United States of America as at the time of
payment is legal tender for 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.
(v) PAYING AGENT, SECURITY REGISTRAR AND CONVERSION AGENT. The Trustee
will act as Paying Agent, Security Registrar and Conversion Agent. The Company
may change any Paying Agent, Security Registrar, co-registrar or, with the
consent of the Trust, Conversion Agent without prior notice. The Company or any
of its Affiliates may act in any such capacity.
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<PAGE>
(vi) INDENTURE. The Company issued the Securities under an indenture,
dated as of October 2, 1996 (the "Indenture"), between the Company and
Wilmington Trust Company, 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 Trustee, the Company and the Holders, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) ("TIA") as in effect on the date of the Indenture. The Securities
are subject to, and qualified by, all such terms, certain of which are
summarized hereon, and Holders are referred to the Indenture and the TIA for a
statement of such terms. The Securities are unsecured general obligations of the
Company limited to $180,412,350 in aggregate principal amount (or $207,474,200
if the overallotment option is exercised). 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 interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed or to convert this Security as provided
in the Indenture.
(vii) OPTIONAL REDEMPTION. The Securities are redeemable, in whole or
in part, at the Company's, option at any time and from time to time on or after
October 5, 1999, upon not less than 30 nor more than 60 days' notice, at the
following optional redemption prices (expressed as a percentage of the principal
amount of the Securities) if redeemed during the 12-month period beginning
October 1 of the year shown below (October 5, in the case of 1999):
Percentage of
Year Principal Year Amount
---- ---------------------
2000. . . . . . . . . . . . . . . . . . 104.050%
2001. . . . . . . . . . . . . . . . . . 103.375
2002. . . . . . . . . . . . . . . . . . 102.700
2003. . . . . . . . . . . . . . . . . . 102.025
2004. . . . . . . . . . . . . . . . . . 101.350
2005. . . . . . . . . . . . . . . . . . 100.675
2006 and thereafter. . . . . . . . . . 100.000
plus, in each case, accrued and unpaid interest, including Additional Interest,
Compounded Interest and Liquidated Damages, if any, to the Redemption Date. On
or after the Redemption Date, interest will cease to accrue on the Securities,
or portion thereof, called for redemption.
(viii) OPTIONAL REDEMPTION UPON TAX EVENT. The Securities are subject
to redemption in whole (but not in part), at any time within 90 days thereafter,
if a Tax Event (as defined in the Declaration) shall occur and be continuing, at
the applicable redemption price set forth above (or, for the period commencing
on the date of issuance of the Securities through October 4, 1997 and the twelve
month periods commencing October 5, 1997 and October 5, 1998, the product of
106.750%, 106.075% and 105.400%, respectively, times $50), in each case
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<PAGE>
plus accrued but unpaid interest, including Additional Interest, Compounded
Interest and Liquidated Damages, if any, to the Redemption Date. Any redemption
pursuant to this Section 8 will be made upon not less than 30 nor more than 60
days' notice.
(ix) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of the Securities to be redeemed at his address of record. The Securities
in denominations larger than $50 may be redeemed in part but only in integral
multiples of $50. In the event of a redemption of less than all of the
Securities, the Securities will be chosen for redemption by the Trustee in
accordance with the Indenture. On and after the Redemption Date, interest ceases
to accrue on the Securities or portions of them called for redemption. If this
Security is redeemed subsequent to a Regular Record Date with respect to any
Interest Payment Date specified above and on or prior to such Interest Payment
Date, then any accrued interest will be paid to the person in whose name this
Security is registered at the close of business on such record date.
(x) REDEMPTION. The Securities will mature on October 1, 2016, and may
be redeemed, in whole or in part, at any time after October 5, 1999 as set forth
above or at any time in certain circumstances upon the occurrence of a Tax Event
as set forth above. Upon the repayment of the Securities, whether at maturity or
upon redemption, the proceeds from such repayment or payment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Securities so repaid or redeemed at the
applicable redemption price together with accrued and unpaid distributions
through the date of redemption; PROVIDED, that holders of the Trust Securities
shall be given not less than 30 nor more than 60 days notice of such redemption.
Upon the repayment of the Securities at maturity or upon any acceleration,
earlier redemption or otherwise, the proceeds from such repayment will be
applied to redeem the Preferred Securities, in whole, upon not less than 30 nor
more than 60 days' notice. There are no sinking fund payments with respect to
the Securities.
(xi) CONVERSION. The Holder of any Security has the right, exercisable
at any time prior to the close of business (New York time) on the Business Day
immediately preceding the date of repayment of such Security whether at maturity
or upon redemption (either at the option of the Company or pursuant to a Tax
Event), to convert the principal amount thereof (or any portion thereof that is
an integral multiple of $50) into the number of shares of Common Stock obtained
by dividing $50 per Security by the applicable conversion price (initially
$28.75 per share of Common Stock for each Security) (equivalent to a conversion
rate of 1.739 shares per share of Common Stock of the Company per Security),
subject to adjustment under certain circumstances as set forth in the Indenture.
To convert a Security, a Holder must (1) complete and sign a
conversion notice substantially in the form attached hereto, (2) surrender the
Security to a Conversion Agent, (3) furnish appropriate endorsements or transfer
documents if required by the Security Registrar or Conversion Agent and (4) pay
any transfer or similar tax, if required. Upon conversion, no adjustment or
payment will be made for interest or dividends, but if any Holder surrenders a
Security for conversion after the close of business on the Regular Record Date
for the payment of
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<PAGE>
an installment of interest and prior to the opening of business on the next
Interest Payment Date, then, notwithstanding such conversion, the interest
payable on such Interest Payment Date will be paid to the registered Holder of
such Security on such Regular Record Date. In such event, such Security, when
surrendered for conversion, need not be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the portion so
converted. The number of shares issuable upon conversion of a Security is
determined by dividing the principal amount of the Security converted by the
conversion price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest. The Outstanding principal amount of any Security shall be reduced by
the portion of the principal amount thereof converted into shares of Common
Stock.
(xii) REGISTRATION RIGHTS. The holders of the Preferred Securities,
the Securities, the Guarantee and the shares of Common Stock of the Company
issuable upon conversion of the Securities (collectively, the "REGISTRABLE
SECURITIES") are entitled to the benefits of a Registration Rights Agreement,
dated as of October 2, 1996, among the Company, the Trust and the Initial
Purchasers (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, the Company has agreed for the benefit of the holders of
Registrable Securities that (i) it will, at its cost, within 75 days after the
date of issuance of the Registrable Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with respect
to resales of the Registrable Securities, (ii) it will use its reasonable
efforts to cause, such Shelf Registration Statement to be declared effective by
the Commission within 135 days after the date of issuance of the Registrable
Securities and (iii) the Company will use its reasonable efforts to maintain
such Shelf Registration Statement continuously effective under the Securities
Act until the third anniversary of the effectiveness of the Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement. Reference is made to the Registration Rights Agreement for a
description of, among other things, the circumstances under which a
"Registration Default" may be declared if such Shelf Registration Statement is
not filed or is not declared effective within a specified period of time, and
additional interest "Liquidated Damages" may accrue and by payable on the
Securities as a result of such a Registration Default.
(xiii) REGISTRATION, TRANSFER, EXCHANGE AND DENOMINATIONS. 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 in New York, New York or Wilmington, Delaware, 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 Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $50 and integral multiples thereof. 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
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<PAGE>
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. In the event of
redemption or conversion of this Security in part only, a new Security or
Securities for the unredeemed or unconverted portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
(xiv) PERSONS DEEMED OWNERS. Except as provided in Section 4 hereof,
the registered Holder of a Security may be treated as its owner for all
purposes.
(xv) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, holders of
Securities entitled to the money must look to the Company for payment unless an
abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
(xvi) DEFAULTS AND REMEDIES. The Securities shall have the Events of
Default as set forth in Section 501 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee by notice to the Company, or the holders of at least 25% in
aggregate principal amount of the then Outstanding Securities by notice to the
Company and the Trustee, may declare all the Securities to be due and payable
immediately.
The holders of a majority in principal amount of the Securities then
Outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if the rescission is prior to a judgment or decree for the payment
of the money due has been obtained by the Trustee as provided in the Indenture
and if all existing Events of Default have been cured or waived except
nonpayment of principal and/or interest that has become due solely because of
the acceleration. Holders may not enforce the Indenture or the Securities except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then Outstanding Securities issued under the
Indenture may direct the Trustee in its exercise of any trust or power. The
Company must furnish annually compliance certificates to the Trustee. The above
description of Events of Default and remedies is qualified by reference to, and
subject in its entirety by, the more complete description thereof contained in
the Indenture.
(xvii) AMENDMENTS, SUPPLEMENTS AND WAIVERS. 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 Securities under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, 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
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<PAGE>
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 herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
(xviii) TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture and in the TIA. Any Agent may do the same with
like rights.
(xix) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(xx) GOVERNING LAW. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
(xxi) AUTHENTICATION. The Securities shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Vanstar Corporation
5964 West Las Positas Boulevard
Pleasanton, California 94588-9012
Attention of: Chief Financial Officer
Facsimile: (510) 734-0760
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
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(Insert assignee's social security or tax I.D. no.)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ___________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature: ---------------------------
(Sign exactly as your name appears on the
other side of this Security)
Date:
-------------------------------------
Signature Guarantee:*
---------------------
[Include the following if the Security bears a Restricted Securities Legend --
In connection with any transfer of any of the Securities evidenced by this
certificate, the undersigned confirms that such Securities are being: CHECK ONE
BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer;
or
(2) / / transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
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* Signature must be guaranteed by a commercial bank, trust company or
member firm of the NYSE.
<PAGE>
(3) / / transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(4) / / transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933; or
(5) / / transferred pursuant to an effective Shelf Registration
Statement.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3) or (4) is
checked, the Trustee may require, prior to registering any such transfer of the
Securities such legal opinions, certifications and other information as the
Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
------------------------------------------
Signature
Signature Guarantee:*
- ----------------------------- ------------------------------------------]
Signature must be guaranteed Signature
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[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:-------------------------- ---------------------------------------
NOTICE: To be executed by an executive officer.] ------------------- *
Signature must be guaranteed by a commercial bank, trust company or member
firm of the NYSE.
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<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $__________.
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<S> <C> <C> <C> <C>
Amount of increase in
Principal Amount of
this Global Security Principal Amount of Signature of
including upon Amount of decrease in this Global Security authorized officer of
exercise of over- Principal Amount of following such Trustee or Securities
Date Made allotment option this Global Security decrease or increase Custodian
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ELECTION TO CONVERT
To: Vanstar Corporation
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into Common
Stock of Vanstar Corporation in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated in the assignment below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Any holder, upon the exercise of its conversion rights in accordance with
the terms of the Indenture and the Security, agrees to be bound by the terms of
the Registration Rights Agreement relating to the Common Stock issuable upon
conversion of the Securities.
Date:
---------------------
in whole ___ Portions of Security to be in part
in part ___ converted ($50 or integral multiples
thereof):
$
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Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or Other
Identifying Number
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Signature Guarantee:*
-------------------------
- -------------------
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
VANSTAR CORPORATION
INACOM CORP.
AND
WILMINGTON TRUST COMPANY
as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 17, 1999
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of February 17, 1999, among
Vanstar Corporation, a Delaware corporation (the "Company"), InaCom Corp., a
Delaware corporation ("InaCom"), and Wilmington Trust Company, a Delaware
banking corporation, as trustee ("Trustee"). Terms not defined herein shall have
the meanings assigned to them in the Indenture (as defined below).
R E C I T A L S
WHEREAS, the Company and the Trustee are parties to an Indenture, dated
as of October 2, 1996 (the "Indenture"), relating to the Company's 6 3/4%
Convertible Subordinated Debentures due 2016 (the "Securities").
WHEREAS, on February 17, 1999, a wholly-owned subsidiary of InaCom was
merged with and into the Company with the Company being the surviving
corporation in the merger (the "Merger") and each outstanding share of common
stock of the Company (other than shares held by InaCom or any of its direct or
indirect subsidiaries) was converted into the right to receive .64 of the fully
paid and nonassessable shares of InaCom common stock, par value $0.10 per share
("InaCom Common Stock").
WHEREAS, InaCom desires to become jointly and severally liable for and
assume all of the obligations of the Company under the Indenture and the
Securities.
WHEREAS, Section 901 of the Indenture provides that the Company, when
authorized by a Board Resolution, and the Trustee may enter into a supplemental
indenture, without the consent of any Holder, to, among other things, make
provision with respect to the conversion rights of Holders pursuant to the
requirements of Article Thirteen of the Indenture.
WHEREAS, the Company and the Trustee have determined that this First
Supplemental Indenture complies with Section 901 of the Indenture and does not
require the consent of any Holders and, on the basis of the foregoing, the
Trustee has determined that this First Supplemental Indenture is in form
satisfactory to it.
W I T N E S S E T H:
NOW THEREFORE, for and in consideration of the premises, it is mutually
covenanted and agreed, for the equal and ratable benefit of the Holders, as
follows:
ARTICLE 1
ASSUMPTION OF OBLIGATIONS
Section 1.1 Assumption. InaCom hereby unconditionally assumes joint and
several liability on and after the Effective Date (as defined below) for all of
the obligations of the Company under the Indenture and the Securities, including
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of the principal of, premium, if any, and interest on the Securities
according to the terms of the Securities and as more fully described in the
Indenture. Notwithstanding the foregoing, the Company shall remain obligated
under the Indenture and the Securities, in accordance with the terms of the
Indenture. "Effective Date" shall mean February 17, 1999.
ARTICLE 2
CONVERSION RIGHTS OF HOLDERS IN
CONNECTION WITH THE MERGER
Section 2.1 Conversion Rights. The Company, as the surviving
corporation of the Merger, and InaCom hereby provide in accordance with Section
1304 of the Indenture that the Holder of each Security outstanding at the
Effective Time of the Merger shall have the right, during the period such
Security shall be convertible as specified in Section 1301 of the Indenture, to
convert such Security only into that number of shares of InaCom Common Stock
equal to the product of .64 and the number of shares of common stock of the
Company into which such Security would have been convertible into immediately
prior to the Merger.
ARTICLE 3
GENERAL PROVISIONS
Section 3.1 Incorporation of Indenture. All the provisions of this
First Supplemental Indenture shall be deemed to be incorporated in, and made a
part of, the Indenture; and the Indenture, as supplemented and amended by this
First Supplemental Indenture, shall be read, taken and construed as one and the
same instrument.
Section 3.2 Headings. The headings of the Articles and Sections of this
First Supplemental Indenture are inserted for convenience of reference and shall
not be deemed to be a part thereof.
Section 3.3 Counterparts. The First Supplemental Indenture 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.
Section 3.4 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in this First Supplemental Indenture by any of the provisions of
the Trust Indenture Act, such required provision shall control.
Section 3.5 Successors. All covenants and agreements in this First
Supplemental Indenture by the Company and InaCom shall be binding upon and inure
to benefit of their respective successors. All covenants and agreements in this
First Supplemental Indenture by the Trustee shall be binding upon and inure to
the benefit of its successors.
Section 3.6 Separability Clause. In case any provision in this First
Supplemental Indenture 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.
Section 3.7 Benefits of First Supplemental Indenture. Nothing in this
First Supplemental Indenture, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder and the Holders,
any benefit or any legal or equitable right, remedy or claim under this First
Supplemental Indenture.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this First Supplemental Indenture, as
of the date first above written.
VANSTAR CORPORATION
By: /s/ Kauko Aronaho
-----------------------------------------------
Name: Kauko Aronaho
-----------------------------------------------
Title: Jr. VP & CFO
-----------------------------------------------
INACOM CORP.
By: /s/ Bill L. Fairfield
-----------------------------------------------
Name: Bill L. Fairfield
-----------------------------------------------
Title: President and Chief Executive Officer
-----------------------------------------------
WILMINGTON TRUST COMPANY
By: /s/ Bruce L. Bisson
--------------------------------------
Name: Bruce Bisson
--------------------------------------
Title: Vice President
--------------------------------------
Exhibit 10.1
SEPARATION, CONSULTING AND NONCOMPETITION AGREEMENT
AGREEMENT, dated October 8, 1998, between INACOM CORP. ("Parent") and
WILLIAM Y. TAUSCHER ("Tauscher").
RECITALS:
(a) The Parent has entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which the Parent or its subsidiary
will merge with Bulldog, Inc. ("the Company").
(b) Tauscher is a shareholder and long time employee of the Company and
has been instrumental in the successful establishment, growth and
development of the Company.
(c) The Parent desires to retain the services of Tauscher to assist the
Company in the transition and integration of the Company following the
closing of the merger.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT. Effective on the Closing Date under the
Merger Agreement (the "Closing Date"), Tauscher hereby resigns as an officer
and/or director of Company and its subsidiaries and affiliates. Notwithstanding
such resignation, Tauscher shall remain an employee of the Company for the term
of this Agreement performing the services set forth herein. During such time,
the parties agree that Tauscher shall be treated as an employee for purposes of
his outstanding stock options. At Tauscher's option, Tauscher, at any time, may
elect to resign as an employee and upon such resignation become a consultant as
set forth in Section 2.
2. TAUSCHER. Effective upon Tauscher's resignation as an employee, Parent
shall retain Tauscher as a consultant and Tauscher shall act as a consultant to
Parent upon the terms and conditions herein. At such time, Tauscher's services
shall be those of an independent contractor, not an employee, and, as such,
Tauscher shall not be nor hold himself out as an officer, partner, employee, or
agent of the Parent or any of its subsidiaries or affiliates.
3. SERVICES. Effective as of the Closing Date Tauscher shall be a general
advisor and consultant to the Company and Parent in connection with the
transition and integration that will occur after closing. Tauscher shall report
solely to the Chief Executive Officer of Parent ("CEO"). These services will
include assisting Parent in its efforts to retain key personnel and customer
<PAGE>
accounts, and achievement of post closing synergies. The time spent by Tauscher
performing duties hereunder shall be reasonably determined by Tauscher in good
faith in consultation with CEO. Tauscher shall be provided secretarial and
office services as reasonably necessary to provide the services contemplated by
this Agreement at a location designated in good faith by Tauscher.
4. FEES. Effective as of the Closing Date, in consideration for his
services to be rendered under this Agreement and for agreement to and compliance
with the terms of this Agreement, Parent shall, regardless of Tauscher's
inability to perform services as a result of sickness or disability, pay a Base
Fee to Tauscher of $1,000,000 per year payable bi-weekly. Tauscher shall also be
eligible to receive an incentive bonus ("Incentive Bonus") of up to $3,000,000
in accordance with the provisions set forth on Addendum A, attached hereto and
incorporated herein by this reference. In the event of Tauscher's death prior to
one year from the Closing Date, Tauscher's estate (or beneficiary designated in
writing to the Parent) shall be paid the Base Fee less any portions of the Base
Fee previously paid and the Incentive Bonus to the extent the objectives are met
in accordance with Addendum A. Upon presenting receipts and other necessary
documentation to the Parent, the Parent shall also reimburse Tauscher for all
reasonable travel and business expenses incurred by Tauscher in providing
services to the Parent or the Company in accordance with Parent's normal expense
reimbursement practices. Tauscher shall be allowed to travel airline first class
on Parent duties and during the term hereof, shall be provided continued use of
the automobile he currently has with the Company in accordance with the same
terms and conditions as provided by the Company.
5. TERM. The term of Tauscher's services hereunder shall be for the period
commencing on the Closing Date and ending upon the earliest of the following
events:
(a) One year following the Closing Date; and
(b) Death of Tauscher.
6. CONFIDENTIAL INFORMATION AND TRADE SECRETS. Tauscher recognizes and
acknowledges that Parent and its affiliates have developed and continue to
develop and use commercially valuable proprietary technical and nontechnical
information which is vital to the success of Parent's business, and furthermore,
that Parent utilizes trade secrets in formulating, promoting, financing and
selling its products which are entitled to protection from disclosure. Tauscher
shall hold in strict confidence and shall not disclose to any third party,
except as required by law and except to authorized persons in the course of his
consulting with Parent, any information of a confidential nature not generally
available to the public which has become known to Tauscher during his employment
with the Company, or which becomes known to Tauscher in his course of consulting
with Parent, relating to the business operations of Parent, or its affiliates or
their customers.
7. NONCOMPETITION. Tauscher agrees that, from and after the Closing Date,
he shall not, in the United States of America, associate in any capacity
whatsoever, whether as a promoter, owner, officer, director, employee, partner,
lessee, lessor, lender, agent, consultant, broker, commission salesman or
otherwise, in any business engaged in the business conducted by the Parent or
its affiliates a type competitive, directly or indirectly, with the business of
the Parent or its
-2-
<PAGE>
affiliates for a period of time commencing on the Closing Date hereof and
continuing thereafter for one year, other than passive ownership of up to 5% of
the outstanding shares of a publicly traded company. If Tauscher fails to keep
and perform every covenant of Paragraphs 6 and 7 hereof, the Parent shall be
entitled to specifically enforce the same by injunction in equity in addition to
any other remedies which the Parent may have. If any portion of this Paragraph 7
shall be invalid or unenforceable, such invalidity or unenforceability shall in
no way be deemed or construed to affect in any way the enforceability of any
other portion of this Paragraph. If any court in which the Parent seeks to have
the provision of this Paragraph specifically enforced determines that the
activities, time or geographic area hereinabove specified are too broad, such
court may determine a reasonable activity, time or geographic area. The
covenants on the part of Tauscher under this Paragraph shall be construed as a
agreement independent of any other provision of this Agreement, and the
existence of any claim or cause of action by Tauscher against the Parent,
whether predicted on this Agreement or otherwise, shall not constitute a defense
to the enforcement by the Parent of said covenants.
8. NON-INTERFERENCE AGREEMENT. Tauscher covenants and agrees that for a
period of one year following the Closing Date, he will not, directly or
indirectly, for whatever reason, whether for his own account or for the account
of any other person, firm, corporation or other organization: (i) solicit, take
away, hire, employ or endeavor to employ any person who is an employee of the
Parent, the Company or any of their subsidiaries or affiliates, and shall
further refrain from providing, directly or indirectly, assistance to any third
party who seeks to solicit, take away, hire, employ or endeavor to employ any
such person, (ii) interfere with the continuance of inventory and supplies to
the Parent or the Company (or terms relating thereto), from any suppliers who
have been supplying goods, materials or services to the Parent or the Company at
any time during the one year preceding the date of this Agreement; (iii)
interfere with any of the Parent's or the Company's existing or potential
contracts or relationships with any independent contractor, customer, client or
consultant thereof; or (iv) interfere with any existing or proposed contract
between the Parent or the Company and any other party whatsoever.
Notwithstanding the preceding, the parties acknowledge that certain employees
("Transition Employees") of the Company will be retained by the Company for only
a short period following the Closing Date. Tauscher is free to contact and hire
the Transition Employees after their termination of employment with the Company.
9. RETURN OF INFORMATION/PROPERTY. Tauscher agrees that he will return to
the Company, not later than thirty days from the Closing Date, all copies of all
documents, computer disks, tapes or other tangible media of any sort which he
has in his possession or under his custody or control, whether developed by him
or others, that are property of the Company or that contain the confidential or
proprietary information of the Company or that relate in any manner to his
duties of the Company or his positions with the Company other than media
containing information otherwise available to the public, that relate to
Tauscher's contractual rights arising from his employment or that Tauscher must
retain in order to provide the services hereunder. Any media retained by
Tauscher as being necessary to perform the services hereunder together with all
copies thereof and any excerpts therefrom or analysis thereof, in whatever media
maintained, shall be returned to the Company within thirty days following the
termination of Tauscher's consulting period.
-3-
<PAGE>
10. COMMUNICATIONS. Tauscher agrees not to disparage or make any
disparaging remarks or send any disparaging communications concerning the
Parent, the Company, or any of their affiliates, or with respect to any existing
or future products, the business, the financial condition or the prospects of
the Parent, the Company, or any of their affiliates, or with respect to any
officer, director or employee of the Parent, the Company or any of their
affiliates, unless Tauscher is required to make such disclosure pursuant to
applicable law. Parent and the Company agree not to disparage or make any
disparaging remark or send any disparaging communications concerning Tauscher or
Tauscher's services on behalf of Parent or the Company or Tauscher's termination
of employment with the Parent or the Company, unless the Parent or Company is
required to make such disclosure pursuant to applicable law. Tauscher and the
Parent shall consult with each other in good faith before issuing any press
release or otherwise making any public statement with respect to this Agreement,
and neither party shall issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or by
obligations pursuant to any listing agreement with any National Securities
Exchange or by the National Association of Security Dealers, Inc.
11. COOPERATION. Tauscher agrees to cooperate fully with the Parent and the
Company as reasonably directed by the Parent or the Company by responding to
questions, attending meetings, depositions, administrative proceedings and court
hearings, executing documents, and cooperating with the Parent, the Company and
their accountants and legal counsel with respect to business issues and/or
claims and litigation of which he has personal or corporate knowledge, provided
that Tauscher shall not be required to take any action that unreasonably
interferes with Tauscher's other activities. Tauscher further agrees to maintain
in strict confidence any information with respect to which he has knowledge
regarding current and/or future claims, administrating proceedings and
litigation. Tauscher agrees to communicate with any parties, their legal counsel
or other person, firm or entity adverse to the Parent or the Company in any such
claims, administrating proceedings or litigation solely through the Parent's
designated legal counsel. Tauscher shall be entitled to reimbursement (or
payment in advance) for reasonable out-of-pocket expenses for travel, meals and
lodging in connection with any cooperation services provided at the Parent's or
the Company's request pursuant to this paragraph.
12. ENFORCEMENT OF COVENANTS. The parties agree that violation of any
obligation imposed by this Agreement shall cause irreparable damage, and, if so,
that the injured party shall be entitled to obtain an injunction or decree of
specific performance from any court of competent jurisdiction restraining the
other from such violation, and directing performance according to the terms of
this Agreement. Such remedies shall be cumulative and nonexclusive of any other
remedies either party may have including, but not limited to, the recovery of
actual damages. The parties further agree that the injured party will be
entitled to indemnification in full for all costs and expenses, including
reasonable attorney fees, which may be incurred by any such party as a result of
the breach of any term, condition or covenant of this Agreement by the other.
Any amount payable hereunder that is not paid when due shall bear interest from
the date due until paid at an annual rate of 12%.
13. INTERIM PERIOD. During the period from the date hereof through the
earlier of the Closing Date, or the termination of the Merger Agreement,
Tauscher shall use his reasonable best
-4-
<PAGE>
efforts to (i) assist the Company and Parent to consummate the Merger, subject,
however, to the provisions of the Merger Agreement, (ii) preserve intact the
Company's present business organization, (iii) keep available to the Company the
services of its present officers and key employees, (iv) preserve the Company's
business relationships and preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with the
Company or its subsidiaries, all to the end that the Company and its
subsidiaries' goodwill and ongoing business shall be unimpaired at the Closing
Date. Without limiting the foregoing, during such time Tauscher shall use his
reasonable best efforts to not take any action that interferes with, or impedes,
the Company's ongoing relationships with the Company's employees, customers or
suppliers.
14. EMPLOYEE BENEFITS. Tauscher shall not be entitled to any fringe
benefits provided by Parent or its affiliates other than medical benefits which
shall be provided.
15. TAXES. Except as provided hereafter, the Parent shall not be obligated
to reimburse Tauscher for Tauscher's liability to pay any applicable Federal,
state or local income or employment taxes which result from any payments made
pursuant to this Agreement. Notwithstanding the forgoing, in the event that any
payment by the Parent to or for the benefit of Tauscher (whether paid or
payable) pursuant to the terms of this Agreement, but determined without regard
to any additional payments required by this Paragraph 15 ("Payment") is subject
to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by Tauscher with respect to such excise tax, or any
similar excise tax levyed by any state or local government (such excise tax and
any such interest and penalties are hereinafter collectively referred to as the
"Excise Tax"), then Tauscher shall receive an additional payment ("Gross-up
Payment") in an amount such that after payment by Tauscher of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed on the Gross-up
Payment, Tauscher retains an amount of the Gross-up Payment equal to the Excise
Tax imposed upon the Payments. The determination of the amount of the Gross-up
Payment, if any, and the assumptions to be utilized in arriving at such
determination, shall be made by the Parent's outside auditors and shall be
reasonable and based upon the actual circumstances of Tauscher and the Parent.
16. APPOINTMENT. At or immediately following the Closing Date, Parent shall
take such action as may be necessary to cause Tauscher to be elected to the
Parent's Board of Directors. Thereafter, the Parent shall nominate and solicit
proxies in good faith to elect Tauscher as a Director of the Parent at each
annual meeting of the Parent's stockholders, at which Tauscher's term expires,
held after the Closing Date and during the term of this Agreement. Tauscher
agrees that at the end of the term of this Agreement, Tauscher shall resign as a
Director of the Parent.
17. KNOWING AND VOLUNTARY. Tauscher acknowledges that he has carefully read
this Agreement, understands its meaning and intent, has had an opportunity to
discuss this Agreement with legal counsel and other advisors in its entirety to
the extent necessary to evaluate the benefits and the terms of this Agreement
and that he has signed this Agreement freely and voluntarily and without undue
influence.
-5-
<PAGE>
18. NON-WAIVER. The failure of either party to insist in any one or more
instances upon performance of any of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder, or of the future performance of any such term, covenant or condition,
but the obligations of either party with respect thereto shall continue in full
force and effect.
19. ASSIGNMENT. This Agreement and all rights hereunder are personal to
Tauscher and shall not be assignable and any purported assignment thereof shall
not be valid and binding on Parent. Parent may assign this Agreement and all of
its rights hereunder to any person, firm or corporation succeeding to
substantially all of the business of Parent.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof.
21. APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware.
22. ARBITRATION. Any controversy or claim arising out of, or relating to,
this Agreement, or its breach, shall be settled by arbitration in either
Atlanta, Washington D.C. or San Francisco (as determined by Tauscher) in
accordance with the then governing rules of the American Arbitration
Association. Judgement upon the award rendered may be entered in and enforced in
any court of competent jurisdiction.
23. ATTORNEY FEES. Parent shall pay up to $3,000 of Tauscher's documented
attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, this Separation, Consulting and Noncompetition
Agreement has been executed by the parties hereto on the date first forth above.
INACOM CORP.
/s/ William Y. Tauscher /s/ Bill L. Fairfield
______________________________ By:____________________________________
WILLIAM Y. TAUSCHER Its: President and Chief Executive Officer
-7-
<PAGE>
ADDENDUM A
CONSULTING AND NONCOMPETITION AGREEMENT
INACOM CORP. AND WILLIAM Y. TAUSCHER
DATED OCTOBER 8, 1998
The potential incentive bonus of $3,000,000 shall be based upon the
following three objectives (i) retention of the employees listed herein
following the Closing Date ("Employee Objective"), (ii) retention of the clients
listed herein following the Closing Date ("Client Objective"), and (iii)
accomplishment of the synergies listed herein ("Synergies Objective"). The
portion of the incentive bonus for each objective shall be $1,000,000 for the
Employee Objective, $1,000,000 for the Client Objective and $1,000,000 for the
Synergies Objective. The objectives and payment terms are set forth on the Bonus
Schedule attached hereto.
-8-
<PAGE>
INACOM CORP. AND SUBSIDIARIES (Includes Retroactive Impact of Vanstar Merger)
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations ($8,560) $65,403 $47,540
Add provision for income taxes 22,837 40,638 29,135
- --------------------------------------------------------------------------------------------------
14,277 106,041 76,675
- --------------------------------------------------------------------------------------------------
Fixed Charges:
Financing 66,513 60,311 34,768
Interest factor portion of rentals 16,052 13,815 10,493
- --------------------------------------------------------------------------------------------------
Total fixed charges 82,565 74,126 45,261
- --------------------------------------------------------------------------------------------------
Earnings before income taxes and fixed charges $96,842 $180,167 $121,936
- --------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.17 2.43 2.69
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.1
The Board of Directors
InaCom Corp. and subsidiaries:
We consent to the use of our report dated February 19, 1999, with respect to the
supplemental consolidated balance sheets of InaCom Corp. and subsidiaries as of
December 26, 1998 and December 27, 1997 and the related supplemental
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 26, 1998 included
herein. That report refers to the opinion of other auditors with respect to
Vanstar Corporation ("Vanstar") a company acquired in February 1999 in a
business combination accounted for as a pooling of interests. Such statements
are included in the consolidated financial statements of the Company and reflect
total assets constituting 53.3 percent as of December 27, 1997 and total
revenues constituting 42.1 percent and 41.7 percent for the years ended December
27, 1997 and December 28, 1996, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Vanstar, is based solely on the report of the other auditors.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
March 3, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated June 3, 1998
(except for Note 16, as to which the date is December 30, 1998) with respect to
the consolidated financial statements of Vanstar Corporation for the year ended
April 30, 1998 in this Current Report on Form 8-K of InaCom Corp.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Atlanta, Georgia
March 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS 8-K/A
DATED FEBRUARY 17, 1999 FOR THE PERIODS ENDED DECEMBER 26, 1998, DECEMBER 27,
1997 AND DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000818815
<NAME> InaCom Corp.
<CURRENCY> 0
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> Year 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-26-1998 DEC-26-1998 DEC-26-1998 DEC-26-1998
<PERIOD-START> DEC-28-1997 DEC-28-1997 DEC-28-1997 DEC-28-1997
<PERIOD-END> DEC-26-1998 SEP-26-1998 JUN-27-1998 MAR-28-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 69,939 46,146 61,739 40,672
<SECURITIES> 0 0 0 0
<RECEIVABLES> 720,686 700,207 641,370 651,752
<ALLOWANCES> 15,381 17,339 13,491 11,244
<INVENTORY> 485,283 588,579 735,944 1,013,082
<CURRENT-ASSETS> 1,319,872 1,371,822 1,478,582 1,738,528
<PP&E> 379,292 347,573 344,977 341,521
<DEPRECIATION> 182,162 169,948 157,032 157,437
<TOTAL-ASSETS> 1,880,984 1,936,972 2,059,802 2,218,126
<CURRENT-LIABILITIES> 917,667 1,003,892 1,116,801 1,329,457
<BONDS> 201,941 142,188 143,233 144,188
194,974 194,886 194,797 194,645
0 0 0 0
<COMMON> 4,480 4,478 4,456 4,319
<OTHER-SE> 560,744 586,537 596,275 540,533
<TOTAL-LIABILITY-AND-EQUITY> 1,880,984 1,936,972 2,059,802 2,218,126
<SALES> 6,018,823 4,528,207 3,094,793 1,463,864
<TOTAL-REVENUES> 6,887,414 5,171,391 3,513,275 1,671,888
<CGS> 5,603,544 4,213,650 2,878,621 1,364,360
<TOTAL-COSTS> 6,129,196 4,603,538 3,133,021 1,489,238
<OTHER-EXPENSES> 663,844 475,728 289,756 135,320
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 66,513 52,784 36,003 16,440
<INCOME-PRETAX> 27,861 39,341 54,495 30,890
<INCOME-TAX> 27,505 16,947 21,443 11,924
<INCOME-CONTINUING> (8,560) 15,707 28,594 16,737
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (8,560) 15,707 28,594 16,737
<EPS-PRIMARY> (0.19) 0.36 0.66 0.39
<EPS-DILUTED> (0.19) 0.36 0.63 0.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS 8-K/A
DATED FEBRUARY 17, 1999 FOR THE PERIODS ENDED DECEMBER 26, 1998, DECEMBER 27,
1997 AND DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000818815
<NAME> InaCom Corp.
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C> <C> <C> <C>
<PERIOD-TYPE> Year 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-27-1997 DEC-27-1997 DEC-27-1997 DEC-27-1997
<PERIOD-START> DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-29-1996
<PERIOD-END> DEC-27-1997 SEP-27-1997 JUN-28-1997 MAR-29-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 62,068 52,760 40,663 47,890
<SECURITIES> 0 0 0 0
<RECEIVABLES> 609,022 578,316 549,265 481,486
<ALLOWANCES> 14,203 9,655 10,134 12,805
<INVENTORY> 899,836 1,001,340 925,907 829,886
<CURRENT-ASSETS> 1,602,172 1,663,193 1,540,849 1,377,449
<PP&E> 352,238 318,675 287,990 265,503
<DEPRECIATION> 144,493 114,340 136,555 114,618
<TOTAL-ASSETS> 2,052,499 2,083,340 1,946,455 1,758,365
<CURRENT-LIABILITIES> 1,179,590 1,418,670 1,297,220 1,132,000
<BONDS> 143,837 57,907 59,012 60,210
194,739 194,586 194,562 194,603
0 0 0 0
<COMMON> 4,266 3,925 3,922 3,874
<OTHER-SE> 528,898 404,507 386,910 362,629
<TOTAL-LIABILITY-AND-EQUITY> 2,052,499 2,083,340 1,946,455 1,758,365
<SALES> 5,993,536 4,418,563 2,901,189 1,370,587
<TOTAL-REVENUES> 6,735,104 4,952,985 3,236,287 1,522,324
<CGS> 5,555,762 4,094,077 2,687,419 1,266,476
<TOTAL-COSTS> 5,991,428 4,412,250 2,887,951 1,360,657
<OTHER-EXPENSES> 563,399 412,843 268,817 126,621
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 60,311 43,825 27,513 12,424
<INCOME-PRETAX> 119,966 84,067 52,006 22,622
<INCOME-TAX> 45,651 31,883 19,736 8,589
<INCOME-CONTINUING> 65,403 45,500 27,814 11,805
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 65,403 45,500 27,814 11,805
<EPS-PRIMARY> 1.66 1.17 0.72 0.31
<EPS-DILUTED> 1.57 1.11 0.69 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS 8-K/A
DATED FEBRUARY 17, 1999 FOR THE PERIODS ENDED DECEMBER 26, 1998, DECEMBER 27,
1997 AND DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000818815
<NAME> InaCom Corp.
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 37,096
<SECURITIES> 0
<RECEIVABLES> 484,049
<ALLOWANCES> 12,637
<INVENTORY> 776,184
<CURRENT-ASSETS> 1,314,054
<PP&E> 273,253
<DEPRECIATION> 125,796
<TOTAL-ASSETS> 1,609,023
<CURRENT-LIABILITIES> 1,005,322
<BONDS> 61,196
194,518
0
<COMMON> 3,830
<OTHER-SE> 339,971
<TOTAL-LIABILITY-AND-EQUITY> 1,609,023
<SALES> 4,809,590
<TOTAL-REVENUES> 5,316,841
<CGS> 4,450,852
<TOTAL-COSTS> 4,752,735
<OTHER-EXPENSES> 444,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,768
<INCOME-PRETAX> 84,712
<INCOME-TAX> 32,028
<INCOME-CONTINUING> 47,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,540
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.21
</TABLE>
Exhibit 99.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Vanstar Corporation:
We have audited the accompanying consolidated balance sheets of Vanstar
Corporation as of April 30, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended April 30, 1998. Our audits also included the financial
statement schedule listed in Item 14(a) of this Annual Report on Form 10-K.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and 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 consolidated financial position of
Vanstar Corporation at April 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended April 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 16, the accompanying consolidated financial statements
have been restated.
ERNST & YOUNG LLP
Atlanta, Georgia
June 3, 1998, except for Note 16, as to which the date is December 30, 1998.
<PAGE>
*Pagination is the same as used in Vanstar Corporation's Annual Report on Form
10-K/A for the fiscal year ended April 30, 1998.
VANSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Restated - Note 16)
<TABLE>
APRIL 30,
------------------------
1998 1997
---------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 9,476 $ 5,686
Receivables, net of allowance for doubtful accounts of
$8,262 at April 30, 1998 and $8,252 at April 30, 1997 342,752 183,005
Inventories 470,474 389,592
Deferred income taxes 17,387 14,855
Prepaid expenses and other current assets 14,304 8,618
---------- --------
Total current assets 854,393 601,756
Property and equipment, net 53,303 39,240
Other assets, net 81,272 63,775
Goodwill, net of accumulated amortization of $10,113 at April 30,
1998 and $5,640 at April 30, 1997 106,796 56,652
---------- --------
$1,095,764 $761,423
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 290,187 $255,147
Accrued liabilities 63,590 34,392
Deferred revenue 21,869 24,601
Short-term borrowings 308,351 74,402
Current maturities of long-term debt 5,800 4,785
---------- --------
Total current liabilities 689,797 393,327
Long-term debt, less current maturities 2,337 5,946
Other long-term liabilities 943 661
Commitments and contingencies
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding solely
convertible subordinated debt securities of the Company 194,739 194,518
Stockholders' equity:
Common stock, $.001 par value: 100,000,000 shares authorized,
43,489,030 shares issued and outstanding at April 30, 1998,
42,896,779 shares issued and outstanding at April 30, 1997 43 43
Additional paid-in capital 132,940 126,163
Retained earnings (since a deficit elimination of $78,448
at April 30, 1994) 74,965 40,765
---------- --------
Total stockholders' equity 207,948 166,971
---------- --------
$1,095,764 $761,423
========== ========
</TABLE>
See accompanying notes to consolidated financial statements
27
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Restated - Note 16)
<TABLE>
YEAR ENDED APRIL 30,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Acquisition services $ 2,367,004 $ 1,864,909 $ 1,632,375
Other services 471,798 349,877 252,260
----------- ----------- -----------
Total revenue 2,838,802 2,214,786 1,884,635
----------- ----------- -----------
Cost of revenue:
Acquisition services 2,136,396 1,679,202 1,479,073
Other services 287,722 212,254 144,941
----------- ----------- -----------
Total cost of revenue 2,424,118 1,891,456 1,624,014
----------- ----------- -----------
Gross margin 414,684 323,330 260,621
Selling, general and administrative expenses 313,302 255,974 216,847
----------- ----------- -----------
OPERATING INCOME 101,382 67,356 43,774
Interest income 1,198 3,719 5,539
Financing expense, net (32,485) (18,082) (37,488)
----------- ----------- -----------
Income from continuing operations before income taxes
and distributions on preferred securities of Trust 70,095 52,993 11,825
Income tax provision (25,236) (19,042) (4,311)
----------- ----------- -----------
Income from continuing operations before distributions
on preferred securities of Trust 44,859 33,951 7,514
Gain on disposal of discontinued businesses
(less income taxes of $5,400) - - 9,194
Distributions on convertible preferred securities of Trust
(less income taxes of $5,013 in 1998 and $2,893 in 1997) (8,912) (5,144) -
----------- ----------- -----------
NET INCOME $ 35,947 $ 28,807 $ 16,708
=========== =========== ===========
EARNINGS PER SHARE:
Basic: Continuing operations .83 .68 .22
Discontinued operations - - .27
----------- ----------- -----------
$ .83 $ .68 $ .50
=========== =========== ===========
Diluted: Continuing operations .81 .66 .21
Discontinued operations - - .26
----------- ----------- -----------
$ .81 $ .66 $ .47
=========== =========== ===========
COMMON SHARE AND EQUIVALENTS OUTSTANDING
Basic 43,180 42,388 33,665
=========== =========== ===========
Diluted 44,388 43,977 35,503
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Restated - Note 16)
<TABLE>
COMMON STOCK,
FORMERLY RETAINED
PREFERRED STOCK COMMON STOCK A COMMON STOCK B ADDITIONAL EARNINGS
---------------- -------------- ----------------- PAID-IN (ACCUM.
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- ------ ------ ------ ------ ------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1995 15,309 $ 153 8,575 $ 9 3,708 $ 4 $ 25,087 $ (3,135) $ 22,118
Redemption of Class A Common Stock - - (103) - - - - - -
Issuance of warrants - - - - - - 500 - 500
Conversion of Class F Preferred
Stock and Senior Preferred Stock
to Class A Common Stock (15,309) (153) 15,309 15 - - 138 - -
Conversion of Class B Common
Stock to Class A Common Stock - - 3,708 4 (3,708) (4) - - -
Conversion of warrants to Class
A Common Stock - - 4,996 5 - - (5) - -
Issuance of Class A Common Stock - - 9,216 9 - - 83,382 - 83,391
Accrued dividends forgiven-Senior
Preferred Stock - - - - - - 6,162 - 6,162
Exercise of stock options - - 26 - - - 152 - 152
Net income - - - - - - - 16,708 16,708
Dividends on preferred stock - - - - - - - (2,988) (2,988)
------- ------ ------- --- ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1996 - - 41,727 42 - - 115,416 10,585 126,043
Issuance of Common Stock:
Employee stock purchase plan - - 389 - - - 3,898 - 3,898
Exercise of stock options,
including income tax benefit - - 597 1 - - 6,772 - 6,772
Other - - 184 - - - 77 - 77
Unrealized holding gain on
available-for-sale securities - - - - - - - 1,373 1,373
Net income - - - - - - - 28,807 28,807
------- ------ ------- --- ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1997 - - 42,897 43 - - 126,163 40,765 166,971
Issuance of Common Stock:
Employee stock purchase plan - - 407 - - - 4,767 - 4,767
Exercise of stock options,
including income tax benefit - - 236 - - - 2,010 - 2,010
Business acquisitions and other - - (51) - - - -
Accumulated translation adjustment - - - - - - - (167) (167)
Unrealized holding loss on
available-for-sale securities - - - - - - - (1,580) (1,580)
Net income - - - - - - - 35,947 35,947
------- ------ ------- --- ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1998 - $ - 43,489 $43 - $ - $ 132,940 $ 74,965 $ 207,948
======= ====== ======= === ====== ====== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Restated - Note 16)
<TABLE>
YEAR ENDED APRIL 30,
----------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 35,947 $ 28,807 $ 16,523
Adjustments:
Depreciation and amortization 27,129 17,739 10,621
Deferred income taxes (4,858) 16,149 10,029
Provision for doubtful accounts 1,300 (2,705) 14,500
Noncash interest expense 244 - -
Gain on disposal of discontinued businesses - - (14,594)
Changes in operating assets and liabilities:
Receivables (144,758) 157,874 (52,941)
Inventories (68,174) (33,624) (52,919)
Prepaid expenses and other current assets (8,812) (6,170) (2,254)
Accounts payable (2,205) (56,499) 42,920
Accrued and other liabilities 12,726 (23,781) 5,311
--------- --------- --------
Total adjustments (187,408) 68,983 (39,327)
--------- --------- --------
Net cash (used in) provided by operating activities (151,461) 97,790 (22,804)
Cash Flows from Investing Activities:
Capital expenditures (40,372) (25,224) (22,077)
Proceeds from sale of building - 3,125 -
Purchase of businesses, net of cash acquired (34,161) (36,726) (1,435)
Sales of businesses - - 14,594
Investment in available-for-sale securities - (10,073) -
--------- --------- --------
Net cash used in investing activities (74,533) (68,898) (8,918)
Cash Flows from Financing Activities:
Payments on long-term debt (10,121) (25,262) (8,536)
Borrowings (repayments) under line of credit, net 233,949 (214,670) (36,706)
Proceeds from issuance of convertible preferred
securities of Trust, net - 194,320 -
Issuance of common stock 5,956 6,901 84,044
--------- --------- --------
Net cash provided by (used in) financing activities 229,784 (38,711) 38,802
--------- --------- --------
Net increase (decrease) in cash 3,790 (9,819) 7,080
Cash at beginning of the period 5,686 15,505 8,425
--------- --------- --------
Cash at end of the period $ 9,476 $ 5,686 $ 15,505
========= ========= ========
</TABLE>
30
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
(Restated - Note 16)
<TABLE>
YEAR ENDED APRIL 30,
-------------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 18,636 $ 18,096 $40,540
Discounts and net expenses on receivables securitization 12,086 3,275 -
Distributions on preferred securities of Trust 13,584 6,943 -
Income taxes, net of refunds 5,144 3,386 625
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital leases $ 3,040 $ 8,416 $ 4,341
Dataflex Regions purchase:
Fair value of assets acquired $ 46,889
Cash paid, net of cash received (36,726)
--------
Liabilities assumed $ 10,163
========
Sysorex purchase:
Fair value of assets acquired $ 85,448
Cash paid, net of cash received (32,486)
--------
Liabilities assumed $ 52,962
========
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Vanstar Corporation (the "Company") is a leading provider of services
and products designed to build, manage and enhance PC network infrastructures
for Fortune 1000 companies and other large enterprises. The Company provides
customized information technology and networking solutions for its customers by
integrating value-added professional services with its expertise in sourcing,
distributing and supporting PC hardware, network products, computer peripherals
and software from many vendors. The consolidated financial statements include
the accounts of Vanstar Corporation and its consolidated subsidiaries. All
significant intercompany balances have been eliminated. Certain prior period
amounts have been reclassified to conform to current period presentation. Use of
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Acquisition services revenue is primarily derived from the sale of
computer hardware, software, peripherals and communications devices manufactured
by third parties and sold by the Company, principally to implement integration
projects. Other services revenue is derived from value-added services, including
services focused on the server and communication segments of the PC network
infrastructure and services performed for the desktop. Product sales are
recognized at the time of shipment. Revenue from services is recognized as
services are performed or ratably if performed over a service contract period.
Deferred revenue primarily represents unrecognized service revenue.
Financial Instruments
The carrying amounts for cash, receivables, and accounts payable
approximate their respective fair values due to the short-term maturity of these
instruments. The carrying value for amounts outstanding under the Company's
Financing Program Agreement with IBM Credit Corporation ("IBMCC") approximates
fair value since those amounts bear interest at current market rates. Long-term
debt consists of variable-rate instruments at terms the Company believes would
be available if similar financing were obtained from another party. As such,
carrying amounts also approximate their fair value. The carrying value of the
Preferred Securities approximates their fair value based upon quoted market
prices.
Inventories
Inventory for resale and spare parts inventory are stated at the lower of
cost (first-in, first-out method) or market. Periodically, the Company assesses
the appropriateness of the inventory valuations giving consideration to
obsolete, slow-moving and nonsalable inventory.
In order to adequately service its customers, the Company is required to
maintain quantities of consumable and repairable parts ("spare parts") for
extended periods of time. Based on historical experience, the Company determines
an allocation of the spare parts to both current inventories and other long-term
assets.
32
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Goodwill
Goodwill represents the excess of cost over the net assets of acquired
businesses and is amortized using the straight-line method over twenty to
twenty-five years. Amortization expense on goodwill was $4.5 million, $2.2
million, and $1.7 million for the fiscal years ended April 30, 1998, 1997, and
1996, respectively. The Company periodically assesses the appropriateness of the
carrying amount of goodwill and the amortization periods based on the
undiscounted value of the current and anticipated future cash flows and
projected profitability of the acquired businesses. If there are indicated
impairments, a write down is recorded to the extent the carrying amount exceeds
the fair value in accordance with Accounting Principles Board ("APB") Opinion
No. 17, Intangible Assets.
Marketing Development Funds
Primary vendors of the Company provide various incentives, in the form of
cash or credit against obligations, for certain training and for promoting and
marketing their products. The funds or credits received are based on the
purchases or sales of the vendors' products and are earned through performance
of specific marketing programs or upon the attainment of certain objectives
outlined by the vendors. Funds or credits earned are recorded as a reduction of
either cost of revenue or selling, general and administrative expenses, based on
the objectives of the program established by the vendors. Funds or credits from
the Company's primary vendors typically range from 1% to 5% of sales or
purchases of vendor products.
Earnings Per Share
Effective during the year ended April 30, 1998, the Company adopted
Financial Accounting Standards Board ("FASB") Statement No. 128, Earnings per
Share ("Statement 128"). Under Statement 128, Basic earnings per share are
computed using the weighted average number of shares of Common Stock during the
period and Diluted earnings per share are computed using the weighted average
number of shares of Common Stock and dilutive Common Stock equivalents
outstanding during the period. Common Stock equivalents are computed for the
Company's outstanding options using the treasury stock method. The Company
restated prior periods to reflect the change in method required by Statement
128. Earnings per share for the fiscal year ended April 30, 1996 are presented
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and the exchange of all outstanding warrants for shares of
Common Stock in connection with the Company's initial public offering on March
11, 1996 as if the conversion had occurred at the later of the beginning of
fiscal year 1996 or the issuance date of the respective security.
Stock-Based Compensation
The Company accounts for its stock option and employee stock purchase
plans in accordance with APB Opinion No. 25, Accounting For Stock Issued to
Employees ("APB 25"); accordingly, no compensation expense has been recognized.
Under APB 25, because the exercise price of the Company's stock options equals
the market value of the underlying stock on the date of the grant, no
compensation expense is recognized. Because the employee stock purchase plan is
considered a noncompensatory plan under APB 25, no compensation expense is
recognized. The Company has adopted the disclosure only provisions of FASB
Statement No. 123, Accounting For Stock-Based Compensation ("Statement 123").
Note 13 to the consolidated financial statements contains a summary of the pro
forma effects to reported net income and net income per share for the years
ended April 30, 1998, 1997 and 1996 as if the Company had elected to recognize
compensation cost based on the fair value of the options granted as prescribed
by Statement 123.
33
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
New Accounting Pronouncements
The Financial Accounting Standards Board recently issued two standards
which will be applicable to the Company but which the Company is not yet
required to adopt, FASB Statement No. 130, Reporting Comprehensive Income, and
FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. The adoption of these statements will not impact the Company's
financial position or results of operations but may change the presentation of
certain items in the Company's financial statements and related disclosures.
2. ACQUISITIONS
On May 24, 1996, the Company, through a wholly-owned subsidiary, acquired
certain of the assets and assumed certain of the liabilities of Dataflex
Corporation and of Dataflex's wholly-owned subsidiary, Dataflex Southwest
Corporation. The assets acquired and liabilities assumed comprise substantially
all of the assets and business operations previously associated with the
business operations of Dataflex known as the Dataflex Western Region and
Dataflex Southwest Region (the "Dataflex Regions"). The Dataflex Regions offered
PC product distribution, service and support in the states of Arizona,
California, Colorado, Nevada, New Mexico, and Utah and reported revenues of
approximately $145 million for the fiscal year ended March 31, 1996. The
purchase price of the Dataflex Regions, was $37.7 million.
On September 4, 1996, the Company acquired Mentor Technologies, Ltd., an
Ohio limited partnership ("Mentor Technologies") providing training and
education services throughout the upper mid-western United States. A total of
300,000 shares of Common Stock (having an aggregate value on the closing date of
approximately $6.0 million) were issued in connection with the acquisition. For
the calendar year ended December 31, 1995, Mentor Technologies reported revenues
of approximately $5.5 million. For the period from May 1, 1996 to September 4,
1996, Mentor Technologies had revenue and net income of $1,677,000 and $97,000,
respectively.
On December 16, 1996, the Company acquired Contract Data Services, Inc., a
North Carolina corporation ("CDS"), in exchange for 904,866 shares of the Common
Stock (having an aggregate value on the closing date of approximately $20.8
million). CDS provided outsourcing of integrated information technology
services, related technical support services and procurement of computer
hardware and software. For the fiscal year ended March 31, 1996, CDS reported
total revenues of approximately $74.3 million. For the period from May 1, 1996
to December 16, 1996, CDS had revenue and net loss of $34,543,000 and
$1,284,000, respectively.
On January 9, 1997, the Company acquired inventory and equipment from DCT
Systems, Inc., a Minnesota corporation, Niloy, Inc., a Georgia corporation, and
NCT Systems, Inc., an Illinois corporation (collectively, "DCT"). The Company
purchased specified assets for $4.0 million. In addition, the asset purchase
agreement provided that DCT could receive a maximum of 180,000 shares of the
Common Stock upon the satisfaction of certain conditions. In February 1998,
120,000 of those shares were released to DCT. The Company also entered into a
servicing and marketing agreement on January 9, 1997 whereby the Company will
provide certain computer products and billing services to DCT. Based upon
certain criteria under the servicing and marketing agreement, DCT also may
receive, at DCT's election, cash or up to 40,000 additional restricted shares of
the Common Stock.
On July 7, 1997, the Company acquired certain assets and assumed certain
liabilities of Sysorex Information Systems, Inc. ("Sysorex"), a government
technology provider. The purchase price was approximately $54.5 million and a
contingent payment of 500,000 shares of Common Stock based on the future
financial performance of the acquired business.
34
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The acquisitions of the Dataflex Regions, DCT and Sysorex were accounted
for as purchases and the excess of the cost over the fair value of net assets
acquired for each acquisition is being amortized on a straight line basis
ranging from 20 to 25 years. The operations of these acquisitions are included
in the consolidated statements of income from the respective dates of
acquisition. The following unaudited pro forma summary presents the consolidated
results of operations for the Sysorex acquisition as if it had occurred on May
1, 1996 and for the Dataflex Regions as if it had occurred on May 1, 1995.
Fiscal 1997 Fiscal 1996
---------------- ---------------
Revenues $ 2,324,558 $ 2,031,035
Net Income 26,991 16,498
Basic EPS 0.64 0.49
Diluted EPS 0.61 0.46
The acquisitions of Mentor Technologies and CDS were accounted for as
pooling-of-interests business combinations. The consolidated balance sheets,
statements of income, cash flows, and stockholders' equity were restated to
reflect these acquisitions. In connection with these combinations, no
adjustments of net assets were required to conform the accounting practices of
either Mentor Technologies or CDS to those of the Company. The accounting
treatment of the pooling-of-interest transactions are further discussed in Note
16.
3. DISCONTINUED OPERATIONS
On January 31, 1994, the Company sold certain assets and liabilities of
its U.S. franchise business, including all domestic franchise agreements, Datago
distribution agreements and the right to the "ComputerLand" name and trademark
within the United States to Merisel Franchise Aggregation Business ("Merisel
FAB"), a wholly-owned subsidiary of Merisel, Inc. ("Merisel"). Concurrent with
the sale, the Company entered into a distribution services agreement with
Merisel FAB. Pursuant to that agreement, the Company continued to supply product
and provide certain logistics and other support services to Merisel FAB and
received a monthly distribution fee for such services. The Company also granted
Merisel FAB $20.0 million in extended, interest-bearing credit on its product
purchases.
Effective January 31, 1996, the Company and Merisel FAB signed amendments
to the asset purchase agreement and distribution services agreement. The
amendments provided for: the term of the distribution services agreement to be
extended through April 30, 1997; the distribution fee to be reduced retroactive
to April 1, 1995; the additional consideration to be fixed at $14.6 million; the
maximum amount of the extended credit to be increased by $11.1 million, which
would be reduced in monthly installments from February 1996 through July 1997;
and the original amount of interest-bearing credit of $20.0 million to be
extended and reduced in three equal monthly installments from May 15, 1997
through July 15, 1997. The Company recorded a gain of $9.2 million, net of
applicable taxes, for the year ended April 30, 1996 as a result of the
additional consideration. As a result of announcements made by Merisel on
February 20, 1996, the Company decided to record a $31.1 million provision as of
January 31, 1996 against its extended credit due from Merisel FAB. On May 29,
1996, the Company entered into an agreement with a third party under which the
Company received $15.6 million in cash in exchange for providing the third party
the right to receive payments in May, June and July 1997 totaling $20.0 million
out of amounts collected from the extended credit owed to the Company by Merisel
FAB. As a result, the Company adjusted a portion of the reserve on its extended
credit from Merisel FAB resulting in additional pre-tax income of $15.6 million
during the quarter ended April 30, 1996.
On March 28, 1997, the distribution and services agreement was assigned
from Merisel FAB to ComputerLand Corporation, a wholly owned subsidiary of
Synnex Information Technologies, Inc., as a result of
35
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
the sale by Merisel of substantially all of the assets of Merisel FAB to
ComputerLand Corporation. The Company completed its obligation under that
agreement in January 1998.
4. INVENTORIES
The composition of inventories at April 30, 1998 and 1997 is as follows (in
thousands):
<TABLE>
1998 1997
-------- --------
<S> <C> <C>
Inventory for resale $462,110 $386,664
Less reserve for obsolete inventory 10,135 12,586
-------- --------
451,975 374,078
Spare parts (current) 18,499 15,514
-------- --------
$470,474 $389,592
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
The composition of property and equipment at April 30, 1998 and 1997 was as
follows (in thousands):
<TABLE>
1998 1997
-------- --------
<S> <C> <C>
Furniture and equipment $ 80,995 $ 84,751
Leasehold improvements 26,235 22,440
-------- --------
107,230 107,191
Less accumulated depreciation and amortization 53,927 67,951
-------- --------
$ 53,303 $ 39,240
======== ========
</TABLE>
The carrying value of property and equipment was adjusted to fair value on
April 30, 1994 in connection with the Company's quasi-reorganization. Additions
since April 30, 1994 have been recorded at cost. Property and equipment is
depreciated using the straight-line method over the estimated useful lives of
the related assets--3 to 5 years for furniture and equipment and the lesser of
the lease term or the useful life for leasehold improvements. Depreciation
expense associated with property and equipment was $19.4 million, $14.4 million
and $7.7 million for the fiscal years ended April 30, 1998, 1997 and 1996,
respectively. During the year ended April 30, 1998 the Company wrote-off
approximately $32 million of fully depreciated property and equipment.
6. OTHER ASSETS, NET
The composition of other assets at April 30, 1998 and 1997 was as follows
(in thousands):
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Spare parts (non-current) $40,497 $31,541
Capitalized software, net 24,098 17,551
Available-for-sale security 8,256 10,719
Deferred income taxes (non-current) 3,213 -
Other 5,208 3,964
------- -------
$81,272 $63,775
======= =======
</TABLE>
Capitalized software represents the costs associated with development of
software for the Company's internal use. Such costs are capitalized in
accordance with American Institute of Certified Public Accountants Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, and are amortized over the remaining useful economic
life of the software of up to five years. Accumulated
36
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
amortization at April 30, 1998 and 1997 was $5.3 million and $2.0 million,
respectively. Amortization expense associated with capitalized software was $2.9
million, $0.5 million and $0.3 million for the fiscal years ended April 30,
1998, 1997 and 1996, respectively.
In December 1996, the Company purchased 7.5% of the common stock of
ComputerLand Poland S.A., a publicly traded foreign company, for $8.6 million.
The investment is classified as an "available-for sale" security in accordance
with FASB Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities. At April 30, 1998 the fair market value of the investment was
$8.3 million and the gross unrealized holding loss was $.3 million. At April 30,
1998, the net unrealized holding loss of $.2 million (net of taxes of $0.1
million) was included as a reduction to retained earnings. At April 30, 1997,
the net unrealized holding gain of $1.4 million (net of taxes of $.8 million)
was included as an increase to retained earnings. On April 30, 1997, the Company
purchased additional restricted common stock of ComputerLand Poland S.A. for
$1.5 million. At April 30, 1998, the Company owns approximately 8.3% of the
common stock of ComputerLand Poland S.A. 7. DEBT
Outstanding debt at April 30, 1998 and 1997 was as follows (in thousands):
<TABLE>
1998 1997
-------- -------
<S> <C> <C>
Line of credit $308,351 $74,402
Obligations under capital leases 7,479 9,838
Other 658 893
-------- -------
Total outstanding debt 316,488 85,133
Less current maturities 314,151 79,187
-------- -------
Long-term debt $ 2,337 $ 5,946
======== =======
</TABLE>
The Company's line of credit represents amounts borrowed pursuant to the
Financing Program Agreement with IBMCC, an affiliate of one of the Company's
principal vendors. At April 30, 1998, the line of credit had an aggregate limit
of $550 million. On July 1, 1998, the available line of credit is scheduled to
be reduced to $500 million. The line of credit is secured by portions of the
Company's inventory, accounts receivable and certain other assets. The Financing
Program Agreement is renewable every 12 months, and is terminable by the Company
or IBMCC at any time upon 90 days written notice. In the event of such
termination, the outstanding borrowings are not due and payable to IBMCC until
the end of the term of the Financing Program Agreement, currently October 31,
1998. The terms of the Financing Program Agreement include financial covenants
requiring the Company to maintain compliance with certain financial ratios, and
also limit the Company's ability to pay cash dividends on its Common Stock. As
of April 30, 1998, the Company had complied with or obtained a waiver for any
noncompliance with those financial covenants. At April 30, 1998, amounts
outstanding under the line of credit totaled $465.8 million, of which $157.4
million and $308.4 million were classified as accounts payable and short-term
borrowings, respectively. Amounts outstanding and classified as short-term
borrowings bear interest at LIBOR plus 1.6%, which was 7.3% at April 30, 1998.
Amounts outstanding and classified as short-term borrowings in 1997 bear
interest at the Prime Rate minus .8%, which was 7.7% at April 30, 1997.
Aggregate maturities of long-term debt, excluding the line of credit, are
approximately $5.8 million, $2.0 million, $0.2 million, and $0.1 million,
respectively for each of the succeeding four years.
8. SALE OF ACCOUNTS RECEIVABLE
Effective December 20, 1996, the Company, through a non-consolidated
wholly-owned special purpose corporation, established the Securitization
Facility, which currently provides the Company with up to $200 million in
available credit. In connection with the Securitization Facility, the Company
sells on a revolving basis, certain Pooled Receivables to the special purpose
corporation which in turn sells a percentage ownership 37
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
interest in the Pooled Receivables to a commercial paper conduit sponsored by a
financial institution. These transactions have been recorded as a sale in
accordance with FASB Statement No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. The amount of the Pooled
Receivables, which totaled $335.2 million at April 30, 1998, is reflected as a
reduction of receivables. The Company retains an interest in certain of the
assets sold. At April 30, 1998, the amount of that retained interest totaled
$160.6 million and is included in receivables. The Company is retained as
servicer of the Pooled Receivables. Although management believes that the
servicing revenues earned will be adequate compensation for performing the
services, estimating the fair value of the servicing asset was not considered
practicable. Consequently, a servicing asset has not been recognized. The gross
proceeds resulting from the sale of the percentage ownership interests in the
Pooled Receivables totaled $200 million as of April 30, 1998. Such proceeds are
included in cash flows from operating activities in the consolidated statements
of cash flows. Discounts and net expenses associated with the sales of the
receivables totaling $12.1 and $3.4 million are included in financing expenses,
net on the consolidated statements of income for the years ended April 30, 1998
and 1997, respectively.
9. CONVERTIBLE PREFERRED SECURITIES OF TRUST
During October 1996, the Trust, of which the Company owns all of the
common trust securities, issued 4,025,000 Preferred Securities. The Preferred
Securities have a liquidation value of $50 per security and are convertible at
any time at the option of the holder into shares of Common Stock at a conversion
rate of 1.739 shares for each Preferred Security, subject to adjustment in
certain circumstances. Distributions on Preferred Securities accrue at an annual
rate of 6 3/4% of the liquidation value of $50 per Preferred Security and are
included in "Distributions on convertible preferred securities of Trust, less
income taxes" in the consolidated statements of income. The proceeds of the
private placement, which totaled $194.4 million (net of initial purchasers'
discounts and estimated offering expenses totaling $6.9 million) are included in
"Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trust holding solely convertible subordinated debt securities of the
Company" on the consolidated balance sheets. The Company has entered into
several contractual arrangements (the "Back-up Undertakings") for the purpose of
fully and unconditionally supporting the Trust's payment of distributions,
redemption payments and liquidation payments with respect to the Preferred
Securities. Considered together, the Back-up Undertakings constitute a full and
unconditional guarantee by the Company of the Trust's obligations on the
Preferred Securities.
The Trust invested the proceeds of the offering in the Debentures issued
by the Company. The Debentures bear interest at 6 3/4% per annum, generally
payable quarterly on January 1, April 1, July 1 and October 1. The Debentures
are redeemable by the Company, in whole or in part, on or after October 5, 1999
at designated redemption prices. If the Company redeems the Debentures, the
Trust must redeem the Preferred Securities on a pro rata basis having an
aggregate liquidation value equal to the aggregate principal amount of the
Debentures redeemed. The sole assets of the Trust are the Debentures, which have
an aggregate principal amount of $207.5 million. The Debentures and related
income statement effects are eliminated in the Company's consolidated financial
statements.
10. CONCENTRATION OF CREDIT RISK
The Company purchases and sells multi-vendor PC products and provides
various PC-related services to end-users. Although receivables from end-users
are uncollateralized, the credit risk is limited due to the large number and
diversity of customers comprising the Company's customer base. No single
customer accounted for more than 10% of the Company's revenue during fiscal year
1998 and 1997. During fiscal year 1996, no customer other than Microsoft
accounted for more than 10% of the Company's total revenues. Revenues from
Microsoft represented 12.0% of the Company's total revenues for fiscal year
1996.
38
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has entered into an agreement with one of its vendors that
requires it to purchase a minimum of $55 million of computer software over a
five-year period. At April 30, 1998, the remaining purchase commitment pursuant
to that agreement was $43 million. Leases
The Company leases certain administrative, warehousing and other
facilities under operating leases, and equipment under a combination of
operating and capital leases. Most of the Company's facility operating leases
are subject to annual escalation clauses ranging from two to five percent.
Several facilities under operating leases have been sublet.
The future minimum lease payments on noncancelable operating leases with
an initial term in excess of one year and future sublease income under
noncancelable subleases as of April 30, 1998 are as follows (in thousands):
<TABLE>
Minimum Minimum
Lease Sublease
Payments Income
------------- ---------------
<S> <C> <C>
Year Ending April 30,
1999 $ 16,737 $ 255
2000 12,415 149
2001 9,419 91
2002 7,427 -
2003 6,100 -
Thereafter 18,649 -
------------- ---------------
$ 70,747 $ 495
============= ===============
</TABLE>
In connection with leases on facilities associated with acquisitions,
the Company established reserves for future lease payments on certain duplicate
or excess facilities. The balance of these reserves at April 30, 1998 was
approximately $1.7 million, which has not reduced the amounts shown above.
Rental expense, under operating leases, charged to operations was $23.5
million, $19.5 million and $14.8 million during fiscal years ended April 30,
1998, 1997 and 1996, respectively.
The cost of assets recorded under capital leases was $15.0 million and
$12.7 million at April 30, 1998 and 1997, respectively. Accumulated amortization
on such assets was $8.1 million and $3.3 million at April 30, 1998 and 1997,
respectively. The present value of minimum lease payments under capital leases
as of April 30, 1998 was $7.5 million. Legal Proceedings
On July 3, 1997, a trust claiming to have purchased shares of the
Common Stock filed suit in Superior Court of the State of California. The suit
is entitled David T. O'Neal Trust, Dated 4/1/77, v. Vanstar Corporation, et al.,
Consolidated Case No. CV767266. On January 21, 1998, the same plaintiff, along
with another plaintiff claiming to have purchased shares of Common Stock, filed
suit in the United States District Court for the Northern District of
California, making allegations virtually identical to those in the earlier suit.
The recent suit is captioned David T. O'Neal Trust, Dated 4/1/77, et al. v.
Vanstar Corporation, et al., Case No. C-98-0216 MJJ. Both suits name as
defendants the Company, certain directors and officers of the Company, and the
Company's principal stockholder, Warburg Pincus Capital Co., L.P., and certain
of its
39
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
affiliates. The complaints in both suits generally allege, among other things,
that the defendants made false or misleading statements or concealed information
regarding the Company and that the plaintiffs, as holders of the Common Stock,
suffered damage as a result.
The plaintiffs in both suits seek class action status, purporting to
represent a class of purchasers of Common Stock between March 11, 1996 and March
14, 1997, and seek damages in an unspecified amount, together with other relief.
The complaint in the first suit purports to state a cause of action under
California law; the complaint in the recent suit purports to state two causes of
action under the Securities Exchange Act of 1934. On January 28, 1998, the
California Superior Court dismissed the plaintiffs' complaint in the first suit
but granted the plaintiffs leave to amend to cure the deficiencies in their
complaint. The plaintiffs have amended the complaint, but the court has not yet
ruled on the sufficiency of that amended complaint. The Company believes that
the plaintiffs' allegations in both suits are without merit and intends to
defend the suits vigorously.
Various legal actions arising in the normal course of business have
been brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of these actions will not have a material
adverse effect on the Company's financial position or results of operations,
taken as a whole.
12. STOCKHOLDERS' EQUITY
Initial Public Offering
On March 11, 1996, the Company completed an initial public offering selling
9,215,770 shares of its Common Stock for approximately $83.4 million, net of
issuance costs.
Preferred Stock, Common Stock and Warrants
Concurrent with the consummation of the initial public offering, all
outstanding shares of Senior Preferred Stock, Class F Preferred Stock and Class
B Common Stock were converted into 19,018,088 shares of Common Stock.
Additionally, all outstanding warrants were exchanged for 4,995,691 shares of
Common Stock, all accrued dividends payable to the holder of the Senior
Preferred Stock totaling $6.2 million were forgiven and all such stock and
warrants converted to Common Stock were canceled.
As of April 30, 1998, the Company had 15,000,000 shares of undesignated
Preferred Stock, $0.01 par value, authorized. No shares have been issued.
At April 30, 1998, the Company had 7,300,640 shares of Common Stock
reserved for future issuance in connection with the Company's stock option and
stock purchase plans.
13. EMPLOYEE BENEFIT PLANS
The Company has elected to follow APB 25 and related interpretations, in
accounting for employee stock options issued to certain of the Company's
employees. Under APB 25, because the exercise price of the Company's stock
options equals the market value of the underlying stock on the date of the
grant, no compensation expense is recognized.
Stock Option Plans
The Company has three stock option plans which provide for the issuance of
incentive stock options ("ISOs"), stock options that are non-qualified for
Federal income tax purposes ("NQSOs") and stock appreciation rights ("SARs").
The 1988 Stock Option Plan was adopted in July 1988 and provides for the
issuance of ISOs, NQSOs and SARs to key employees and directors. The 1993 Stock
Option/Stock Issuance Plan was adopted in April 1993 and provides for the
issuance of shares of Common Stock, ISOs, NQSOs and SARs to highly
40
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
compensated, managerial employees, officers and directors. The 1996 Stock
Option/Stock Issuance Plan was adopted in August 1996 and provides for the
issuance of shares of Common Stock, ISOs, NQSOs and SARs to officers, directors
and employees of, and consultants to, the Company. The exercise price of the
ISOs under all plans may not be less than 100% of the fair market value of the
Common Stock at the time of grant. Under the 1993 plan, the exercise price of
the NQSOs may not be less than 85% of the fair market value at the time of
grant. At April 30, 1998, the total number of shares of Common Stock for which
options may be granted pursuant to the 1988, 1993, and 1996 plans were 2.3
million, 2.4 million and 3.3 million, respectively. Under all plans, options
generally become exercisable ratably over a four or five year period and expire
in ten years. At April 30, 1998, no SARs had been issued.
A summary of the Company's stock option activity, and related information
for the fiscal years ended April 30, 1998, 1997 and 1996 is as follows (in
thousands, except for weighted-average exercise prices):
<TABLE>
Weighted Average
Number of Exercise
Options Price
----------- ----------
<S> <C> <C>
Balance at April 30, 1995 2,161 $ 5.71
Granted 2,967 4.35
Exercised (26) 5.83
Canceled (1,285) 5.80
---------
Balance at April 30, 1996 3,817 $ 4.62
Granted 1,557 14.22
Exercised (597) 4.87
Canceled (307) 6.07
---------
Balance at April 30, 1997 4,470 $ 7.83
Granted 1,763 10.03
Exercised (236) 5.21
Canceled (768) 8.45
---------
Balance at April 30, 1998 5,229 $ 8.60
=========
Exercisable at April 30, 1998 2,408 $ 7.66
=========
Shares Available for Grant at April 30, 1998 1,868
=========
</TABLE>
The following table summarizes information about the Company's stock
options outstanding and exercisable by price range at April 30, 1998 (options in
thousands):
<TABLE>
Exercise Price Ranges Total
--------------------------------------------- -----------
$0.18-$5.55 $ 6.00-$10.00 $10.13-$23.87 $0.18-23.87
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Number outstanding at April 30, 1998 1,906 1,661 1,662 5,229
Weighted-average remaining
contractual life 5.90 years 8.55 years 8.91 years 7.70 years
Weighted-average exercise price
for options outstanding $3.58 $9.15 $13.82 $8.60
Number exercisable at April 30, 1998 1,249 590 569 2,408
Weighted-average exercise price
for options exercisable $3.88 $9.25 $14.29 $7.66
</TABLE>
41
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Stock Purchase Plan
The Company provides an employee stock purchase plan (the "Stock Purchase
Plan") allowing eligible employees to purchase shares of the Common Stock. The
Stock Purchase Plan is intended to qualify as an employee stock purchase plan
under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
The total number of shares of Common Stock authorized for issuance under the
plan is 1,000,000. All full-time employees of the Company are eligible to
participate, subject to certain limited exceptions. The Stock Purchase Plan
provides a means for the Company's employees to purchase stock through payroll
deductions of up to 10% of their gross compensation. The purchase price for
shares offered under the Stock Purchase Plan is equal to 85% of the lower of the
closing price of the Common Stock on the first or last day of the six month
offer period. During fiscal year 1998 and 1997, the Company sold 406,827 and
389,245 shares, respectively of Common Stock under the Stock Purchase Plan to
its employees. Pro Forma Information
Pro forma disclosure information regarding net income and earnings per
share is required by Statement 123, and has been determined as if the Company
had accounted for its stock options and the Stock Purchase Plan under the fair
value method of that Statement.
For purposes of pro forma disclosures only, the estimated fair value of
the options is amortized to expense over the options' vesting period. The fair
value for all options was estimated at the date of grant using the Black-Scholes
multiple option pricing model with the following assumptions:
<TABLE>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Expected volatility 69% 71% 71%
Risk-free interest rate 5.8% 6.2% 6.0%
Expected life of options 2.0 years 2.0 years 2.0 years
Expected dividend yield 0.0% 0.0% 0.0%
</TABLE>
The weighted-average fair value per share of options granted during the
years ended April 30, 1998, 1997 and 1996 was $10.03, $8.09 and $2.55,
respectively. Pro forma net income reflects only options granted in fiscal year
1998, 1997 and 1996. Therefore, the impact of calculating compensation cost for
stock options will not be fully reflected in the pro forma net income and pro
forma earnings per share amounts until fiscal year 2000.
For purposes of pro forma disclosures only, compensation cost associated
with the Stock Purchase Plan is estimated for the fair value of the employees'
purchase rights using the Black-Scholes model with the following assumptions
<TABLE>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Expected volatility 61% 58% 72%
Risk-free interest rate 5.4% 5.3% 5.4%
Expected life of options .5 years .5 years .5 years
Expected dividend yield 0.0% 0.0% 0.0%
</TABLE>
The weighted-average fair value per share of those purchase rights granted
in fiscal year 1998, 1997 and 1996 was $2.75, $2.94 and $2.12, respectively.
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee
42
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
stock options have characteristics significantly different from those of traded
options, and because changes in the assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
Pro forma net income, earnings per share and compensation expense are
as follows (in thousands, except per share data):
<TABLE>
YEAR ENDED APRIL 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income As reported $ 35,947 $ 28,807 $ 16,708
Pro forma 29,578 22,739 14,580
Basic earnings per share As reported .83 .68 .50
Pro forma .70 .54 .45
Diluted earnings per share As reported .81 .66 .47
Pro forma .68 .53 .42
Compensation expense Pro forma 8,937 8,555 3,221
</TABLE>
401(k) Plan
The Company provides a savings plan under section 401(k) of the Code to
substantially all domestic employees who are over the age of 21. Employees can
contribute up to 12% of their annual salary to the plan up to the maximum
allowed by the Code. Prior to August 1, 1996, the Company matched 100% of
certain eligible employee contributions up to $200 not to exceed the maximum of
1% of the employee's eligible compensation. If the employee contributed more
than $200 to the plan, the Company contributed an amount equal to the greater of
$200 or 25% of the employee's contribution up to a maximum of 1% of the
employee's eligible compensation. Effective August 1, 1996, the Company changed
its matching policy to 50% on the first 4% of eligible compensation contributed
by an eligible employee up to a maximum of 2% of the employee's eligible
compensation. The amount charged to expense for the matching contribution was
$2.1 million, $1.3 million and $0.7 million, for the fiscal years ended April
30, 1998, 1997 and 1996, respectively.
14. INCOME TAXES
The income tax provision for the years ended April 30, 1998, 1997 and 1996
computed under FASB Statement No. 109, Accounting for Income Taxes, consists of
the following (in thousands):
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 21,371 $ (100) $ (418)
State 3,710 100 100
-------- -------- --------
25,081 - (318)
-------- -------- --------
Deferred
Federal (4,698) 14,319 8,561
State (160) 1,830 1,468
-------- -------- --------
(4,858) 16,149 10,029
-------- -------- --------
Total provision for income taxes $ 20,223 $ 16,149 $ 9,711
======== ======== ========
</TABLE>
43
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The income tax provision for the years ended April 30, 1998, 1997 and
1996 is allocated between discontinued and continuing operations as follows (in
thousands):
<TABLE>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Provision on income before distribution on
preferred securities of Trust $ 25,236 $ 19,042 $4,311
Tax benefit allocable to distribution on preferred
securities of Trust (5,013) (2,893) -
-------- -------- ------
Net provision allocated to continuing operations 20,223 16,149 4,311
Provision allocated to operations of discontinued
Businesses and income on disposal of
discontinued businesses - - 5,400
-------- -------- ------
Total provision for income taxes $ 20,223 $ 16,149 $9,711
======== ======== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and income tax purposes. Significant components of deferred
tax assets at April 30, 1998 and 1997 consist of the following (in thousands):
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards $ - $ 1,490
Reserves 11,837 8,237
Inventory 4,554 5,128
State income taxes 1,567 -
Alternative minimum tax credits 2,163 -
Other expenses, not currently deductible 479 -
------- -------
Total net deferred tax assets $20,600 $14,855
======= =======
</TABLE>
The full realization of the $20.6 million of deferred tax assets
carried at April 30, 1998 is dependent upon the Company achieving sufficient
future pretax earnings. Although realization is not assured, management believes
that sufficient taxable income will be generated through operations to realize
the net deferred tax assets.
A reconciliation for the years ended April 30, 1998, 1997 and 1996 of
the U.S. statutory income tax rate and the effective rate of the income tax
provision allocated to continuing operations is as follows (in thousands):
<TABLE>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Statutory tax rate at 35% $ 19,660 $ 15,734 $ 4,138
State income taxes, net of federal benefit 2,308 1,930 536
Other (1,745) (1,515) (363)
-------- -------- -------
$ 20,223 $ 16,149 $ 4,311
======== ======== =======
</TABLE>
44
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
15. EARNINGS PER SHARE
Effective during the year ended April 30, 1998, the Company adopted
Statement No. 128. Statement No. 128 supersedes Accounting Principles Board
Opinion No. 15, Earnings Per Share and changes the presentation of earnings per
share. Statement No. 128 replaces the presentation of primary EPS and fully
diluted EPS with basic EPS and diluted EPS. Basic EPS is based on the weighted
average number of common shares outstanding. Diluted EPS is based on the
weighted average number of common shares outstanding and potentially dilutive
common shares, such as stock options. The Company has restated earnings per
share for all prior periods presented. (in thousands, except per share data)
<TABLE>
FOR THE YEAR ENDED APRIL 30,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $35,947 $28,807 $16,708
======= ======= =======
Weighted average number of common
shares outstanding 43,180 42,388 33,665
======= ======= =======
Earnings per share $ 0.83 $ .68 $ .50
======= ======= =======
DILUTED EARNINGS PER SHARE
Net Income $35,947 $28,807 $16,708
======= ======= =======
Weighted average number of common
shares outstanding 43,180 42,388 33,665
Common equivalent shares from stock
options using the treasury stock method 1,208 1,589 1,838
------- ------- -------
Shares used in the per share calculation 44,388 43,977 35,503
======= ======= =======
Earnings per share $ 0.81 $ 0.66 $ 0.47
======= ======= =======
</TABLE>
16. RESTATEMENT
When the Company combined with Mentor Technologies and CDS in the year
ended April 30, 1997 in pooling-of-interests transactions, the Company did not
restate its consolidated financial statements retroactively. Recently, the
Company has discussed these transactions with the staff of the Securities and
Exchange Commission. Based in part on these discussions and recent information
available on the application of materiality in accounting for business
combinations, the Company has restated its consolidated balance sheets as of
April 30, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for the three years in the period ended
April 30, 1998 to reflect the retroactive combination of these two acquisitions.
45
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The impact of the restatement is summarized below (in thousands, except
for per share data):
<TABLE>
Previously
At April 30, 1998 Reported Restated
---------- ----------
<S> <C> <C>
Additional paid-in capital $ 132,703 $ 132,940
Retained earnings 75,202 74,965
Previously
At April 30, 1997 Reported Restated
---------- ----------
Additional paid-in capital $ 125,926 $ 126,163
Retained earnings 41,002 40,765
Previously
For the year ended April 30, 1997 Reported Restated
---------- ----------
Revenue $2,178,566 $2,214,786
Income from continuing operations before
distributions on preferred securities of Trust 35,138 33,951
Net income 29,994 28,807
Earnings per share - diluted 0.69 0.66
Previously
For the year ended April 30, 1996 Reported Restated
---------- ----------
Revenue $1,804,813 $1,884,635
Income from continuing operations before
distributions on preferred securities of Trust 8,053 7,514
Net income 17,247 16,708
Earnings per share - diluted 0.50 0.47
</TABLE>
46
Exhibit 99.2
VANSTAR CORPORATION
<TABLE>
Page*
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 1998
and April 30, 1998 3
Consolidated Statements of Income for the Three and
Six Months Ended October 31, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity for the
Six Months Ended October 31, 1998 5
Consolidated Statements of Cash Flows for the Six
Months Ended October 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
</TABLE>
*Pagination is the same as used in Vanstar Corporation's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1998.
2
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
OCTOBER 31, APRIL 30,
1998 1998
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 11,112 $ 9,476
Receivables, net of allowance for doubtful accounts of
$9,100 at October 31, 1998 and $8,262 at April 30, 1998 289,174 342,752
Inventories 231,726 470,474
Deferred income taxes 17,187 17,387
Prepaid expenses and other current assets 13,914 14,304
----------- -----------
Total current assets 563,113 854,393
Property and equipment, net 51,572 53,303
Other assets, net 63,010 81,272
Goodwill, net of accumulated amortization of $12,750 at October 31,
1998 and $10,113 at April 30, 1998 103,987 106,796
----------- -----------
$ 781,682 $ 1,095,764
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 165,476 $ 290,187
Accrued liabilities 50,399 63,590
Deferred revenue 41,032 21,869
Short-term borrowings 164,644 308,351
Current maturities of long-term debt 4,057 5,800
----------- -----------
Total current liabilities 425,608 689,797
Long-term debt, less current maturities 581 2,337
Other long-term liabilities 1,230 943
Commitments and contingencies
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding solely
convertible subordinated debt securities of the Company 194,915 194,739
Stockholders' equity:
Common stock, $.001 par value: 100,000,000 shares authorized,
43,776,950 shares issued and outstanding at October 31, 1998,
43,489,030 shares issued and outstanding at April 30, 1998 44 43
Additional paid-in capital 134,939 132,940
Retained earnings (since a deficit elimination of $78,448
at April 30, 1994) 27,027 75,339
Accumulated other comprehensive (loss) (2,662) (374)
----------- -----------
Total stockholders' equity 159,348 207,948
----------- -----------
$ 781,682 $ 1,107,183
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Acquisition services $ 481,500 $ 624,899 $1,019,307 $ 1,206,148
Other services 121,895 116,850 239,250 216,235
----------- ----------- ----------- -----------
Total revenue 603,395 741,749 1,258,557 1,422,383
----------- ----------- ----------- -----------
Cost of revenue:
Acquisition services 444,039 566,068 933,461 1,090,713
Other services 70,372 70,027 144,347 133,438
----------- ----------- ----------- -----------
Total cost of revenue 514,411 636,095 1,077,808 1,224,151
----------- ----------- ----------- -----------
Gross margin 88,984 105,654 180,749 198,232
Selling, general and administrative expenses 110,185 79,701 205,086 153,159
Restructuring charges 12,009 -- 12,009 --
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (33,210) 25,953 (36,346) 45,073
Interest income 174 336 296 740
Financing expense, net (7,032) (8,277) (16,846) (14,069)
----------- ----------- ----------- -----------
Income (loss) from operations before income
taxes and distributions on preferred
securities of Trust (40,068) 18,012 (52,896) 31,744
Income tax benefit (provision) 4,424 (6,484) 9,042 (11,428)
----------- ----------- ----------- -----------
Income (loss) from operations before
distributions on preferred securities of
Trust (35,644) 11,528 (43,854) 20,316
Distributions on convertible preferred securities
of Trust, net of income taxes (2,229) (2,228) (4,458) (4,456)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (37,873) $ 9,300 $ (48,312) $ 15,860
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.87) $ 0.22 $ (1.11) $ 0.37
=========== =========== =========== ===========
Diluted $ (0.87) $ 0.21 $ (1.11) $ 0.36
=========== =========== =========== ===========
COMMON SHARES AND EQUIVALENTS OUTSTANDING:
Basic 43,692 43,154 43,604 43,037
=========== =========== =========== ===========
Diluted 43,692 44,530 43,604 44,288
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(unaudited)
<TABLE>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------------ PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1998 43,489 $ 43 $ 132,703 $ 75,576 $ (374) $ 207,948
Comprehensive income (loss):
Net (loss) -- -- -- (48,312) -- (48,312)
Other comprehensive income
(loss) net of income tax:
Unrealized gain (loss) on
available-for-sale securities -- -- -- -- (2,311) (2,311)
Foreign currency translation
adjustment -- -- -- -- 23 23
---------
Other comprehensive income
(loss) (2,288)
---------
Comprehensive income
(loss) (50,600)
Issuance of Common Stock:
Employee stock purchase plan 203 1 1,296 -- -- 1,297
Exercise of stock options,
including tax benefit 85 -- 703 -- -- 703
--------- --------- --------- --------- --------- ---------
Balance at October 31, 1998 43,777 $ 44 $ 134,702 $ 27,264 $ (2,662) $ 159,348
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
SIX MONTHS ENDED
OCTOBER 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (48,312) $ 15,860
Adjustments:
Depreciation and amortization 16,595 11,177
Noncash restructuring and unusual charges 39,053 --
Deferred income taxes 1,500 8,920
Provision for doubtful accounts 2,745 53
Noncash financing expense 123 --
Changes in operating assets and liabilities:
Receivables 58,118 (81,298)
Inventories 231,338 (59,463)
Prepaid expenses and other assets (4,708) (18,856)
Accounts payable (124,535) 47,596
Accrued and other liabilities (11,190) (5,309)
--------- ---------
Total adjustments 209,039 (97,180)
--------- ---------
Net cash provided by (used in) operating activities 160,727 (81,320)
Cash Flows from Investing Activities:
Capital expenditures (12,575) (13,967)
Purchase of business, net of cash acquired -- (32,486)
--------- ---------
Net cash used in investing activities (12,575) (46,453)
Cash Flows from Financing Activities:
Payments on long-term debt (4,576) (7,367)
Borrowings (repayments) under line of credit, net (143,707) 136,220
Issuance of common stock 1,767 3,177
--------- ---------
Net cash (used in) provided by financing activities (146,516) 132,030
--------- ---------
Net increase in cash 1,636 4,257
Cash at beginning of the period 9,476 5,686
--------- ---------
Cash at end of the period $ 11,112 $ 9,943
========= =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 12,520 $ 7,078
Discounts and net expenses on receivables securitization 5,719 5,860
Distributions on preferred securities of Trust 6,792 6,792
Income taxes (refunds), net (510) 4,942
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
(Continued)
<TABLE>
SIX MONTHS ENDED
OCTOBER 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital leases $ 1,127 $ 122
Sysorex purchase:
Fair value of assets acquired $ 85,448
Cash paid, net of cash received (32,486)
--------
Liabilities assumed $ 52,962
========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Reporting
The financial statements for Vanstar Corporation ("Vanstar" or the
"Company") for the three and six months ended October 31, 1998 and October 31,
1997 are unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and Securities and
Exchange Commission regulations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the financial statements
reflect all adjustments (of a normal and recurring nature) which are necessary
for a fair presentation of the financial position, results of operations,
stockholders' equity and cash flows for the interim periods. The results of
operations for the three and six months ended October 31, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal year.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1998. Certain prior period amounts have
been reclassified to conform to the current presentation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. New
Accounting Pronouncements
The Financial Accounting Standards Board has issued Financial
Accounting Standards Board ("FASB") Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, which is applicable for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting information about operating segments in annual and
interim financial statements, although this statement is not required to be
applied to interim financial statements in the initial year of its application.
Therefore, these disclosures will be included for the first time in the
Company's annual financial statements for the year ending April 30, 1999. The
statement defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and in
assessing performance. The statement requires that segment profit or loss,
certain specific revenue and expense items and segment assets be reported, as
well as reconciled to the financial statements.
2. PROPOSED MERGER WITH INACOM
On October 8, 1998, Vanstar Corporation and InaCom Corp., a Delaware
corporation ("InaCom"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"), providing for InaCom to acquire the Company through the
merger of a wholly-owned subsidiary of InaCom with and into the Company. Under
the terms of the Merger Agreement, holders of the Company's common stock, par
value $.001 per share (the "Common Stock"), generally will receive 0.64 shares
of InaCom common stock, par value $.10 per share ("InaCom Common Stock"), in
exchange for each share of the Common Stock held by such person at the time of
consummation of the merger. The transaction, which is subject to regulatory and
stockholder approval, and certain other customary closing conditions, is
expected to close in January of 1999. The merger is intended to qualify as a
pooling of interests for accounting and financial reporting purposes and
generally to be tax-free to the stockholders of both companies for Federal
income tax purposes.
As inducements to enter into the Merger Agreement, (1) InaCom granted
the Company an option to purchase up to 3,336,689 shares of InaCom Common Stock
at an exercise price of $17.375 per share and (2) Vanstar granted
8
<PAGE>
InaCom an option to purchase up to 8,709,623 shares of Common Stock at an
exercise price of $9.125 per share. Each option is exercisable following an
acquisition proposal for the issuing company and the occurrence of certain
further triggering events, none of which has occurred as of the date hereof.
3. EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number
of shares of Common Stock during the period, and diluted earnings per share are
computed using the weighted average number of shares of Common Stock and
dilutive Common Stock equivalents outstanding during the period. Common Stock
equivalents are computed for the Company's outstanding options using the
treasury stock method.
4. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY CONVERTIBLE SUBORDINATED DEBT
SECURITIES OF THE COMPANY
During October 1996, Vanstar Financing Trust, a Delaware statutory
business trust of which the Company owns all of the common trust securities (the
"Trust"), sold 4,025,000 Trust Convertible Preferred Securities ("Preferred
Securities"). The Preferred Securities have a liquidation value of $50 per
security and are convertible at any time at the option of the holder into shares
of Common Stock at a conversion rate of 1.739 shares for each Preferred
Security, subject to adjustment in certain circumstances. Distributions on
Preferred Securities accrue at an annual rate of 6 3/4% of the liquidation value
of $50 per Preferred Security and are included in "Distributions on convertible
preferred securities of Trust, net of income taxes" in the Consolidated
Statements of Income. The proceeds of the private placement, which totaled
approximately $194.4 million (net of initial purchasers' discounts and offering
expenses totaling $6.9 million) are included in "Company-obligated mandatorily
redeemable convertible preferred securities of subsidiary trust holding solely
convertible subordinated debt securities of the Company" on the Consolidated
Balance Sheets. The Company has entered into several contractual arrangements
(the "Back-up Undertakings") for the purpose of fully and unconditionally
supporting the Trust's payment of distributions, redemption payments and
liquidation payments with respect to the Preferred Securities. Considered
together, the Back-up Undertakings constitute a full and unconditional guarantee
by the Company of the Trust's obligations on the Preferred Securities.
The Trust invested the proceeds of the offering in 6 3/4% Convertible
Subordinated Debentures due 2016 (the "Debentures") issued by the Company. The
Debentures bear interest at 6 3/4% per annum generally payable quarterly on
January 1, April 1, July 1 and October 1. The Debentures are redeemable by the
Company, in whole or in part, on or after October 5, 1999 at designated
redemption prices. If the Company redeems the Debentures, the Trust must redeem
on a pro rata basis Preferred Securities having an aggregate liquidation value
equal to the aggregate principal amount of the Debentures redeemed. The sole
asset of the Trust is $207.5 million aggregate principal amount of the
Debentures. The Debentures and related income statement effects are eliminated
in the Company's consolidated financial statements.
5. SALE OF ACCOUNTS RECEIVABLE
Effective December 20, 1996, the Company, through a non-consolidated
wholly-owned special purpose corporation, established a revolving funding trade
receivables securitization facility (the "Securitization Facility"), which
currently provides the Company with up to $175 million in available credit. In
connection with the Securitization Facility, the Company sells, on a revolving
basis, certain of its trade receivables ("Pooled Receivables") to the special
purpose corporation, which in turn sells a percentage ownership interest in the
Pooled Receivables to a commercial paper conduit sponsored by a financial
institution. These transactions have been recorded as a sale in accordance with
FASB Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. The amount of the Pooled Receivables,
which totaled $321.5 million at October 31, 1998, is reflected as a reduction to
receivables. The Company retains an interest in certain amounts of the assets
sold. At October 31, 1998, the amount of that retained interest totaled $161.2
million and is included in receivables. The Company is retained as servicer of
the Pooled Receivables. Although management believes that the servicing revenues
earned will be adequate compensation for performing the services, estimating the
fair value of the servicing asset was not considered practicable. Consequently,
a servicing asset has not been
9
<PAGE>
recognized in the Consolidated Balance Sheets. The gross proceeds resulting from
the sale of the percentage ownership interests in the Pooled Receivables totaled
$170 million as of October 31, 1998. Such proceeds are included in cash flows
from operating activities in the Consolidated Statements of Cash Flows.
Discounts and net expenses associated with the sales of the receivables totaling
$2.7 million, $5.8 million, $3.1 million and $5.9 million are included in
Financing expenses, net on the Consolidated Statements of Income for the three
and six months ended October 31, 1998 and 1997, respectively.
6. FINANCING EXPENSES, NET
Financing expenses, net includes interest incurred on borrowings under
the Company's financing agreement with IBM Credit Corporation ("IBMCC") and
discounts and net expenses associated with the Securitization Facility.
7. ACQUISITIONS
On July 7, 1997, the Company acquired certain assets and assumed
certain liabilities of Sysorex Information Systems, Inc. ("Sysorex"), a
government technology provider. The purchase price was approximately $54.5
million, and a contingent payment of 500,000 shares of the Company's common
stock based on the financial performance of the acquired business for the period
from July 8, 1997 through April 30, 1999. Based on the financial performance of
the acquired business through October 31, 1998, it is unlikely that the Company
will make the payment of contingent shares. The Sysorex acquisition was
accounted for as a purchase and the excess of the cost over the fair value of
net assets acquired is being amortized on a straight line basis over 20 years.
8. COMMITMENTS AND CONTINGENCIES
On July 3, 1997, a trust claiming to have purchased shares of the
Common Stock filed suit in Superior Court of the State of California. The suit
is entitled David T. O'Neal Trust, Dated 4/1/77, v. Vanstar Corporation, et al.,
Consolidated Case No. CV767266. On January 21, 1998, the same plaintiff, along
with another plaintiff claiming to have purchased shares of Common Stock, filed
suit in the United States District Court for the Northern District of
California, making allegations virtually identical to those in the earlier suit.
The recent suit is captioned David T. O'Neal Trust, Dated 4/1/77, et al. v.
Vanstar Corporation, et al., Case No. C-98-0216 MJJ. Both suits named as
defendants the Company, certain directors and officers of the Company, and the
Company's principal stockholder, Warburg Pincus Capital Co., L.P., and certain
of its affiliates. The complaints in both suits generally allege, among other
things, that the defendants made false or misleading statements or concealed
information regarding the Company and that the plaintiffs, as holders of the
Common Stock, suffered damage as a result.
The plaintiffs in both suits seek class action status, purporting to
represent a class of purchasers of Common Stock between March 11, 1996 and March
14, 1997, and seek damages in an unspecified amount, together with other relief.
The complaint in the first suit purports to state a cause of action under
California law; the complaint in the recent suit purports to state two causes of
action under the Securities Exchange Act of 1934. On July 23, 1998, the
California Superior Court dismissed the state court complaint as to certain
individual defendants. The plaintiffs subsequently have agreed to dismiss the
state court complaint as to all remaining defendants other than the Company and
Richard Bard, a director of the Company. The Company believes that the
plaintiffs' allegations in both suits are without merit and intends to defend
the suits vigorously.
Various legal actions arising in the normal course of business have
been brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of these actions will not have a material
adverse effect on the Company's financial position or results of operations,
taken as a whole.
10
<PAGE>
9. RESTRUCTURING AND UNUSUAL CHARGES
In August 1998, Vanstar announced a program to reduce expenses in line
with expected revenue and industry dynamics. The program included both items
that qualify as restructuring costs as defined by Emerging Issues Task Force
94-3 and other unusual charges. This program to reduce expenses included a
reduction in workforce and elimination of some of its facilities through
consolidation during the second quarter in accordance with approved management
plans. The Company also wrote-off equipment and systems associated with the
support of certain finance functions that were affected by the realignment of
the business into two operating units and the reduction of workforce. In
addition, the Company wrote-off redundant equipment and systems associated with
the centralized service dispatch and scheduling functions. The Company also
liquidated excess spare parts due to the centralization of its spare parts
management and the outsourcing of a substantial portion of its spare parts
procurement and repair to a single vendor.
Restructuring Charges
Restructuring charges include the cost of facility closures and
consolidations, involuntary employee separation benefits and related costs
associated with business realignment and restructuring actions in accordance
with approved management plans. Facility closure costs of $6.0 million include
future lease payments, costs to abandon or dispose of property and equipment and
capitalized software, net of estimates of sublease revenues and disposal values.
Employee separation benefits of $3.0 million include severance, medical and
other benefits for approximately 250 permanent full-time employees. Reductions
occurred in virtually all areas of the Company. Business realignment costs
relate to the decision to exit the discrete training business as the Company
focuses on its core competencies as part of the realignment of the Company into
two distinct operating units, contract termination costs and other related costs
and are $3.0 million. In connection with the restructuring, the Company recorded
restructuring reserves of approximately $7.4 million, of which $4.1 has been
paid through October 31, 1998. The remaining liability of $3.3 million primarily
relates to the future lease obligations, net of estimates of sublease income.
Unusual Charges
Unusual charges not qualifying as restructuring are reflected in
selling, general and administrative expenses and cost of revenue and consist
primarily of the write-off of certain equipment and capitalized software, costs
to liquidate excess spare parts and inventory adjustments. Capitalized software
and lease costs of $9.0 million include the write-off of systems associated with
the centralized dispatch and scheduling functions and obsolete hardware and
software due to the upgrade of call technology implemented by the Company. The
Company also liquidated excess spare parts due to the centralization of its
spare parts management and the outsourcing of a substantial portion of its spare
parts procurement and repair to a single vendor, resulting in a net charge of
$16.5 million. Inventory adjustments of $5.4 million include costs associated
with the early return of certain inventory items to a major vendor in an effort
to reduce interest expense and additional inventory reserves to record inventory
at lower of cost or market due to the reduced price protection available from
major vendors as part of the supply chain reengineering. Other items of $2.4
million consist primarily of the incentive pay to retain certain employees
during the restructuring activities and costs associated with the termination of
certain marketing commitments.
As the Company implements its strategic plan to respond to current
industry dynamics, there can be no assurance that additional restructuring
actions will not be required. In addition, there can be no assurance that the
estimated costs of the restructuring program will not change.
11
<PAGE>
10. COMPREHENSIVE INCOME
Effective for the quarter ended July 31, 1998, the Company adopted FASB
Statement No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes standards for the reporting and display of comprehensive income
in a full set of general purpose financial statements, however, the adoption of
this statement has no impact on the Company's net income or stockholders'
equity. Comprehensive income includes net income plus items that, under
generally accepted accounting principles, are excluded from net income and are
reflected as a component of equity, such as currency translation adjustments and
unrealized gains and losses on available-for-sale securities. Statement 130 also
requires the accumulated balance of other comprehensive income to be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the statement of financial position. Prior period financial
statements have been reclassified to conform to the requirements of Statement
130.
The components of comprehensive income, net of related tax, for the
three and six months periods ended October 31, 1998 and 1997 are as follows (in
thousands):
<TABLE>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(37,873) $ 9,300 $(48,312) $ 15,860
Unrealized (losses) on securities (1,997) (2,027) (2,311) (2,864)
Foreign currency translation adjustment -- -- 23 --
-------- -------- -------- --------
Comprehensive income (loss) $(39,870) $ 7,273 $(50,600) $ 12,996
======== ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income, net of
related tax, at October 31, 1998 and April 30, 1998 are as follows (in
thousands):
<TABLE>
October 31, April 30,
1998 1998
----------- -----------
<S> <C> <C>
Unrealized (losses) on securities $ (2,518) $ (207)
Foreign currency translation adjustments (144) (167)
---------- ----------
Accumulated comprehensive (loss) $ (2,662) $ (374)
========== ==========
</TABLE>
12
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of InaCom Corp. ("InaCom") and
Vanstar Corporation ("Vanstar") and give effect to the merger as a pooling of
interests. The unaudited pro forma combined statements of operations for the
first nine months of fiscal years 1998 and 1997 and for fiscal years ended
December 1997, 1996 and 1995 assume that the merger had been consummated as of
the beginning of the earliest period presented. The unaudited pro forma combined
balance sheet data assume that the merger, whereby Vanstar became a wholly-owned
subsidiary of InaCom, had been consummated on September 26, 1998, with respect
to InaCom and October 31, 1998 with respect to Vanstar. InaCom's fiscal years
ended on December 27, 1997, December 28, 1996 and December 30, 1995; Vanstar's
fiscal years ended on April 30, 1998, 1997 and 1996. InaCom's financial
reporting period will be adopted by the combined entity. For purposes of the
Unaudited Pro Forma Combined Statements of Operations, Vanstar's fiscal year end
has been adjusted to conform with Regulation S-X of the Securities and Exchange
Commission. For purposes of presenting unaudited pro forma combined financial
statements, Vanstar's fiscal year end has been adjusted to January 31 by
including the reported financial statements for the quarter ended January 31 and
the three previous quarters ended October 31, July 31 and April 30 . Vanstar's
nine month financial statements have been adjusted to include reported financial
data for quarters ended October 31, July 31 and April 30. The unaudited pro
forma adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that the managements of InaCom and Vanstar
believe are reasonable.
As a result of the merger, all amounts outstanding under InaCom's and
Vanstar's credit facilities and trade receivables financing facilities become
immediately due and payable. Prior to the consummation of the merger, Vanstar or
InaCom received written waivers from the parties to those agreements. Also as a
result of the merger, InaCom will be required to give a notice to the holders of
$141.5 million of convertible subordinated debentures that a holder can require
InaCom to repurchase such holder's debentures at 100% of the principal amount
plus accrued and unpaid interest. The holders may only exercise such repurchase
option during the 30-day period following the date of the notice.
The unaudited pro forma financial statements are not necessarily
indicative of actual or future financial position or results of operations that
would have or will occur upon consummation of the merger, and should be read in
conjunction with the audited and unaudited historical consolidated financial
statements, including the notes thereto, of InaCom and Vanstar.
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 26, 1998 OCTOBER 31, 1998 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products........................ $ 2,850,513 $ 1,604,557 $ -- $ 4,455,070
Computer services........................ 254,840 367,055 -- 621,895
Communications products and services..... 96,057 -- -- 96,057
------------------ ------------------ ----------- ------------
3,201,410 1,971,612 -- 5,173,022
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,698,304 1,459,699 -- 4,158,003
Computer services........................ 151,985 221,218 -- 373,203
Communications products and services..... 78,291 -- -- 78,291
------------------ ------------------ ----------- ------------
2,928,580 1,680,917 -- 4,609,497
------------------ ------------------ ----------- ------------
Gross margin............................... 272,830 290,695 -- 563,525
Selling, general and administrative
expenses................................. 192,911 287,367 -- 480,278
Restructuring charges...................... -- 12,009 -- 12,009
------------------ ------------------ ----------- ------------
Operating income (loss).................... 79,919 (8,681) -- 71,238
Financing expense, net..................... 25,685 25,685 -- 51,370
------------------ ------------------ ----------- ------------
Earnings (loss) before income taxes........ 54,234 (34,366) -- 19,868
Income tax expense (benefit)............... 22,308 (2,370) -- 19,938
------------------ ------------------ ----------- ------------
Income (loss) before distributions on
preferred securities of Trust............ 31,926 (31,996) -- (70)
Distributions on convertible preferred
securities............................... -- 6,686 -- 6,686
------------------ ------------------ ----------- ------------
Net earnings (loss)........................ $ 31,926 $ (38,682) $ -- $ (6,756)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings (loss) per share:
Basic.................................... $ 2.02 $ (0.89) $ -- $ (0.15)
Diluted.................................. $ 1.71 $ (0.89) $ -- $ (0.15)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 15,800 43,519 (15,619)(6) 43,700
Diluted.................................. 20,500 43,519 (20,319)(6) 43,700
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
2
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 27, 1997 OCTOBER 31, 1997 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products........................ $ 2,579,066 $ 1,663,804 $ -- $ 4,242,870
Computer services........................ 173,872 306,780 -- 480,652
Communications products and services..... 74,300 -- -- 74,300
------------------ ------------------ ----------- ------------
2,827,238 1,970,584 -- 4,797,822
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,436,639 1,502,623 -- 3,939,262
Computer services........................ 96,783 191,836 -- 288,619
Communications products and services..... 57,819 -- -- 57,819
------------------ ------------------ ----------- ------------
2,591,241 1,694,459 -- 4,285,700
------------------ ------------------ ----------- ------------
Gross margin............................... 235,997 276,125 -- 512,122
Selling, general and administrative
expenses................................. 181,822 222,119 -- 403,941
------------------ ------------------ ----------- ------------
Operating income........................... 54,175 54,006 -- 108,181
Financing expense, net..................... 21,673 16,230 -- 37,903
------------------ ------------------ ----------- ------------
Earnings before income taxes............... 32,502 37,776 -- 70,278
Income tax expense......................... 13,319 13,600 -- 26,919
------------------ ------------------ ----------- ------------
Income before distributions on preferred
securities of Trust...................... 19,183 24,176 -- 43,359
Distribution on convertible preferred
securities............................... -- 6,684 -- 6,684
------------------ ------------------ ----------- ------------
Net earnings............................... $ 19,183 $ 17,492 $ -- $ 36,675
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings per share:
Basic.................................... $ 1.68 $ 0.41 $ -- $ 0.94
Diluted.................................. $ 1.49 $ 0.40 $ -- $ 0.90
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 11,400 42,949 (15,449)(6) 38,900
Diluted.................................. 13,900 44,147 (15,847)(6) 42,200
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
3
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 27, JAN. 31, -------------------------
1997 1998 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products.................................... $3,547,732 $2,239,410 $ -- $ 5,787,142
Computer services.................................... 247,243 434,538 -- 681,781
Communications products and services................. 101,327 -- -- 101,327
------------ ------------ ----------- ------------
3,896,302 2,673,948 -- 6,570,250
------------ ------------ ----------- ------------
Direct costs:
Computer products.................................... 3,354,786 2,022,068 -- 5,376,854
Computer services.................................... 133,432 269,249 -- 402,681
Communications products and services................. 79,092 -- -- 79,092
------------ ------------ ----------- ------------
3,567,310 2,291,317 -- 5,858,627
------------ ------------ ----------- ------------
Gross margin........................................... 328,992 382,631 -- 711,623
Selling, general and administrative expenses........... 250,097 299,981 -- 550,078
------------ ------------ ----------- ------------
Operating income....................................... 78,895 82,650 -- 161,545
Financing expense, net................................. 29,024 25,053 -- 54,077
------------ ------------ ----------- ------------
Earnings before income taxes........................... 49,871 57,597 -- 107,468
Income tax expense..................................... 20,415 20,736 -- 41,151
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust................................................ 29,456 36,861 -- 66,317
Distributions on convertible preferred securities...... -- 8,912 -- 8,912
------------ ------------ ----------- ------------
Net earnings........................................... $ 29,456 $ 27,949 $ -- $ 57,405
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic................................................ $ 2.48 $ 0.65 $ -- $ 1.46
Diluted.............................................. $ 2.17 $ 0.63 $ -- $ 1.39
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic................................................ 11,900 43,027 (15,527)(6) 39,400
Diluted.............................................. 14,600 44,240 (15,940)(6) 42,900
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
4
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 28, JAN. 31, -------------------------
1996 1997 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products................................... $2,885,019 $ 1,849,151 $ -- $ 4,734,170
Computer services................................... 136,888 329,426 -- 466,314
Communications products and services................ 80,148 -- -- 80,148
------------ ------------ ----------- ------------
3,102,055 2,178,577 -- 5,280,632
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 2,722,368 1,666,565 -- 4,388,933
Computer services................................... 76,243 196,606 -- 272,849
Communications products and services................ 62,668 -- -- 62,668
------------ ------------ ----------- ------------
2,861,279 1,863,171 -- 4,724,450
------------ ------------ ----------- ------------
Gross margin.......................................... 240,776 315,406 -- 556,182
Selling, general and administrative expenses.......... 188,652 223,807 -- 412,459
------------ ------------ ----------- ------------
Operating income...................................... 52,124 91,599 -- 143,723
Financing expense, net................................ 20,405 18,597 -- 39,002
------------ ------------ ----------- ------------
Earnings before income taxes.......................... 31,719 73,002 -- 104,721
Income tax expense.................................... 12,986 26,493 -- 39,479
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust............................................... 18,733 46,509 -- 65,242
Distributions on convertible preferred securities..... -- 2,916 -- 2,916
------------ ------------ ----------- ------------
Net earnings.......................................... $ 18,733 $ 43,593 $ -- $ 62,326
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic............................................... $ 1.80 $ 1.06 $ -- $ 1.70
Diluted............................................. $ 1.66 $ 1.02 $ -- $ 1.62
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,400 40,970 (14,770)(6) 36,600
Diluted............................................. 11,900 42,573 (15,373)(6) 39,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
5
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 30, JAN. 31, -------------------------
1995 1996 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products................................... $2,047,215 $ 1,541,241 $ -- $ 3,588,456
Computer services................................... 95,476 237,371 -- 332,847
Communications products and services................ 57,653 -- -- 57,653
------------ ------------ ----------- ------------
2,200,344 1,778,612 -- 3,978,956
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 1,924,829 1,397,095 -- 3,321,924
Computer services................................... 27,877 131,830 -- 159,707
Communications products and services................ 43,832 -- -- 43,832
------------ ------------ ----------- ------------
1,996,538 1,528,925 -- 3,525,463
------------ ------------ ----------- ------------
Gross margin.......................................... 203,806 249,687 -- 453,493
Selling, general and administrative expenses.......... 169,338 230,105 -- 399,443
------------ ------------ ----------- ------------
Operating income...................................... 34,468 19,582 -- 54,050
Financing expense, net................................ 14,635 32,592 -- 47,227
------------ ------------ ----------- ------------
Earnings (loss) before income taxes................... 19,833 (13,010) -- 6,823
Income tax expense (benefit).......................... 8,126 (4,872) -- 3,254
------------ ------------ ----------- ------------
Income (loss) from continuing operations.............. 11,707 (8,138) -- 3,569
Gain on disposal of discontinued businesses........... -- 9,194 -- 9,194
------------ ------------ ----------- ------------
Net earnings.......................................... $ 11,707 $ 1,056 $ -- $ 12,763
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings (loss) per share:
Basic
Continuing Operations............................. $ 1.17 $ (0.25) $ -- $ 0.12
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.17 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Diluted
Continuing Operations............................. $ 1.16 $ (0.25) $ -- $ 0.11
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.16 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,000 32,503 (11,703)(6) 30,800
Diluted............................................. 10,100 32,828 (11,828)(6) 31,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
6
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
INACOM VANSTAR PRO FORMA
SEPT. 26, OCT. 31, -------------------------
1998 1998 ADJUSTMENTS COMBINED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 30,271 $ 11,112 $ -- $ 41,383
Accounts receivable, net........................... 424,429 289,174 -- 713,603
Inventories........................................ 336,205 231,726 -- 567,931
Other current assets............................... 22,408 31,101 34,580(2) 88,089
------------- ------------ ----------- ------------
Total current assets............................. 813,313 563,113 34,580 1,411,006
------------- ------------ ----------- ------------
Other assets, net.................................... 36,492 63,010 (4,400)(2) 95,102
Cost in excess of net assets of businesses acquired,
net of accumulated amortization.................... 214,258 103,987 -- 318,245
Property and equipment, net.......................... 94,583 51,572 (8,000)(2) 138,155
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 399,809 $ 165,476 $ -- $ 565,285
Short-term borrowings and current maturities of
long-term debt................................... 105,000 168,701 141,500(4) 415,201
Deferred revenue................................... -- 41,032 -- 41,032
Other current liabilities.......................... 94,150 50,399 117,000(2) 261,549
------------- ------------ ----------- ------------
Total current liabilities........................ 598,959 425,608 258,500 1,283,067
------------- ------------ ----------- ------------
Convertible subordinated debentures and
long-term debt, less current maturities............ 141,500 581 (141,500)(4) 581
Other long-term liabilities.......................... 3,986 1,230 -- 5,216
Vanstar-obligated mandatorily redeemable convertible
preferred securities of subsidiary Trust holding
solely convertible subordinated debt securities of
Vanstar............................................ -- 194,915 -- 194,915
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value, Authorized
1,000,000 shares; none issued.................... -- -- -- --
Common Stock......................................... 1,677 44 -- 1,721
Additional paid-in capital........................... 274,866 134,939 -- 409,805
Retained earnings.................................... 138,989 27,027 (94,820)(2) 71,196
Accumulated other comprehensive loss................. -- (2,662) -- (2,662)
------------- ------------ ----------- ------------
415,532 159,348 (94,820) 480,060
Less unearned restricted stock....................... (1,331) -- -- (1,331)
------------- ------------ ----------- ------------
Total stockholders' equity....................... 414,201 159,348 (94,820) 478,729
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 8.
7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
On October 8, 1998, InaCom, Vanstar and a wholly owned subsidiary of
InaCom entered into the agreement providing for the merger which was consummated
on February 17, 1999 with the result that Vanstar became a wholly-owned
subsidiary of InaCom. As a result of the merger, each of the then outstanding
shares of Vanstar common stock was converted into the right to receive .64
shares of InaCom common stock.
The unaudited pro forma combined financial statements have been
prepared assuming that the merger will be accounted for under the "pooling of
interests" method of accounting. Under this method of accounting, the assets and
liabilities of InaCom and Vanstar will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
InaCom and Vanstar for the entire fiscal period in which the combination occurs
and the historical results of operations of the separate companies for fiscal
years prior to the merger will be combined and reported as the results of
operations of the combined company.
InaCom's fiscal years ended on December 27, 1997, December 28, 1996 and
December 30, 1995; Vanstar's fiscal year ended on April 30, 1998, 1997 and 1996.
InaCom's financial reporting period will be adopted by the combined entity. For
purposes of the Unaudited Pro Forma Combined Condensed Statements of Operations,
Vanstar's fiscal year end has been adjusted to conform with Regulation S-X. For
purposes of presenting unaudited pro forma combined financial data, Vanstar's
fiscal year end has been adjusted to January 31 by including the reported
financial data for the quarter ending January 31 and the three previous quarters
ending October 31, July 31 and April 30. Vanstar's nine month financial data has
been adjusted to include reported financial data for quarters ending October 31,
July 31 and April 30. The Unaudited Pro Forma Combined Condensed Balance Sheet
assumes that the merger had been consummated as of September 26, 1998 with
respect to InaCom and October 31, 1998 with respect to Vanstar.
NOTE 2 - ADJUSTMENTS TO RECORD MERGER-RELATED CHARGES
InaCom expects to record a material pre-tax charge following
consummation of the merger to cover (1) the direct costs of the merger
(including the fees of financial advisors, legal counsel, and independent
auditors), (2) the cost of integrating certain aspects of the businesses of
InaCom and Vanstar, (3) the cost of canceling certain purchase commitments, (4)
the costs of employee terminations and facility expenses to eliminate
duplicative functions and locations, and (5) other merger related items. This
pre-tax charge is estimated to be in the range of $120 to $155 million. The
after-tax impact of this charge is estimated to be in the range of $83 to $107
million, and the midpoint of this range has been charged to Retained Earnings in
the foregoing Unaudited Pro Forma Combined Condensed Balance Sheet. The
estimated charges and nature of the costs included therein as well as the
periods in which these costs are recorded are subject to change as InaCom's
integration plan is more fully developed and more accurate estimates become
available.
<PAGE>
NOTE 3 - COMBINED COMPANY ALIGNMENT AND RESTRUCTURING CHARGES
In connection with the implementation of the merger, InaCom expects to
continue an assessment and study of assets and resources required to carry out
business objectives and plans. In addition to the merger-related charges
described in Note 2, following the closing InaCom expects to incur costs to
align the combined company operations to meet the changing conditions of the
industry, principally the evolution of a "build-to-order" model. These actions
could lead to additional costs from the combined company's efforts to reduce
inventory levels due to changes in vendor and customer programs. The additional
costs related to the integration and alignment of the combined company are
preliminarily estimated to be from $40 to $80 million, on a pre-tax basis. These
amounts and the nature of the costs included therein as well as the period in
which these costs are recorded cannot be determined until InaCom's integration
plans are more fully developed and implemented and more accurate estimates
become available. These additional pre-tax charges are not reflected in the
unaudited pro forma financial statements included herein.
Not included in the merger-related charges described in Note 2 and the
preliminary estimate of costs related to the integration and alignment of the
combined company stated above, are the restructuring and unusual pre-tax charges
of $45.3 million that Vanstar included in its second quarter ended October 31,
1998. These additional pre-tax charges are included in the unaudited pro forma
financial statements included herein.
NOTE 4 - CHANGE IN CONTROL
Upon the consummation of the merger, InaCom underwent a change in
control, the impact of which is reflected in the foregoing Unaudited Pro Forma
Combined Condensed Balance Sheet. The item impacted by this change in control is
the convertible subordinated debentures.
InaCom has outstanding $55,250,000 in aggregate principal amount of its
6% convertible subordinated debentures due June 15, 2006 and $86,250,000 in
aggregate principal amount of its 4.5% convertible subordinated debentures due
November 1, 2004. Upon consummation of the merger, each holder of these
debentures can require InaCom to repurchase such holder's debentures at 100% of
the principal amount thereof, plus accrued and unpaid interest. Moreover, with
respect to the 4.5% debentures, unless InaCom has repaid all senior indebtedness
on or before the repurchase date, InaCom must pay the repurchase price in InaCom
common stock valued at 95% of the average of the closing prices of InaCom common
stock for the five consecutive trading days ending on the third trading day
preceding the repurchase date.
NOTE 5 - INCOME TAXES
Estimated provision for income taxes related to pro forma adjustments
are based on an assumed combined federal and state income tax rate of
approximately 38%, adjusted for certain nondeductible items.
<PAGE>
NOTE 6 - EARNINGS (LOSS) PER COMMON SHARE
The pro forma combined per common share data has been computed based on
the combined historical income from operations and on the combined historical
weighted average common shares and equivalents outstanding. For purposes of this
calculation, Vanstar's weighted average common shares and common equivalents
outstanding were multiplied by .64, the exchange ratio.
