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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 0-19058
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PLATINUM technology International, inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3509662
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1815 South Meyers Road, Oakbrook Terrace, Illinois 60181
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (630) 620-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class) (Title of Class) (Title of Class)
Common Stock, par Preferred Stock Purchase Rights
value $.001 per 6 3/4% Convertible
share Subordinated Notes due 2001
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ^[ ]
As of March 23, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant (based upon the per share
closing sale price of $9 13/16 on March 23, 1999, and for the purpose of this
calculation only, the assumption that the registrant's directors and executive
officers are affiliates) was approximately $830,590,219.
The number of shares outstanding of the registrant's Common Stock as of
March 23, 1999 was 87,467,016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement in connection with its
1999 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
The discussion below contains certain forward-looking statements [as such
term is defined in Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")] that are based on the beliefs of the management
of PLATINUM technology International, inc. and its subsidiaries (collectively,
the "Company" or "PLATINUM"), as well as assumptions made by, and information
currently available to, the Company's management. The Company's actual growth,
results, performance and business prospects and opportunities in 1999 and
beyond could differ materially from those expressed in, or implied by, such
forward-looking statements. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Special Note Regarding
Forward-Looking Statements" on page 33 for a discussion of risks, uncertainties
and other factors that could cause or contribute to such material differences.
Company Overview
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
information technology ("IT") infrastructures, which consist of all the data,
systems and applications that are used to run businesses. The Company's
products and services help IT departments, primarily in large and data
intensive organizations, minimize risk, improve service levels, and leverage
information to make better business decisions. The Company's products typically
perform fundamental functions, such as automating operations, maintaining the
operating efficiency of systems and applications, and ensuring data access and
integrity. They help organizations operate and manage large, complex,
distributed environments containing multiple computing platforms, database
management systems, applications, and operating systems that span mainframe,
midrange, and PC/LAN computing environments, including MVS, UNIX, Windows, and
Windows NT. The Company's products also support multiple database management
systems, such as the DB2 family, Oracle, Sybase, Microsoft SQL Server, UDB, and
Informix. In addition, the Company's products provide support for packaged
applications such as SAP, PeopleSoft, Baan, and Oracle Financials.
Market Overview
Companies today rely on their IT infrastructures to keep their businesses
operating efficiently. As organizations have moved from host-based computing
systems to open systems environments, the deployment, management, maintenance
and productive use of IT has become increasingly complex. These open computing
environments service numerous end-users spread across various locations and
consist of a diverse set of applications, computing platforms (including
mainframes, minicomputers, workstations and desktop PCs/LANs), relational
database management systems ("RDBMSs"), operating systems (including UNIX,
Windows, Windows NT, and MVS) and media, including intranets and the Internet.
These open environments are also dynamic; users, as well as hardware and
software resources, are frequently added, removed or changed; and new, mission-
critical applications are continually being developed and deployed. The Company
believes that, due to the complexities of these new computing environments,
organizations are increasingly seeking to purchase IT management products and
services from a smaller number of vendors that can provide complete, flexible
and integrated solutions for managing and improving the IT infrastructures that
run their businesses.
Company Structure
The Company's 1998 structure consisted of four business units focused on
product development and marketing and the Global Consulting Organization, a
business unit focused on providing consulting and education services worldwide.
The Company's four product business units were Database Management, Systems
Management, Application Infrastructure Management, and Data Warehousing and
Decision Support.
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In the first quarter of 1999, the Company replaced its existing product
business units with two core business units: Enterprise Management and
Application Lifecycle & Knowledge Management. The Company's Database Management
and Systems Management business units were merged to create the new Enterprise
Management business unit, which focuses on three key product lines: DB2
solutions, PLATINUM ProVision, and Security. The Company's Application
Infrastructure Management, and Data Warehousing and Decision Support business
units were merged to create the new Application Lifecycle & Knowledge
Management business unit, which focuses on three key product lines: ADvantage,
End-to-End Data Warehousing, and TransCentury. The Company's Internet Commerce
division is currently being folded into its Application Lifecycle & Knowledge
Management business unit.
The Company consolidated its offerings into these two business units in
order to capitalize on its strengths and align more closely with customer
needs. This new structure is designed to better enable the Company to address
the two critical factors facing companies today: driving operational efficiency
by ensuring high-performance and availability of the systems that run the
business day in and day out (Enterprise Management); and driving the business
forward by delivering new applications and leveraging information (Application
Lifecycle & Knowledge Management).
See Note 17 of the Notes to Consolidated Financial Statements included
elsewhere herein for further information regarding the Company's segment and
geographic information.
Product Strategy
The Company is focused on delivering products and services that offer
customers maximum flexibility and functionality, while addressing the
increasing demand for simplified vendor relationships by building complete
solutions to IT problems. Through a combination of an aggressive acquisition
program and vigorous internal product development efforts, the Company
assembled the core competencies needed to create complete infrastructure
management solutions. Devoting substantial resources to integrating its
products and technologies, the Company is now leveraging the breadth of its
product lines and its professional services capabilities to provide complete,
customized solutions for IT infrastructure problems. These solutions include
product suites, which are sets of integrated products drawn together from
multiple product lines of the Company; point (stand-alone) products; and
product bundles, which are sets of software tools that are packaged together
but do not necessarily have the level of integration that defines a suite. The
Company also offers a wide array of professional services, including
consulting, systems integration, and educational and certification programs,
both in conjunction with and independent of software product sales.
The Company's product suites provide complete solutions to companies' IT
infrastructure problems, eliminating the need for them to license single
products from many different vendors. The Company's products are designed to
permit a customer to either purchase prepackaged integrated suites or to choose
individual products and later add other products as needed. The cornerstone of
the Company's integration efforts is a set of shared components that give the
Company's products a common look and feel, common installation and
distribution, and common communication, data and events handling. Integration
components are built into individual products so that, as customers purchase
additional Company products, the newly acquired and previously installed
products can begin working together immediately.
These integrated product offerings allow businesses to experience
comprehensive benefits without having to deal with multiple products or
multiple vendors. The Company has designed product suites that address IT
infrastructure problems that are shared by businesses from various industries,
as well as product suites that target IT infrastructure problems that are
unique to specific industries. For example, in early 1998, the Company began
shipping its ProVision suite of integrated tools for enterprise management,
which is the Company's most significant integrated offering of products to
date. ProVision enables companies to manage applications, databases, networks,
servers, and the Internet in an integrated fashion, providing capabilities for
job management, performance management and analysis, database administration,
database backup and recovery, security, and software distribution.
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The Company is also creating solutions for the needs of specific industries,
as well as general business needs. For example, during 1996, the Company
released PLATINUM RiskAdvisor, a data warehouse decision support application
developed specifically for the insurance industry. The Company is also enabling
its products and suites for application with Enterprise Resource Planning
(ERP), E-Commerce, and Internet/intranet/web and offers a broad set of
solutions for the Year 2000 problem. Additionally, in late 1996, the Company
formed specialty consulting practice groups within its professional services
business unit, including groups dedicated to Year 2000 solutions and
Internet/intranet technologies.
Evidencing the increasing demand from the Company's customers for these
comprehensive solutions, the Company completed 147 transactions of over $1
million during 1998, as compared to 102 such transactions during 1997 and 55
such transactions during 1996. Each of these large transactions included
licenses for software product suites or bundles, along with future upgrades and
maintenance; software consulting services; or both product licenses and related
consulting services.
Business Units and Product Lines
The Company currently develops and markets software products through its two
business units: Enterprise Management and Application Lifecycle & Knowledge
Management.
Enterprise Management
The Company has merged its Database Management and Systems Management
business units to create the new Enterprise Management business unit, which is
focused on three key product lines: DB2 solutions, PLATINUM ProVision, and
Security. This new structure consolidates the Company's ProVision product
development and marketing efforts, which is expected to accelerate product
delivery and streamline interaction and support for the sales organization.
DB2 Product Line
The Company provides a leading set of tools and utilities for DB2 database
management, including backup and recovery, database administration, database
design, and performance analysis. By automating administrative and maintenance
tasks, these software solutions enable users to achieve the highest performance
levels possible, increase data availability, automate arduous administrative
tasks while eliminating human error, and deliver new products or enhancements
to end-users faster and with more flexibility. Principal DB2 product sets
include the following:
. PLATINUM Catalog Facility (PCF)--a complete set of tools that automates
and streamlines the DBA's day-to-day tasks, reducing human error while
keeping complete control of the database environment in the DBA's hands.
PCF enables DBAs to automate DB2 object and data migrations; incorporate
changes from DB2 test environments into production environments; manage
the physical structure of databases; and manage DB2 security privileges.
. Performance Analyzers--a complete set of tools that companies can rely on
for start-to-finish performance analysis of their DB2 applications and
systems. Capabilities include advanced analysis for monitoring and
maintaining efficient SQL; analysis of DB2 subsystem performance and
resource use; and database monitoring, analysis, forecasting, and tuning.
. DB2 Fast Utilities--a complete set of utilities that enable DBAs to
perform routine tasks substantially faster than can be done with native
DB2 utilities. These tools maximize data availability to increase system
performance and provide substantial savings in system resources, such as
CPU and disk space.
ProVision Product Line
The Company offers a modular, integrated suite of tools for enterprise
management that enables companies to streamline management of applications,
databases, networks, and servers. ProVision enables
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companies to reduce the costs and risks associated with managing their IT
infrastructures, while improving service levels, availability, and
productivity. ProVision's management disciplines include job management,
performance management and analysis, database administration, database backup
and recovery, security, and software distribution. Because integration is built
into each ProVision tool, organizations can implement one or more tools, and
add more tools as needed, to solve their most immediate IT problems. ProVision
began shipping in early 1998. Principal ProVision disciplines include the
following:
. Automated Operations--tools that simplify management and monitoring of
multiple jobs in distributed environments, providing centralized control
of job execution across heterogeneous platforms and flexible features,
such as self-correcting job control and automated restart and recovery
capabilities.
. Enterprise Performance Management--tools for monitoring, managing, and
improving the performance of applications, databases, networks, servers,
and the Internet. These tools enable organizations to proactively
increase system availability, reduce downtime, and improve service levels
enterprise-wide.
. Open Systems Database Utilities--utilities for open systems databases
(e.g., Oracle, Sybase, Microsoft SQL Server, and Informix) that
accelerate routine database maintenance tasks, such as loads and database
reorganizations, quick extraction of data from databases, and
optimization of database structures.
Security Product Line
The Company offers AutoSecure, a complete portfolio of security products
that helps organizations manage risk within their IT infrastructures,
addressing all aspects of the IT environment that need to be protected,
including networks, servers and workstations, users, applications and services,
and information and data. AutoSecure protects information by preventing
unauthorized access to data and system resources in distributed environments;
provides single sign-on for users to applications and services they are
authorized to use, whether they are on mainframes, distributed systems or PCs;
and provides a single point for user registration in other security systems.
Application Lifecycle & Knowledge Management
To help customers quickly adapt applications and access information to
create competitive advantage, the Company has merged its Application
Infrastructure Management and Data Warehousing and Decision Support business
units to create the new Application Lifecycle & Knowledge Management business
unit, which is focused on three key product lines: ADvantage, End-to-End Data
Warehousing, and TransCentury. This consolidation helps the Company leverage
synergistic solutions and capabilities, such as data modeling (ERwin) and
metadata management (Repository) technologies, which support both application
development and data warehousing customers. For example, while ERwin is
integral to the Company's data warehouse solutions, especially with its
integration into DecisionBase, it is also core to the Company's ADvantage
offering. Likewise, the Company's Repository initiative with Microsoft is as
important to its ADvantage solution as it is to its Data Warehousing solution.
ADvantage Product Line
The Company offers ADvantage, an integrated suite of tools which provides an
application development infrastructure that enables organizations to deliver
applications on time and on budget. ADvantage helps organizations automate and
improve the processes for building, managing and delivering applications. These
products include tools for integrated project and process management, data and
component modeling, construction, testing, application deployment and software
distribution, integrated change and configuration management, and decision
support. These products facilitate the development of sophisticated, high-
performance applications and improve the overall productivity and quality of
development efforts. Principal ADvantage products include the following:
. Modeling--tools that help organizations build strong information
technology architectures by defining business processes and creating
"blueprints" of application and data requirements and their
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relationships. These tools enable organizations to more easily reuse and
share data and application components, and improve communication between
business and development teams.
. Change Management--tools that help development staff track and manage
changes when building large, distributed application systems. By
synchronizing development activities across heterogeneous platforms and
MVS throughout the application development lifecycle, these change
management tools help ensure more successful projects.
. Decision Support for Application Development--a decision-support tool
(ADvisor) that helps IT executives and development managers minimize the
risks and costs associated with the applications that run their
businesses by providing the information needed to ensure on-time, on-
budget delivery of applications. ADvisor delivers the critical project
information organizations need to manage application development as a
core business process.
End-to-End Data Warehousing Product Line
The Company offers an integrated set of solutions for all major data
warehousing functions, including data transformation and movement, data
warehouse management, metadata management and repository, and decision support.
The Company plans to leverage and reposition these products to address the
emerging demand for knowledge management solutions. The Company's data
warehousing products help organizations build, manage and maintain data
warehouses. A data warehouse is a data store that gives end-users full access
to periodically consolidated, historical data for making business decisions and
analyzing trends without jeopardizing the performance of mission-critical
operations. Warehousing tools can capture data in many forms on numerous
platforms, transfer it to multiple database platforms and provide users with
the means to access and manage such information. Repository tools play a key
role in data warehouses as places for centralized control and as collection
points for status information concerning the warehouses and their activities.
The Company's products enable organizations to better leverage their
corporate data investments by allowing end-users to derive maximum value and
insight from information. These products ensure enterprise-wide data access and
enable complex data analysis and reporting so that users can effectively
identify business trends and make informed decisions. Principal data warehouse
products include the following:
. DecisionBase--a tool for metadata-based data extraction, transformation,
and movement that enables companies to build data marts and data
warehouses fast and maintain them easily, without sacrificing future
flexibility. It combines graphical mapping with sophisticated
transformation and movement capabilities and seamless integration with
the industry-leading repository technology, which provides a common
storage place for all enterprise-wide metadata. This single source
ensures data consistency across the organization.
. Repository--serves as a central point of control, enabling organizations
to easily manage, maintain and access vast amounts of corporate data,
applications, and systems in a heterogeneous environment. Repository
provides information such as where data is located, who created and who
maintains data, what application processes the data drives, and what
relationship the data has with other data.
. Decision Support Solutions--tools and applications that meet the decision
support needs of business users and IT, while enabling organizations to
build an architecture that adapts to future growth and change. Solutions
include powerful tools for rapidly building custom decision support
applications; tools that provide advanced online analytical processing
(OLAP) capabilities for data warehouse environments; and business
applications that are ready to use.
TransCentury Product Line
The Company offers TransCentury, an end-to-end "find-it, fix-it, test-it"
solution to the computing problem created by the Year 2000 date change.
TransCentury Year 2000 solutions cover compliance efforts from start to finish,
from mainframes to desktops. TransCentury also helps companies more effectively
plan
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resources and reduce the costs and time associated with addressing the Year
2000 problem. TransCentury combines tools and technologies made available
through internal development, acquisitions, and marketing agreements.
Internet Infrastructure
The Company's Internet Commerce division is currently being folded into its
Application Lifecycle & Knowledge Management business unit. Raveler, the
Company's complete Internet infrastructure solution, is a set of products that
assists companies in the creation, deployment, and management of web content.
It is a content management system for sophisticated enterprise-wide web
implementations that integrates web operations into existing IT
infrastructures. Raveler gives managers a "bird's-eye" view of the status of
web projects for internal, external, or customer use. IT professionals can
automate thousands of tasks, including server uploads. From their desktops,
content creators can protect intellectual property by automatically versioning,
distributing, displaying, testing, and sharing their work with authorized co-
workers.
Professional Services
As part of its strategy to provide complete solutions for Global 10,000 IT
organizations, the Company's Global Consulting Organization offers a range of
professional services, including consulting services, systems integration, and
educational and certification programs, in support of, and independent of, its
products. These services help businesses plan, construct and manage
infrastructures in which complex software products can be used. These services
can improve and accelerate customization, implementation and deployment of the
Company's software products. The Company believes that more rapid and effective
implementation of its software products will lead to increased customer
satisfaction and greater follow-on sales. For these reasons, the Company is now
packaging professional services as a standard feature of its product sales. As
of March 15, 1999, the Company employed approximately 1,610 persons in
professional services.
Consulting Services. The Company is focusing significant effort on
developing and expanding its consulting services group. Primarily developed
through recent acquisitions of consulting services companies, this group
provides consulting services that help Global 10,000 companies manage risks,
manage the implementation of new technologies and products, and optimize their
current computing environments. Areas of expertise span systems and database
and systems management, information management, security, Year 2000
reengineering, application lifecycle management, Internet/intranet development,
and electronic commerce. The Company's consultants provide flexible,
customizable solutions as well as prepackaged solutions. They can serve all of
an organization's software consulting needs, from strategy and organization to
implementation.
Educational Programs. The Company believes that its training and education
services play an important role in increasing market awareness of its software
products among IT personnel, including application developers, database
administrators and end-users. Offering a comprehensive curriculum that supports
leading technologies, the Company conducts a set of training courses designed
to deal with the critical issue of skills management. These courses cover
several key technology areas of IT infrastructure management and are held at
various training centers in the United States and throughout the Company's
international operations. The Company also offers professional certification
training, on-site computer-based training courses and self-led Internet-based
training courses that users may complete in their own offices or homes.
Product Development
The Company pursues its product development strategy by various means,
including internally developing new software products and product enhancements,
and forming alliances with leading technology companies. Additionally, the
Company has in the past acquired, and may in the future acquire, products,
technologies and businesses complementary to the Company's existing product
lines. The Company has formed separate in-house development teams to
efficiently integrate acquired products and technologies into existing product
lines. During 1996, 1997 and 1998, product development and support expenses of
the Company were $170,145,000,
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$203,497,000 and $242,641,000, respectively. As of March 15, 1999, the Company
employed approximately 1,980 persons in product development and support.
Internal Development. The Company will continue to rely on the internal
development of products to expand its product lines. The Company believes its
expertise and experience give it a competitive advantage in developing products
that address increasingly complex environments and that meet evolving customer
needs. In order to fully exploit acquired software development personnel, and
to access new sources of talent, the Company has established approximately 37
independent development facilities. These development facilities are
interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies, and use various hardware, operating systems and
database systems which give the Company the ability to simulate the
environments of its customers. These facilities have responsibility for their
products and receive guidance from the Company's Chief Technology Office and
business unit management teams to foster interoperability.
Technology Relationships. To reinforce its commitment to providing
interoperable solutions for managing IT infrastructures, the Company has
implemented its PLATINUM Partners Program, whereby the Company has established
strategic and technology relationships with other leading IT vendors. The
Company believes that in order to provide solutions for heterogeneous computing
environments, it will need to continue to establish and maintain key
relationships with leading technology companies. The Company's current partners
include IBM, Hewlett-Packard, Oracle, Microsoft, SAP, and Peoplesoft. These
technical and marketing alliances provide the Company early access to product
information and pre-release software.
Acquisitions. The Company has in the past reviewed, and may in the future
review, acquisition candidates with leading-edge products and technologies that
could enhance the Company's product portfolio. The technologies associated with
the products of the previously acquired businesses are being incorporated into
the Company's existing internally developed products and are being used in
developing new products. In addition to providing the Company with new products
and technologies, these acquisitions have provided the Company with experienced
teams of product developers who now staff the Company's independent development
facilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Costs and Expenses--Merger
Costs," "--Acquired In-Process Technology" and "--Recent Developments."
Product Licenses
The Company provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or transfer
title to its software products to customers. Under the Company's current
standard form license agreement, licensed software may be used solely for the
customers' internal operations and only on designated hardware at specified
sites, which may be comprised of a stand-alone computer, a single network
server with multiple terminals or multiple network servers with multiple
terminals.
Licenses for the Company's software are almost exclusively perpetual,
although annual and monthly licenses are also offered. License fees may be due
upon execution by the customer of the applicable product agreement or may be
payable over time for contracts involving multi-year commitments for
maintenance and product upgrades. List prices are based upon the size of the
processor, number of servers and/or number of users, depending upon the type of
license and product being licensed. The Company's published list prices include
discounts for suite, enterprise and multi-site licenses. Licenses generally
include more than one product. Under the Company's current standard form
license agreement, maintenance is renewed on an annual basis by the customer
paying the current maintenance fee. See "Technical Support and Maintenance."
Sales and Marketing
The Company employs a multi-faceted sales strategy. For software products,
the Company utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct
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mail, print and web-based advertising, and web promotions. The Company also
utilizes certain indirect sales channels, such as distributors, VAR and OEM
relationships for selected products.
Domestic (U.S.) Software Sales. Since January 1, 1997, the Company has
organized its domestic direct sales force by regions throughout the United
States. The Company formerly combined the domestic and Canadian sales forces to
represent the North American sales force. As of March 15, 1999, the Company had
approximately 580 domestic direct sales representatives.
Generally, for domestic software product licenses, the Company's
telemarketing specialists call prospective customers to identify and qualify
leads. Once a lead has been qualified, the prospective client is turned over to
the inside sales force, which predominantly supports the direct sales force by
developing sales leads and arranging product evaluations. Established sales
leads are then typically forwarded to the direct sales force, which visits
customer sites to assist with trials, demonstrate product features and close
sales transactions. For certain sales to smaller customers, as well as the
licensing of standard shrink-wrap products, the inside sales force may handle
the full sales cycle for completing such transactions.
International Software Sales. The Company generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by the Company domestically.
As of March 15, 1999, the Company had approximately 275 international (non-
U.S.) direct sales representatives and had subsidiaries in Australia, Austria,
Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Greece, Hong
Kong, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands,
Norway, Philippines, Portugal, Singapore, South Africa, Spain, Sweden,
Switzerland, Taiwan, Thailand, United Arab Emirates, and the United Kingdom.
The Company expects that it will establish other foreign subsidiaries in the
future to meet its strategic objectives. The Company also markets its products
through independent distributors in Argentina, Chile, Colombia, Egypt, India,
Israel, Lebanon, Peru, Saudi Arabia, Turkey, Uruguay, and Venezuela.
Global Accounts. The Company now designates certain large, geographically
dispersed entities as "global accounts." Each of these accounts is managed, on
a worldwide basis, by a single executive who focuses his or her attention on
the diverse needs of the enterprise.
Professional Services. The Company's direct software sales force is
complemented by a specialized direct sales force, which specializes in
consulting services and educational programs.
User Group Leadership. The Company believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. The Company plays a major role in the activities of
the International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.
Technical Support and Maintenance
The Company's in-house technical support group, situated at various sites
throughout the U.S., provides pre-sale, installation and post-sale support,
including toll-free telephone support during regular business hours, to current
users and potential customers evaluating the Company's products. The technical
support group also offers seven-day, 24-hour toll-free telephone service for an
additional fee. The Company believes that effective technical support during
product evaluation substantially contributes to product acceptance and that
post-sale support has been, and will continue to be, a substantial factor in
customer satisfaction.
The Company offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the warranty
period defined in the Company's license agreements. Under the Company's
standard license agreement, customers renew maintenance support on an annual
basis by paying the current maintenance fee. Customers may also commit for
maintenance and product support over extended periods of time.
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Competition
The Company operates in highly competitive markets and expects competition
to increase. The Company's competitors include relational database, systems
software, application development, and data warehousing vendors. However, the
Company believes that none of its competitors compete in all of the Company's
markets, which include data, systems and applications. The Company believes
that organizations are increasingly seeking to purchase IT management products
and services from a smaller number of vendors that can provide complete,
flexible and integrated solutions for managing and improving organizations' IT
infrastructures. Many of the Company's current and prospective competitors have
significantly greater financial, technical, and marketing resources than the
Company. In addition, many prospective customers may have the internal
capability to implement solutions to their IT infrastructure problems.
The competitive factors affecting the market for the Company's software
products include the following: product functionality, integration, performance
and reliability; demonstrable economic benefits for users relative to cost;
quality of customer support and user documentation and ease of installation;
vendor reputation, experience and financial stability; and price.
The Company believes that it has competed effectively to date and that its
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon the Company's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. The Company also may continue its strategy to
acquire IT infrastructure products and technologies and businesses which have
developed such products and technologies.
In addition, the Company encounters competition from a broader range of
firms in the market for professional services. Many of the Company's current
and prospective competitors in the professional services business have
significantly greater financial, technical and marketing resources than the
Company. The competitive factors affecting the market for the Company's
professional services include the following: breadth and quality of services
offered, vendor reputation and the ability to retain qualified technical
personnel.
Intellectual Property Rights
The Company has historically relied upon a combination of contractual
rights, trademarks, trade secrets and copyright laws to establish and protect
its proprietary rights in its products. The Company also holds some patents and
believes that patents are becoming increasingly important to the software
industry. Consequently, the Company is taking actions to further protect its
proprietary rights through software patents. The Company's license agreements
restrict a customer's use of the Company's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of the Company's software products. The
Company believes that because of the rapid pace of technological change in the
computer software industry, the legal protections for its products are less
significant factors in the Company's success than the knowledge, ability and
experience of the Company's employees, the frequency of product enhancements,
and the timeliness and quality of support services provided by the Company. The
Company registers its product names and other trademarks in the United States
and certain foreign countries. The Company sells its products in foreign
countries that may afford less intellectual property rights protection than
currently afforded in the United States.
Employees
As of March 15, 1999, the Company employed approximately 5,830 persons,
including 1,850 in sales, marketing and related activities, 1,980 in product
development and support, 1,610 in professional services, and 390 in management,
administration and finance. The Company's success is highly dependent on its
ability to
10
<PAGE>
attract and retain qualified employees. Competition for employees is intense in
the software industry. None of the Company's employees is represented by a
labor union or is the subject of a collective bargaining agreement. The Company
has never experienced a work stoppage and believes that its employee relations
are good.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where the Company leases approximately 363,000 square feet under leases
terminating in April 2003. The Company also leases approximately 175,000 square
feet of administrative, marketing, sales and product development space in
Lisle, Illinois, near the Company's headquarters, under leases terminating in
January and October 2003. In addition, the Company leases space for
approximately 122 sales offices and product development facilities throughout
the United States, ranging in size from approximately 150 to 45,000 square
feet.
ITEM 3. LEGAL PROCEEDINGS
Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes V. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, Inc. ("Altai"), a wholly-owned subsidiary of the
Company, has been involved in a suit in France concerning copyright
infringement claims identical to those on which Altai previously prevailed
against Computer Associates International, Inc. ("CAI")
in the United States. In January 1995, the French court issued a decision
rejecting CAI's claim of copyright infringement. CAI subsequently appealed this
decision to a French appellate court. In May 1998, the U.S. Supreme Court
denied Altai's petition for certiorari on motions that the U.S. court decisions
are binding with respect to the French case. On October 23, 1998, the French
appellate court upheld in all pertinent parts the decision of the French lower
court. CAI's right to appeal the decision of the appellate court expired on
March 16, 1999.
The Company is also subject to certain other legal proceedings and claims
which have arisen in the ordinary course of business and which have not been
fully adjudicated. Management currently believes the ultimate outcome of such
matters and those described above will not have a material adverse effect on
the Company's results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.001 par value (the "Common Stock"), is traded
on the Nasdaq National Market under the symbol "PLAT." The following table sets
forth, for the quarters indicated, the range of high and low sales prices for
the Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Year Ended December 31, 1997:
First Quarter........................................... $17 7/8 $10 7/8
Second Quarter.......................................... 14 13/16 10 1/2
Third Quarter........................................... 25 12 5/8
Fourth Quarter.......................................... 30 13/16 20 1/8
Year Ended December 31, 1998:
First Quarter........................................... 31 1/8 22 1/8
Second Quarter.......................................... 28 11/16 22 3/8
Third Quarter........................................... 34 5/16 16
Fourth Quarter.......................................... 22 1/8 9
</TABLE>
As of March 23, 1999, the Company's stock was held by approximately 1,457
holders of record.
The Company has never declared any cash dividends or distributions on its
capital stock. The Company currently intends to retain its earnings to finance
future growth and therefore does not anticipate paying any cash dividends in
the foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below has been derived
from the historical financial statements of the Company. The selected
consolidated financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
contained elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(in thousands, except per share data and
ratios)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $ 968,206 $738,880 $553,484 $408,425 $304,182
Operating income
(loss)................. 20,317 (1) (102,141)(2) (101,609)(3) (125,863)(4) (2,975)(5)
Net loss from continuing
operations............. (2,468)(1) (105,103)(2) (83,782)(3) (110,426)(4) (4,408)(5)
Net loss from continuing
operations per share--
Basic.................. $ (0.03)(1) $ (1.35)(2) $ (1.16)(3) $ (2.03)(4) $ (0.09)(5)
Shares used in per share
calculation--Basic .... 83,856 78,072 71,919 54,349 48,832
Other Operating Data:
Ratio of earnings to
fixed
charges(6)............. 2.70 (1) -- (2)(7) -- (3)(7) -- (4)(7) 5.97 (5)
<CAPTION>
As of December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments........ $ 302,072 $358,204 $256,623 $180,138 $133,084
Working capital......... 327,945 352,663 282,549 171,443 95,375
Total assets............ 1,150,270 972,907 736,668 529,615 301,892
Long-term obligations
and acquisition-related
payables, less current
portion................ 272,810 285,559 119,700 13,418 12,277
Total stockholders'
equity................. 419,813 342,876 375,744 340,490 163,574
</TABLE>
- - --------
(1) Reflects a pre-tax charge for acquired in-process technology of $37,918,000
relating to the Company's acquisitions of certain software businesses and
product technologies; a pre-tax charge for merger costs of $40,065,000
relating to certain acquisitions; a restructuring benefit of $10,964,000
relating to the Company's recovery of certain restructuring charges
recorded in the second quarter of 1997; and a pre-tax special general and
administrative charge of $10,982,000 relating to the Company's integration
procedures related to past acquisition history.
(2) Reflects a pre-tax charge for acquired in-process technology of $67,904,000
relating to the Company's acquisitions of certain software businesses and
product technologies; a pre-tax charge for merger costs of $8,927,000
relating to certain acquisitions; a pre-tax charge of $55,829,000 for
restructuring costs; and a pre-tax special general and administrative
charge of $13,513,000 relating to the Company's integration procedures
related to past acquisition history.
(3) Reflects a pre-tax charge for acquired in-process technology of
$49,451,000 relating to the Company's acquisitions of certain software
businesses and product technologies; a pre-tax charge for merger costs of
$5,782,000 relating to certain acquisitions; a pre-tax charge of
$16,312,000 relating to Learmonth and Burchett Management Systems Plc
("LBMS") and Logic Works, Inc. ("Logic Works") restructuring costs; and a
pre-tax special general and administrative charge of $1,978,000 related to
Logic Works.
13
<PAGE>
(4) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating to the Company's acquisitions of certain software businesses and
product technologies; and a pre-tax charge for merger costs of $31,287,000
relating to certain acquisitions.
(5) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating to the Company's acquisitions of certain software businesses and
product technologies; and a pre-tax charge of $4,418,000 for restructuring
costs relating to LBMS.
(6) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of rental expense which
represents interest).
(7) Earnings available for fixed charges of $(72,330,000), $(91,280,000) and
$(119,638,000) were inadequate to cover fixed charges of $9,314,000,
$2,254,000 and $1,602,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 21E of the Exchange Act) that
are based on the beliefs of the management of the Company, as well as
assumptions made by, and information currently available to, the Company's
management. The Company's actual growth, results, performance and business
prospects and opportunities in 1999 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements. See "--
Special Note Regarding Forward-Looking Statements" on page 33 for a discussion
of risks, uncertainties and other factors that could cause or contribute to
such material differences.
General
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
IT infrastructures, which consist of data, systems and applications. The
Company has two operating segments consisting of software and professional
services. Throughout 1998, the Company's software segment was organized into
four business units consisting of database management, systems management,
application infrastructure management, and data warehousing and decision
support. During the first quarter of 1999, the Company realigned its software
segment into two business units consisting of (1) enterprise management and (2)
application lifecycle and knowledge management. The Company's products and
services help IT infrastructure departments, primarily in large and data-
intensive organizations, minimize risk, improve service levels and leverage
information to make better business decisions. As an integral part of the
Company's growth strategy, it has consummated a number of significant business
combinations, some of which have been accounted for using the pooling-of-
interests method. As a result, the Company's consolidated financial statements
are presented as if the Company and such acquired companies had been
consolidated for all periods presented. Information regarding the Company in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations gives retroactive effect to these acquisitions. In addition, the
Company has consummated a number of acquisitions accounted for as purchases, in
which cases the acquired businesses have been included in the Company's results
of operations beginning with the effective dates of the acquisitions.
14
<PAGE>
Results of Operations
The table below sets forth for the periods indicated: (1) line items from
the Company's consolidated statements of operations expressed as a percentage
of revenues, and (2) the percentage changes in these line items from the prior
period.
<TABLE>
<CAPTION>
Percentage of Year-to-Year
Total Revenues Percentage Change
----------------- -----------------
Years Ended
December 31, Compared 1997
----------------- 1996 Compared
1998 1997 1998 To 1997 to 1996
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software products....................... 56% 56% 52% 32% 42%
Maintenance............................. 18 19 21 23 22
Professional services................... 26 25 27 35 26
--- --- ---
Total revenues........................ 100 100 100 31 34
--- --- ---
Costs and expenses:
Professional services................... 25 23 26 38 17
Product development and support......... 25 28 31 19 20
Sales and marketing..................... 33 36 39 21 21
General and administrative.............. 6 7 8 22 13
Amortization of excess cost over net
assets acquired........................ 1 ** 1 88 20
Special general and administrative
charges................................ 1 2 ** (18) *
Restructuring charges................... (1) 8 3 (120) 242
Merger costs............................ 4 1 1 349 54
Acquired in-process technology.......... 4 9 9 (44) 37
--- --- ---
Total costs and expenses.............. 98 114 118 13 28
--- --- ---
Operating income (loss)................... 2 (14) (18) 120 **
Other income, net......................... 1 3 1 (50) 154
--- --- ---
Income (loss) from continuing operations
before income taxes...................... 3 (11) (17) 137 (13)
Income taxes.............................. 3 3 (2) 41 *
--- --- ---
Net loss from continuing operations....... ** (14) (15) (98) 25
Loss from discontinued operations......... -- ** (1) * (49)
Gain on disposal, net of taxes............ -- ** ** * 321
--- --- ---
Net loss.................................. ** (14)% (16)% (98)% 22%
=== === ===
</TABLE>
- - --------
* Not meaningful.
** Less than 1%
Revenues
The Company's revenues are derived from three sources: (1) license and
upgrade fees for licensing the Company's proprietary and other parties'
software products and providing additional processing capacity on already-
licensed products, (2) maintenance fees for maintaining, supporting and
providing updates and enhancements to software products, and (3) revenues from
the Company's professional services business. Total revenues for 1998 were
$968,206,000, an increase of $229,326,000, or 31%, over 1997 total revenues of
$738,880,000. Total revenues in 1997 increased $185,396,000, or 34%, over 1996
revenues of $553,484,000.
15
<PAGE>
The Company has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1998, 1997 or
1996. The Company estimates that sales to repeat customers represented over 82%
of its revenues generated in 1998.
Revenues from domestic (U.S.) customers represented 71%, 74% and 72% of the
Company's total revenues in 1998, 1997 and 1996, respectively. Domestic
revenues are generated primarily by the Company's direct sales force (which
visits customer sites to assist with trials, demonstrate product features and
close sales transactions) and inside sales force (which predominantly supports
the direct sales force by developing sales leads and arranging product
evaluations), as well as a telemarketing organization.
Revenues from international customers, principally in Western Europe,
represented 29%, 26% and 28% of the Company's total revenues in 1998, 1997 and
1996, respectively. The Company generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, the Company has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations. For a discussion of
foreign currency exchange risk, see "--Foreign Currency Exchange Rates" and
"Item 7A. Quantitative and Qualitative Disclosures About Market Risk."
The Company recognizes revenues from its software sales using the criteria
specified in the American Institute of Certified Public Accountants Statement
of Position 97-2, "Software Revenue Recognition," which was adopted on January
1, 1998. The adoption of Statement of Position 97-2 has not had a material
impact on the Company's financial position or results of operations for the
year ended December 31, 1998.
The Company has continued to enter into an increasing number of higher
dollar value sales transactions with customers, primarily attributable to sales
of product bundles and integrated product suites. These transactions are
typically completed pursuant to multi-year contracts and include product
licenses, future upgrades and maintenance, sometimes also bundled with
professional services. During 1998, the Company entered into 147 sales
transactions having a total value of at least $1,000,000, of which 30 had a
total value of at least $3,000,000 and four had a total value of at least
$10,000,000. During 1997, the Company entered into 102 sales transactions
having a total value of at least $1,000,000, of which 20 had a total value of
at least $3,000,000 and three had a total value of at least $10,000,000.
The table below sets forth, for the periods indicated, the Company's primary
sources of revenues expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
Percentage of Total Revenues
----------------------------
Years Ended December 31,
------------------------
1998 1997 1996
--------- --------- ----
<S> <C> <C> <C>
Revenues:
Software products:
Licenses............................. 40% 42% 41%
Upgrades............................. 16 14 11
--------- --------- ---------
Total software products............ 56 56 52
--------- --------- ---------
Maintenance............................ 18 19 21
Professional services.................. 26 25 27
--------- --------- ---------
Total revenues..................... 100% 100% 100%
========= ========= =========
</TABLE>
Software Products. Software products revenues represented 56%, 56% and 52%
of total revenues in 1998, 1997 and 1996, respectively. In 1998, software
products revenues increased 32% to $542,578,000 from $410,369,000 in 1997, as a
result of increases of 43%, 61%, 4% and 1%, respectively, experienced by the
Company's database management, systems management, application infrastructure
management, and data
16
<PAGE>
warehousing and decision support business units. From 1996 to 1997, software
products revenues increased 42% from $289,125,000 to $410,369,000. The Company
believes the growth in software products revenues over the past three years has
resulted from the continued marketplace acceptance of the Company's products
across all business units, the Company's aggressive expansion of its sales and
marketing efforts, and continuous
increases in the Company's product offerings. The increase in product offerings
has resulted in part from the acquisitions of businesses and technologies. The
substantial majority of the increases in software products revenues in 1998 and
1997 resulted from increases in the volume of sales of existing products. A
smaller, but still significant, portion of the increases related to sales of
newly introduced products, while only a small percentage was attributable to
price increases. During 1998 and 1997, the Company expanded its customer base,
increased sales of product bundles and integrated product suites, and executed
increasingly larger sales transactions. The Company's database management
(principally products relating to IBM's DB2 relational database management
software), systems management, application infrastructure management and data
warehousing and decision support business units represented 40%, 31%, 16% and
13%, respectively, of total software products revenues in 1998; 37%, 26%, 20%
and 17%, respectively, of total software products revenues in 1997; and 34%,
24%, 25% and 17%, respectively, of total software products revenues in 1996.
Maintenance. Maintenance revenues in 1998 increased 23% over 1997 to
$171,711,000, and 1997 maintenance revenues of $139,912,000 represented an
increase of 22% over 1996 maintenance revenues of $114,579,000. Maintenance
revenues are derived from recurring fees charged to perpetual license customers
and the implicit first-year maintenance fees bundled in certain software
product sales. The Company provides maintenance customers with technical
support and product enhancements. Maintenance revenues are deferred and
recognized ratably over the term of the agreement. The increases during 1998
and 1997 were primarily attributable to the expansion of the Company's
installed customer base, from which maintenance fees are derived. Because
maintenance fees are implicit in certain new software product licenses, the
increase in software licensing transactions also contributed to the increase in
maintenance revenues. In 1998, the Company's database management, systems
management, application infrastructure management, and data warehousing and
decision support business units represented 39%, 23%, 20% and 18%,
respectively, of total maintenance revenues.
Professional Services. Professional services revenues are associated with
the Company's consulting services business and educational programs. In 1998,
professional services revenues increased 35% to $253,917,000 from $188,599,000
in 1997. From 1996 to 1997, professional services revenues increased 26% from
$149,780,000. The growth in professional services revenues during 1998 was
primarily attributable to an increase in billable consultants, as well as a
higher ratio of billable hours to total hours worked ("utilization rate"). To a
lesser extent, increases in rates charged per billable hour, as well as
revenues associated with recently acquired consulting businesses, contributed
to this growth. The increase in professional services revenues during 1997 was
primarily due to an increase in billable consultants, as well as a higher
utilization rate. To a much lesser extent, increases in rates charged per
billable hour contributed to this growth. Additionally, the revenues generated
by the Company's new specialty consulting services practices, established near
the end of 1996, contributed to the increase in professional services revenues
during 1997.
Costs and Expenses
Total expenses for 1998 were $947,889,000, an increase of 13% over 1997
expenses of $841,021,000, which represented an increase of 28% over 1996
expenses of $655,093,000. Excluding restructuring charges, merger costs,
acquired in-process technology charges and special general and administrative
charges (collectively, "Special Charges"), which are discussed more fully
below, total expenses for 1998 were $869,888,000, an increase of $175,040,000,
or 25%, compared to $694,848,000 for 1997. Total expenses, excluding Special
Charges, increased 19% in 1997 as compared to $581,570,000 in 1996. Total
expenses, excluding Special Charges, represented 90%, 94% and 105% of total
revenues for 1998, 1997 and 1996, respectively. As a percentage of total
revenues, total expenses, excluding Special Charges, decreased during
17
<PAGE>
1998 and 1997 due primarily to the Company's continued cost containment
efforts, as well as integration of acquisitions.
Professional Services. Costs of professional services increased to
$235,914,000 in 1998, from $170,847,000 in 1997 and $145,443,000 in 1996. The
increases in these expenses during 1998 and 1997 were primarily attributable to
an increase in the number of consultants. Greater commission and bonus expenses
associated with higher professional services revenues in each year also
contributed to the increases. Costs of professional services represented 93%,
91% and 97% of professional services revenues in 1998, 1997 and 1996,
respectively. Costs of professional services in relation to professional
services revenues increased during 1998 as compared with 1997 primarily due to
less profitable Year 2000 contracts, lower than anticipated demand for the
Company's training offerings and severance costs related to international
operations. During 1997, as part of the Company's overall restructuring plan,
the Company realigned its professional services business through the
consolidation of redundant functions.
Product Development and Support. Product development and support expenses
increased to $242,641,000 in 1998, from $203,497,000 in 1997 and $170,145,000
in 1996. The increases in these expenses in 1998 and 1997 were primarily
attributable to an increase in the number of product development and support
personnel from approximately 1,400 at December 31, 1996 to approximately 1,625
at December 31, 1997 and approximately 2,290 at December 31, 1998, and
increases in internal IT support costs. Product development and support
expenses represented 25%, 28% and 31% of total revenues in 1998, 1997 and 1996,
respectively. During 1997, the Company began consolidating certain product
development and support efforts to coincide with its product integration focus.
As a result of these consolidation efforts, the Company reduced product
development and support expenses as a percentage of total revenues during 1998
and 1997.
In 1998, 1997 and 1996, the Company capitalized $60,343,000, $41,143,000 and
$27,246,000, respectively, of internal software development costs, net of
related amortization expense, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product development and
support expenses plus capitalized internal software development costs, net of
related amortization expense, were $303,129,000 in 1998, $244,640,000 in 1997
and $197,391,000 in 1996, which amounted to 42%, 44% and 49%, respectively, of
software product and maintenance revenues for these years.
Sales and Marketing. Sales and marketing expenses increased to $318,453,000
in 1998, from $263,986,000 in 1997 and $218,435,000 in 1996. The increase in
sales and marketing expenses during 1998 was primarily attributable to costs
associated with the significant expansion of the domestic and international
outside sales forces, as well as higher commission and bonus expenses related
to the increase in software products revenues. Sales and marketing expenses
represented 33%, 36% and 39% of total revenues in 1998, 1997 and 1996,
respectively. The decrease in sales and marketing expenses as a percentage of
total revenues during 1998, as compared to 1997, was primarily attributable to
continuing benefits derived from the Company's 1997 restructuring plan, as well
as revenue growth exceeding certain sales and marketing fixed costs. During the
second quarter of 1997, the Company realigned its inside sales force to be more
compatible with its strategy of providing complete IT infrastructure solutions
and to correspond with the restructuring plan. This realignment resulted in a
significant reduction in the inside sales force. The Company also consolidated
certain remote sales facilities. Consequently, sales and marketing expenses as
a percentage of total revenues decreased during 1997.
General and Administrative. General and administrative expenses increased to
$60,941,000 in 1998, from $50,158,000 in 1997 and $42,230,000 in 1996. The
increase during 1998 was primarily attributable to higher employee-related
expenses resulting from recent acquisitions and increases in legal expenses
related to certain on-going legal proceedings. The increase in general and
administrative expenses in 1997, as compared to 1996, was primarily due to the
costs associated with integrating recently acquired businesses and maintaining
the infrastructure to support the restructured company, including
administrative system upgrade expenses and associated consulting fees, as well
as the amortization of intangible assets relating to the Company's
18
<PAGE>
convertible debt offerings. General and administrative expenses represented 6%,
7% and 8% of total revenues in 1998, 1997 and 1996, respectively. As a
percentage of total revenues, general and administrative expenses
have decreased during 1998 and 1997 due to the Company's continual cost
containment efforts, as well as integration of acquisitions.
Special General and Administrative Charges. Special general and
administrative charges were $10,982,000 for 1998, $13,513,000 for 1997, and
$1,978,000 for 1996. During 1998, the company re-evaluated the fair value of
certain assets acquired from prior acquisitions in conjunction with the
integration procedures initiated in the second quarter of 1997. Specific assets
which were deemed to have no future value were written off in 1998. The 1998
charges also included certain non-recurring legal expenses. In the second
quarter of 1997, the Company performed integration procedures related to past
acquisition activity in conjunction with, but not specifically as part of, the
restructuring plan executed during that period. Accordingly, the Company
evaluated the fair value of assets recorded through prior acquisitions and
identified certain trade receivables, prepaid expenses and intangible assets
which had no future value. The respective balances of these assets were written
off during the second quarter of 1997. The Company also expensed severance and
other employee benefits for certain employees of acquired companies who were
terminated as a result of the integration efforts. The Company recorded total
charges of $13,513,000 in the quarter ended June 30, 1997 in connection with
the integration procedures discussed above. During 1996, the Company's wholly-
owned subsidiary, Logic Works (acquired as of May 28, 1998) changed the
depreciable lives of its computer equipment and wrote-down certain other
assets, which resulted in a special general and administrative charge of
$1,978,000.
Restructuring Charges. In August 1996, the Company's wholly-owned
subsidiary, LBMS (acquired as of May 12, 1998), executed a plan to restructure
its operations. During the second half of 1996, LBMS recorded a restructuring
charge of $14,109,000, net of $3,512,000 in sublease rentals and recoveries
from the sale of a product line. The restructuring charge consisted primarily
of abandoned lease costs, severance and other personnel costs and write-offs of
excess equipment and other assets. During 1997, LBMS recorded a restructuring
benefit of $1,490,000 related to sublease rental activity. This benefit was
offset against the Company's restructuring charge recorded in 1997.
In the fourth quarter of 1996, the Company's wholly-owned subsidiary, Logic
Works (acquired as of May 28, 1998), implemented a restructuring plan to
streamline its operations by reducing its workforce, consolidating and
reorganizing certain operations and writing off certain fixed assets and other
impaired assets. The plan included the closing and moving of several offices
and the termination of approximately 25 employees across all departments. Logic
Works recorded a charge of $2,203,000 relating to this restructuring. The
Company had $10,963,000 of accrued restructuring costs at December 31, 1996.
During the second quarter of 1997, the Company executed a restructuring plan
to consolidate its sales, marketing, business development and product
development operations to achieve cost efficiencies through the elimination of
redundant functions. These redundancies resulted primarily from businesses
acquired over the previous three years. The Company also realigned its business
units and inside sales force to redirect focus on its strongest product lines
and better integrate the efforts of certain product development teams. As part
of the plan, the Company reduced its worldwide work force by approximately 10%,
eliminating approximately 400 positions, primarily in the areas of product
development and support, marketing and inside sales and, to a lesser extent,
professional services and administration.
The Company recorded a one-time charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. This charge was offset by a
restructuring benefit of $1,490,000 recorded by LBMS resulting in a net
consolidated charge of $55,829,000. The restructuring charge included the
following expenses: $24,032,000 for facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; $3,510,000 for write-offs of excess equipment, furniture and
fixtures; $19,413,000 for write-offs of capitalized software costs and other
intangible assets related to the termination of development efforts for certain
discontinued products, as well as penalties for the cancellation of
distributorship agreements
19
<PAGE>
for such products; and $10,364,000 for severance and other employee-related
costs of the terminated staff. Of the $57,319,000 restructuring charge, the
Company paid out approximately $17,784,000 and wrote off $19,687,000 of non-
cash charges during 1997. The Company had $29,321,000 of accrued restructuring
costs at December 31, 1997.
During 1998, the Company recognized a restructuring benefit of $10,964,000
related to the Company's occupation of previously vacated facilities and the
relief of obligations under cancelled lease agreements, as well as sublease
rental activity. This restructuring benefit represents the recovery of certain
restructuring
charges recorded by the Company in the second quarter of 1997, as discussed
above. The Company also paid approximately $10,682,000 during 1998 related to
previously accrued restructuring costs. The Company had $7,675,000 of accrued
restructuring costs at December 31, 1998. The Company anticipates that
approximately $2,390,000 of these costs will be paid during 1999, $1,576,000
during 2000, $1,550,000 during 2001, $1,419,000 during 2002 and $740,000 after
2002. For a discussion of the Company's 1999 restructuring, see "--Recent
Developments."
Merger Costs. Merger costs were $40,065,000, $8,927,000 and $5,782,000 in
1998, 1997 and 1996, respectively. Merger costs relate to acquisitions
accounted for as poolings of interests and include investment banking and other
professional fees, employee severance payments, costs of closing excess office
facilities and various other expenses. The significant increase in merger costs
in 1998 related primarily to the Company's acquisitions of Mastering, LBMS and
Logic Works. The Company may incur merger costs in connection with future
acquisitions accounted for as poolings of interests, which would reduce
operating and net income in the periods in which the acquisitions are
consummated. For a discussion of the Company's acquisition of Memco Software,
Ltd. ("Memco"), see "--Recent Developments." See also "--Recent Developments"
for information regarding the Company's announcement on January 27, 1999 that
the Company was suspending any new acquisition activity, for at least the next
six months, to focus solely on strengthening the Company's core operations.
Acquired In-Process Technology. Acquired in-process technology charges were
$37,918,000, $67,904,000 and $49,451,000 in 1998, 1997 and 1996, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method, in
which portions of the purchase prices were allocated to acquired in-process
technology and expensed immediately because the technologies acquired had not
reached technological feasibility based on the status of design and development
activities.
In June 1998, the Company acquired network monitoring technology from Geneva
Software, Inc. ("Geneva Software"). A portion of the purchase price was
attributed to acquired in-process technology, as the development work
associated with the project had not reached technological feasibility and was
believed to have no alternative future use other than as a network monitoring
device. The in-process technology involved new major monitoring capabilities
for hubs, routers and switches, along with several performance capabilities.
The Company carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years and discounted to present value using a discount rate of approximately
20%. The Company believes the discount rate is appropriate given the level of
risk of unsuccessful completion of the technology, considering it was estimated
to be approximately 70% complete as of the acquisition date. The Company
anticipates incurring approximately $1,000,000 of additional research and
development costs, with an anticipated completion date of June 1999. In
projecting the future revenue streams from the project, the Company considered
many factors including competition, network management growth estimates, time
to market, and additional sales and marketing leverage, as well as the impact
of larger transactions upon global enterprises to which Geneva Software was not
accustomed.
In June 1998, the Company acquired mainframe asset management and cost
modeling capabilities from Systems Management Solutions, Inc. ("SMS"). A
portion of the purchase price was attributed to acquired in-process technology,
as the development work associated with the project had not reached
technological
20
<PAGE>
feasibility and was believed to have no alternative future use other than for
asset management and cost modeling. The in-process technology involved
implementing the mainframe technology design onto additional mid-range
platforms such as UNIX and NT.
The Company carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years and discounted to present value using a discount rate of 20%. The Company
believes the discount rate is appropriate given the level of risk of
unsuccessful completion of the technology considering it was estimated to be
over two-thirds complete as of the acquisition date. The Company has brought
this technology to feasibility, incurring approximately $400,000 of additional
research and development costs. In projecting the future revenue streams from
the project, the Company considered many factors including competition, asset
management growth estimates, time to market and additional sales and marketing
leverage, as well as impact of larger transactions upon global enterprises to
which SMS was not accustomed.
In June 1998, the Company acquired modeling technologies from ICON
Computing, Inc. ("ICON"). A portion of the purchase price was attributed to
acquired in-process technology, as development work associated with the
projects had not reached technological feasibility and was believed to have no
alternative future use other than as modeling tools.
The Company carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years discounted to present value using a discount rate of 20%. The Company
believes the discount rate is appropriate given the level of risk of
unsuccessful completion of the technologies as they were estimated to be over
50% complete as of the acquisition date. The Company anticipates incurring
approximately $1,200,000 of additional research and development costs, with an
anticipated completion date of December 1999. In projecting the future revenue
streams from the projects, the Company considered many factors including
competition, market growth estimates, time to market and additional sales and
marketing leverage, as well as the impact of larger transactions upon global
enterprises to which ICON was not accustomed.
In October 1998, the Company acquired enterprise-wide directory service and
software solutions from OpenDirectory Pty Limited and OpenDirectory, Inc.
(collectively, "OpenDirectory"). A portion of the purchase price was attributed
to acquired in-process technology, as the development work associated with the
projects had not reached technological feasibility and was believed to have no
alternative future use other than as directory service tools. The in-process
technology involved new major functionality, security, performance and
management capabilities to the directory technology. Furthermore, the in-
process technology involved critical operational features required by the
market, including strong encryption capabilities, certificate administration, a
database port using open database connectivity, major throughput enhancements,
load sharing, Year 2000 compliance, internationalization and integration with
other technologies of the Company.
The Company carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows of the projects were
projected over five to seven years discounted to present value using a discount
rate of 25%. The Company believes the discount rate is appropriate given the
level of risk of unsuccessful completion of the technologies as they were
estimated to be approximately 50% complete as of the acquisition date. The
Company anticipates incurring approximately $2,500,000 of additional research
and development costs with an anticipated completion date of April 2000. In
projecting the future revenue streams from the projects, the Company considered
many factors including competition, market growth estimates, time to market and
additional sales and marketing leverage, as well as the impact of larger
transactions upon global enterprises to which OpenDirectory was not accustomed.
During 1998, the Company also acquired eight other software businesses and
product technologies. Portions of the purchase prices were attributed to
acquired in-process technology, as the development work associated with the
projects had not reached technological feasibility and were believed to have no
alternative future use. The Company anticipates incurring approximately
$6,000,000 of additional research and
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<PAGE>
development costs over a short time frame and expects these projects to be
completed within the next 12 to 18 months.
The following summary presents information concerning the purchase price
allocations for the acquisitions accounted for under the purchase method during
1998.
<TABLE>
<CAPTION>
In-process Purchase
Purchased Research and Price
Company Name Software Development Goodwill Other (1)
------------ --------- ------------ -------- ----- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Geneva Software......... $ 1,303 $13,989(2) $ 6,992(2) $(276) $22,008
SMS..................... 327 4,379 826 207 5,739
ICON.................... -- 5,300 630 150 6,080
Brazil Acquisitions
(3).................... -- -- 4,592 33 4,625
OpenDirectory........... 10,258 10,130 4,329 79 24,796
Others.................. 2,274 4,120 10,657 (227) 16,824
------- ------- ------- ----- -------
$14,162 $37,918 $28,026 $ (34) $80,072
======= ======= ======= ===== =======
</TABLE>
- - --------
(1) Purchase prices include costs associated with the acquisition.
(2) During the fourth quarter of 1998, the Company changed its estimate of
allocating purchase price and reduced its acquired in-process technology
expense by $4,827,000 and increased goodwill by the same amount.
(3) Includes Ergondata Do Brasil LTDA and Senior Consultores Associados LTDA.
The forecasts used in valuing acquired in-process technologies were based
upon assumptions the Company believed to be reasonable but which were
inherently uncertain and unpredictable. For this reason, actual results may
vary from projected results. The Company did not assume in its valuation model
any material change in its profit margins or any material increases in selling,
general and administrative expenses as a result of the acquisitions.
Without successful completion of the remaining research and development
efforts on the acquired in-process technologies, including integration with the
Company's existing products, the end result would be to fail to fulfill the
products' design specifications and, in turn, fail to meet market requirements.
As a result, the Company would not realize the future revenues and profits
attributed to the acquired in-process research and development. Ultimately, the
Company would fail to realize the expected return on such investments. The
Company has not planned any significant expense reductions or synergies as a
result of the acquisitions and thus does not believe that the failure to
achieve the projected results from the acquired in-process technologies would
have a material impact on the Company as a whole.
The Company believes that it will complete the projects in a timely manner
and within original cost estimates. Significant efforts are necessary to
develop the acquired in-process technology into commercially viable products,
principally related to the completion of all designing, prototyping, coding,
scalability verification and testing activities that are required to establish
that the proposed technologies would meet their design specifications. The
acquired in-process technology projects are expected to begin to result in
material cash flows in 12 to 24 months subsequent to their completion, assuming
their successful completion.
The Company has reviewed its projections of revenues and estimated costs of
completion for acquisitions involving acquired in-process technology
consummated from 1993 through 1997. The Company has compared these projections
with actual revenues and costs and determined that, in the aggregate, the
average margin of error between the estimated and actual results was 5-10%.
The Company may continue to incur charges for acquired in-process technology
in connection with future acquisitions, which would reduce operating and net
income for the periods in which the acquisitions are consummated. See "--Recent
Developments" below.
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<PAGE>
Operating Loss
For the reasons discussed above, the Company generated operating income of
$20,317,000 in 1998, as compared to an operating loss of $102,141,000 in 1997
and an operating loss of $101,609,000 in 1996. The Company had operating
margins of 2%, (14)% and (18)% in 1998, 1997 and 1996, respectively. The
Special Charges incurred in 1997 and 1996 contributed significantly to the
operating losses and negative operating margins experienced by the Company.
Excluding the Special Charges, the Company would have reported operating income
of $98,318,000 in 1998, operating income of $44,032,000 in 1997 and an
operating loss of $28,086,000 in 1996. Excluding such charges, the Company
would have reported operating margins of 10%, 6% and (5)% in 1998, 1997 and
1996, respectively. During 1998 and 1997, the Company improved its operating
margin, excluding Special Charges, through its cost containment efforts and the
savings realized from the restructuring plan. The Company may continue to incur
acquisition-related charges, as well as expenses related to the integration of
acquired businesses, which could materially adversely affect operating results
in the periods in which such acquisitions are consummated and in subsequent
periods.
Other Income
Other income was $10,253,000 in 1998 as compared to $20,497,000 in 1997 and
$8,075,000 in 1996. The decrease in other income in 1998, as compared to 1997,
was primarily attributable to the interest expense on the Company's convertible
subordinated notes issued in December 1997 and lower unrealized holding gains
on
certain trading securities, the market values of which decreased during 1998.
The decrease in other income during 1998, as compared to 1997, was partially
offset by greater interest income related to higher cash and investment
balances during 1998 and greater realized gains on sales of investment
securities. The increase in other income during 1997, as compared to 1996, was
primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on sales of
investment securities. The increase in other income during 1997, as compared to
1996, was partially offset by interest expense on the Company's convertible
subordinated notes issued in November 1996 and December 1997. Because
unrealized holding gains and losses for trading securities are reflected in
pre-tax earnings, fluctuations in the market value of these securities are
continuously recorded as additions to, or deductions from, other income until
the securities are sold. See "--Liquidity and Capital Resources."
Income Taxes
The Company recognized income tax expense of $33,038,000 in 1998, an income
tax expense of $23,459,000 in 1997 and an income tax benefit of $9,752,000 in
1996. The income tax expense recorded in 1997 included an additional expense of
$5,070,000 recorded in the second quarter of 1997, to reduce the Company's
deferred tax asset to a level that more likely than not will be realized in
future periods.
The Company has available approximately $333,270,000 of net operating loss
carryforwards and $10,574,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any. The net operating loss
carryforwards expire between 2004 and 2018. The tax credit carryforwards expire
between 2002 and 2018. Some of the Company's tax carryforwards are subject to
limitations as to the amounts that may be used in any particular future year.
Net Loss
For the reasons discussed above, the Company incurred a net loss of
$2,468,000 in 1998, as compared to $106,128,000 in 1997 and $87,194,000 in
1996. The Special Charges incurred in these years contributed significantly to
the net losses experienced by the Company.
23
<PAGE>
Recent Developments
Effective January 1, 1999, the Company reorganized its legal structure into
a holding company structure, under which the operations of the Company are
conducted through direct and indirect wholly-owned subsidiaries. Certain of
these subsidiaries, including PLATINUM technology IP, inc. and PLATINUM
technology, inc. (collectively, the "Obligor Subsidiaries") commenced
substantive operations. The corporate structural changes were made to reflect
the Company's global focus and to provide greater operational flexibility, as
well as allow for more efficient tax planning in the future. The Obligor
Subsidiaries were established with de minimis capitalizations from the Company
as of December 31, 1998. The Obligor Subsidiaries are joint and several
obligors on the 1996 Notes (as defined below) and the 1997 Notes (as defined
below) previously issued by the Company. There are currently no significant
restrictions on the Company's ability to obtain funds from the Obligor
Subsidiaries.
On January 27, 1999, the Company announced a suspension of any new
acquisition activity, for at least the next six months, to focus solely on
strengthening its core operations.
On February 22, 1999, the Company announced a restructuring plan to
streamline operations, increase profitability, and deliver greater value to
customers and shareholders. The Company believes that this restructuring plan
will yield approximately $90 million in annual savings and significantly
increase operating margins. As a result of these actions, the Company expects
to incur a one-time charge of approximately $90 to $110 million in the first
quarter of 1999.
On February 23, 1999, the Company and a major financial services company
announced the formation of a new finance entity, PLATINUM technology Global
Finance ("Global Finance"). Global Finance was established to provide the
Company's enterprise software customers with customized financing solutions
designated to better control and reduce their overall information technology
costs. The Company anticipates that Global Finance will be operational
beginning in the second quarter of 1999.
On March 29, 1999, the Company acquired all of the outstanding ordinary
shares of Memco Software, Ltd. ("Memco"), a leading provider of information
security software, in exchange for 13,751,923 shares of the Company's Common
Stock. The Company also assumed Memco stock options which converted into
options to purchase 3,279,498 shares of the Company's Common Stock. This
transaction is expected to be accounted for as a pooling of interests. Costs
incurred in connection with this transaction will be expensed in the first
quarter of 1999.
On March 29, 1999, the Company and Computer Associates International, Inc.
("CA") announced the execution of a merger agreement pursuant to which CA has
agreed to acquire the Company through a cash tender offer. Under the terms of
the merger agreement, a wholly-owned subsidiary of CA will offer to purchase
all outstanding shares of the Company's Common Stock for $29.25 per share.
Consummation of the tender offer is subject to certain conditions, including
the condition that at least a majority of the outstanding shares of the
Company's Common Stock be tendered and not withdrawn. Consummation of the
tender offer is also subject to the expiration or termination of any applicable
antitrust waiting period. Following completion of the tender offer and subject
to certain conditions, the Company will merge into the subsidiary of CA, with
the Company surviving as a wholly-owned subsidiary of CA. The transactions are
currently expected to be completed in mid-1999.
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments were $302,072,000 and
$358,204,000 at December 31, 1998 and 1997, respectively.
For the year ended December 31, 1998, cash and cash equivalents decreased
$43,099,000, from $233,024,000 at December 31, 1997 to $189,925,000 at December
31, 1998. This decrease was primarily attributable to payments for purchased
and developed software of $90,894,000 and for acquisitions of $55,132,000,
offset by cash provided by operating activities of $96,137,000 and proceeds
from the exercise of stock options and from the Company's employee stock
purchase plan of $59,588,000.
24
<PAGE>
For the year ended December 31, 1997, cash and cash equivalents increased
$54,363,000, from $178,661,000 at the beginning of the year to $233,024,000 at
the end of the year. This increase was attributable primarily to net proceeds
of $144,967,000 from the issuance of convertible notes and net cash provided by
operating activities of $49,242,000, offset by cash used in investing
activities of $156,292,000.
For the year ended December 31, 1996, cash and cash equivalents increased
from $148,992,000 at the beginning of the year to $178,661,000 at the end of
the year, with the primary sources of cash being the net proceeds from the
issuance of convertible notes of $110,783,000 and from the issuance of common
stock of $49,973,000, offset principally by cash used in investing activities
of $115,238,000.
In recent years, the Company's sources of liquidity have primarily been
funds from capital markets and sales of installment receivables. The Company
believes the funding available to it from these sources, as well as cash flows
from operations, will be sufficient to satisfy its working capital and debt
service requirements for the foreseeable future. The Company's capital
requirements are primarily dependent on management's business plans regarding
the levels and timing of investments in existing and newly acquired businesses
and technologies. These plans and the related capital requirements may change
based upon various factors, such as the Company's strategic opportunities,
developments in the Company's markets, the timing of closing and integrating
acquisitions and the conditions of financial markets.
The Company had trade and installment accounts receivable, net of
allowances, of $417,955,000 and $279,919,000 as of December 31, 1998 and 1997,
respectively. The Company sells software products and services to customers in
diversified industries and geographic regions and, therefore, has no
significant concentration of credit risk. Historically, a substantial amount of
the Company's revenues have been recorded in the third month of any given
quarter, with a concentration of such revenues in the last week of the third
month. This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.
The Company sells a significant portion of its installment receivables to
third parties. Installment receivables represent amounts collectible on long-
term financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over five years, with interest
payable on the license and upgrade portions only. Over the past three years,
the Company executed an increasingly greater number and higher dollar value of
sales transactions having long-term financing arrangements, primarily
attributable to sales of product bundles and integrated product suites.
Consequently, the Company's volume of installment receivable sales increased
significantly over the past two years. The Company anticipates that the
operations of Global Finance will result in the direct financing of the
Company's customers by Global Finance, as compared with the Company's current
practice of recording and subsequently selling certain installment receivable
balances.
The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were approximately $319,782,000, $206,916,000 and $129,328,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. Accounts
receivable sold with recourse were $19,373,000 for the year ended December 31,
1996. There were no accounts receivable sold with recourse for the years ended
December 31, 1998 and 1997, and as of December 31, 1998, there were no
remaining potential recourse obligations for accounts receivable sold with
recourse. The Company has an agreement with a third party that provides for
potential recourse obligations in the form of a loss pool based on the
performance of the related accounts receivable portfolio. Under the terms of
that agreement, potential recourse obligations at December 31, 1998 were
approximately $20,000,000. Based on the credit ratings of the underlying
obligors to the accounts receivable and the performance history of the accounts
receivable portfolio, the Company has assessed the exposure related to these
recourse obligations and does not expect the potential liability to have a
material adverse effect on the Company's future results of operations.
25
<PAGE>
The Company's installment receivables are recorded net of unamortized
discounts and deferred maintenance fees. When these receivables are sold, the
Company reduces the gross installment receivable balance. Additionally, the
Company reclassifies the deferred maintenance, which was previously reflected
as a reduction of the related installment receivable balance, to a liability.
The deferred maintenance is recognized into income ratably over the term of the
maintenance agreement.
The Company had long-term acquisition-related payables of $6,388,000 and
$18,320,000 and other long-term obligations of $266,422,000 and $267,239,000 as
of December 31, 1998 and 1997, respectively. The convertible subordinated notes
issued by the Company in November 1996 and December 1997 constituted the
majority of the balances in long-term obligations at December 31, 1998 and
1997. The Company completed an offering of convertible subordinated notes due
December 15, 2002 in December 1997 (the "1997 Notes"). The 1997 Notes bear
interest at 6.25% annually, and the holders of the 1997 Notes have the option
to convert them into shares of Common Stock, at any time prior to maturity, at
a conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the 12-month
period commencing December 15, 2000 at 102.5% of their principal amount and
during the 12-month period commencing December 15, 2001 at 101.25% of their
principal amount. The Company received proceeds, net of issuance costs, of
$144,967,000 from the offering of the 1997 Notes. The Company completed an
offering of convertible subordinated notes due November 15, 2001 in November
1996 (the "1996 Notes"). The 1996 Notes bear interest at 6.75% annually, and
the holders of the 1996 Notes have the option to convert them into shares of
Common Stock, at any time prior to maturity, at a conversion price of $13.95
per share. The 1996 Notes are redeemable at the option of the Company, in whole
or in part, at any time during the 12-month period commencing November 15, 1999
at 102.7% of their principal amount and during the 12-month period commencing
November 15, 2000 at 101.35% of their principal amount. The Company received
proceeds, net of issuance costs, of $110,783,000 from the offering of the 1996
Notes. The Company currently has total debt service obligations of
approximately $35,000,000 for 1999, consisting primarily of obligations to pay
interest on the 1996 Notes and the 1997 Notes, as well as acquisition-related
payables. Based on current outstanding indebtedness, the Company estimates its
debt service requirements to be approximately $15,000,000, $129,000,000 and
$156,000,000 for 2000, 2001 and 2002, respectively, which amounts include the
outstanding principal balance of the 1996 Notes in 2001 and the outstanding
principal balance of the 1997 Notes in 2002.
The Company currently has an unsecured bank line of credit for an aggregate
of $65,000,000 with American National Bank and Trust Company of Chicago, under
which borrowings bear interest at rates ranging from approximately LIBOR plus
1.25% to the bank's prime rate. As of March 23, 1999, the Company had no
outstanding borrowings under this line of credit, but had aggregate letters of
credit outstanding for approximately $12,846,000, with expiration dates ranging
from May 1999 to April 2000. These letters of credit reduce the balance
available under its lines of credit. Under the credit agreement, the Company
has agreed: (i) to maintain a ratio of current assets to current liabilities of
at least 1.0 to 1.0; (ii) to maintain a tangible net worth of not less than
$275,000,000; and (iii) to maintain a ratio of total liabilities to tangible
net worth of not more than 1.0 to 1.0. Additionally, the Company has a line of
credit with Fuji Bank for approximately $2,134,000 (based upon current exchange
rates), under which borrowings bear interest at a rate of 2.125%. As of March
23, 1999, the Company had outstanding borrowings of approximately $1,067,000
under this line of credit.
Foreign Currency Exchange Rates
Historically, the Company has derived a significant portion of its revenues
from international sales. The Company's total level of foreign sales and the
profitability of these sales could be materially adversely affected by exchange
rate fluctuations. To date, fluctuations in foreign currency exchange rates
have not had a material effect on the Company's results of operations or
liquidity. However, the Company closely monitors its foreign operations and net
asset position to ascertain the need for hedging foreign currency exchange
risk. Since 1997, the only exposure related to foreign currency exchange for
which the Company has considered hedging appropriate has been related to short-
term intercompany balances. These non-functional currency balances are hedged
by purchases and sales of forward exchange contracts to reduce this exchange
rate exposure. At December 31, 1998, the Company held an aggregate of
approximately $32,692,000 in notional amount of
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<PAGE>
forward exchange contracts. As the Company's operations expand in international
regions outside Western Europe, where the Company's international operations
are currently concentrated, the Company may increasingly need to hedge foreign
currency exchange risk. See also "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk."
Year 2000 Considerations
Demand for the Company's Products and Services
The Company sells certain software products, and provides related consulting
services, which assist customers in solving their own Year 2000 problems. For
obvious reasons, the demand for these products has been created by the
impending arrival of the Year 2000. Demand for certain of the Company's other
products may also be generated by customers who are replacing or upgrading
software to accommodate the Year 2000 date change. As a result, demand for some
of the Company's products and services may diminish as the Year 2000 arrives,
which could negatively impact the Company's revenue growth rate. Additionally,
because the Company believes that some of its customers are allocating a
substantial portion of their 1999 IT budgets to Year 2000 compliance, sales of
certain of the Company's traditional product offerings may be adversely
affected through the end of 1999.
Compliance of the Company's Products
The Company believes that substantially all of the products that it
currently sells or maintains are now Year 2000 compliant. These products have
met rigorous compliance criteria and have undergone extensive testing to detect
any Year 2000 failures. In general, these Year 2000 compliance efforts have
been part of the Company's ongoing software development process, and the
Company estimates that the associated incremental costs have totaled less than
$10,000,000. Despite these efforts, certain of the Company's products may
contain undetected Year 2000 problems, and customers of the Company who have
discontinued maintenance may be running old product versions that are not
compliant.
The Company licenses a small percentage of the products that it sells from
third parties. Although these products have generally been warranted to the
Company as Year 2000 compliant, they have generally not been subject to the
same extensive Company testing as those products developed or acquired by the
Company. The Company has therefore been engaged in and is nearing the end of an
aggressive effort, working with its third party product suppliers, and
conducting its own tests, to obtain a very high level of assurance of Year 2000
compliance.
Under certain circumstances, the Company may decide to acquire software
products that are not currently Year 2000 compliant. There can be no assurance
that the Company will be successful in bringing such products into compliance
prior to January 1, 2000, particularly any products acquired in late 1999. The
Company is developing contingency plans to inform customers if any Year 2000
problems remain.
Because the Company's products are typically used in high volume information
systems that are critical to its customers' operations, business interruptions,
loss or corruption of data or other major problems resulting from a failure of
a product to process data correctly could have significant adverse consequences
to its customers. Although the Company believes that its software license
agreements provide it with substantial protection against liability, the
Company cannot predict whether or to what extent any legal claims will be
brought against the Company, or whether the Company will otherwise be adversely
affected, as a result of any such adverse consequence to its customers.
Similarly, the Company may face legal claims or suffer other adverse
consequences as a result of any information system failures of companies for
which the Company has provided consulting services.
Internal Systems and Technical Infrastructure
The Company has implemented a comprehensive program, with a dedicated
project manager, to address Year 2000 issues in the Company's internal systems,
including IT and non-IT systems, and technical
27
<PAGE>
infrastructure. As part of this program, the Company is analyzing Year 2000
compliance with respect to the services, building systems and equipment at the
properties at which the Company operates. It is also verifying that other third
parties upon which the Company relies, including payroll and employee benefit-
related service providers and financial institutions, are or will be compliant.
The Company believes that its Year 2000 internal systems and technical
infrastructure compliance program is approximately 85% complete and that the
remainder will be completed well in advance of January 1, 2000. This program
includes eight phases: (1) inventorying of all of the Company's software and
hardware (completed); (2) identifying and testing all internal mission critical
business applications and correcting any Year 2000 problems in these
applications (expected to be completed by the end of March 1999); (3)
identifying the interfaces from the mission critical business applications to
third party systems and confirming the compliance of these third party systems
(all of these systems are expected to be compliant by the first quarter of
1999); (4) identifying critical vendors in purchasing and travel (vendor
questionnaire responses are now being reviewed); (5) informing the Company's
internal user community about this Year 2000 program (an intranet site has been
established and is regularly updated); (6) educating the Company's internal
user community about Year 2000 issues and monitoring user compliance (in
progress since fourth quarter of 1998); (7) identifying noncritical vendors and
confirming their Year 2000 compliance (planned for the second quarter of 1999);
(8) preparing contingency plans for mission critical business applications,
technical infrastructure and critical vendors (in progress and expected to be
completed by September 1999).
The Company expects that it will not incur any significant incremental costs
for replacement or upgrading of systems that are not Year 2000 compliant, and
it estimates that total personnel expenses relating to the Company's
remediation program will be approximately $1,900,000. Therefore, the Company
does not believe that the costs associated with the program will have a
material effect on the Company's financial condition or results of operations.
The Company believes that, although its risk of operational disruption from
systems failures due to Year 2000 problems is minimal, the Company could suffer
adverse consequences as a result of interruptions in electrical power,
telecommunications or other critical third party infrastructure services. In a
worst case scenario, Company computer systems could be rendered inoperable, and
the Company could be unable to develop or support its products. The Company is
currently developing a specific contingency plan to deal with these issues.
This plan, which is expected to be completed by May 1999, is expected to
provide for relocation of employees and reliance on Company owned electrical
generators and cellular telephones.
Other Risks And Uncertainties That Could Affect Future Operating Results
In addition to the risks discussed above under "--Foreign Currency Exchange
Rates" and "--Year 2000 Considerations," below under "--Quarterly Comparisons"
and elsewhere in this Annual Report on Form 10-K, the following risks,
uncertainties and other factors could affect the Company's future business,
financial condition and results of operations.
Rapid Technological Change; Reliance on New Products and Markets
The Company expects the market for its products to continue to be subject to
frequent and rapid changes in technology and customer preferences. The
emergence of new product technologies and industry standards could cause the
Company's existing products to become obsolete and unmarketable. The Company's
growth and future financial performance will depend upon its ability to develop
and introduce new products and enhance existing products to accommodate the
latest technological advances and customer requirements. If the Company fails
to anticipate or adequately respond in a timely fashion to changes in
technology and customer preferences, its business, financial condition or
results of operations could be materially adversely affected. Additionally, the
Company's future growth and financial performance will be adversely affected if
(1) new products developed by the Company are not accepted in the marketplace;
(2) other software vendors develop and market products which are superior to
the Company's products and gain greater acceptance in the marketplace; or (3)
customers delay purchases in anticipation of technological changes.
28
<PAGE>
Dependence on Mainframe Products
The Company derives a significant percentage of its revenues from products
for mainframe computers and believes that mainframes will continue to be an
integral part of organizations' open systems IT environments. However, there
has been debate in the marketplace regarding the future role of mainframe
computers. Although the Company now derives a majority of its revenues from
non-mainframe products and services, if there were a decline in utilization of
mainframe computers, the Company's business, financial condition and results of
operations could be materially adversely affected.
Risks of Reliance on an Acquisition Strategy
The Company has grown largely through the acquisition of businesses and
technologies. Since mid-1994, the Company has acquired 48 businesses and 31
technologies. The Company believes that its future growth depends, in part,
upon the continued success of this acquisition strategy. In the future, the
Company may not be able to successfully identify, acquire on favorable terms or
integrate suitable businesses or technologies. The Company may also face
increased competition for acquisition opportunities, which may adversely affect
its ability to complete suitable acquisitions and may increase the costs of
completing acquisitions. An acquisition strategy involves a number of other
risks and challenges, including the following: (1) diversion of management's
attention; (2) integration of the operations and personnel of acquired
companies; (3) incorporation of acquired products into existing product lines;
(4) adverse short-term effects on reported operating results; (5) amortization
of acquired intangible assets; (6) assumption of liabilities of acquired
companies; (7) potential dilutive effect on the Company's stockholders from
continued issuance of common stock as consideration for acquisitions; (8)
adverse effect of acquisition-related charges, costs and expenses on operating
and net income; (9) potential loss of key employees; and (10) difficulty of
presenting a unified corporate image.
Highly Competitive Markets
The Company operates in the highly competitive markets of information
technology infrastructure products and professional services, and the Company
expects competition to increase. Many of the Company's current and prospective
competitors have significantly greater financial, technical and marketing
resources than the Company. In addition, many prospective customers have the
internal capability to implement solutions to their information technology
infrastructure problems.
Risk of Damage Claims and Costs Resulting from Product Defects
Upon release, the Company's software products typically contain certain
errors or bugs which are usually resolved through the regular maintenance and
updating process. However, products may contain more serious errors, failures
or bugs which may not be discovered until the Company has delivered the
products to customers. As a result of serious failures or bugs, (1) the
Company's customers could suffer major business interruptions or other problems
which could lead to claims for damages against the Company; (2) customers may
delay their purchases of products until they are satisfied that the problems
have been resolved; (3) customers may decide not to purchase the defective
products or other Company products; (4) customers who have already received the
defective products may return them for refunds and possibly may bring other
claims against the Company; (5) the Company may need to devote significant
financial and product development resources to fix software defects; and (6)
the Company may be forced to delay the introduction of new products or new
versions of existing products. The Company believes that its software license
agreements provide it with substantial protection against liability. In
addition, the Company possesses "errors and omissions" insurance covering the
Company in the event it is held responsible for losses suffered by its
customers due to product defects. Nevertheless, the Company may be found liable
for customer losses, and its insurance may not be adequate to cover such
losses. If the Company's products contain serious failures or bugs, the
Company's business, results of operations or financial condition may be
materially adversely affected.
29
<PAGE>
Dependence on Proprietary Technology
The Company's success is heavily dependent upon its proprietary software
technology. The Company establishes and protects its proprietary rights through
a combination of contractual rights, trademarks, trade secrets, patents and
copyright laws. However, the steps the Company has taken to protect its
proprietary rights may not be adequate to prevent the unauthorized use or
imitation of its products. Additionally, the Company has derived a significant
percentage of its revenues from sales in foreign countries. Certain of these
countries may afford less protection to proprietary technology rights than is
provided under United States laws. The Company does not believe that its
products or technologies materially infringe on the intellectual property
rights of others. However, infringement claims may be asserted against the
Company in the future. Any claim or litigation, with or without merit, or an
adverse determination in such claims or litigation, could be costly and could
have a material adverse effect on its results of operations and financial
condition.
Dependence on DB2
The Company expects to continue to derive a significant portion of its
revenues from licensing products that enhance the performance of IBM's DB2
software for managing mainframe corporate databases. If IBM decreases its
commitment to DB2 or there is a decline in the market's acceptance and
utilization of DB2, the Company's business could be materially adversely
effected. Also, if IBM enhances DB2 and thereby renders the Company's products
obsolete or devotes more resources to developing and marketing IBM's own DB2
tools, the Company's business, results of operations or financial condition
could be materially adversely affected.
Dependence on Relationships with Relational Database Vendors
The Company must develop and maintain close relationships with leading
database vendors to compete effectively. For example, the Company has entered
into alliances with Oracle Systems Corp., Sybase, Inc. and Informix Software,
Inc. If the Company fails to maintain existing relationships or establish new
relationships with database vendors, the Company's business, results of
operations and financial condition could be materially adversely affected.
The Company's Net Losses and Its Ability to Satisfy Future Debt Obligations
If the Company does not achieve its anticipated revenues and operating
income and continues to incur losses in the future, its ability to pay interest
on, or ultimately pay the principal amount of, its indebtedness could become
impaired. If it does not meet its cash requirements out of cash flow from
operations and available borrowings, it may not be able to obtain alternative
financing or may not be permitted to do so under the terms of its existing
financing arrangements. If it does not arrange for sufficient financing, its
ability to respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased working capital requirements may be adversely
affected. The Company could also become more vulnerable to industry downturns
and competitive pressures. See "--Liquidity and Capital Resources."
Risks of International Sales
In addition to the risks associated with foreign currency exchange rate
fluctuations, the Company is subject to other risks generally associated with
doing international business, including the following: (1) longer payment
cycles; (2) difficulty of managing remote offices; (3) greater difficulties in
accounts receivable collection; (4) burdens of complying with a wide variety of
foreign laws; and (5) exposure to general foreign economic declines and
political conditions.
30
<PAGE>
Risks of Consulting Services Business
The Company is subject to the risks associated with a consulting services
business, including (1) dependence on reputation with existing customers; (2)
volatility of workload; and (3) dependence on ability to attract and retain
qualified technical personnel. Also, the Company may derive a substantial
portion of its future consulting services revenue from the performance of
services under fixed-price contracts. The Company may not be able to perform in
a profitable manner under these contracts, particularly in the field of
software development, where cost overruns occur frequently.
Dependence on Key Personnel
The Company's success depends largely on the skills, experience and efforts
of its key management, marketing, product development, professional services
and operational personnel, including key personnel of acquired companies.
Because competition for qualified personnel in the software industry is
intense, the Company may face increasing difficulty in hiring, training and
integrating new employees and keeping current valued employees required for the
Company's continued growth. Further, certain key members of the management of
acquired companies may not continue with the combined businesses. If the
Company encounters difficulty in attracting and retaining key employees, the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company's success depends in large part on
the skills and efforts of Andrew J. Filipowski, the Company's Chairman,
President and Chief Executive Officer, and Paul L. Humenansky, the Company's
Executive Vice President--Product Development and Chief Operations Officer. The
Company has not entered into non-competition agreements with Messrs. Filipowski
or Humenansky or any of its other key personnel and has not obtained "key man"
life insurance covering these individuals.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
required to adopt the provisions of SFAS No. 133 beginning with its March 31,
2000 interim financial statements. This statement provides a comprehensive
standard for the recognition and measurement of derivatives and hedging
activities. The Company is currently evaluating the impact of this standard on
its financial statements.
Quarterly Comparisons
The following tables set forth an unaudited summary of quarterly financial
data. This quarterly information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion, reflects
all adjustments necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest total revenues and
operating income in a given year. For example, 33%, 33% and 32% of the
Company's total revenues in 1998, 1997 and 1996, respectively, were generated
in the fourth quarter. Further, revenues from the fourth quarter of 1997 were
higher than the first quarter of 1998. The Company believes the seasonality of
its revenue results primarily from the budgeting cycles of its software product
customers and the structure of the Company's sales commission and bonus
programs. In addition, the Company's software products revenues may vary
significantly from quarter to quarter depending upon other factors, such as the
timing of new product announcements and releases by the Company and its
competitors.
31
<PAGE>
The Company operates with relatively little backlog, and substantially all of
its software products revenues in each quarter result from sales made in that
quarter.
<TABLE>
<CAPTION>
1998
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(in thousands, except per share
amounts)
(unaudited)
<S> <C> <C> <C> <C>
Total revenues, as
previously reported
(1).................... $158,261 $217,435 $250,326 $314,727
Adjustments (2)......... 27,457 -- -- --
Total revenues....... 185,718 217,435 250,326 314,727
Operating income (loss),
as previously reported
(1).................... 995 (57,298)(3) 26,895(4) 50,449(5)
Adjustments (2)......... (724) -- -- --
Operating income
(loss).............. 271 (57,298)(3) 26,895(4) 50,449(5)
Net income (loss), as
previously reported
(1).................... 3,665 (58,004)(3) 19,385(4) 32,688(5)
Adjustments (2)......... (202) -- -- --
Net income (loss).... 3,463 (58,004)(3) 19,385(4) 32,688(5)
Net income (loss) per
share, as previously
reported (1)........... $ 0.05 $ (0.70)(3) $ 0.21(4) $ 0.34(5)
Net income (loss) per
share............... 0.04 (0.70)(3) 0.21(4) 0.34(5)
Shares used in computing
net income (loss) per
share, as previously
reported (1)........... 70,756 82,331 101,093 99,054
Shares used in
computing net income
(loss) per share.... 88,318 82,331 101,093 99,054
<CAPTION>
1997
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(in thousands, except per share
amounts)
(unaudited)
<S> <C> <C> <C> <C>
Total revenues, as
previously
reported(6)............ $115,623 $136,438 $160,201 $211,241
Adjustments(7).......... 25,567 27,744 30,609 31,457
Total revenues....... 141,190 164,182 190,810 242,698
Operating income (loss),
as previously
reported(6)............ (33,086)(8) (77,336)(9) 10,553 (15,923)(10)
Adjustments(7).......... 1,874 3,512 3,973 4,292
Operating income
(loss).............. (31,212)(8) (73,824)(9) 14,526 (11,631)(10)
Net income (loss), as
previously
reported(6)............ (25,269)(8) (78,933)(9) 10,160 (23,742)(10)
Adjustments(7).......... 2,225 2,113 3,858 3,460
Net income (loss).... (23,044)(8) (76,820)(9)(11) 14,018 (20,282)(10)
Net income (loss) per
share, as previously
reported(6)............ $ (0.41)(8) $ (1.28)(9) $ 0.16 $ (0.37)(10)
Net income (loss) per
share............... (0.30)(8) (0.99)(9)(11) 0.17 (0.25)(10)
Shares used in computing
net income (loss) per
share, as previously
reported(6)............ 60,947 61,477 65,328 63,615
Shares used in
computing net income
(loss) per share.... 76,673 77,404 82,437 79,932
</TABLE>
- - --------
(1) As reported under the Statement of Operations in the Company's Quarterly
Report on Form 10-Q for the three months ended March 31, 1998.
(2) Adjustments reflect the effect of acquisitions accounted for as poolings of
interests on the amounts previously reported in the Company's Quarterly
Report on Form 10-Q. See Note 2 of the Notes to Consolidated Financial
Statements included elsewhere herein for a more detailed discussion of
these transactions.
(3) Reflects a pre-tax charge for acquired in-process technology of $30,465,000
relating to certain Company acquisitions. Also reflects a pre-tax charge
for merger costs of $39,965,000 relating to certain Company acquisitions.
(4) Reflects a pre-tax charge for acquired in-process technology of $2,150,000
relating to certain Company acquisitions. Reflects a pre-tax restructuring
benefit of $6,525,000. Also reflects a pre-tax special general and
administrative charge of $6,525,000.
(5) Reflects a pre-tax charge for acquired in-process technology of $5,303,000
relating to certain Company acquisitions. Reflects a pre-tax restructuring
benefit of $4,439,000. Also reflects a pre-tax special general and
administrative charge of $4,457,000.
32
<PAGE>
(6) As reported under "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Comparisons" in
the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
(7) Adjustments reflect the effect of acquisitions accounted for as poolings of
interests on the amounts previously reported in the Company's Annual Report
on Form 10-K. See Note 2 of the Notes to Consolidated Financial Statements
included elsewhere herein for a more detailed discussion of these
transactions.
(8) Reflects a pre-tax charge for acquired in-process technology of $10,417,000
relating to certain Company acquisitions. Also reflects a pre-tax charge
for merger costs of $3,706,000 relating to certain Company acquisitions.
(9) Reflects a pre-tax charge for acquired in-process technology of $6,747,000
relating to certain Company acquisitions. Also reflects a pre-tax charge of
$56,063,000 for restructuring costs.
(10) Reflects a pre-tax charge for acquired in-process technology of
$50,740,000 relating to certain Company acquisitions. Also reflects a pre-
tax charge for merger costs of $5,221,000 relating to certain Company
acquisitions.
(11) Includes a loss from discontinued operations, net of taxes, related to
Mastering of $1,477,000, or $0.02 per share.
Special Note Regarding Forward-Looking Statements
This Form 10-K contains certain "forward-looking statements" (as defined in
Section 21E of the Exchange Act) that reflect the Company's expectations
regarding its future growth, results of operations, performance and business
prospects and opportunities. Words such as "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect the Company's
current beliefs and are based on information currently available to the
Company. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause the Company's actual growth,
results, performance or business prospects and opportunities to differ
materially from those expressed in, or implied by, these statements. These
risks, uncertainties and other factors include the Company's ability to develop
and market existing and acquired products for the IT infrastructure market; the
Company's ability to successfully implement its 1999 restructuring plan; risks
related to the Year 2000 challenge; the Company's ability to successfully
integrate its acquired products, services and businesses; the Company's ability
to adjust to changes in technology, customer preferences, enhanced competition
and new competitors in the IT infrastructure and professional services markets;
currency exchange rate fluctuations, collection of receivables, compliance with
foreign laws and other risks inherent in conducting international business;
risks associated with conducting a consulting services business; the risk of
damage claims and costs resulting from product defects; general economic and
business conditions, which may reduce or delay customers' purchases of the
Company's products and services; charges and costs related to acquisitions; the
Company's ability to protect its proprietary software rights from infringement
or misappropriation, to maintain or enhance its relationships with relational
database vendors, and to attract and retain key employees; and the other risks
and uncertainties discussed under "--Other Risks And Uncertainties That Could
Affect Future Operating Results." Except as required by the federal securities
laws, the Company is not obligated to update or revise these forward-looking
statements to reflect new events or changed circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk--The Company is exposed to the impact of changes in
interest rates primarily due to the manner in which the Company manages its
investment portfolio. As stated in the Company's written policy, the goal of
the investment portfolio is preservation of principal and every effort is made
to limit default, market, liquidity and reinvestment risk. The vast majority of
the investment portfolio consists of money market instruments, corporate bonds
and asset backed securities. Speculative use of any security of any kind,
including derivative products, is prohibited in the investment portfolio.
33
<PAGE>
To mitigate risk associated with the investment portfolio, the Company
invests only in securities that have been rated as high quality by national
rating agencies. The vast majority of these securities have a maturity date
within six months. The portfolio is reviewed on a periodic basis, and
subsequently adjusted in the event that the credit rating of any security held
in the portfolio has deteriorated. Amounts invested with any one issuer are
limited to reduce default risk. Only securities with active secondary markets
are purchased to ensure future liquidity.
Foreign Currency Exchange Risk--The Company conducts business on a global
basis through subsidiaries in multiple countries utilizing major international
currencies. The Company is, therefore, exposed to movement in currency exchange
rates. The Company continues to maintain a program, utilizing forward foreign
exchange contracts, designed to hedge currency exposures related to certain
nonfunctional assets and liabilities resulting from intercompany balances. By
written policy, the Company does not enter into any type of foreign exchange
contract for trading or speculative purposes.
Gains and losses on the foreign exchange forward contracts are included in
other income and offset foreign exchange gains and losses from the revaluation
of intercompany balances denominated in currencies other than the functional
currency of the reporting entity. The forward contracts generally have a
maturity of one month and are executed only with major financial institutions.
Equity Price Risk--The Company has several minimal investments in the
marketable equity securities of publicly traded companies. All of these
investments, as of December 31, 1998, were considered available-for-sale, with
any unrealized gains or losses deferred as a component of stockholders' equity.
The largest of these holdings was the Company's investment in Memco, with a
December 31, 1998 fair value of $16.6 million. All other equity investments are
immaterial.
The Company utilizes a "Value-at-Risk" (VaR) model to determine the maximum
potential one-day loss in the fair value of its interest rate, foreign exchange
and equity price sensitive instruments. The VaR model estimates were made
assuming normal market conditions and a 95% confidence level. There are various
modeling techniques that can be used in the VaR calculations. The calculations
the Company performed were based on the variance-covariance statistical
modeling technique and included all interest rate sensitive instruments,
foreign exchange derivative contracts and equity investments. The VaR estimate
utilized historical interest rates, foreign exchange rates and equity prices
from the past year to estimate volatility and correlation of these rates and
prices in the future.
As of December 31, 1998, the following amounts represented the potential
loss in fair value that the Company could incur from adverse changes in
interest rates, foreign exchange rates or equity prices for a one-day period.
<TABLE>
<CAPTION>
Time Confidence
Value at Risk Amount Amount Interval Level
-------------------- -------------- -------- ----------
(in thousands)
<S> <C> <C> <C>
Interest rate sensitive instruments...... $297 1 day 95%
Foreign exchange sensitive instruments... 136 1 day 95
Equity price sensitive instruments....... 454 1 day 95
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item is included in the Company's
consolidated financial statements, together with the report thereon of KPMG
LLP, appearing on pages F-1 through F-32 of this Form 10-K, and in Item 7 under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Comparisons."
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is incorporated by reference from
the sections captioned "PROPOSAL NO. 1--ELECTION OF DIRECTORS" and "EXECUTIVE
OFFICERS" of the definitive Proxy Statement to be filed in connection with the
Company's 1999 Annual Meeting of Stockholders (the "1999 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information in response to this item is incorporated by reference from
the section of the 1999 Proxy Statement captioned "EXECUTIVE COMPENSATION."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in response to this item is incorporated by reference from
the section of the 1999 Proxy Statement captioned "SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is incorporated by reference from
the sections of the 1999 Proxy Statement captioned "EXECUTIVE COMPENSATION--
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "CERTAIN
TRANSACTIONS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a) 1. The following consolidated financial statements and notes thereto,
and the related independent auditors' report, are included on pages F-1 through
F-32 of this Form 10-K:
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Comprehensive Loss for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. The report of independent auditors and the financial statement schedule
of the Company are included on pages S-1 and S-2 of this Form 10-K:
Independent Auditors' Report
Schedule II--Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules
are not required or the information required has been presented in the
aforementioned financial statements.
35
<PAGE>
3. The following exhibits are filed with this Form 10-K or incorporated by
reference as set forth below:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement between Memco and the Company, dated as of August 13, 1998,
incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-4 Registration No.
333-71637 (the "1999 S-4").
3.1 Restated Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 3.1 to the 1999 S-4.
3.2 Bylaws of the Company, as amended, incorporated by reference to
Exhibit 3.2 to the 1999 S-4.
4.1 Specimen stock certificate representing Common Stock, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-39233 (the "IPO S-1 Registration
Statement").
4.2 Rights Agreement dated as of December 21, 1995 between the Company and
Harris Trust and Savings Bank, incorporated by reference to Exhibit 1
to the Company's Registration Statement on Form 8-A, filed December
26, 1995 (the "1995 8-A").
4.3 Certificate of Designations of the Class II Series A Junior
Participating Preferred Stock, incorporated by reference to Exhibit
4.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
4.4 Amendment to the Certificate of Designations of the Class II Series A
Junior Participating Preferred Stock, incorporated by reference to the
1999 S-4.
4.5 Indenture between the Company and American National Bank and Trust
Company, as Trustee, dated as of November 18, 1996, incorporated by
reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 (the "1997 10-K").
4.6 Form of Note for the Company's convertible subordinated notes due
2001, incorporated by reference to Exhibit 4.5 to the 1997 10-K.
4.7 Indenture between the Company and American National Bank and Trust
Company, as Trustee, dated as of December 15, 1997, incorporated by
reference to Exhibit 4.6 to the 1997 10-K.
4.8 Form of Note for the Company's convertible subordinated notes due
2002, incorporated by reference to Exhibit 4.7 to the 1997 10-K.
10.1 1989 Stock Option Plan, incorporated by reference to Exhibit 10.1 to
the IPO S-1 Registration Statement.*
10.2 Forms of Stock Option Agreements under the 1989 Stock Option Plan,
incorporated by reference to Exhibit 10.2 to the IPO S-1 Registration
Statement.*
10.3 Chief Executive Stock Option Plan, incorporated by reference to
Exhibit 10.3 to the IPO S-1 Registration Statement.*
10.4 Chief Executive Stock Option Agreement, incorporated by reference to
Exhibit 10.4 to the IPO S-1 Registration Statement.*
10.5 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 to
the IPO S-1 Registration Statement.*
10.6 Amended and Restated Employment Agreement between Andrew J. Filipowski
and the Company, dated as of January 1, 1996, incorporated by
reference to Exhibit 10.6 to the 1997 10-K.*
10.7 Amended and Restated Employment Agreement between Michael P. Cullinane
and the
Company, dated as of January 1, 1996, incorporated by reference to
Exhibit 10.7 to the 1997 10-K.*
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.8 Amended and Restated Employment Agreement between Paul L. Humenansky
and the Company, dated as of October 28, 1997, incorporated by
reference to Exhibit 10.8 to the 1997 10-K.*
10.9 Form of Indemnification Agreement between the Company and each of
Andrew J. Filipowski, Michael P. Cullinane, Paul L. Humenansky, Casey
G. Cowell, James E. Cowie, Steven D. Devick and Gian Fulgoni,
incorporated by reference to Exhibit 10.10 to the IPO S-1 Registration
Statement.*
10.10 Forms of Affiliate Agreements, incorporated by reference to Exhibit
10.11 to the IPO S-1 Registration Statement.
10.11 Form of Master Product License Agreement, incorporated by reference to
Exhibit 10.11 to the 1995 10-K.
10.12 Office Lease, dated May 6, 1992, between the Company and LaSalle
National Trust N.A. as Trustee (the "Oakbrook Terrace Lease"),
incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.13 PLATINUM technology, inc. 1993 Directors' Stock Option Plan,
incorporated by reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 (the "June
1994 10-Q").*
10.14 PLATINUM technology, inc. 1994 Stock Incentive Plan, incorporated by
reference to Exhibit 10.19 to the June 1994 10-Q.*
10.15 Amendments to the PLATINUM technology, inc. 1994 Stock Incentive Plan,
incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-8, Registration No. 33-85798 (the "1994 S-8").*
10.16 Form of Option Agreement under the PLATINUM technology, inc. 1993
Director's Stock Option Plan, incorporated by reference to Exhibit 4.4
to the 1994 S-8.*
10.17 Form of Option Agreement under the PLATINUM technology, inc. 1994
Stock Incentive Plan, incorporated by reference to Exhibit 4.5 to the
1994 S-8.*
10.18 Amendment Number One, dated as of May 3, 1993, to the Oakbrook Terrace
Lease, incorporated by reference to Exhibit 10.19 to the 1994 10-K.
10.19 Amendment Number Two, dated as of October 26, 1993, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.20 to the 1994
10-K.
10.20 Amendment Number Three, dated as of December 22, 1994, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.21 to the 1994
10-K.
10.21 Office Lease, dated August 8, 1994, between the Company and L.J.
Sheridan & Co. as court appointed receiver, incorporated by reference
to Exhibit 10.22 to the 1994 10-K.
10.22 PLATINUM technology, inc. Employee Incentive Compensation Plan,
incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-4, Registration No. 33-94410 (the
"1995 S-4").*
10.23 Lease Agreement, dated as of March 30, 1995, between the Company and
Lisle Property Venture, Inc. (the "March 1995 Lisle Lease"),
incorporated by reference to Exhibit 10.24 to the 1995 S-4.
10.24 First Amendment, dated as of September 15, 1995, to the March 1995
Lisle Lease, incorporated by reference to Exhibit 10.25 to the 1995
10-K.
10.25 Second Amendment, dated as of September 15, 1995, to the March 1995
Lisle Lease, incorporated by reference to Exhibit 10.26 to the 1995
10-K.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.26 Third Amendment, dated as of January 3, 1996, to March 1995 Lisle
Lease, incorporated by reference to Exhibit 10.27 to the 1995 10-K.
10.27 Lease Agreement, dated as of October 31, 19995, between Lisle Property
Venture, Inc. and the Company (the "October 1995 Lisle Lease"),
incorporated by reference to Exhibit 10.28 to the 1995 10-K.
10.28 Amendment Number Four, dated as of March 9, 1995, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.29 to the 1995
10-K.
10.29 Loan Agreement, dated as of December 31, 1995, between the Company and
American National Bank and Trust Company of Chicago (the "Loan
Agreement"), incorporated by reference to
Exhibit 10.30 to the 1995 10-K.
10.30 First Amendment, dated as of December 31, 1996, to the Loan Agreement,
incorporated by reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996
10-K").
10.31 First Amendment, dated as of May 23, 1996, to the October 31, 1995
Lisle Lease, incorporated by reference to Exhibit 10.31 to the 1996
10-K.
10.32 Second Amendment, dated as of May 24, 1996, to the October 31, 1995
Lisle Lease, incorporated by reference to Exhibit 10.32 to the 1996
10-K.
10.33 Lease Agreement, dated as of July 17, 1996, between the Company and
Oakbrook Tower Limited Partnership, incorporated by reference to
Exhibit 10.33 to the 1996 10-K.
10.34 PLATINUM technology, inc. 1996 Stock Purchase Plan, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8, Registration No. 333-03284 (the "April 1996
S-8").*
10.35 PLATINUM technology, inc. Amended and Restated 1993 Directors' Stock
Option Plan, incorporated by reference to Exhibit 4.2 to the April
1996 S-8.*
10.36 Amendment to the PLATINUM technology, inc. 1994 Stock Incentive Plan,
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 (the "June 1996 10-Q").*
10.37 First Amendment to the PLATINUM technology, inc. Employee Incentive
Compensation Plan, incorporated by reference to the June 1996 10-Q.*
10.38 Second Amendment to the PLATINUM technology, inc. Employee Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (the "June 1997 10-Q").*
10.39 Amendment Number Five, dated as of December 1, 1996, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.2 to the June
1997 10-Q.
10.40 Amendment Number Six, dated as of April 30, 1997, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.3 to the June
1997 10-Q.
10.41 Amendment Number Seven, dated as of September 16, 1997, to the
Oakbrook Terrace Lease, incorporated by reference to Exhibit 10.42 to
the Company's Registration Statement on Form S-1, Registration No.
333-40075.
10.42 Credit Agreement, dated as of December 22, 1997, between the Company
and American National Bank and Trust Company of Chicago, as Agent,
incorporated by reference to Exhibit 10.42 to the 1997 10-K.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.43 Sublease Agreement, dated as of June 16, 1998, between APL Land
Transport Services, Inc. and the Company, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 (the "June 1998 10-Q").
10.44 PLATINUM Employee Incentive Compensation Plan, as amended,
incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-8, Registration No. 333-57307.
10.45 PLATINUM Broad-Based Stock Option Plan (the "Broad-Based Plan"),
incorporated by reference to Exhibit 10.3 to the June 1998 10-Q.
10.46 Form of Stock Option Agreement under the Broad-Based Plan,
incorporated by reference to Exhibit 10.4 to the June 1998 10-Q.
10.47 PLATINUM Deferred Compensation Plan (the "Deferred Plan"),
incorporated by reference to the Company's Registration Statement on
Form S-8, Registration No. 333-61581 (the "August 1998
S-8").
10.48 Form of Plan Agreement under the Deferred Plan, incorporated by
reference to Exhibit 4.7 to the August 1998 S-8.
10.49 Severence Pay Agreement between Tom A. Slowey and the Company, dated
as of August 31, 1998.*
10.50 Severance Pay Agreement between Paul A. Tatro and the Company, dated
as of August 31, 1998.*
10.51 Amended and Restated Credit Agreement, dated as of December 21, 1998,
between the Company and American National Bank and Trust Company of
Chicago, as Agent.
12 Computation of Ratios of Earnings to Fixed Charges.
21 Subsidiaries of the Company.
23.1 Consent of KPMG LLP with respect to the Company's financial statements
and financial statement schedule.
Consent of Arthur Andersen LLP with Respect to Mastering's financial
23.2 statements.
Consent of Ernst & Young LLP with respect to Logic Works' financial
23.3 statements.
27.1 1998 Financial Data Schedule.
27.2 1997 Financial Data Schedule, as restated.
27.3 1996 Financial Data Schedule, as restated.
99.1 Report of Arthur Andersen LLP on Mastering's financial statements.
99.2 Report of Ernst & Young LLP on Logic Works' financial statements.
</TABLE>
- - --------
* Management contract or compensatory plan or arrangement required to be
included as an exhibit to this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K (Items 5 and 7) dated October
15, 1998 to report the Company's issuance of a press release announcing its
results of operations for the third quarter of 1998.
39
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of December 31,
--------------------
1998 1997
---------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 189,925 $233,024
Short-term investment securities....................... 76,981 79,699
Trade accounts receivable, net of allowances of $5,319
and $4,788............................................ 304,177 227,964
Installment accounts receivable, net of allowances of
$526 and $878......................................... 45,568 30,043
Accrued interest and other current assets.............. 54,887 37,090
Refundable income taxes................................ 787 753
---------- --------
Total current assets................................. 672,325 608,573
---------- --------
Non-current investment securities....................... 35,166 45,481
Property and equipment, net............................. 99,197 92,165
Purchased and developed software, net................... 182,259 117,213
Excess of cost over net assets acquired, net of
accumulated amortization of $25,104 and $15,975........ 69,045 52,759
Non-current installment receivables, net of allowances
of $1,374 and $1,616................................... 68,210 21,912
Other assets............................................ 24,068 34,804
---------- --------
Total assets......................................... $1,150,270 $972,907
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Acquisition-related payables........................... $ 33,245 $ 15,717
Income taxes payable................................... 7,888 4,165
Accounts payable....................................... 36,854 23,294
Accrued commissions and bonuses........................ 21,928 16,237
Accrued royalties...................................... 12,946 7,215
Accrued restructuring costs............................ 2,390 7,391
Other accrued liabilities.............................. 63,785 51,946
Current maturities of long-term obligations............ 1,362 1,619
Deferred revenue....................................... 163,982 128,326
---------- --------
Total current liabilities............................ 344,380 255,910
---------- --------
Acquisition-related payables............................ 6,388 18,320
Deferred revenue........................................ 95,959 60,435
Deferred rent........................................... 6,762 6,197
Accrued restructuring costs............................. 5,285 21,930
Deferred income taxes................................... 5,261 --
Long-term obligations, net of current maturities........ 266,422 267,239
---------- --------
Total liabilities.................................... 730,457 630,031
---------- --------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000 shares,
issued and outstanding 1,768 shares in 1998........... 18 --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997....................... -- 18
Common stock, $.001 par value; authorized 180,000
shares,
issued and outstanding 86,848 and 80,239.............. 87 80
Paid-in capital........................................ 784,710 691,609
Accumulated deficit.................................... (358,825) (352,450)
Accumulated other comprehensive income (loss).......... (6,177) 3,619
---------- --------
Total stockholders' equity........................... 419,813 342,876
---------- --------
Total liabilities and stockholders' equity........... $1,150,270 $972,907
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Software products............................ $542,578 $ 410,369 $289,125
Maintenance.................................. 171,711 139,912 114,579
Professional services........................ 253,917 188,599 149,780
-------- --------- --------
Total revenues............................. 968,206 738,880 553,484
-------- --------- --------
Costs and expenses:
Professional services........................ 235,914 170,847 145,443
Product development and support.............. 242,641 203,497 170,145
Sales and marketing.......................... 318,453 263,986 218,435
General and administrative................... 60,941 50,158 42,230
Amortization of excess cost over net assets
acquired.................................... 11,939 6,360 5,317
Special general and administrative charges... 10,982 13,513 1,978
Restructuring charges........................ (10,964) 55,829 16,312
Merger costs................................. 40,065 8,927 5,782
Acquired in-process technology............... 37,918 67,904 49,451
-------- --------- --------
Total costs and expenses................... 947,889 841,021 655,093
-------- --------- --------
Operating income (loss)........................ 20,317 (102,141) (101,609)
Other income, net.............................. 10,253 20,497 8,075
-------- --------- --------
Income (loss) from continuing operations before
income taxes.................................. 30,570 (81,644) (93,534)
Income taxes................................... 33,038 23,459 (9,752)
-------- --------- --------
Net loss from continuing operations............ (2,468) (105,103) (83,782)
Discontinued operations:
Loss from discontinued operations, net of tax
benefit of
$1,196 and $2,721........................... -- (1,858) (3,610)
Gain on disposal, net of tax expense of $394
and $40..................................... -- 833 198
-------- --------- --------
Total discontinued operations.............. -- (1,025) (3,412)
-------- --------- --------
Net loss....................................... $ (2,468) $(106,128) $(87,194)
======== ========= ========
Basic and diluted earnings per share:
Net loss from continuing operations.......... $ (0.03) $ (1.35) $ (1.16)
Discontinued operations...................... -- (0.01) (0.05)
-------- --------- --------
Net loss..................................... $ (0.03) $ (1.36) $ (1.21)
======== ========= ========
Shares used in computing per share amounts... 83,856 78,072 71,919
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Net loss......................................... $ (2,468) $(106,128) $(87,194)
Other comprehensive income (loss):
Foreign currency translation adjustment........ 856 (3,786) (2,094)
-------- --------- --------
Unrealized holding gains (losses) on marketable
securities:
Unrealized holding gains (losses) arising
during the period, net of tax expense
(benefit) of $(3,042), $1,717 and $12,285
during 1998, 1997 and 1996, respectively.... (4,563) 2,576 18,427
Less reclassification adjustment for gains
included in net loss, net of tax expense of
$4,060, $7,949 and $413 during 1998, 1997
and 1996, respectively...................... (6,089) (11,924) (619)
-------- --------- --------
Change in unrealized holding gains (losses)
for the period............................ (10,652) (9,348) 17,808
-------- --------- --------
Comprehensive loss............................... $(12,264) $(119,262) $(71,480)
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
----------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning
of year.............. 1,768 $ 18 -- $ -- -- $ --
Preferred stock sub-
scribed.............. (1,768) (18) 1,768 18 -- --
Issuance of preferred
stock................ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 1,768 $ 18 1,768 $ 18 -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning
of year.............. 80,239 $ 80 76,195 $ 76 67,788 $ 68
Exercise of stock op-
tions................ 3,097 3 1,609 2 892 1
Issuance of common
stock under Stock
Purchase Plan........ 1,585 2 973 1 282 --
Issuance of common
stock................ 1,925 2 1,461 1 7,233 7
Conversion of subordi-
nated notes.......... 2 -- 1 -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 86,848 $ 87 80,239 $ 80 76,195 $ 76
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning
of year.............. $ 691,609 $ 605,177 $ 497,865
Exercise of stock op-
tions................ 35,251 10,690 4,152
Income tax benefit re-
lated to stock op-
tions................ -- 3,233 1,297
Issuance of common
stock under Stock
Purchase Plan........ 24,358 12,503 2,791
Issuance of common
stock................ 33,605 18,173 99,207
Preferred stock sub-
scribed.............. (41,848) 41,848 --
Issuance of preferred
stock................ 41,848 -- --
Amortization of shelf
registration costs... (149) (25) (135)
Conversion of subordi-
nated notes.......... 36 10 --
--------- --------- ---------
Balance at end of
year................. $ 784,710 $ 691,609 $ 605,177
========= ========= =========
Notes receivable:
Balance at beginning
of year.............. $ -- $ -- $ (515)
Reclassification to
other assets......... -- -- 515
--------- --------- ---------
Balance at end of
year................. $ -- $ -- $ --
========= ========= =========
Accumulated deficit:
Balance at beginning
of year.............. $(352,450) $(246,262) $(157,967)
Net loss.............. (2,468) (106,128) (87,194)
Adjustment for immate-
rial pooled business-
es................... (3,522) 1,014 45
Other................. -- -- (1,006)
Adjustment to conform
fiscal years of
pooled businesses.... (385) (1,074) (140)
--------- --------- ---------
Balance at end of
year................. $(358,825) $(352,450) $(246,262)
========= ========= =========
Unrealized holding gains
(losses) on marketable
securities:
Balance at beginning
of year.............. $ 8,466 $ 17,814 $ 6
Change in unrealized
holding gains, net of
tax.................. (10,652) (9,348) 17,808
--------- --------- ---------
Balance at end of
year................. $ (2,186) $ 8,466 $ 17,814
========= ========= =========
Foreign currency trans-
lation adjustment:
Balance at beginning
of year.............. $ (4,847) $ (1,061) $ 1,033
Translation adjust-
ment................. 856 (3,786) (2,094)
--------- --------- ---------
Balance at end of
year................. $ (3,991) $ (4,847) $ (1,061)
========= ========= =========
Total stockholders' eq-
uity................... $ 419,813 $ 342,876 $ 375,744
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (2,468) $(106,128) $(87,194)
Adjustments to reconcile net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization................ 85,770 62,288 43,549
Acquired in-process technology............... 37,918 67,904 49,451
Write-off of fixed assets, capitalized
software and other
intangible assets in conjunction with
restructuring plan.......................... -- 18,197 3,440
Recovery related to restructuring liability.. (10,964) -- --
Gain on sale of discontinued operations...... -- (6,709) --
Unrealized holding gains on marketable equity
securities.................................. (2,232) (12,590) (923)
Realized net gain on sales of investment
securities.................................. (12,079) (7,566) (1,032)
Write-off of capitalized software in
connection with product
stabilization and mergers................... -- -- 654
Noncash compensation......................... -- 100 421
Sales of trading securities.................... 13,918 9,489 --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables............ (138,216) (60,684) (68,614)
Deferred income taxes........................ 23,278 15,649 (21,238)
Accrued interest and other current assets.... (16,941) (12,979) (2,619)
Accounts payable and accrued liabilities..... 45,635 34,668 2,638
Deferred revenue............................. 70,152 55,338 62,566
Income taxes payable......................... 3,570 3,573 1,390
Other........................................ (1,204) (11,308) 4,906
-------- --------- --------
Net cash provided by (used in) operating
activities................................ 96,137 49,242 (12,605)
-------- --------- --------
Cash flows from investing activities:
Purchases of investment securities............. (271,804) (91,423) (55,188)
Sales of available-for-sale securities......... 44,884 15,789 43,763
Maturities of investment securities............ 222,751 24,383 5,846
Purchases of property and equipment............ (43,188) (37,824) (45,172)
Proceeds from the sale of discontinued
operations.................................... -- 17,500 --
Purchased and developed software............... (90,894) (63,781) (42,354)
Payments for acquisitions...................... (55,132) (19,338) (18,095)
Other assets................................... (1,366) (1,598) (4,038)
-------- --------- --------
Net cash used in investing activities...... (194,749) (156,292) (115,238)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
issuance costs................................ -- -- 49,973
Proceeds from issuance of convertible notes,
net of issuance costs......................... -- 144,967 110,783
Proceeds from exercise of stock options and
Stock Purchase Plan........................... 59,588 23,196 6,944
Proceeds from borrowings....................... -- -- 1,465
Payments on borrowings......................... (3,690) (5,189) (10,404)
Other.......................................... -- (487) (1,109)
-------- --------- --------
Net cash provided by financing activities.. 55,898 162,487 157,652
-------- --------- --------
Adjustment to conform fiscal years of pooled
businesses..................................... (385) (1,074) (140)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (43,099) 54,363 29,669
Cash and cash equivalents at beginning of year.. 233,024 178,661 148,992
-------- --------- --------
Cash and cash equivalents at end of year........ $189,925 $ 233,024 $178,661
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
PLATINUM technology International, inc. and its subsidiaries (collectively,
the "Company" or "PLATINUM") develop, market and support software products, and
provide related professional services, that help organizations manage and
improve their information technology ("IT") infrastructures, which consist of
data, systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company markets and
supports its products and services principally through its own sales
organization, including an international network of wholly-owned subsidiaries.
Throughout 1998, the Company's software segment was organized into four
business units consisting of database management, systems management,
application infrastructure management, and data warehousing and decision
support.
Use of Estimates
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Company's management makes
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 periods. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions are eliminated
in consolidation.
Revenue Recognition
Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations are satisfied and the collection of the
resulting receivables is reasonably assured. Software product sales under
extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are recognized on a straight-line basis over the
maintenance period.
Professional service revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of
both time and material contracts and fixed-price contracts. Time and material
contract revenues are recognized as services are performed. Fixed-price
contract revenues are recognized based on the percentage-of-completion method.
On January 1, 1998, the Company adopted AICPA Statement of Position ("SOP")
97-2, "Software Revenue Recognition," which specifies the criteria that must be
met for recognizing revenues from software sales. The adoption of SOP 97-2 in
1998 has not had a material impact on the Company's financial position or
results of operations.
F-6
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash Equivalents and Investment Securities
Cash equivalents are comprised of highly liquid investments with original
maturities of three months or less. Investment securities consist primarily of
corporate bonds with original maturities of less than one year, mortgage-backed
and other asset-backed securities with original maturities generally ranging
from three to thirty years, and marketable equity securities. The Company
classifies its investment securities as either available-for-sale or trading
and reports them at fair value. The consolidated financial statements reflect
investment securities classified as held-to-maturity which were acquired
through the Company's acquisition of Mastering, Inc. ("Mastering"), as
discussed in Note 2.
Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. For available-for-sale securities, unrealized holding gains and losses,
net of income taxes, are reported as a separate component of stockholders'
equity. For trading securities, unrealized holding gains and losses are
reflected in pre-tax earnings. For securities transferred from available-for-
sale to the trading classification, any unrealized holding gains or losses at
the date of transfer are recognized in pre-tax earnings immediately.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally three
to seven years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or the
estimated useful life of the asset.
Purchased and Developed Software
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." Costs associated
with the planning and designing phase of software development, including coding
and testing activities necessary to establish technological feasibility, are
classified as product development and expensed as incurred. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing and documentation, are capitalized.
Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four years, using the straight-line method. This method generally results in
greater amortization expense per year than the method based on the ratio of
current year gross product revenue to current and anticipated future gross
product revenue. Amortization commences when a product is available for general
release to customers. Unamortized capitalized costs determined to be in excess
of the net realizable value of a product are expensed at the date of such
determination.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to 15 years.
Adjustments to the carrying value of excess of cost over net assets acquired
are made if the sum of expected future net cash flows from the business
acquired is less than book value.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
F-7
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respective tax bases and operating loss 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 earnings in the period of
enactment.
Fair Value of Financial Instruments and Long-Lived Assets
The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1998 and 1997: cash and cash equivalents; trade and installment receivables;
accrued interest and other current assets; refundable income taxes;
acquisition-related payables; accounts payable and other accrued liabilities;
and long-term obligations, excluding convertible subordinated notes. Investment
securities are discussed in Note 3, and convertible subordinated notes are
discussed in Note 12.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1998 are
recoverable in future periods.
Earnings Per Share
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting earnings
per share ("EPS") and replaced the presentation of primary and fully-diluted
EPS with basic ("Basic") and diluted EPS. Basic earnings per share is based on
the weighted average number of shares outstanding and excludes the dilutive
effect of unexercised common stock equivalents. Diluted earnings per share is
based on the weighted average number of shares outstanding and includes the
dilutive effect of unexercised common stock equivalents. Because the Company
reported a net loss for the years ended December 31, 1998, 1997 and 1996, per
share amounts have been presented under the Basic method only.
Had the Company reported net income for the years ended December 31, 1998,
1997 and 1996, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
including the effects of applying the treasury stock method to outstanding
stock options or the if-converted method to convertible securities):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Stock options............................. 21,157,000 15,699,000 14,151,000
Convertible subordinated notes (November
1996).................................... 8,240,000 8,243,000 962,000
Convertible subordinated notes (December
1997).................................... 4,161,000 231,000 --
Preferred stock (January 1998)............ 1,705,000 -- --
---------- ---------- ----------
35,263,000 24,173,000 15,113,000
========== ========== ==========
</TABLE>
Additionally, net income applicable to common stockholders for the years
ended December 31, 1998, 1997 and 1996 would have been increased by adding back
interest expense, net of income taxes, related to the convertible subordinated
notes of $11,994,000, $5,870,000 and $501,000, respectively.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars
F-8
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
using current exchange rates as of the balance sheet date. Revenues and
expenses are translated at average exchange rates prevailing during the year.
Translation adjustments arising from differences in exchange rates are included
as a separate component of stockholders' equity. Gains and losses resulting
from foreign currency transactions are included in the consolidated statement
of operations.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations on
assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts
designated and effective as hedges of firm commitments are treated as hedges.
Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are determined
using published rates. Gains and losses on the forward exchange contracts are
included in other income and expense and offset foreign exchange gains and
losses from the revaluation of intercompany balances denominated in currencies
other than the functional currency of the reporting entity. Realized and
unrealized holding gains and losses on the forward exchange contracts are
reported within operating activities in the statement of cash flows.
Stock-Based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and provide pro forma disclosures as if the
fair value method defined in SFAS No. 123 had been applied. The Company has
elected to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1998, all such transactions were accounted for as sales in accordance
with SFAS No. 125.
Supplemental Cash Flow Disclosure
Income tax refunds received by the Company amounted to $445,000, $524,000
and $307,000 in 1998, 1997 and 1996, respectively. Cash paid for income taxes
in 1998, 1997 and 1996 was $1,180,000, $2,877,000 and $3,642,000, respectively.
Cash paid for interest in 1998, 1997 and 1996 was $18,101,000, $8,603,000 and
$1,206,000, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
F-9
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisitions
Poolings of Interests
On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation ("Prodea"), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares
of the Company's Common Stock, $.001 par value ("Common Stock"), which had a
market value based upon the trading price of the Common Stock on the Nasdaq
National Market ("Market Value") of approximately $36,000,000 at the time of
the acquisition. In addition, the Company assumed stock options which converted
into options to purchase 212,427 shares of Common Stock.
On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm Systems Corporation ("Paradigm"), a leading provider of information
technology consulting services, in exchange for 762,503 shares of Common Stock,
which had a Market Value of approximately $12,800,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 87,912 shares of Common Stock.
On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis Systems International, Inc. ("Axis"), a leading provider of information
technology consulting services, in exchange for 319,926 shares of Common Stock,
which had a Market Value of approximately $6,300,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 59,986 shares of Common Stock.
On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for 313,784
shares of Common Stock, which had a Market Value of approximately $5,000,000 at
the time of the acquisition.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867 shares
of Common Stock, which had a Market Value of approximately $17,200,000 at the
time of the acquisition.
On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mastering, a leading provider of information technology training, in
exchange for 6,497,094 shares of Common Stock, which had a Market Value of
approximately $168,100,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase
2,193,219 shares of Common Stock.
On May 12, 1998, the Company acquired all of the outstanding capital stock
of Learmonth and Burchett Management Systems Plc ("LBMS"), a leading provider
of process management solutions, in exchange for 2,775,897 shares of Common
Stock, which had a Market Value of approximately $71,900,000 at the time of the
acquisition. In addition, the Company exchanged options to purchase 430,737
shares of Common Stock for outstanding LBMS stock options.
On May 28, 1998, the Company acquired all of the outstanding capital stock
of Logic Works, Inc. ("Logic Works"), a leading provider of data modeling
tools, in exchange for 7,466,981 shares of Common Stock, which had a Market
Value of approximately $198,342,000 at the time of the acquisition. In
addition, the Company assumed stock options which converted into options to
purchase 1,160,609 shares of Common Stock.
Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all
F-10
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
periods presented. Merger costs relating to the acquisitions consummated in
1998, 1997 and 1996 amounted to $40,065,000, $8,927,000 and $5,782,000,
respectively, of which $15,147,000 was included in other accrued liabilities at
December 31, 1998 and $4,281,000 was included in other accrued liabilities at
December 31, 1997. These costs included investment banking and other
professional fees, write-downs of certain assets, employee severance payments,
costs of closing excess office facilities and various other expenses.
The following information reconciles total revenues and net loss of the
Company as previously reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 with the amounts presented in the accompanying
consolidated statements of operations for the years ended December 31, 1997 and
1996 as well as the separate results of operations for the year ended December
31, 1998 of Mastering, LBMS and Logic Works during the period preceding their
acquisition.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------ -----------------
Pre-acquisition Net
Pre-acquisition net income income
revenues (loss) Revenues (loss) Revenues Net loss
--------------- --------------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)............. N/A N/A $623,503 $(117,784) $468,065 $(64,922)
Mastering............... $13,428 $(5,078) 40,966 2,581 21,018 (2,892)
LBMS.................... 5,981 (865) 23,897 4,469 21,861 (16,318)
Logic Works............. 21,191 575 50,514 4,606 42,540 (3,062)
-------- --------- -------- --------
Total................. N/A N/A $738,880 $(106,128) $553,484 $(87,194)
======== ========= ======== ========
</TABLE>
- - --------
(1) Represents the historical results of the Company without considering the
effect of the poolings of interests consummated during 1998. All merger
costs are reflected in the historical results of the Company.
The consolidated statement of operations for the year ended December 31,
1997 includes LBMS' operating results for the twelve months ended January 31,
1998. The consolidated statement of operations for the year ended December 31,
1996 includes LBMS' operating results for the twelve months ended April 30,
1997. Due to non-conforming reporting periods of the Company and LBMS, LBMS'
operating results for the three months ended April 30, 1997, consisting of
revenues of $6,188,000 and net income of $1,074,000, have been included in both
the 1997 and 1996 consolidated statements of operations of the Company.
The consolidated statement of operations for the year ended December 31,
1996 includes ATR's operating results for the twelve months ended December 31,
1996. The consolidated statement of operations for the year ended December 31,
1995 includes ATR's operating results for the twelve months ended June 30,
1996. Due to non-conforming reporting periods of the Company and ATR, ATR's
operating results for the six months ended June 30, 1996, consisting of
revenues of $5,061,000 and net income of $140,000, have been included in both
the 1996 and 1995 consolidated statements of operations of the Company.
During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 reduction to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statements of stockholders' equity.
During 1997, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. The Company acquired all of the outstanding capital
stock of Vayda Consulting, Inc. ("Vayda"), a leading provider of information
technology consulting services, in exchange for 580,231 shares of Common Stock,
which had a Market Value of approximately $15,300,000 at the time of the
acquisition. In addition, the
F-11
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company assumed stock options which converted into options to purchase 67,937
shares of Common Stock. The Company did not restate the consolidated financial
statements to reflect the results of Vayda for the periods preceding the
acquisition. As a result, the retained earnings of Vayda were recorded as of
the acquisition date, causing a $1,014,000 reduction to the Company's
accumulated deficit in 1997. This adjustment is reflected in the consolidated
statement of stockholders' equity.
During the second quarter of 1998, the Company consummated an immaterial
acquisition accounted for as a pooling of interests. The Company acquired all
of the outstanding capital stock of Vivid Studios Inc. ("Vivid"), a leading
developer of internet commerce web sites, in exchange for 204,173 shares of
Common Stock, which had a Market Value of approximately $5,400,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 77,267 shares of Common Stock. The Company
did not restate the consolidated financial statements to reflect the results of
Vivid for the periods preceding the acquisition. As a result, the retained
earnings of Vivid were recorded as of the acquisition date, causing a
$3,522,000 addition to the Company's accumulated deficit in 1998. This
adjustment is reflected in the consolidated statements of stockholders' equity.
Purchase Transactions
The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been allocated
to identifiable tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. Amounts allocated to acquired in-process
technology have been expensed at the time of acquisition. Excess of cost over
net assets acquired is amortized on a straight-line basis over the expected
period to be benefited, generally seven to 15 years. The consolidated
statements of operations reflect the results of operations of the purchased
companies since the effective dates of the acquisitions.
To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach and the income approach. The Company relied
primarily on the income approach, whereupon fair market value is a function of
the future revenues expected to be generated by an asset, net of all allocable
expenses and charges for the use of contributory assets. The future net revenue
stream is discounted to present value based upon the specific level of risk
associated with achieving the forecasted asset earnings. The income approach
focuses on the income producing capability of the acquired assets and best
represents the present value of the future economic benefits expected to be
derived from these assets.
The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and development
activities that required further refinement and testing. The development
activities required to complete the acquired in-process technologies included
additional coding, cross-platform porting and validation, quality assurance
procedures and customer beta testing.
The acquired technologies represent unique and emerging technologies, the
application of which is limited to the Company's IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use other
than the use for which the technologies were designed.
Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.
Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production
F-12
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
scheduling software, for approximately $1,900,000. Also effective July 1996,
the Company acquired all of the outstanding capital stock of Grateful Data,
Inc. (d/b/a TransCentury Data Systems) ("Grateful Data"), a Year 2000 solution
provider, for $100,000 in cash plus 333,333 shares of Common Stock, which had a
Market Value of approximately $4,000,000 at the time of the acquisition.
Effective December 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality software
for the World Wide Web and other interactive environments, in exchange for
760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.
During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.
Internationally, effective December 1996, the Company acquired substantially
all of the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"), a
leading provider of single-sign-on security computer software for enterprise
computing technology, in exchange for 2,286,222 shares of Common Stock, which
had a Market Value of approximately $30,000,000 at the time of the acquisition.
Effective February 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition.
Internationally, effective October 1997, the Company acquired all of the
outstanding capital stock of ProMetrics Group Limited ("ProMetrics"), a leading
provider of productivity management software, in exchange for approximately
$8,000,000 in cash plus 364,396 shares of Common Stock, which had a Market
Value of approximately $9,500,000 at the time of the acquisition, plus
contingent consideration of approximately $11,000,000, as specified in the
acquisition agreement. The Company's issuance of Common Stock was substantially
used to retire approximately $7,000,000 of assumed debt under the acquisition
agreement.
On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421 shares of the Company's Class II Series B Preferred Stock
("Preferred Stock"), which had a Market Value of approximately $42,000,000 on
the date of the agreement, and to distribute certain products manufactured by
Intel. Additionally, the Company licensed certain product technologies to
Intel.
During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.
In June 1998, the Company acquired all the outstanding common stock of
Geneva Software, Inc. ("Geneva Software"), a leading provider of network
management tools, in exchange for 920,615 shares of Common Stock, which had a
Market Value of approximately $21,700,000 at the time of the acquisition.
In June 1998, the Company acquired all the outstanding capital stock of
Systems Management Inc. ("SMS"), a provider of mainframe asset management and
cost modeling tools, in exchange for approximately $5,500,000.
F-13
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the Company acquired all the outstanding capital stock of ICON
Computing, Inc. ("ICON"), a provider of modeling technologies, in exchange for
142,570 shares of Common Stock, which had a Market Value of approximately
$5,900,000 at the time of the acquisition.
In June 1998, the Company acquired all the assets of Ergondata Do Brasil
LTDA and Senior Consultores Associados LTDA, (collectively "Brazil
Acquisitions"), providers of consultancy services relating to the installation
and maintenance of specialized computer systems, in exchange for 138,632 shares
of Common Stock, which had a market value of approximately $3,600,000 at the
time of the acquisition, and approximately $300,000, plus contingent
consideration of approximately $3,100,000, as specified in the acquisition
agreement.
In October 1998, the Company purchased substantially all the assets of
OpenDirectory Pty Limited and OpenDirectory, Inc. (collectively
"OpenDirectory"), providers of enterprise-wide directory service and software
solutions, for approximately $25,000,000. The Company may be required to make
additional payments of up to $10,000,000 over a period of less than two years,
contingent upon the operating results of OpenDirectory during this period.
During 1998, the Company also acquired eight other software businesses and
product technologies, in transactions accounted for as purchases, for an
aggregate purchase price of approximately $16,600,000.
The following summary presents information concerning the purchase price
allocations for the acquisitions accounted for under the purchase method during
1998.
<TABLE>
<CAPTION>
In-process
research Purchase
Purchased and price
Company name software development Goodwill Other (1)
- - ------------ --------- ----------- -------- ----- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Geneva Software............... $ 1,303 $13,989(2) $ 6,992(2) $(276) $22,008
SMS........................... 327 4,379 826 207 5,739
ICON.......................... -- 5,300 630 150 6,080
Brazil Acquisitions........... -- -- 4,592 33 4,625
OpenDirectory................. 10,258 10,130 4,329 79 24,796
Others........................ 2,274 4,120 10,657 (227) 16,824
------- ------- ------- ----- -------
$14,162 $37,918 $28,026 $ (34) $80,072
======= ======= ======= ===== =======
</TABLE>
- - --------
(1) Purchase prices include costs associated with the acquisition.
(2) During the fourth quarter of 1998, the Company changed its estimate of
allocating purchase price and reduced its acquired in-process technology
expense by $4,827,000 and increased goodwill by the same amount.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for informational
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.
<TABLE>
<CAPTION>
1998 1997
---------- -----------
(in thousands, except
per share data)
<S> <C> <C>
Revenues....................................... $ 975,694 $ 748,425
Net loss....................................... (1,818) (104,813)
Net loss per share............................. (0.02) (1.32)
</TABLE>
F-14
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $33,245,000, $3,280,000
and $3,108,000 for the years ended December 31, 1999, 2000 and 2001,
respectively. At December 31, 1998 and 1997, $4,229,000 and $6,590,000,
relating to merger costs in connection with the acquisitions described above,
were included in other accrued liabilities. These costs included investment
banking and other professional fees, write-downs of certain assets, employee
severance payments, costs of closing excess office facilities and various other
expenses.
The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1998. Additional payments will be charged to
excess of cost over net assets acquired, compensation expense or recorded as an
adjustment to the respective purchase price in the periods in which such
payments are determinable.
3. Investment Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities as of December 31,
1998 were as follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------
Gross Gross
Amortized unrealized unrealized
cost holding gains holding losses Fair value
--------- ------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities and
agencies................ $ 1,010 $-- $ (6) $ 1,004
State and municipal
bonds................... 225 -- (20) 205
Corporate bonds.......... 40,848 -- (162) 40,686
Marketable equity
securities.............. 23,909 -- (3,823) 20,086
Other.................... 15,000 -- -- 15,000
-------- ---- ------- -------
$ 80,992 $-- $(4,011) $76,981
======== ==== ======= =======
Non-current:
Available-for-sale--
U.S. Government
securities and
agencies................ $ 2,031 $-- $ (2) $ 2,029
State and municipal
bonds................... 403 36 -- 439
Corporate bonds.......... 9,039 -- (145) 8,894
Mortgage-backed
securities.............. 8,868 7 (53) 8,822
Other.................... 14,975 22 (15) 14,982
-------- ---- ------- -------
$ 35,316 $ 65 $ (215) $35,166
======== ==== ======= =======
</TABLE>
F-15
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------
Gross Gross
Amortized unrealized unrealized
cost holding gains holding losses Fair value
--------- ------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities and
agencies................ $ 9,395 $ 25 $ -- $ 9,420
State and municipal
bonds................... 10,294 16 (36) 10,274
Corporate bonds.......... 15,208 26 (7) 15,227
Marketable equity
securities.............. 3,675 13,770 -- 17,445
-------- ------- ----- -------
38,572 13,837 (43) 52,366
-------- ------- ----- -------
Trading securities--
Marketable equity
securities.............. 4,338 13,867 (351) 17,854
Held-to-maturity--
U.S. Government
securities and
agencies................ 9,479 15 -- 9,494
-------- ------- ----- -------
$ 52,389 $27,719 $(394) $79,714
======== ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds................... $ 25,498 $ 55 $ -- $25,553
Held-to-maturity--
U.S. Government
securities and
agencies................ 19,928 33 -- 19,961
-------- ------- ----- -------
$ 45,426 $ 88 $ -- $45,514
======== ======= ===== =======
</TABLE>
The contractual maturities of debt securities at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Fair value
--------------
(in thousands)
<S> <C>
Due within one year........................................ $56,895
Due after one year through five years...................... 22,403
Due after five years....................................... 12,763
-------
$92,061
=======
</TABLE>
The Company did not sell available-for-sale securities during 1998. Using
the specific identification method, the gross realized gains and gross realized
losses on the sale of available-for-sale securities were approximately $44,000
and $0 for the year ended December 31, 1997 and $1,032,000 and $0,
respectively, for the year ended December 31, 1996. For the years ended
December 31, 1998 and 1997, the Company sold investments classified as trading
securities. Gross realized gains and gross realized losses related to these
sales were $12,079,000 and $0, respectively, during 1998 and $7,522,000 and $0,
respectively, during 1997.
F-16
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain activity related to investment securities is as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Net unrealized holding gains (losses) from available-
for-sale securities at December 31.................. $(4,161) $14,159
Unrealized tax benefit (expense)..................... 1,975 (5,693)
------- -------
Net of tax........................................... $(2,186) $ 8,466
======= =======
Balance of securities transferred from available-for-
sale to trading during the year..................... $12,623 $24,972
======= =======
Balance of securities transferred from trading to
available-for-sale during the year.................. $20,234 $ --
======= =======
</TABLE>
During 1998 and 1997, the Company reclassified certain available-for-sale
securities to trading because the Company intended to sell the securities at
various dates in the near future to benefit from increases in the market price
of those securities. Unrealized holding gains from reclassified securities of
approximately $10,149,000, previously reported as a separate component of
stockholders' equity in the amount of $6,089,000 (net of income taxes), were
recognized in pre-tax earnings for the year ended December 31, 1998. Unrealized
holding gains from reclassified securities of approximately $19,829,000,
previously reported as a separate component of stockholders' equity in the
amount of $11,897,000 (net of income taxes), were recognized in pre-tax
earnings for the year ended December 31, 1997. The Company sold a portion of
its trading securities during 1998 and 1997 and consequently reclassified the
corresponding unrealized gains to realized gains.
During 1998, the Company transferred its trading securities to available-
for-sale because the Company no longer had the intent to sell such securities
in the near future.
4. Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- --------
(in thousands)
<S> <C> <C>
Land................................................... $ 1,450 $ 1,450
Real Estate............................................ 98 98
Buildings.............................................. 1,705
Furniture and fixtures................................. 27,910 36,309
Computers and software................................. 79,498 75,171
Transportation......................................... 12,126 11,497
Leasehold improvements................................. 36,756 28,810
------- --------
159,543 153,335
Less accumulated depreciation and amortization......... 60,346 61,170
------- --------
$99,197 $ 92,165
======= ========
</TABLE>
F-17
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Purchased and Developed Software
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Purchased software.................................... $ 57,585 $ 48,156
Software development costs............................ 203,343 141,835
-------- --------
260,928 189,991
Less accumulated amortization......................... 78,669 72,778
-------- --------
$182,259 $117,213
======== ========
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, $90,894,000,
$62,504,000 and $38,555,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $30,551,000, $21,361,000 and
$11,309,000 during 1998, 1997 and 1996, respectively. The Company recognized
amortization expense applicable to purchased software of $11,564,000,
$9,588,000 and $6,497,000 during 1998, 1997 and 1996, respectively. During
1998, the Company retired $29,386,000 in software development costs and related
accumulated amortization. During 1997, the Company wrote-off $10,214,000 of
capitalized software development costs and $1,450,000 of purchased software
related to the restructuring plan executed in May 1997.
6. Installment Accounts Receivable
Installment accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Current installment receivables....................... $ 52,498 $42,753
Allowance for uncollectible amounts................... (526) (878)
Deferred maintenance fees............................. (2,717) (10,124)
Unamortized discounts................................. (3,687) (1,708)
-------- -------
$ 45,568 $30,043
======== =======
Non-current installment receivables................... $103,577 $58,889
Allowance for uncollectible amounts................... (1,374) (1,616)
Deferred maintenance fees............................. (33,993) (27,603)
Unamortized discounts................................. -- (7,758)
-------- -------
$ 68,210 $21,912
======== =======
</TABLE>
Installment accounts receivable represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years and are
recorded net of unamortized discounts, deferred maintenance fees and allowances
for uncollectible amounts.
The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.
F-18
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Proceeds from the sale of installment receivables for 1998, 1997 and 1996
were approximately $319,782,000, $206,916,000 and $129,328,000, respectively.
There were no accounts receivable sold with recourse for the years ended
December 31, 1998 and 1997. As of December 31, 1998 and 1997, there were no
potential recourse obligations for accounts receivable sold with recourse
previous to 1997.
The Company has an agreement with a third party that provides for potential
recourse obligations in the form of a loss pool based on the performance of the
related accounts receivable portfolio. Based on the terms of that agreement,
potential recourse obligations at December 31, 1998 were approximately
$20,000,000. Based on the credit ratings of the underlying obligors to the
accounts receivable and the performance history of the accounts receivable
portfolio, the Company has assessed the exposure related to these recourse
obligations and does not expect the potential liability to have a material
adverse effect on the Company's future results of operations.
7. Employee Benefit Plans
The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $4,766,000, $1,846,000 and $1,189,000 in 1998, 1997 and 1996,
respectively.
8. Lines of Credit
At December 31, 1998, the Company had an unsecured bank line of credit for
an aggregate of $65,000,000, under which borrowings bear interest at rates
ranging from approximately LIBOR plus 1.25% to the bank's prime rate. This line
of credit is subject to limitations based upon certain financial covenants. At
December 31, 1998, there were no borrowings outstanding under this line of
credit. Additionally, the Company has a line of credit with a Japanese bank for
approximately $2,152,000 (based upon current exchange rates), under which
borrowings bear interest at a rate of 2.125%. As of December 31, 1998, the
Company had outstanding borrowings of approximately $1,197,000 under this line
of credit.
At December 31, 1998, the Company had aggregate letters of credit
outstanding for approximately $6,383,000, with expiration dates ranging from
February 1999 to April 2000. These letters of credit reduce the balance
available under the lines of credit.
9. Stock Options and Employee Stock Purchase Plan
As of December 31, 1998, the Company had seven stock option plans, which are
described below, as well as several plans that have been assumed pursuant to
acquisitions. The Company applies APB Opinion No. 25 in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans and its employee stock purchase plan (the "Stock Purchase
Plan").
Had compensation cost for the Company's stock option plans and the Stock
Purchase Plan been determined consistent with SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net loss:
As reported.................. $ (2,468) $ (106,128) $ (87,194)
Pro forma.................... (30,124) (120,149) (95,432)
Net loss per share
As reported.................. $ (0.03) $ (1.36) $ (1.21)
Pro forma.................... (0.36) (1.54) (1.33)
</TABLE>
F-19
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for income
taxes, was approximately $46,500,000, $23,575,000 and $13,775,000 in 1998, 1997
and 1996, respectively.
Excluding stock option plans assumed pursuant to acquisitions, the Company
has seven stock option plans ("Company Plans"). The Employee Incentive
Compensation Plan, 1994 Stock Incentive Plan, 1991 Option Plan, 1989 Option
Plan and the 1998 Broad Based Option Plan provide for the granting of options
to employees for up to an aggregate of 36,160,000 shares. The Chief Executive
Option Plan provides for the granting of options for up to 1,600,000 shares to
the Company's Chief Executive Officer and President. Under the Directors'
Option Plan, the Company may grant options for up to 500,000 shares to non-
employee directors.
In general, the options granted under the Company Plans, excluding the
Directors' Option Plan, during 1998, 1997 and 1996, have similar provisions.
Under these plans, the Company has granted both non-qualified and incentive
stock options, with the exception of the 1998 Broad Based Plan which granted
only non-qualified stock options. Options granted under the Company Plans,
excluding the Directors' Option Plan, have an exercise price equal to the
closing market price of the Company's stock on the date of grant, have a legal
life of ten years, and typically vest in equal annual installments over a four-
year period beginning one year from the date of grant. Certain options granted
prior to 1995 have a legal life of fifteen years. The specific provisions of
any grant are determined by the Compensation Committee of the Board of
Directors or another designated committee.
Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market price
of the Company's stock on the date of grant and have a legal life of ten years.
The options granted in 1995 under this plan vested immediately, while those
granted in 1996, 1997 and 1998 vest annually over a three-year period beginning
one year from the date of grant.
As discussed in Note 2, the Company has assumed various option grants
related to certain acquisitions. The assumption of these option grants resulted
in the deemed issuance by the Company of options for 3,861,832, 1,603,835 and
1,723,316 shares in 1998, 1997 and 1996, respectively. The options assumed
reflect outstanding options at the time of acquisition. The provisions of the
assumed options are generally the same as those provided for in the original
option agreements.
In 1996, the Company began offering the Stock Purchase Plan to its employees
who work more than 20 hours per week. Under this plan, the Company is
authorized to issue up to 5,000,000 shares (excluding shares assumed to be
issued pursuant to acquisitions) of Common Stock. Under terms of the Stock
Purchase Plan and current policies of the administrative committee, employees
may elect each year to withhold between one and 50 percent of their cash
compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. The purchase price of the
stock is 85 percent of the lower of the price at the grant date, which is the
beginning of the plan year (March 1, or September 1 for employees with a start
date between March 1 and August 31) or the exercise date, which is the end of
each plan quarter (February 28, May 31, August 31 and November 30). As of
December 31, 1998, approximately 59% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
1,585,766, 985,755 and 281,725 shares to employees in 1998, 1997 and 1996,
respectively (including amounts relating to acquired companies).
The fair value of the stock option grants is estimated using the Black-
Scholes option-pricing model, with the following weighted-average assumptions
used for stock option grants in 1998, 1997 and 1996, respectively: weighted
average option price, which equals the fair market value at date of grant, of
$20.24, $14.96 and $14.24; expected dividend yields of 0% for all years;
expected volatility of 64%, 61% and 55%; risk-free
F-20
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interest rates of 4.66%, 5.66% and 6.37%; and an expected life of five years
for all years. The fair value of the employees' purchase rights pursuant to
the Stock Purchase Plan are estimated using the Black-Scholes option-pricing
model, with the following weighted-average assumptions used for purchase
rights granted in 1998, 1997 and 1996, respectively: average fair market value
of $22.67, $13.75 and $10.75; average option price of $15.36, $11.69 and
$9.14; expected dividend yield of 0% for each year; expected volatility of
64%, 61% and 55%; average risk-free interest rate of 4.69%, 5.52% and 5.42%;
and expected life of three months for each year.
Stock option plan activity during the years ended December 31, 1998, 1997
and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Fixed Options Shares price Shares price Shares price
- - ------------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 15,698,813 $13.21 14,150,997 $11.99 11,477,651 $10.71
Granted................. 9,368,526 20.24 4,993,131 14.96 5,022,673 14.24
Exercised............... (3,096,535) 11.01 (1,850,215) 11.55 (1,446,151) 11.16
Canceled................ (814,071) 19.55 (1,595,100) 9.70 (903,176) 9.61
---------- ---------- ----------
Outstanding at end of
year................... 21,156,733 16.45 15,698,813 13.21 14,150,997 11.99
========== ========== ==========
Options exercisable at
year-end............... 8,748,251 7,298,672 6,891,404
========== ========== ==========
Weighted-average fair
value of options
granted during the
year................... $ 11.76 $ 9.68 $ 6.94
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options outstanding exercisable
---------------------- ------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number of contractual exercise Number of exercise
Exercise prices shares life price shares price
--------------- ---------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 0.0025--$10.8750 2,820,916 5.48 $ 8.14 2,259,891 $ 7.78
$10.8900--$13.6250 4,463,064 6.99 $12.89 2,391,628 $12.84
$13.7000--$17.6660 5,266,883 8.39 $14.73 2,406,730 $14.91
$17.6875--$21.5000 3,738,917 8.32 $19.04 1,359,159 $18.98
$21.5625--$36.4026 4,866,953 9.20 $24.40 330,843 $29.04
---------- ---------
21,156,733 7.88 $16.45 8,748,251 $13.67
========== =========
</TABLE>
10. Preferred Stock
On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which
had a fair market value of approximately $42,000,000 on the date of
subscription, in exchange for certain product technologies and other
intangible assets. The shares of Preferred Stock were subscribed for as of
December 31, 1997 and subsequently issued on January 14, 1998.
The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the transfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.
F-21
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1998, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.
11. Income Taxes
Income (loss) from continuing operations before income taxes for the years
ended December 31, 1998, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
(in thousands)
<S> <C> <C> <C>
U.S........................................ $24,290 $(98,309) $(74,457)
Non-U.S.................................... 6,280 16,665 (19,077)
------- -------- --------
Total.................................... $30,570 $(81,644) $(93,534)
======= ======== ========
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and
1996 consisted of the following:
<CAPTION>
1998 1997 1996
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal.................................. $ -- $ 3,939 $ 1,562
State.................................... 1,041 1,159 336
Foreign.................................. 3,994 2,309 1,987
Deferred:
Federal.................................. 25,613 22,221 (9,458)
State.................................... 2,390 (3,539) (4,179)
Foreign.................................. -- (2,630) --
------- -------- --------
$33,038 $ 23,459 $ (9,752)
======= ======== ========
The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1998, 1997 and 1996:
<CAPTION>
1998 1997 1996
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Income tax computed at statutory rate...... $10,700 $(28,576) $(32,737)
State income taxes, net of Federal tax
expense (benefit)......................... 3,431 (2,532) (3,693)
Research and experimentation credits....... (3,540) (3,882) (1,720)
Foreign tax credit......................... (181) (117) (59)
Foreign taxes.............................. 965 1,271 751
Foreign sales corporation.................. (1,553) (557) (1,036)
Municipal bond interest.................... (211) (80) (289)
Stock acquisitions......................... 8,284 9,953 6,281
Nondeductible merger costs................. 5,799 730 2,414
Change in valuation allowance.............. 7,750 43,365 18,490
Other...................................... 1,594 3,884 1,846
------- -------- --------
Effective tax.............................. $33,038 $ 23,459 $ (9,752)
======= ======== ========
</TABLE>
F-22
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Deferred revenue.......... $ 9,138 $ 5,895
Allowance for doubtful
accounts................. 1,558 670
Net operating loss
carryforwards............ 135,058 125,005
Foreign net operating
losses................... 2,630 2,630
General business, AMT and
state tax credits........ 9,927 13,981
Foreign tax credits....... 647 952
Accrued expenses and
reserves................. 8,961 13,031
Rent abatement............ 2,726 2,471
Other..................... 11,844 10,098
--------- ---------
Total gross deferred tax
assets................. 182,489 174,733
Less valuation allowance.. (121,683) (113,933)
--------- ---------
Net deferred tax
assets................. 60,806 60,800
--------- ---------
Deferred tax liabilities:
Capitalized software,
net...................... 61,252 36,420
Installment sales......... -- 819
Unrealized gain on
marketable equity
securities............... 4,815 11,161
Other..................... -- 1,502
--------- ---------
Total gross deferred tax
liabilities............ 66,067 49,902
--------- ---------
Net deferred tax asset
(liability)............ $ (5,261) $ 10,898
========= =========
</TABLE>
The net change in the valuation allowance during 1998, 1997 and 1996 was an
increase of $7,750,000, $43,365,000 and $18,490,000, respectively.
The Company has reduced gross deferred tax assets by a valuation allowance
to reflect the estimated amount of deferred tax assets which will, more likely
than not, be realized. The net deferred tax asset at December 31, 1998 reflects
management's estimate of the amount that will be realized as a result of future
profitability. The amount of the deferred tax asset considered realizable could
be reduced if estimates of future taxable income are reduced.
At December 31, 1998, the Company had approximately $333,270,000 of net
operating loss carryforwards and $10,574,000 of tax credit carryforwards, which
are available to reduce future Federal income taxes, if any. The net operating
loss carryforwards expire between 2004 and 2018. The tax credit carryforwards
expire between 2002 and 2018. The Company's ability to utilize the net
operating loss carryforwards and available tax credits may be limited due to
changes in ownership as a result of business combinations.
12. Convertible Subordinated Notes
In November 1996, the Company issued $115,000,000 of convertible
subordinated notes (the "1996 Notes") due November 15, 2001, bearing interest
at 6.75% annually. Interest is payable semi-annually on May 15 and November 15.
The holders of the Notes have the option to convert them into shares of Common
Stock, at any time prior to maturity, at a conversion price of $13.95 per
share. The Notes are redeemable at the option of the Company, in whole or in
part, at any time during the twelve-month period commencing November 15, 1999
at 102.7% of their principal amount and during the twelve-month period
commencing November 15, 2000
F-23
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at 101.35% of their principal amount. During 1998 and 1997, $36,000 and
$10,000, respectively, of the 1996 Notes were converted to Common Stock. As of
December 31, 1998, $114,954,000 of the 1996 Notes were outstanding.
The Company estimated the fair value of the 1996 Notes as of December 31,
1998 and 1997 at approximately $170,132,000 and $236,879,000, respectively,
based upon their trading price on the Nasdaq SmallCap Market on that date.
In December 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes") due December 15, 2002, bearing interest
at 6.25% annually. Interest is payable semi-annually on June 15 and December
15, commencing June 15, 1998. The holders of the 1997 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-month
period commencing December 15, 2000 at 102.5% of their principal amount and
during the twelve-month period commencing December 15, 2001 at 101.25% of their
principal amount. As of December 31, 1998, $150,000,000 of the 1997 Notes were
outstanding.
The Company estimated the fair value of the 1997 Notes as of December 31,
1998 and 1997 at approximately $131,820,000 and $159,375,000, respectively,
based upon their bid price in the convertible debentures market on that date.
For the years ended December 31, 1999, 2000, 2001 and 2002, aggregate annual
maturities of the 1996 Notes and the 1997 Notes are $0, $0, $114,954,000 and
$150,000,000, respectively.
13. Restructuring
In August 1996, the Company's wholly-owned subsidiary, LBMS (acquired as of
May 12, 1998), executed a plan to restructure its operations. During the second
half of 1996, LBMS recorded a restructuring charge of $14,109,000, net of
$3,512,000 in sublease rentals and recoveries from the sale of a product line.
The restructuring charge was comprised primarily of abandoned lease costs,
severance and other personnel costs and write-offs of excess equipment and
other assets. During 1997, LBMS recorded a restructuring benefit of $1,490,000
related to sublease rental activity. This benefit was offset against the
Company's restructuring charge recorded in 1997, as discussed below.
In the fourth quarter of 1996, the Company's wholly-owned subsidiary, Logic
Works (acquired as of May 28, 1998), implemented a restructuring plan to
streamline its operations by reducing its workforce, consolidating and
reorganizing certain operations and writing off certain fixed assets and other
impaired assets. The plan included the closing and moving of several offices
and the termination of approximately 25 employees across all departments. Logic
Works recorded a charge of $2,203,000 relating to this restructuring.
In May 1997, the Company executed a restructuring plan to consolidate its
sales, marketing, business development and product development operations to
achieve cost efficiencies through the elimination of redundant functions. These
redundancies resulted primarily from businesses acquired over the previous
three years. The Company also realigned its business units and inside sales
force to redirect focus on its strongest product lines and better integrate the
efforts of certain product development teams. As part of the plan, the Company
reduced its worldwide work force by approximately 10%, eliminating
approximately 400 positions primarily in the areas of product development and
support, marketing and inside sales and, to a lesser extent, professional
services and administration.
The Company recorded a restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including
F-24
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
a reserve for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation of distributorship agreements for such
products; and severance and other employee-related costs of the terminated
staff.
During 1998, the Company recognized a restructuring benefit of $10,964,000
related to the Company's occupation of previously vacated facilities and the
relief of obligations under cancelled lease agreements, as well as sublease
rental activity. This restructuring benefit represents the recovery of certain
restructuring charges recorded by the Company in the second quarter of 1997, as
discussed above.
The following table summarizes the Company's restructuring activity for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Intangible
assets and
penalties
Severance for Property
Excess and cancelled and
facilities benefits agreements equipment Total
---------- --------- ---------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total accrued
restructuring costs at
December 31, 1996........ $ 10,963
========
1997 restructuring
charges:
Cash-related charges.... $22,542 $10,364 $ 3,236 $ -- $ 36,142
Non-cash charges........ -- -- 16,177 3,510 19,687
------- ------- ------- ------ --------
$22,542 $10,364 $19,413 $3,510 55,829
======= ======= ======= ======
Payments made in 1997............................................... (17,784)
Write-offs taken in 1997............................................ (19,687)
--------
Total accrued restructuring costs at December 31, 1997.............. 29,321
Less current portion................................................ 7,391
--------
Long-term accrued restructuring costs............................... $ 21,930
========
Total accrued restructuring costs at December 31, 1997.............. $ 29,321
Payments made in 1998............................................... (10,682)
Recoveries incurred in 1998......................................... (10,964)
--------
Total accrued restructuring costs at December 31, 1998.............. 7,675
Less current portion................................................ 2,390
--------
Long-term accrued restructuring costs............................... $ 5,285
========
</TABLE>
14. Derivative Financial Instruments
The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign currency
hedging program utilizing forward foreign exchange contracts to reduce certain
currency exposures. These contracts hedge exposures associated with
nonfunctional currency assets and liabilities denominated in Japanese,
Australian, Canadian, numerous Asian and various European currencies. At the
present time, the Company hedges only those currency exposures associated with
certain nonfunctional currency assets and liabilities resulting from
intercompany balances and does not generally hedge anticipated foreign currency
cash flows. The Company does not enter into forward exchange contracts for
trading purposes.
F-25
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.
The table below provides information as of December 31, 1998 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.
<TABLE>
<CAPTION>
Notional Notional
value value Unrealized
purchased sold gains (losses)
--------- -------- --------------
(in thousands)
<S> <C> <C> <C>
European currencies................... $6,565 $(16,774) $(69)
Asian currencies...................... 890 (3,028) 13
Japanese Yen.......................... -- (3,306) 23
Australian Dollar..................... -- (1,811) (5)
Canadian Dollar....................... 318 -- 2
------ -------- ----
Total............................... $7,773 $(24,919) $(36)
====== ======== ====
</TABLE>
While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements. The Company has established policies to minimize such risks and
will only execute forward exchange contracts with major financial institutions.
The Company has assessed the potential exposure related to default by such
institutions to be minimal.
15. Commitments and Contingencies
Operating Leases
The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2013.
Total future minimum lease payments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
1999..................................................... $ 57,314
2000..................................................... 43,821
2001..................................................... 33,740
2002..................................................... 27,636
2003..................................................... 15,142
Thereafter............................................... 59,621
--------
Total................................................ $237,274
========
</TABLE>
Future minimum lease payments have not been reduced by minimum sublease
rentals of $3,429,000 due in the future under noncancelable subleases. Total
rent expense under all operating leases, net of insignificant sublease rental
income, amounted to $36,801,000, $35,798,000 and $26,116,000 in 1998, 1997 and
1996, respectively.
F-26
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Litigation
The Company is subject to certain legal proceedings and claims that have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.
16. Other Income, Net
Other income (expense), net, for the years ended December 31, 1998, 1997 and
1996 is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Interest income.................................... $ 14,360 $ 9,200 $ 8,691
Interest expense................................... (17,967) (9,314) (2,254)
Foreign exchange gains (losses).................... (458) 597 (301)
Net realized gains on sales of investments......... 12,079 7,566 1,032
Unrealized gains on marketable equity securities... 2,232 12,590 923
Other.............................................. 7 (142) (16)
-------- ------- -------
$10,253 $20,497 $ 8,075
======== ======= =======
</TABLE>
17. Segment and Geographic Information
The Company has two reportable segments consisting of software and
professional services. The software segment develops, markets, and supports
software products. The professional services segment provides professional
services related to such software products. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. Certain expenses of the Company, including special general
and administrative charges, restructuring charges, merger costs, and acquired
in-process technology, are not allocated to individual segments. The Company
does not allocate total assets to its segments.
The following table presents information about the Company's industry
segments for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Professional
Software Services Unallocated Total
-------- ------------ ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1998
Revenues................... $714,289 $253,917 $ -- $ 968,206
Amortization of excess cost
over net assets acquired.. (11,939) -- -- (11,939)
Other costs and expenses... (622,035) (235,914) (78,001) (935,950)
-------- -------- --------- ---------
Operating income (loss).... $ 80,315 $ 18,003 $ (78,001) $ 20,317
======== ======== ========= =========
1997
Revenues................... $550,281 $188,599 $ -- $ 738,880
Amortization of excess cost
over net assets acquired.. (6,360) -- -- (6,360)
Other costs and expenses... (517,641) (170,847) (146,173) (834,661)
-------- -------- --------- ---------
Operating income (loss).... $ 26,280 $ 17,752 $(146,173) $(102,141)
======== ======== ========= =========
</TABLE>
F-27
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Professional
Software Services Unallocated Total
-------- ------------ ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1996
Revenues................... $403,704 $149,780 $ -- $ 553,484
Amortization of excess cost
over net assets acquired.. (5,317) -- -- (5,317)
Other costs and expenses... (430,810) (145,443) (73,523) (649,776)
-------- -------- -------- ---------
Operating income (loss).... $(32,423) $ 4,337 $(73,523) $(101,609)
======== ======== ======== =========
</TABLE>
The following table presents information about the Company by geographic
area for the years ended December 31, 1998, 1997 and 1996. Export sales and
certain income and expense items are reported in the geographic area where the
final sale is made rather than where the transaction originates.
<TABLE>
<CAPTION>
Domestic Europe Other Total
-------- -------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1998
Revenues........................... $691,547 $184,266 $92,393 $ 968,206
Operating income (loss)............ (39,854) 39,324 20,847 20,317
Identifiable assets................ 916,664 137,891 95,715 1,150,270
1997
Revenues........................... 548,845 127,438 62,597 738,880
Operating income (loss)............ (118,806) 4,934 11,731 (102,141)
Identifiable assets................ 802,949 108,541 61,417 972,907
1996
Revenues........................... 399,127 104,633 49,724 553,484
Operating loss..................... (82,532) (13,938) (5,139) (101,609)
Identifiable assets................ 614,448 85,288 36,932 736,668
</TABLE>
The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1998, 1997 and 1996
include all merger costs, restructuring charges and acquired in-process
technology charges.
No single customer accounted for 10% or more of total revenues in 1998, 1997
or 1996.
18. Discontinued Operations
On July 29, 1997, Mastering, a wholly-owned subsidiary of the Company
(acquired as of April 21, 1998), announced its intention to dispose of its
outdoor media business segment. On September 16, 1997, Mastering sold the
assets of its outdoor media business segment for approximately $4,000,000 in
cash and approximately $600,000 in notes receivable, resulting in a pre-tax
gain of approximately $1,100,000. Mastering approved the disposition of the
outdoor media business segment, including a plan for Mastering to identify
potential buyers, on May 17, 1997. As a result, the segment is accounted for as
a discontinued operation in the consolidated financial statements for all
periods presented, with a measurement date of May 17, 1997.
F-28
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents approximate revenues and net income (loss) for
the outdoor media business segment for the period of January 1, 1997 to
September 16, 1997 and the year ended December 31, 1996:
<TABLE>
<CAPTION>
January 1, 1997 to For the Year Ended
September 16, 1997 December 31, 1996
------------------ ------------------
(in thousands)
<S> <C> <C>
Revenues........................... $2,100 $3,900
Net income (loss).................. (200) 500
</TABLE>
Included in the net loss for the period of January 1, 1997 to September 16,
1997 is approximately $200,000 of costs related to the sale of the segment. The
net loss for the period of May 18, 1997 to September 16, 1997 was approximately
$800,000.
On July 29, 1997, Mastering announced its intention to dispose of its
interactive business segment. On September 26, 1997, Mastering sold the assets
of its interactive business segment for $13,500,000 in cash and the right to
future payments contingent on the segment's future earnings, resulting in a
pre-tax gain of approximately $5,600,000. As result of this transaction, the
interactive business segment is accounted for as a discontinued operation in
the consolidated financial statements for all periods presented, with a
measurement date of July 28, 1997.
The following table presents approximate revenues and net loss for the
interactive business segment for the period of January 1, 1997 to September 26,
1997 and the year ended December 31, 1996:
<TABLE>
<CAPTION>
January 1, 1997 to For the Year Ended
September 26, 1997 December 31, 1996
------------------ ------------------
(in thousands)
<S> <C> <C>
Revenues........................... $13,000 $14,300
Net loss........................... (5,100) (4,100)
</TABLE>
Included in the net loss for the period of January 1, 1997 to September 26,
1997 is approximately $1,500,000 of costs related to the organizational
realignment and the sale of the interactive business segment. The net loss for
the period of July 29, 1997 to September 26, 1997 was approximately $2,600,000.
Mastering sold the following assets and was relieved of the following
liabilities related to the outdoor media and interactive business segments at
their respective sale dates (in thousands):
<TABLE>
<S> <C>
Assets:
Current assets
Accounts receivable, net........................................... $3,938
Other current assets............................................... 2,345
------
Total current assets............................................. 6,283
------
Property, plant and equipment, net................................. 5,711
Goodwill and other assets, net..................................... 3,389
------
Total assets..................................................... 15,383
------
</TABLE>
F-29
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<S> <C>
Liabilities:
Current liabilities
Accounts payable.................................................. 778
Accrued liabilities............................................... 1,764
Other current liabilities......................................... 1,148
-------
Total current liabilities....................................... 3,690
-------
Non-current liabilities........................................... 277
-------
Total liabilities............................................... 3,967
-------
Net assets sold..................................................... $11,416
=======
</TABLE>
19. Subsequent Events
Effective January 1, 1999, the Company reorganized its legal structure into
a holding company structure, under which the operations of the Company are
conducted through direct and indirect wholly-owned subsidiaries. Certain of
these subsidiaries, including PLATINUM technology IP, inc. and PLATINUM
technology, inc. (collectively, the "Obligor Subsidiaries") commenced
substantive operations. The corporate structural changes were made to reflect
the Company's global focus and to provide greater operational flexibility, as
well as allow for more efficient tax planning in the future. The Obligor
Subsidiaries were established with de minimis capitalizations from the Company
as of December 31, 1998. The Obligor Subsidiaries are joint and several
obligors on the 1996 Notes and the 1997 Notes previously issued by the Company.
There are currently no significant restrictions on the Company's ability to
obtain funds from the Obligor Subsidiaries.
On February 22, 1999, the Company announced a restructuring plan to
streamline operations, increase profitability, and deliver greater value to
customers and shareholders. The Company believes that this restructuring plan
will yield approximately $90 million (unaudited) in annual savings and
significantly increase operating margins. As a result of these actions, the
Company expects to incur a one-time charge of approximately $90 to $110 million
(unaudited) in the first quarter of 1999.
On March 29, 1999, the Company acquired all of the outstanding ordinary
shares of Memco Software, Ltd. ("Memco"), a leading provider of information
security software, in exchange for 13,751,923 shares of the Company's Common
Stock. The Company also assumed Memco stock options which converted into
options to purchase 3,279,498 shares of the Company's Common Stock. This
transaction is expected to be accounted for as a pooling of interests. Costs
incurred in connection with this transaction will be expensed in the first
quarter of 1999.
F-30
<PAGE>
PLATINUM technology International, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma information shows total revenues and net
income (loss) of the Company and Memco during the three years ended December
31, 1998, 1997 and 1996, as if the transaction had been consummated as of the
earliest period presented. This summary is provided for informational purposes
only. It does not necessarily reflect actual results that would have occurred
had the acquisition been made as of those dates or of results that may occur in
the future.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Net income Net income Net income
Revenues (loss) Revenues (loss) Revenues (loss)
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PLATINUM................ $968,206 $ (2,468) $738,880 $(106,128) $553,484 $(87,194)
Memco................... 36,634 (41,235) 30,591 9,076 15,312 3,384
Pro Forma
Adjustments (1)........ (14,000) (19,492) (5,316) (17,832) (4,967) (3,153)
-------- -------- -------- --------- -------- --------
Total............... $990,840 $(63,195) $764,155 $(114,884) $563,829 $(86,963)
======== ======== ======== ========= ======== ========
</TABLE>
- - --------
(1) The pro forma adjustments reflect adjustments to eliminate the effects of
intercompany transactions between the Company and Memco for the periods
presented.
On March 29, 1999, the Company and Computer Associates International, Inc.
("CA") announced the execution of a merger agreement pursuant to which CA has
agreed to acquire the Company through a cash tender offer. Under the terms of
the merger agreement, a wholly-owned subsidiary of CA will offer to purchase
all outstanding shares of the Company's Common Stock for $29.25 per share.
Consummation of the tender offer is subject to certain conditions, including
the condition that at least a majority of the outstanding shares of the
Company's Common Stock be tendered and not withdrawn. Consummation of the
tender offer is also subject to the expiration or termination of any applicable
antitrust waiting period. Following completion of the tender offer and subject
to certain conditions, the Company will merge into the subsidiary of CA, with
the Company surviving as a wholly-owned subsidiary of CA. The transactions are
currently expected to be completed in mid-1999.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PLATINUM technology International, inc.:
We have audited the accompanying consolidated balance sheets of PLATINUM
technology International, inc. and subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Mastering, Inc. and Logic Works, Inc.,
wholly-owned subsidiaries, which statements reflect total assets constituting
13 percent in 1997, and total revenues constituting 12 percent and 12 percent
in 1997 and 1996, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to the amounts for Mastering, Inc.
and Logic Works, Inc., is based solely on the reports 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 reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of PLATINUM technology International,
inc. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
February 8, 1999, except for Note 19, which is as of March 29, 1999.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
PLATINUM technology International, inc.:
Under date of February 8, 1999 (except as to Note 19, which is as of March
29, 1999), we reported on the consolidated balance sheets of PLATINUM
technology International, inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, comprehensive
loss, stockholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1998, as contained in the 1998 annual report to
stockholders. These consolidated financial statements and our report thereon
are included in the annual report on Form 10-K for the year ended December 31,
1998. Our report is based in part on the reports of other auditors. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 8, 1999, except for Note 19, which is as of March 29, 1999
S-1
<PAGE>
SCHEDULE II
PLATINUM technology International, inc.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts
for Trade and Installment Beginning Bad Debt Ending
Receivables Balance Expense Write-Offs Balance
- - ------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998.... $7,282,000 9,859,000 (9,922,000) $7,219,000
Year ended December 31, 1997.... 6,626,000 13,095,000 (12,439,000) 7,282,000
Year ended December 31, 1996.... 4,643,000 3,303,000 (1,320,000) 6,626,000
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1999.
Platinum technology International,
inc.
/s/ Andrew J. Filipowski
By: _________________________________
Andrew J. Filipowski
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andrew J. Filipowski President, Chief Executive Officer March 31, 1999
_______________________ (principal executive officer) and
Andrew J. Filipowski Chairman of the Board of
Directors
/s/ Paul L. Humenansky March 31, 1999
_______________________ Executive Vice President, Chief
Paul L. Humenansky Operations Officer and Director
/s/ Michael P. Cullinane Executive Vice President, Chief March 31, 1999
_______________________ Financial Officer (principal
Michael P. Cullinane financial and accounting officer),
Treasurer and Director
/s/ James E. Cowie Director March 31, 1999
_______________________
James E. Cowie
/s/ Steven D. Devick Director March 31, 1999
_______________________
Steven D. Devick
/s/ Gian M. Fulgoni Director March 31, 1999
_______________________
Gian M. Fulgoni
/s/ Arthur P. Frigo Director March 31, 1999
_______________________
Arthur P. Frigo
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.49 Severance Pay Agreement between Tom A. Slowey and the Company, dated
as of August 31, 1998.*
10.50 Severance Pay Agreement between Paul A. Tatro and the Company, dated
as of August 31, 1998.*
10.51 Amended and Restated Credit Agreement, dated as of December 21, 1998,
between the Company and American National Bank and Trust Company of
Chicago, as Agent.
12 Computation of Ratios of Earnings to Fixed Charges.
21 Subsidiaries of the Company.
23.1 Consent of KPMG LLP with respect to the Company's financial statements
and financial statement schedule.
Consent of Arthur Andersen LLP with Respect to Mastering's financial
23.2 statements.
Consent of Ernst & Young LLP with respect to Logic Works' financial
23.3 statements.
27.1 1998 Financial Data Schedule.
27.2 1997 Financial Data Schedule, as restated.
27.3 1996 Financial Data Schedule, as restated.
99.1 Report of Arthur Andersen LLP on Mastering's financial statements.
99.2 Report of Ernst & Young LLP on Logic Works' financial statements.
</TABLE>
- - --------
* Management contract or compensatory plan or arrangement required to be
included as an exhibit to this Annual Report on Form 10-K.
<PAGE>
Exhibit 10.49
PLATINUM technology International, inc.
SEVERANCE PAY AGREEMENT
-----------------------
This Severance Pay Agreement ( this "Agreement") is made and entered into
as of the 31st day of August, 1998 by and between PLATINUM technology, inc., a
Delaware corporation (together with its subsidiaries, the "Company"), and Tom A.
Slowey (the "Executive").
WITNESSETH
----------
WHEREAS, Executive has certain unique expertise, skills, contacts and
experience relating to the Company's business;
WHEREAS, Executive is currently employed by the Company and the Company
believes that the continuation of such employment is material to the continued
success of the Company;
WHEREAS, in light of the fact that the Company is publicly-held, the
Company recognizes and acknowledges that it is necessary, to retain Executive,
to provide certain security to Executive in the event that a Change in Control
(as defined below) of the Company should occur; and
WHEREAS, to that end, the Company desires to provide for severance pay to
Executive in the event that Executive's employment with the Company is
terminated in connection with or as a result of a Change in Control, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions. As used in this Agreement the following initially
capitalized terms shall have the following meanings:
a. Severance Pay Rate: The annual rate of compensation payable by the
Company to Executive as severance pay, which shall be equal to the sum of the
greatest amount of each of (i) the base salary plus (ii) the incentive
compensation, respectively, paid to Executive during any trailing 12 month
period or periods (it being expressly understood that the 12 month periods
utilized to determine base salary and incentive compensation may be different)
during the 36 month period preceding termination of Executive's employment with
the Company; provided, however, if Executive's annual base salary rate at the
time of termination is greater than his base salary in the greatest trailing 12
month period, then such annual base salary rate shall be utilized for purposes
of this Section 1(a).
b. Payout Period: A period of 36 months from the effective date of the
termination of Executive's employment with the Company.
1
<PAGE>
c. Bonus Amount: The product of (1) the higher of (i) the annual bonus
paid or payable, including by reason of any deferral, to the Executive by the
Company or its affiliate companies for the most recently completed fiscal year
prior to termination of Executive's employment with the Company, or (ii) the
average annualized (for any fiscal year consisting of less than twelve full
months) bonus paid or payable to the Executive by the Company or its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Change in Control occurs, or (iii) Executive's targeted annual
bonus for the fiscal year in which the Change in Control occurs and (2) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date on which Executive's employment is terminated, and the
denominator of which is 365.
d. Aggregate Severance Pay: The sum of (1) the Bonus amount, plus (2)
the product obtained by multiplying: (i) the Severance Pay Rate divided by
twelve; by (ii) the number of months in the applicable Payout Period.
e. Change in Control: The first to occur of the following:
1. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent (20%)
or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change in Control: (A) any acquisition directly from the Company
other than in connection with the acquisition by the Company or
its affiliates of a business, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the Company, or (E)
any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (3) of
this Section 1(e);
2
<PAGE>
2. Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board;
3. Consummation of a reorganization, merger or consolidation of the
Company or any direct or indirect subsidiary of the Company or
sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than sixty percent (60%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (which shall include for these purposes, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination and any Person
beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 20% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of
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the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
4. Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company other than to a
corporation which would satisfy the requirements of clauses (A),
(B) and (C) of Subsection (3) of this Section 1(e), assuming for
this purpose that such liquidation or dissolution was a Business
Combination.
f. Good Cause: The determination by board of directors of the Company, in
good faith and in the exercise of its reasonable judgment, that Executive has
committed an act or acts which constitute (i) a felony which reasonably could be
expected to have a material adverse impact on the Company or the ability of
Executive to perform his duties to the Company in connection with his
employment, (ii) dishonesty or fraud with respect to the Company having a
material adverse impact on the Company, excluding for this purpose an isolated
and inadvertent action not taken in bad faith by Executive and which Executive
promptly takes reasonable actions to remedy after the board of directors has
delivered written notice thereof to Executive, or (iii) willfully engaging in
one or more acts, or willfully omitting to act, which is demonstrably and
materially damaging to the Company or any of its subsidiaries. For purposes of
this Agreement, an act or failure to act on Executive's part shall be considered
"willful" only if it was done or omitted to be done by him not in good faith,
and shall not include any act or failure to act resulting from any incapacity of
Executive. Notwithstanding the foregoing, Executive may not be terminated for
Good Cause unless and until (1) the Executive shall have committed acts which
constitute Good Cause as set forth in this Section 1(f), and (2) there shall
have been delivered to him a copy of a resolution duly adopted by a seventy-five
percent (75%) affirmative vote of the membership of the Board of Directors of
the Company (the "Board") (excluding Executive, if he is then a member) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that Executive was guilty of conduct
which constitutes Good Cause as set forth in this Section 1(f).
g. Good Reason: The occurrence of any of the following: (i) the
assignment to Executive of duties materially inconsistent with the status of
Executive's position with the Company or the diminution in the nature or status
of Executive's duties and powers and Executive's responsibilities in connection
with such duties and powers excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; (ii) a requirement by the Company that Executive relocate his primary
residence outside of the area comprising a 50 mile radius around the then
current location of such residence (the "Area"); (iii) any requirement for
Executive to spend on a regular basis a greater number of days per month or a
greater number of consecutive days away from the Area, excluding any days of
travel initiated by Executive or travel agreed to by the Company and Executive
and provided that Executive agrees to travel consistent with past practice
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and as reasonably required to perform the responsibilities of his position
consistent with past practice; (iv) the reduction of Executive's base salary;
(v) a change in the composition of the plan pursuant to which Executive is
eligible for incentive compensation such that Executive's ability to earn such
incentive compensation is significantly diminished; or (vi) reduction in the
benefits provided or made available by the Company to Executive or the portion
of the cost of such benefits borne by the Company, other than modifications of
benefits under general benefit plans which are available to substantially all
full time employees.
For purposes of this Section, any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
2. Termination of Employment; Severance Pay. If Executive's employment with
the Company is terminated by Executive for Good Reason or by the Company, other
than for Good Cause, then the Company shall:
a. pay to Executive, during the applicable Payout Period, the Aggregate
Severance Pay as follows:
(i) if such termination occurs at any time during the period beginning
on the [60th] day preceding the occurrence of a Change in Control and
ending on the first anniversary of the occurrence of such Change in Control
(the "Initial Period"), then the applicable Payout Period shall be 36
months; or
(ii) if such termination occurs at any time during the period
beginning immediately following the expiration of the Initial Period and
ending on the second anniversary of such Change in Control (the "Extended
Period"), then the applicable Payout Period shall be 24 months; and
b. if such termination occurs during the Initial Period, pay the Bonus
Amount to Executive in a lump sum in cash within 30 days after the date of
Executive's termination of employment; and
c. if such termination occurs during the Initial Period or the Extended
Period, during the one year period following termination of Executive's
employment with the Company or its affiliated companies the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the
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Executive at any time during the 90-day period immediately preceding the
occurrence of the Change in Control or, if more favorable to the Executive,
those provided generally at any time after the occurrence of the Change in
Control to other peer executives of the Company and its affiliated companies.
The Aggregate Severance Pay shall be payable, at the Severance Pay Rate, in
accordance with the Company's or its successor's standard payroll practices
during the applicable Payout Period. In lieu of regular payments of the
Aggregate Severance Pay during the Payout Period, Executive shall be entitled to
receive, upon Executive's written election delivered within 10 business days
following the termination of Executive's employment with the Company, a lump sum
payment equal to the present value of the stream of monthly payments of the
Aggregate Severance Pay during the Payout Period, for purposes of which each
monthly payment shall be equal to the Severance Pay Rate divided by twelve. For
purposes of this computation, present value shall be determined in accordance
with Internal Revenue Code (the "Code") Section 280G, using a discount rate
equal to 120% of the applicable Federal Rate (determined under Section 1274(d)
of the Code), compounded semi-annually, determined as of the date of Executive's
election to receive the lump sum payment provided for herein.
3. Gross Up for Excise Tax Liability. If it shall be determined that any
payment received or to be received by Executive under this Agreement or any
other agreement, plan or program which provides for additional compensation to
be paid to the Executive upon the occurrence of a Change in Control (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal revenue Code of 1986, as amended (the "Excise Tax"), then the Company
shall pay to Executive an additional payment (a "Gross-Up Payment") in an amount
necessary to reimburse Executive, on an after-tax basis, for the Excise Tax and
for any federal, state and local income tax and excise tax (including any
interest and penalties imposed with respect to such taxes) that may be imposed
by reason of the Payment. For purposes of determining the amount of any Gross-
Up Payment, Executive shall be deemed to pay federal, state and local income
taxes at the highest applicable marginal rate of taxation in the calendar year
in which such Gross-Up Payment is to be made. All determinations required to be
made under this Section 3, including whether a Gross-Up Payment is required and
the amount of such Gross-Up Payment shall be made by the firm of independent
certified public accountants then retained by the Company (the "Accounting
Firm") which shall provide, in writing, detailed supporting calculations both to
the Company and Executive within 15 business days of the request for such
determination. Such request may be made by either party. The Company shall pay
the fees and expenses of the Accounting Firm in connection with any
determinations hereunder. The Gross-Up Payment shall be paid by the Company
within 10 days of the Accounting Firm's determination of the amount thereof.
In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time the Gross-up Payment is made, including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment, the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest and penalties payable with
respect to such excess) at the time that the amount of such excess is
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<PAGE>
finally determined.
In the event that the Excise Tax is subsequently determined to be less than
the amount determined by the Accounting Firm, the Executive shall repay to the
Company at the time that the amount of such reduction in Excise Tax is finally
refunded to or otherwise realized as a benefit by Executive, the portion of the
Gross-up Payment that would not have been paid, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that would require payment by the Company of the Gross-
Up Payment. If the Company elects to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action to contest such claim as the Company (or
its counsel) shall reasonably request, and
(iii) cooperate with the Company in good faith in order to
effectively contest such claim.
The Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such contest, and the Executive agrees to prosecute such
contest to a determination as the Company shall determine; provided, however,
the Company shall advance the amount of any payment pending the contest to the
Executive and shall indemnify the Executive with respect to any taxes (including
penalties and interest, if any) which may be imposed in connection with the
advance of such funds.
4. No Duty to Mitigate. The Executive shall not be required or have any duty
or obligation to mitigate the amount of any payment provided for under this
Agreement by seeking other employment or otherwise. In addition, no payment to
be provided to Executive pursuant to this Agreement shall be reduced by any
compensation or other amount earned or collected by Executive at any time before
or after the termination of Executive's employment with the Company.
5. Cooperation.
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a. Executive agrees to cooperate with the Company (including following
Executive's termination of employment for any reason), provided that such
cooperation would not unreasonably interfere with the business activities or
employment obligations of the Executive, by making himself available to testify
on behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; provided, however, this subsection (a) shall not
apply to any action between the Executive and the Company to enforce this
Agreement. The Company agrees to reimburse Executive, on an after-tax basis,
for all expenses actually incurred in connection with his provision of testimony
or assistance.
b. Executive agrees, as a condition to receipt of the termination payments
and benefits provided hereunder, that he will execute a release agreement, in a
form satisfactory to the Company, releasing any and all claims arising out of
Executive's employment (other than claims made pursuant to any indemnities
provided under the articles or by-laws of the Company, under any directors or
officers liability insurance policies maintained by the Company, under any
employee benefit plans or executive compensation plans of the Company, or
enforcement of this Agreement).
6. Intellectual Property Rights.
a. Executive agrees that the Company will be the sole owner of any and all
of Executive's "Discoveries" and "Work Product" made during the term of his
employment with the Company. For these purposes "Discoveries" means all
inventions, discoveries, improvements, and copyrightable works (including,
without limitation, any information relating to the Company's software products,
source code, know-how, processes, designs, algorithms, computer programs and
routines, formulae, techniques, developments or experimental work, work-in-
progress, or business trade secrets) made or conceived or reduced to practice by
Executive, whether or not potentially patentable or copyrightable in the United
States or elsewhere. For purposes of this Agreement, "Work Product" means any
and all work product relating to Discoveries.
b. Executive shall promptly disclose to the Company all Discoveries and
Work Product. All such disclosures must include complete and accurate copies of
all source code, object code or machine-readable copies, documentation, work
notes, flow-charts, diagrams, test data, reports, samples, and other tangible
evidence or results (collectively, "Tangible Embodiments") of such Discoveries
or Work Product. All Tangible Embodiments of any Discoveries or Work Product
will be deemed to have been assigned to the Company as a result of the act of
expressing any Discovery or Work Product therein.
c. Executive hereby assigns and agrees to assign to the Company all of his
interest in any country in any and all Discoveries and Work Product, whether
such interest arises under patent law, copyright law, trade-secret law,
semiconductor chip protection law, or otherwise. Without
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<PAGE>
limiting the generality of the preceding sentence, Executive hereby authorizes
the Company to make any desired changes to any part of any Discovery or Work
Product, to combine it with other materials in any manner desired, and to
withhold Executive's identity in connection with any distribution or use thereof
alone or in combination with other materials. This assignment and assignment
obligation applies to all Discoveries and Work Product arising during
Executive's employment with the Company (or its predecessors), whether pursuant
to this Agreement or otherwise.
d. At the request of the Company, Executive shall promptly and without
additional compensation execute any and all patent applications, copyright
registration applications, waivers of moral rights, assignments, or other
instruments that the Company deems necessary or appropriate to apply for or
obtain Letters Patent of the United States or any foreign country, copyright
registrations or otherwise to protect the Company's interest in such Discovery
and Work Product, the expenses for which will be borne by the Company.
Executive hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as his agents and attorneys-in-fact to, if the
Company is unable for any reason to secure Executive's signature to any lawful
and necessary document required or appropriate to apply for or execute any
patent application, copyright registration application, waiver of moral rights,
or other similar document with respect to any Discovery and Work Product
(including, without limitation, renewals, extensions, continuations, divisions,
or continuations in part), (I) act for and in his behalf, (ii) execute and file
any such document, and (iii) do all other lawfully permitted acts to further the
prosecution of the same legal force and effect as if executed by him; this
designation and appointment constitutes an irrevocable power of attorney coupled
with an interest.
e. To the extent that any Discovery or Work Product constitutes
copyrightable or similar subject matter that is eligible to be treated as a
"work made for hire" or as having similar status in the United States or
elsewhere, it will be so deemed. This provision does not alter or limit
Executive's other obligations to assign intellectual property rights as provided
above.
f. The obligations of Executive set forth in this Section 6 (including,
without limitation, the assignment obligations) will survive and continue
beyond the termination of Executive's employment and termination of this
Agreement with respect to Discoveries and Work Product conceived or made by
Executive alone or in concert with others during Executive's employment with the
Company. Those obligations will be binding upon Executive, his executors,
administrators, and other representatives.
7. Exposure to Proprietary Information.
a. As used in this Agreement, "Proprietary Information" means all
information of a business or technical nature that relates to the Company
including, without limitation, all information about software products whether
currently released or in development, all inventions, discoveries, improvements,
copyrightable work, source code, know-how, processes, designs, algorithms,
computer programs and routines, formulae and techniques, and any information
regarding the business of any customer or supplier of the Company or any other
information that the Company is
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required to keep confidential. Notwithstanding the preceding sentence, the term
"Proprietary Information" does not include information that is or becomes
publicly available through no fault of Executive.
b. Executive acknowledges that the Proprietary Information constitutes a
protectible business interest of the Company, and covenants and agrees that
during and after the term of his employment by the Company or, he will not,
directly or indirectly, disclose, furnish, make available or utilize any of the
Proprietary Information, other than in the proper performance of his duties for
the Company. Executive's obligations under this Section 7 with respect to
particular Proprietary Information will survive expiration or termination of
this Agreement and Executive's employment with the Company, and will terminate
only at such time (if any) as the Proprietary Information in question becomes
generally known to the public other than through a breach of Executive's
obligations under this Section 7.
c. Executive acknowledges that all records, documents, and Tangible
Embodiments containing or of Proprietary Information prepared by Executive or
coming into his possession by virtue of his employment by the Company are and
will remain the property of the Company. Upon termination of his employment
with the Company, Executive shall immediately return to the Company all such
items in his possession and all copies of such items.
8. Equitable Remedies.
a. Executive acknowledges and agrees that the agreements and covenants set
forth in Sections 6, 7, and 8 are reasonable and necessary for the protection of
the Company's business interests, that irreparable injury will result to the
Company if Executive breaches any of the terms of said covenants, and that in
the event of Executive's actual or threatened breach of any such covenants, the
Company will have no adequate remedy at law. Executive accordingly agrees that,
in the event of any actual or threatened breach by him of any of said covenants,
the Company will be entitled to immediate injunctive and other equitable relief,
without bond and without the necessity of showing actual monetary damages.
Nothing in this Section 8 will be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of any damages that it is able to prove.
b. Each of the covenants in Sections 6, 7, and 8 will be construed as
independent of any other covenants or other provisions of this Agreement.
c. In the event of any judicial determination that any of the covenants in
Sections 6, 7, and 8 are not fully enforceable, it is the intention and desire
of the parties that the court treat said covenants as having been modified to
the extent deemed necessary by the court to render them reasonable and
enforceable, and that the court enforce them to such extent.
9. Termination. The Company may terminate this Agreement at any time, for any
reason or no reason by written notice to Executive, provided that a Change in
Control has not yet occurred at the
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time such notice is given and does not occur within 90 days after the notice of
termination has been given by the Company to Executive, and in such cases such
purported termination shall be of no effect and this Agreement shall continue
and may not be terminated by the Company.
10. Miscellaneous. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been properly given
(a) if sent by United States mail, certified or registered, (b) if sent prepaid
by overnight courier, or (c) when delivered in person to the following
addresses:
(i) If to the Company, to:
PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Attn: Chief Financial Officer
with a copy to :
PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Attn: General Counsel
(ii) If to Executive to:
--------------------------
--------------------------
--------------------------
Any party may change its address for notice hereunder by notice to the
other party hereto.
b. Governing Law. The parties agree that this Agreement shall be
construed and governed in accordance with the laws of the State of Illinois
applicable to agreements made and to be performed entirely within such state,
without regard to its conflict of laws rules, except insofar as the Delaware
General Corporation Law and federal laws and regulations may be applicable.
c. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns. Any successor, including,
without limitation, a purchaser of substantially all of the Company's assets,
will automatically succeed to the obligations of the Company under this
Agreement; provided that, the Company shall remain liable under this Agreement
in such event.
d. Counterparts. This Agreement may be executed simultaneously in one or
more
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counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
e. Entire Agreement. Subject to the rights, benefits and obligations
provided for under any executive compensation and employee benefit plans of the
Company, this Agreement represents the entire agreement and understanding of the
parties hereto with respect to the matters set forth herein. This Agreement
supersedes all prior negotiations, discussions correspondence, communications,
understandings and agreements between the parties, written or oral, relating to
the subject matter of this Agreement except as set forth under any executive
compensation and employee benefit plans of the Company. This Agreement may be
amended, superseded, canceled, renewed, or extended and the terms hereof may be
waived, only by a written instrument signed by the parties hereto or, in the
case of a waiver, by the party waiving compliance.
f. Waivers. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof. Nor shall any
waiver on the part of any party of any such right, power or privilege hereunder,
nor any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
g. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered in the interpretation or construction of the
provisions hereof.
h. Arbitration. Except for any claim or dispute which gives rise or could
give rise to equitable relief under this Agreement, at the request of the
Executive any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the breach hereof shall be settled exclusively and
finally by binding arbitration. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (hereinafter referred to as "AAA Rules"). Such arbitration shall be
conducted in Chicago, Illinois, or in such other city as the parties to the
dispute may designate by mutual consent. The arbitral tribunal shall consist of
three arbitrators (or such lesser number as may be agreed upon by the parties)
selected according to the procedure set forth in the AAA Rules in effect on the
date hereof and the arbitrators shall be empowered to order any remedy which is
appropriate to the proceedings and issues presented to them. The chairman of
the arbitral tribunal shall be appointed by the American Arbitration Association
from among the three arbitrators so selected. Any party to a decision rendered
in such arbitration proceedings may seek an order enforcing the same by any
court having jurisdiction.
i. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by Executive and the Company to express their
mutual intent, and no rule of strict construction will be applied against
Executive or the Company.
j. Legal Expenses. Executive shall be entitled to recover any expenses for
attorney's fees and disbursements incurred by him in connection with enforcing
his rights under this Agreement whether or not Executive is successful in
asserting such rights; provided, however, that no
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reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that Executive's assertion of such
rights was in bad faith or frivolous, as determined by independent counsel
mutually acceptable to Executive and the Company and made without reference to
or not related to a Change in Control. Amounts payable to Executive hereunder
which are not paid when due to be paid shall bear interest from their due date
at the prime rate of interest published from time to time in the Midwest edition
of the Wall Street Journal plus two percent (2%).
k. Non-Transferability. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution.
The Company may assign this Agreement and the Company's rights and obligations
hereunder, and shall assign this Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Agreement. For
purposes of this Agreement, "Successor" shall mean any person that succeeds to,
or has the practical ability to control (either immediately or with the passage
of time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's voting securities or all or
substantially all of its assets, or otherwise.
l. No Offsets. The amounts required to be paid by the Company to
Executive pursuant to this Agreement shall not be subject to offset,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others, other than with respect to any
amounts that are owed to the Company by Executive due to his receipt of Company
funds as a result of his fraudulent activity. The foregoing and other
provisions of this Agreement notwithstanding, all payments to be made to
Executive under this Agreement will be subject to required withholding taxes and
other required deductions.
IN WITNESS WHEREOF, the Company and Executive have signed or caused a duly
authorized representative to sign this Agreement as of the day and year written
above.
PLATINUM technology, inc.
By: /s/ Larry S. Freedman
---------------------
Its: Senior Vice President & General Counsel
----------------------------------------
/s/ Tom A. Slowey
-----------------
Tom A. Slowey
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Exhibit 10.50
PLATINUM technology International, inc.
SEVERANCE PAY AGREEMENT
-----------------------
This Severance Pay Agreement ( this "Agreement") is made and entered into
as of the 31st day of August, 1998 by and between PLATINUM technology, inc., a
Delaware corporation (together with its subsidiaries, the "Company"), and Paul
A. Tatro (the "Executive").
WITNESSETH
----------
WHEREAS, Executive has certain unique expertise, skills, contacts and
experience relating to the Company's business;
WHEREAS, Executive is currently employed by the Company and the Company
believes that the continuation of such employment is material to the continued
success of the Company;
WHEREAS, in light of the fact that the Company is publicly-held, the
Company recognizes and acknowledges that it is necessary, to retain Executive,
to provide certain security to Executive in the event that a Change in Control
(as defined below) of the Company should occur; and
WHEREAS, to that end, the Company desires to provide for severance pay to
Executive in the event that Executive's employment with the Company is
terminated in connection with or as a result of a Change in Control, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions. As used in this Agreement the following initially
capitalized terms shall have the following meanings:
a. Severance Pay Rate: The annual rate of compensation payable by the
Company to Executive as severance pay, which shall be equal to the sum of the
greatest amount of each of (i) the base salary plus (ii) the incentive
compensation, respectively, paid to Executive during any trailing 12 month
period or periods (it being expressly understood that the 12 month periods
utilized to determine base salary and incentive compensation may be different)
during the 36 month period preceding termination of Executive's employment with
the Company; provided, however, if Executive's annual base salary rate at the
time of termination is greater than his base salary in the greatest trailing 12
month period, then such annual base salary rate shall be utilized for purposes
of this Section 1(a).
b. Payout Period: A period of 36 months from the effective date of the
termination of Executive's employment with the Company.
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c. Bonus Amount: The product of (1) the higher of (i) the annual bonus
paid or payable, including by reason of any deferral, to the Executive by the
Company or its affiliate companies for the most recently completed fiscal year
prior to termination of Executive's employment with the Company, or (ii) the
average annualized (for any fiscal year consisting of less than twelve full
months) bonus paid or payable to the Executive by the Company or its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Change in Control occurs, or (iii) Executive's targeted annual
bonus for the fiscal year in which the Change in Control occurs and (2) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date on which Executive's employment is terminated, and the
denominator of which is 365.
d. Aggregate Severance Pay: The sum of (1) the Bonus amount, plus (2)
the product obtained by multiplying: (i) the Severance Pay Rate divided by
twelve; by (ii) the number of months in the applicable Payout Period.
e. Change in Control: The first to occur of the following:
1. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent (20%)
or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change in Control: (A) any acquisition directly from the Company
other than in connection with the acquisition by the Company or
its affiliates of a business, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the Company, or (E)
any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (3) of
this Section 1(e);
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2. Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board;
3. Consummation of a reorganization, merger or consolidation of the
Company or any direct or indirect subsidiary of the Company or
sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than sixty percent (60%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (which shall include for these purposes, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination and any Person
beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 20% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of
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the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
4. Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company other than to a
corporation which would satisfy the requirements of clauses (A),
(B) and (C) of Subsection (3) of this Section 1(e), assuming for
this purpose that such liquidation or dissolution was a Business
Combination.
f. Good Cause: The determination by board of directors of the Company, in
good faith and in the exercise of its reasonable judgment, that Executive has
committed an act or acts which constitute (i) a felony which reasonably could be
expected to have a material adverse impact on the Company or the ability of
Executive to perform his duties to the Company in connection with his
employment, (ii) dishonesty or fraud with respect to the Company having a
material adverse impact on the Company, excluding for this purpose an isolated
and inadvertent action not taken in bad faith by Executive and which Executive
promptly takes reasonable actions to remedy after the board of directors has
delivered written notice thereof to Executive, or (iii) willfully engaging in
one or more acts, or willfully omitting to act, which is demonstrably and
materially damaging to the Company or any of its subsidiaries. For purposes of
this Agreement, an act or failure to act on Executive's part shall be considered
"willful" only if it was done or omitted to be done by him not in good faith,
and shall not include any act or failure to act resulting from any incapacity of
Executive. Notwithstanding the foregoing, Executive may not be terminated for
Good Cause unless and until (1) the Executive shall have committed acts which
constitute Good Cause as set forth in this Section 1(f), and (2) there shall
have been delivered to him a copy of a resolution duly adopted by a seventy-five
percent (75%) affirmative vote of the membership of the Board of Directors of
the Company (the "Board") (excluding Executive, if he is then a member) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that Executive was guilty of conduct
which constitutes Good Cause as set forth in this Section 1(f).
g. Good Reason: The occurrence of any of the following: (i) the
assignment to Executive of duties materially inconsistent with the status of
Executive's position with the Company or the diminution in the nature or status
of Executive's duties and powers and Executive's responsibilities in connection
with such duties and powers excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; (ii) a requirement by the Company that Executive relocate his primary
residence outside of the area comprising a 50 mile radius around the then
current location of such residence (the "Area"); (iii) any requirement for
Executive to spend on a regular basis a greater number of days per month or a
greater number of consecutive days away from the Area, excluding any days of
travel initiated by Executive or travel agreed to by the Company and Executive
and provided that Executive agrees to travel consistent with past practice
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and as reasonably required to perform the responsibilities of his position
consistent with past practice; (iv) the reduction of Executive's base salary;
(v) a change in the composition of the plan pursuant to which Executive is
eligible for incentive compensation such that Executive's ability to earn such
incentive compensation is significantly diminished; or (vi) reduction in the
benefits provided or made available by the Company to Executive or the portion
of the cost of such benefits borne by the Company, other than modifications of
benefits under general benefit plans which are available to substantially all
full time employees.
For purposes of this Section, any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
2. Termination of Employment; Severance Pay. If Executive's employment with
the Company is terminated by Executive for Good Reason or by the Company, other
than for Good Cause, then the Company shall:
a. pay to Executive, during the applicable Payout Period, the Aggregate
Severance Pay as follows:
(i) if such termination occurs at any time during the period beginning
on the [60th] day preceding the occurrence of a Change in Control and
ending on the first anniversary of the occurrence of such Change in Control
(the "Initial Period"), then the applicable Payout Period shall be 36
months; or
(ii) if such termination occurs at any time during the period
beginning immediately following the expiration of the Initial Period and
ending on the second anniversary of such Change in Control (the "Extended
Period"), then the applicable Payout Period shall be 24 months; and
b. if such termination occurs during the Initial Period, pay the Bonus
Amount to Executive in a lump sum in cash within 30 days after the date of
Executive's termination of employment; and
c. if such termination occurs during the Initial Period or the Extended
Period, during the one year period following termination of Executive's
employment with the Company or its affiliated companies the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the
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Executive at any time during the 90-day period immediately preceding the
occurrence of the Change in Control or, if more favorable to the Executive,
those provided generally at any time after the occurrence of the Change in
Control to other peer executives of the Company and its affiliated companies.
The Aggregate Severance Pay shall be payable, at the Severance Pay Rate, in
accordance with the Company's or its successor's standard payroll practices
during the applicable Payout Period. In lieu of regular payments of the
Aggregate Severance Pay during the Payout Period, Executive shall be entitled to
receive, upon Executive's written election delivered within 10 business days
following the termination of Executive's employment with the Company, a lump sum
payment equal to the present value of the stream of monthly payments of the
Aggregate Severance Pay during the Payout Period, for purposes of which each
monthly payment shall be equal to the Severance Pay Rate divided by twelve. For
purposes of this computation, present value shall be determined in accordance
with Internal Revenue Code (the "Code") Section 280G, using a discount rate
equal to 120% of the applicable Federal Rate (determined under Section 1274(d)
of the Code), compounded semi-annually, determined as of the date of Executive's
election to receive the lump sum payment provided for herein.
3. Gross Up for Excise Tax Liability. If it shall be determined that any
payment received or to be received by Executive under this Agreement or any
other agreement, plan or program which provides for additional compensation to
be paid to the Executive upon the occurrence of a Change in Control (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal revenue Code of 1986, as amended (the "Excise Tax"), then the Company
shall pay to Executive an additional payment (a "Gross-Up Payment") in an amount
necessary to reimburse Executive, on an after-tax basis, for the Excise Tax and
for any federal, state and local income tax and excise tax (including any
interest and penalties imposed with respect to such taxes) that may be imposed
by reason of the Payment. For purposes of determining the amount of any Gross-
Up Payment, Executive shall be deemed to pay federal, state and local income
taxes at the highest applicable marginal rate of taxation in the calendar year
in which such Gross-Up Payment is to be made. All determinations required to be
made under this Section 3, including whether a Gross-Up Payment is required and
the amount of such Gross-Up Payment shall be made by the firm of independent
certified public accountants then retained by the Company (the "Accounting
Firm") which shall provide, in writing, detailed supporting calculations both to
the Company and Executive within 15 business days of the request for such
determination. Such request may be made by either party. The Company shall pay
the fees and expenses of the Accounting Firm in connection with any
determinations hereunder. The Gross-Up Payment shall be paid by the Company
within 10 days of the Accounting Firm's determination of the amount thereof.
In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time the Gross-up Payment is made, including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment, the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest and penalties payable with
respect to such excess) at the time that the amount of such excess is
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finally determined.
In the event that the Excise Tax is subsequently determined to be less than
the amount determined by the Accounting Firm, the Executive shall repay to the
Company at the time that the amount of such reduction in Excise Tax is finally
refunded to or otherwise realized as a benefit by Executive, the portion of the
Gross-up Payment that would not have been paid, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that would require payment by the Company of the Gross-
Up Payment. If the Company elects to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action to contest such claim as the Company (or
its counsel) shall reasonably request, and
(iii) cooperate with the Company in good faith in order to
effectively contest such claim.
The Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such contest, and the Executive agrees to prosecute such
contest to a determination as the Company shall determine; provided, however,
the Company shall advance the amount of any payment pending the contest to the
Executive and shall indemnify the Executive with respect to any taxes (including
penalties and interest, if any) which may be imposed in connection with the
advance of such funds.
4. No Duty to Mitigate. The Executive shall not be required or have any duty
or obligation to mitigate the amount of any payment provided for under this
Agreement by seeking other employment or otherwise. In addition, no payment to
be provided to Executive pursuant to this Agreement shall be reduced by any
compensation or other amount earned or collected by Executive at any time before
or after the termination of Executive's employment with the Company.
5. Cooperation.
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a. Executive agrees to cooperate with the Company (including following
Executive's termination of employment for any reason), provided that such
cooperation would not unreasonably interfere with the business activities or
employment obligations of the Executive, by making himself available to testify
on behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; provided, however, this subsection (a) shall not
apply to any action between the Executive and the Company to enforce this
Agreement. The Company agrees to reimburse Executive, on an after-tax basis,
for all expenses actually incurred in connection with his provision of testimony
or assistance.
b. Executive agrees, as a condition to receipt of the termination payments
and benefits provided hereunder, that he will execute a release agreement, in a
form satisfactory to the Company, releasing any and all claims arising out of
Executive's employment (other than claims made pursuant to any indemnities
provided under the articles or by-laws of the Company, under any directors or
officers liability insurance policies maintained by the Company, under any
employee benefit plans or executive compensation plans of the Company, or
enforcement of this Agreement).
6. Intellectual Property Rights.
a. Executive agrees that the Company will be the sole owner of any and all
of Executive's "Discoveries" and "Work Product" made during the term of his
employment with the Company. For these purposes "Discoveries" means all
inventions, discoveries, improvements, and copyrightable works (including,
without limitation, any information relating to the Company's software products,
source code, know-how, processes, designs, algorithms, computer programs and
routines, formulae, techniques, developments or experimental work, work-in-
progress, or business trade secrets) made or conceived or reduced to practice by
Executive, whether or not potentially patentable or copyrightable in the United
States or elsewhere. For purposes of this Agreement, "Work Product" means any
and all work product relating to Discoveries.
b. Executive shall promptly disclose to the Company all Discoveries and
Work Product. All such disclosures must include complete and accurate copies of
all source code, object code or machine-readable copies, documentation, work
notes, flow-charts, diagrams, test data, reports, samples, and other tangible
evidence or results (collectively, "Tangible Embodiments") of such Discoveries
or Work Product. All Tangible Embodiments of any Discoveries or Work Product
will be deemed to have been assigned to the Company as a result of the act of
expressing any Discovery or Work Product therein.
c. Executive hereby assigns and agrees to assign to the Company all of his
interest in any country in any and all Discoveries and Work Product, whether
such interest arises under patent law, copyright law, trade-secret law,
semiconductor chip protection law, or otherwise. Without
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limiting the generality of the preceding sentence, Executive hereby authorizes
the Company to make any desired changes to any part of any Discovery or Work
Product, to combine it with other materials in any manner desired, and to
withhold Executive's identity in connection with any distribution or use thereof
alone or in combination with other materials. This assignment and assignment
obligation applies to all Discoveries and Work Product arising during
Executive's employment with the Company (or its predecessors), whether pursuant
to this Agreement or otherwise.
d. At the request of the Company, Executive shall promptly and without
additional compensation execute any and all patent applications, copyright
registration applications, waivers of moral rights, assignments, or other
instruments that the Company deems necessary or appropriate to apply for or
obtain Letters Patent of the United States or any foreign country, copyright
registrations or otherwise to protect the Company's interest in such Discovery
and Work Product, the expenses for which will be borne by the Company.
Executive hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as his agents and attorneys-in-fact to, if the
Company is unable for any reason to secure Executive's signature to any lawful
and necessary document required or appropriate to apply for or execute any
patent application, copyright registration application, waiver of moral rights,
or other similar document with respect to any Discovery and Work Product
(including, without limitation, renewals, extensions, continuations, divisions,
or continuations in part), (I) act for and in his behalf, (ii) execute and file
any such document, and (iii) do all other lawfully permitted acts to further the
prosecution of the same legal force and effect as if executed by him; this
designation and appointment constitutes an irrevocable power of attorney coupled
with an interest.
e. To the extent that any Discovery or Work Product constitutes
copyrightable or similar subject matter that is eligible to be treated as a
"work made for hire" or as having similar status in the United States or
elsewhere, it will be so deemed. This provision does not alter or limit
Executive's other obligations to assign intellectual property rights as provided
above.
f. The obligations of Executive set forth in this Section 6 (including,
without limitation, the assignment obligations) will survive and continue
beyond the termination of Executive's employment and termination of this
Agreement with respect to Discoveries and Work Product conceived or made by
Executive alone or in concert with others during Executive's employment with the
Company. Those obligations will be binding upon Executive, his executors,
administrators, and other representatives.
7. Exposure to Proprietary Information.
a. As used in this Agreement, "Proprietary Information" means all
information of a business or technical nature that relates to the Company
including, without limitation, all information about software products whether
currently released or in development, all inventions, discoveries, improvements,
copyrightable work, source code, know-how, processes, designs, algorithms,
computer programs and routines, formulae and techniques, and any information
regarding the business of any customer or supplier of the Company or any other
information that the Company is
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required to keep confidential. Notwithstanding the preceding sentence, the term
"Proprietary Information" does not include information that is or becomes
publicly available through no fault of Executive.
b. Executive acknowledges that the Proprietary Information constitutes a
protectible business interest of the Company, and covenants and agrees that
during and after the term of his employment by the Company or, he will not,
directly or indirectly, disclose, furnish, make available or utilize any of the
Proprietary Information, other than in the proper performance of his duties for
the Company. Executive's obligations under this Section 7 with respect to
particular Proprietary Information will survive expiration or termination of
this Agreement and Executive's employment with the Company, and will terminate
only at such time (if any) as the Proprietary Information in question becomes
generally known to the public other than through a breach of Executive's
obligations under this Section 7.
c. Executive acknowledges that all records, documents, and Tangible
Embodiments containing or of Proprietary Information prepared by Executive or
coming into his possession by virtue of his employment by the Company are and
will remain the property of the Company. Upon termination of his employment
with the Company, Executive shall immediately return to the Company all such
items in his possession and all copies of such items.
8. Equitable Remedies.
a. Executive acknowledges and agrees that the agreements and covenants set
forth in Sections 6, 7, and 8 are reasonable and necessary for the protection of
the Company's business interests, that irreparable injury will result to the
Company if Executive breaches any of the terms of said covenants, and that in
the event of Executive's actual or threatened breach of any such covenants, the
Company will have no adequate remedy at law. Executive accordingly agrees that,
in the event of any actual or threatened breach by him of any of said covenants,
the Company will be entitled to immediate injunctive and other equitable relief,
without bond and without the necessity of showing actual monetary damages.
Nothing in this Section 8 will be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of any damages that it is able to prove.
b. Each of the covenants in Sections 6, 7, and 8 will be construed as
independent of any other covenants or other provisions of this Agreement.
c. In the event of any judicial determination that any of the covenants in
Sections 6, 7, and 8 are not fully enforceable, it is the intention and desire
of the parties that the court treat said covenants as having been modified to
the extent deemed necessary by the court to render them reasonable and
enforceable, and that the court enforce them to such extent.
9. Termination. The Company may terminate this Agreement at any time, for any
reason or no reason by written notice to Executive, provided that a Change in
Control has not yet occurred at the
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time such notice is given and does not occur within 90 days after the notice of
termination has been given by the Company to Executive, and in such cases such
purported termination shall be of no effect and this Agreement shall continue
and may not be terminated by the Company.
10. Miscellaneous. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been properly given
(a) if sent by United States mail, certified or registered, (b) if sent prepaid
by overnight courier, or (c) when delivered in person to the following
addresses:
(i) If to the Company, to:
PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Attn: Chief Financial Officer
with a copy to :
PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Attn: General Counsel
(ii) If to Executive to:
--------------------------
--------------------------
--------------------------
Any party may change its address for notice hereunder by notice to the
other party hereto.
b. Governing Law. The parties agree that this Agreement shall be
construed and governed in accordance with the laws of the State of Illinois
applicable to agreements made and to be performed entirely within such state,
without regard to its conflict of laws rules, except insofar as the Delaware
General Corporation Law and federal laws and regulations may be applicable.
c. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns. Any successor, including,
without limitation, a purchaser of substantially all of the Company's assets,
will automatically succeed to the obligations of the Company under this
Agreement; provided that, the Company shall remain liable under this Agreement
in such event.
d. Counterparts. This Agreement may be executed simultaneously in one or
more
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counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
e. Entire Agreement. Subject to the rights, benefits and obligations
provided for under any executive compensation and employee benefit plans of the
Company, this Agreement represents the entire agreement and understanding of the
parties hereto with respect to the matters set forth herein. This Agreement
supersedes all prior negotiations, discussions correspondence, communications,
understandings and agreements between the parties, written or oral, relating to
the subject matter of this Agreement except as set forth under any executive
compensation and employee benefit plans of the Company. This Agreement may be
amended, superseded, canceled, renewed, or extended and the terms hereof may be
waived, only by a written instrument signed by the parties hereto or, in the
case of a waiver, by the party waiving compliance.
f. Waivers. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof. Nor shall any
waiver on the part of any party of any such right, power or privilege hereunder,
nor any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
g. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered in the interpretation or construction of the
provisions hereof.
h. Arbitration. Except for any claim or dispute which gives rise or could
give rise to equitable relief under this Agreement, at the request of the
Executive any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the breach hereof shall be settled exclusively and
finally by binding arbitration. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (hereinafter referred to as "AAA Rules"). Such arbitration shall be
conducted in Chicago, Illinois, or in such other city as the parties to the
dispute may designate by mutual consent. The arbitral tribunal shall consist of
three arbitrators (or such lesser number as may be agreed upon by the parties)
selected according to the procedure set forth in the AAA Rules in effect on the
date hereof and the arbitrators shall be empowered to order any remedy which is
appropriate to the proceedings and issues presented to them. The chairman of
the arbitral tribunal shall be appointed by the American Arbitration Association
from among the three arbitrators so selected. Any party to a decision rendered
in such arbitration proceedings may seek an order enforcing the same by any
court having jurisdiction.
i. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by Executive and the Company to express their
mutual intent, and no rule of strict construction will be applied against
Executive or the Company.
j. Legal Expenses. Executive shall be entitled to recover any expenses for
attorney's fees and disbursements incurred by him in connection with enforcing
his rights under this Agreement whether or not Executive is successful in
asserting such rights; provided, however, that no
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reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that Executive's assertion of such
rights was in bad faith or frivolous, as determined by independent counsel
mutually acceptable to Executive and the Company and made without reference to
or not related to a Change in Control. Amounts payable to Executive hereunder
which are not paid when due to be paid shall bear interest from their due date
at the prime rate of interest published from time to time in the Midwest edition
of the Wall Street Journal plus two percent (2%).
k. Non-Transferability. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution.
The Company may assign this Agreement and the Company's rights and obligations
hereunder, and shall assign this Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Agreement. For
purposes of this Agreement, "Successor" shall mean any person that succeeds to,
or has the practical ability to control (either immediately or with the passage
of time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's voting securities or all or
substantially all of its assets, or otherwise.
l. No Offsets. The amounts required to be paid by the Company to
Executive pursuant to this Agreement shall not be subject to offset,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others, other than with respect to any
amounts that are owed to the Company by Executive due to his receipt of Company
funds as a result of his fraudulent activity. The foregoing and other
provisions of this Agreement notwithstanding, all payments to be made to
Executive under this Agreement will be subject to required withholding taxes and
other required deductions.
IN WITNESS WHEREOF, the Company and Executive have signed or caused a duly
authorized representative to sign this Agreement as of the day and year written
above.
PLATINUM technology, inc.
By: /s/ Larry S. Freedman
---------------------
Its: Senior Vice President & General Counsel
---------------------------------------
/s/ Paul A. Tatro
-----------------
Paul A. Tatro
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Exhibit 10.51
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement, dated as of December 21, 1998,
is among PLATINUM technology, inc., the Lenders signatory hereto and American
National Bank and Trust Company of Chicago, as Agent. The parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (i) acquires any going business or all or substantially all
of the assets of any partnership, association, entity, firm, corporation or
limited liability company, or division thereof, whether through purchase of
assets, merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions) at
least a majority (in number of votes) of the securities of a corporation which
have ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency) or a
majority (by percentage or voting power) of the outstanding ownership interests
of a partnership or limited liability company.
"Advance" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans made on the
same Borrowing Date (or date of conversion or continuation) by the Lenders to
the Borrower of the same Type and, in the case of Eurodollar Advances, for the
same Eurodollar Interest Period.
"Affiliate" means each of the following: (i) any other "Person" (as defined
below in this Article) that directly or indirectly controls, is controlled by,
or is under direct or indirect common control with, such Person; and (ii) any
other Person that is or becomes a general partner or joint venturer in such
Person. For purposes of this Agreement, a Person shall "control" another Person
if the controlling Person either owns fifty percent (50%) or more of any class
of voting securities (or other ownership interests) of the controlled Person, or
possesses, directly or indirectly, the power to direct or cause the direction of
management and policies of the applicable Person, whether through ownership of
securities or other interests, by contract, trust or otherwise. Each general
partner of a Person which is a partnership shall be deemed to have control of
such Person.
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"Agent" means American National Bank and Trust Company of Chicago in its
capacity as agent for the Lenders pursuant to Article XI, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article XI.
"Aggregate Commitment" means an amount in U.S. Dollars equal to the
aggregate of the Commitments of all the Lenders, as reduced from time to time
pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be amended, restated, or
modified and in effect from time to time.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Base Rate for such day and (ii) the sum of
Federal Funds Effective Rate for such day plus 1% per annum, changing when and
as the Alternate Base Rate changes.
"Alternate Base Rate Advance" means an Advance which bears interest at the
Alternate Base Rate.
"Alternate Base Rate Loan" means a Loan which bears interest at the
Alternate Base Rate.
"ANB" means American National Bank and Trust Company of Chicago in its
individual capacity, and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any one of the Senior Vice President, Tax and
Treasury (William Gecsey), Executive Vice President and Chief Financial Officer
(Michael P. Cullinane), and Senior Vice President and Corporate Controller
(Kenneth Mueller) of the Borrower, acting singly.
"Available Commitment" means, at any time of determination, the Aggregate
Commitment minus the Facility Letter of Credit Obligations.
"Base Rate" means a rate per annum announced publicly by ANB from time to
time as its "base rate" or "prime rate" which "base rate" or "prime rate" may
not necessarily be the lowest rate charged by ANB to any of its customers; such
Base Rate to change simultaneously with any change in such "base rate" or "prime
rate".
"Borrower" means PLATINUM technology, inc., a Delaware corporation, and its
successors and assigns.
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"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with GAAP.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Capitalized Software" means at any date, the amount of the asset shown as
Purchased and Developed Software on a consolidated balance sheet of the Borrower
and its Subsidiaries prepared in accordance with GAAP.
"Cash and Cash Equivalents" means the amount of the Borrower's and its
Subsidiaries' (i) cash, (ii) investments in direct obligations of the United
States government or any agency thereof, or obligations guaranteed by the United
States government or any agency thereof, (iii) investments in commercial paper
rated in the highest grade by a nationally recognized credit rating agency, (iv)
time deposits with, including certificates of deposit issued by, any office
located in the United States of any bank or trust company which is organized
under the laws of the United States or any state thereof and has capital,
surplus and undivided profits aggregating at least $100,000,000, and (v)
investments in corporate or municipal debt obligations rated "A" (or its
equivalent) or higher by a nationally recognized credit rating agency and
classified as cash or cash equivalents under GAAP, provided in each case that
such investment matures within one year from the date of acquisition thereof by
the Borrower or a Subsidiary. The amount of all such investments shall be
calculated at the market value of such investment on the date of calculation.
"Change in Control" is defined in Section 2.18.
"Change in Control Notice" is defined in Section 2.18.
"Charges" shall mean all national, federal, state, county, parish, city,
municipal or other Governmental Authority (as defined below in this Article)
taxes, levies, assessments, charges, liens, claims, fees or encumbrances
(including but not limited to
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those imposed by the PBGC (as defined below in this Article), upon or related
to: (i) the ownership or use of any of Borrower's or a Subsidiary's assets,
whether fixed, personal or intangible; (ii) any of Borrower's or a Subsidiary's
payroll, income or gross receipts, (iii) the Obligations (as defined below in
this Article); or (iv) any other aspect of Borrower's or a Subsidiary's
business.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral Shortfall Amount" is defined in Section 9.1.
"Commercial Letter of Credit" means any Facility Letter of Credit issued
for the purpose of providing the principal payment mechanism in connection with
the purchase of goods by the Borrower in the ordinary course of business.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans not exceeding the amount set forth opposite its signature below or as set
forth in any Notice of Assignment relating to any assignment that has become
effective pursuant to Section 13.3.2, as such amount may be modified from time
to time pursuant to the terms hereof.
"Condemnation" is defined in Section 8.8.
"Contingent Obligation" means any obligation of such Person which
guarantees or is intended to guarantee any Indebtedness (as defined below in
this Article), leases, dividends, distributions or other payment or performance
obligations (collectively "Primary Obligations") of any other Person (the
"Primary Obligor") in any manner, whether directly or indirectly. The
Contingent Obligations of a Person shall include, without limitation, any
obligation of such Person, whether or not contingent: (i) to purchase any such
Primary Obligation or any property constituting direct or indirect security
therefor; (ii) to advance or supply funds to such Primary Obligor or the Person
to whom the Primary Obligor owes such Primary Obligation either (A) to purchase
or to pay any such Primary Obligation or (B) to maintain working capital or
equity capital of the Primary Obligor or otherwise to maintain the net worth or
solvency of the Primary Obligor; (iii) to purchase property, securities or
services primarily for the purpose of assuring the Person to whom any such
Primary Obligation is owed of the ability of the Primary Obligor to make payment
of such Primary Obligation; or (iv) otherwise to assure or hold harmless the
Person to whom such Primary Obligation is owed against loss in respect of such
Primary Obligation. However, the term "Contingent Obligation" shall not include
(a) endorsements of instruments for deposit or collection in the ordinary course
of business; (b) Rate Hedging Obligations incurred in the ordinary course of
business for interest rate hedging purpose and not for speculation; (c)
repurchase obligations with respect to obligations of, or guaranteed by, the
United States government or any agency thereof; (d) ACH and wire transfer
obligations incurred in the ordinary course of business and on terms customary
in the industry; and (e) performance guarantees or other similar obligations
(but not involving any guaranty of collection of the Receivables) entered into
by the Borrower or a Material
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Subsidiary in connection with, and on terms customary under, Qualified
Receivables Transactions. For purposes of this Agreement, the amount of any
Contingent Obligation shall be that amount which is equal to the stated or
determinable amount of the Primary Obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
anticipated liability in respect of such Primary Obligation (assuming such
Person is required to perform thereunder), as reasonably determined by Lender.
The Person with such Contingent Obligation shall provide Agent and the Lenders
with such information, documents and instruments as they reasonably may request
in connection with the determination of the amount of such Contingent
Obligation.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Current Liabilities" means the current liabilities of the Borrower and its
Subsidiaries as calculated for the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Default" means an event described in Article VIII.
"Defaulting Lender" means any Lender that (i) on any Borrowing Date fails
to make available to the Agent such Lender's Loans required to be made to the
Borrower on such Borrowing Date or (ii) shall not have made a payment to the
Issuer pursuant to Section 2.2.5(b). Once a Lender becomes a Defaulting Lender,
such Lender shall continue as a Defaulting Lender until such time as such
Defaulting Lender makes available to the Agent, the amount of such Defaulting
Lender's Loans and/or to the Issuer, such payments due to the Issuer pursuant to
2.2.5(b) together with all other amounts required to be paid to the Agent and/or
the Issuer pursuant to this Agreement.
"Deferred Revenues" means the amount shown as Deferred Maintenance -
Current and Long-Term on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with GAAP.
"Environmental Affiliate" of a Person means any other Person whose
liability for any Environmental Claim (as defined below in this Article) such
Person has or may have retained, assumed or otherwise become liable for
(contingently or otherwise), whether contractually, by operation of law or
equity, or otherwise.
"Environmental Approvals" means any permit, license, approval, ruling,
variance, exemption or other authorization required under applicable
Environmental Laws (as defined below in this Article).
"Environmental Claim" means, with respect to any Person, any notice, claim,
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demand or similar communication (written or oral) delivered to such Person by
any other Person, alleging potential liability which reasonably could involve,
in the aggregate, $15,000,000 or more, for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties arising out of, based on or resulting
from: (i) the presence or release into the environment of any Material of
Environmental Concern (as defined below in this Article), at any location,
whether or not owned by the Person subject to such claim or (ii) circumstances,
facts or events, which individually, collectively, or with notice, lapse of time
or both, currently or in the future will form the basis of any violation or
alleged violation of any Environmental Law.
"Environmental Laws" means all federal, state, provincial, local and
foreign laws, rules, decisions, regulations, ordinances, judgements, orders,
decrees, plans, permits, injunctions, grants, concessions, franchises, licenses,
agreements and other restrictions of any Governmental Authority, which relate to
pollution, protection of human health or protection of the environment (such as
but not limited to ambient air, surface water, ground water, land surface or
subsurface strata), including without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, handling, clean-up
or other remediation of Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of l974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at a Eurodollar
Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the rate of interest per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S.
Dollars are being offered to prime banks in the London interbank market at 11:00
a.m., London time, two (2) Business Days prior to the first day of such
Eurodollar Interest Period for delivery on the first day of such Eurodollar
Interest Period for the number of months comprised therein and in an amount
approximately equal to the principal amount of the Eurodollar Loans requested
for such Eurodollar Interest Period, as determined by the Agent by reference to
the Bloomberg Financial Market's terminal screen entitled "Official BBA LIBOR
Fixings" or such other information vendor selected by the Agent for determining
British Bankers' Association Interest Settlement Rates for Dollar deposits.
Each determination of Eurodollar Base Rate made by the Agent shall be conclusive
and binding on the Borrower and the Lenders absent manifest error.
"Eurodollar Interest Period" means, with respect to a Eurodollar Advance, a
period of one, two, three or six months commencing on a Business Day selected
by the Borrower pursuant to this Agreement. Such Eurodollar Interest Period
shall end on the
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day which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Eurodollar Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If a Eurodollar Interest Period would
otherwise end on a day which is not a Business Day, such Eurodollar Interest
Period shall end on the next succeeding Business Day, provided, however, that if
said next succeeding Business Day falls in a new calendar month, such Eurodollar
Interest Period shall end on the immediately preceding Business Day.
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by
(b) one minus the Reserve Requirement if any (expressed as a decimal) applicable
to such Eurodollar Interest Period, plus (ii) 1.25% per annum. The Eurodollar
Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is
not such a multiple.
"Exchange Rate" means with respect to any non-U.S. Dollar currency on any
date, the rate at which such currency may be exchanged into U.S. Dollars, as set
forth on such date on the relevant Reuters currency page at or about 11:00 A.M.,
London time, on such date. In the event that such rate does not appear on any
Reuters currency page, the "Exchange Rate" with respect to such non-U.S. Dollar
currency shall be determined by reference to such other publicly available
service for displaying exchange rates as may be agreed upon by the Agent and the
Borrower or, in the absence of such agreement, such "Exchange Rates" shall
instead be the Agent's (or an Affiliate of the Agent's) spot rate of exchange in
the interbank market where its foreign currency exchange operations in respect
of such non-U.S. Dollar currency are then being conducted, at or about 10:00
A.M., local time, on such date for the purchase of U.S. Dollars with such non-
U.S. Dollar currency, for delivery two Business Days later; provided, that if at
the time of any such determination, no such spot rate can reasonably be quoted,
the Agent may use any reasonable method as it deems applicable to determine such
rate, and such determination shall be conclusive absent manifest error.
"Facility Letter of Credit" means a Letter of Credit issued by the Issuer
pursuant to Section 2.2.
"Facility Letter of Credit Obligations" means, as at the time of
determination thereof, an amount in U.S. Dollars equal to all liabilities,
whether actual or contingent, of the Borrower with respect to the Facility
Letters of Credit, including the sum of (a) Reimbursement Obligations and (b)
the aggregate undrawn face amount of the outstanding Facility Letters of Credit.
"Facility Termination Date" means December 20, 1999 or such earlier date as
the Commitments may be terminated pursuant to Sections 2.5, 2.18 or 9.1.
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"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
Governmental Authority Definitions. The following terms shall have the
following meanings: (i) the term "United States" shall mean the United States
of America, and all geographical territories and subdivisions of the United
States of America; (ii) the term "Other Nations" shall mean each country,
principality or other independent territory, and each subdivision thereof, which
is not a part of the United States; (iii) the term "Supra-National Authority"
shall mean the European Union, the United Nations, the World Court, the
Commonwealth, the North Atlantic Treaty Organization, the General Agreement on
Tariffs and Trade and all other multinational authorities or treaties, and all
subdivisions and branches thereof, which have or may have from time to time
jurisdiction over any of the parties to or any performance under this Agreement
or any Loan Document (as defined below in this Article); and (iv) the term
"Governmental Authority" shall mean any subdivision, agency, branch, court,
administrative body, legislative body, judicial body, alternative dispute
resolution authority or other governmental institution of (A) the United States,
(B) any state, municipality, county, parish, subdivision or territory of the
United States, (C) all Other Nations, (D) any state, territory, county,
province, municipality, parish or other subdivision of any Other Nations, and
(E) all Supra-National Authorities.
"Guarantor" means each of Platinum Technology UK Limited and Platinum
Technology GmbH and their successors and assigns and any other Person who
executes a Guaranty after the date of this Agreement pursuant to Section 6.11,
and "Guarantors" means more than one Guarantor.
"Guaranties" means those certain Guaranties dated as of December 22, 1997
executed by the Guarantors in favor of the Agent, for the ratable benefit of the
Lenders, as they may be amended or modified and in effect from time to time and
any Guaranties executed hereafter in accordance with Section 6.11, and
"Guaranty" means any one of the Guaranties.
"Hazardous Substances" means any chemical, solid, liquid, gas or other
substance having the characteristics identified in, listed under or designated
pursuant to any of the following: (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.A. (S)9601(14), as
a "hazardous substance"; (ii) the Clean Water Act, 33 U.S.C.A. (S)1321(B)(2)(A),
as a "hazardous substance"; (iii) the Clean
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Water Act, 33 U.S.C.A. (S)(S)1317(a) and 1362(13), as a "toxic pollutant"; (iv)
Table 1 of Committee Print Numbered 95-30 of the Committee on Public Works and
Transportation of the United States House of Representatives as a "toxic
pollutant"; (v) the Clean Air Act, 42 U.S.C.A. (S)7412(a)(1), as a "hazardous
air pollutant"; (vi) the Toxic Substances Control Act, 15 U.S.C.A. (S)2606(f),
as an "imminently hazardous chemical substance or mixture"; (vii) the Resource,
Conservation and Recovery Act, 42 U.S.C.A. (S)(S)6903(5) and 6921, as a
"hazardous waste"; or (viii) any other or successor laws as presenting a danger
to the public health or welfare, to the environment, or otherwise requiring
special handling, collection, storage, treatment, disposal or transportation.
The term "Hazardous Substance" also shall include, without limitation: (i)
petroleum, crude oil, gasoline, natural gas, liquefied natural gas, synthetic
fuel, or other petroleum, oil or gas based products and by-products; (ii)
nuclear, radioactive or atomic substances, mixtures, wastes, compounds,
materials, elements, products or matters; or (iii) any other substance, mixture,
waste, compound, material, element, product or matter that presents an imminent
danger to the public health or welfare, or the environment, upon its release,
use, disposal, processing, storage or transportation.
"Indebtedness" means, without duplication, each of the following, whether
primary, secondary, direct, indirect, absolute, contingent, fixed or otherwise,
currently or subsequently owing, due or payable, however evidenced, created,
incurred, acquired or owing, and however arising, whether by agreement (written
or oral), at law, in equity or otherwise: (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade payables on terms of ninety (90) days or less incurred in the
ordinary course of business of such Person); (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument; (iii) the
principal component of all Capitalized Lease Obligations of such Person; (iv)
the face amount of all Letters of Credit issued for the account of such Person
and, without duplication, all unreimbursed amounts drawn under such Letters of
Credit; (v) all indebtedness of any other Person secured by any "Lien" (as
defined below in this Article) on any Property (as defined below in this
Article) such Person owns, whether or not such indebtedness has been assumed;
(vi) all Contingent Obligations of such Person; (vii) all payment obligations of
such Person under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and similar
agreements) and currency swaps, exchanges, and forward contracts and similar
agreements; and (viii) liabilities in respect of unfunded vested benefits under
Plans and Multiemployer Plans covered by Title IV of ERISA.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit or contribution of capital by such
Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or
other securities owned by such Person; any deposit accounts and certificate of
deposit owned by such Person; and structured notes, derivative financial
instruments and other similar instruments or contracts owned by such Person.
"Investment Securities" means, at any date, the amount of the assets shown
as
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Investment Securities on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with GAAP. The amount of all such
investments shall be calculated at the market value of such investment on the
date of calculation.
"Issuer" means ANB and any successor issuer agreed to by the Borrower, the
Agent and the Required Lenders.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Lender's Office" shall mean the office of a Lender located at its address
set forth in Section 8.3 below, or such other office as a Lender subsequently
may designate in writing as such to the Borrower.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Letter of Credit Collateral Account" is defined in Section 2.2.7.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement, preferential arrangement or interest of
any kind or nature whatsoever (including, without limitation, any conditional
sale, Capitalized Lease or other title retention agreement and the filing of any
financing statement or similar instrument under the Uniform Commercial Code or
comparable law of any Governmental Authority).
"Loan" means, with respect to a Lender, such Lender's loan made pursuant to
Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement, the Notes and the other documents
and agreements contemplated hereby and executed by the Borrower in favor of the
Agent, the Issuer or any Lender.
"Material Adverse Effect" means either an adverse claim, result or effect
impacting Borrower or a Material Subsidiary which involves a liability, cost, or
loss of $15,000,000 or more, individually or in the aggregate, or any other
material adverse effect upon any of the following: (i) the business, operations,
properties, assets, condition (financial or otherwise) or prospects of Borrower
and its consolidated Subsidiaries taken as a whole; (ii) the ability of Borrower
to perform, or of the Agent or the Lenders to enforce, any of the Obligations,
or (iii) the rights of the Agent or the Lenders under any of the Loan Documents.
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"Material Subsidiary" means any Subsidiary which (i) represents more than
5% of the consolidated assets of the Borrower and Subsidiaries as would be shown
in the consolidated financial statements of the Borrower and its Subsidiaries as
at the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 5% of the
consolidated gross revenues (from operations) of the Borrower and its
Subsidiaries as reflected in the consolidated financial statement of the
Borrower and its Subsidiaries referred to in clause (i) above, all calculated in
accordance with GAAP.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, cleaning agents, toxic substances and all other Hazardous
Substances.
"Maximum Funding Amount" means the sum of (a) with respect to outstanding
Receivables Investor Instruments that have fixed principal amounts, such
principal amounts, and (b) with respect to Receivables Investor Instruments that
have variable principal amounts, the Receivable Stated Amount thereof.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Note" means a promissory note, in substantially the form of Exhibit "A"
hereto, duly executed by the Borrower and payable to the order of a Lender in
the amount of its Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Notice of Assignment" is defined in Section 13.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Loans, all Facility Letter of Credit Obligations, all accrued and unpaid
fees and all expenses, reimbursements, indemnities and other obligations of the
Borrower to the Lenders or to any Lender, the Agent or any indemnified party
arising under the Loan Documents.
"Participants" is defined in Section 13.2.1.
"Payment Date" means the last day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Reorganization" means the reorganization of the Borrower and its
Subsidiaries on terms and conditions described in Schedule 7.4, provided that
such reorganization is effected pursuant to documentation and additional terms
and conditions (if any) reasonably acceptable to the Required Lenders, including
without limitation
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guaranties of the Obligations by each Material Subsidiary substantially in the
form of Exhibit "F" hereto, along with appropriate resolutions and opinions of
counsel, if requested by the Agent.
"Person" means any individual, sole proprietorship, partnership, joint
venture, union, unincorporated organization, firm, corporation, limited
liability company, cooperative, association, trust or other enterprise or
legally recognized entity, any Governmental Authority, and any agency,
subdivision, department or instrumentality of any Governmental Authority.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Prior Credit Agreement" means that certain Credit Agreement dated as of
December 22, 1997 among the Borrower, the Agent, and the Lenders defined
therein, as amended from time to time prior to the date hereof.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Pro Rata Share" means, for each Lender, the ratio such Lender's Commitment
bears to the Aggregate Commitment.
"Purchaser Money Note" means a promissory note evidencing the obligation of
a Receivables Subsidiary to pay the purchase price for Receivables to Borrower
or any other Seller in connection with a Qualified Receivables Transaction,
which note shall be repaid from cash available to the maker of such note, other
than cash required to be held as reserves pursuant to Receivables Documents,
amounts paid in respect of interest, principal and other amounts owing under
Receivables Documents and amounts paid in connection with the purchase of newly
generated Receivables.
"Purchasers" is defined in Section 13.3.1.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Borrower or any other Seller pursuant
to which Borrower or such other Seller may sell, convey or otherwise transfer to
a Receivables Subsidiary (in the case of a transfer by Borrower or any other
Seller) and any other Person (in the case of a transfer by a Receivables
Subsidiary), or may grant a security interest in, any Receivables Program Assets
(whether now existing or arising in the future); provided that:
(a) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of a Receivables Subsidiary or Special Purpose Vehicle
(i) is guaranteed by the Borrower or any other Seller (excluding guarantees of
obligations pursuant to
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Standard Securitization Undertakings), (ii) is recourse to or obligates Borrower
or any other Seller in any way other than pursuant to Standard Securitization
Undertakings or (iii) subjects any Property or asset of the Borrower or any
other Seller, directly or indirectly, contingently or otherwise, to the
satisfaction of obligations incurred in such transactions, other than pursuant
to Standard Securitization Undertakings,
(b) neither the Borrower nor any other Seller has any material
contract, agreement, arrangement or understanding with a Receivables Subsidiary
or a Special Purpose Vehicle other than on terms no less favorable to the
Borrower or such Seller than those that might be obtained at the time from
Persons that are not Affiliates of the Borrower, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable,
and
(c) the Borrower and the other Sellers do not have any obligation to
maintain or preserve the financial condition of a Receivables Subsidiary or a
Special Purpose Vehicle or cause such entity to achieve certain levels of
operating results.
"Quick Ratio" means the ratio of (i) the sum of Cash and Cash Equivalent,
plus Current and Non-Current Investment Securities, plus net trade accounts
receivable arising in the ordinary course of the Borrower's and its
Subsidiaries' businesses, to (ii) Current Liabilities minus the current portion
of Deferred Revenues, calculated on a consolidated basis for the Borrower and
its Subsidiaries in accordance with GAAP.
"Receivable Stated Amount" means, with respect to a Receivables Investor
Instrument, the maximum amount of the funding commitment with respect thereto.
"Receivables" means all rights of the Borrower or any other Seller to
payments (whether constituting accounts, chattel paper, instruments, general
intangibles or otherwise, and including the right to payment of any interest or
finance charges), which rights are identified in the accounting records of the
Borrower or such Seller as accounts receivable.
"Receivables Documents" means (a) a receivables purchase agreement, pooling
and servicing agreement, credit agreement, agreements to acquire undivided
interests or other agreement to transfer, or create a security interest in,
Receivables Program Assets, in each case as amended, modified, supplemented or
restated and in effect from time to time entered into by the Borrower, another
Seller and/or a Receivables Subsidiary, and (b) each other instrument, agreement
and other document entered into by the Borrower, any other Seller or a
Receivables Subsidiary relating to the transactions contemplated by the items
referred to in clause (a) above, in each case as amended, modified, supplemented
or restated and in effect from time to time.
"Receivables Investor Instruments" means trust certificates, purchased
interests or any other securities, instruments or agreements evidencing an
interest in the Receivables Program Assets held by a person other than the
Borrower or its Subsidiaries.
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"Receivables Program Assets" means (a) all Receivables which are described
as being transferred by the Borrower, another Seller or a Receivables Subsidiary
pursuant to the Receivables Documents, (b) all Receivables Related Assets, and
(c) all collections (including recoveries) and other proceeds of the assets
described in the foregoing clauses.
"Receivables Program Obligations" means (a) notes, trust certificates,
undivided interests, partnership interests or other interests representing the
right to be paid a specified principal amount from the Receivables Program
Assets, and (b) related obligations of the Borrower, another Seller or a Special
Purpose Vehicle (including, without limitation, rights in respect of interest or
yield, breach of warranty claims and expense reimbursement and indemnity
provisions) and other Standard Securitization Undertakings.
"Receivables Related Assets" means (a) any rights arising under the
documentation governing or relating to Receivables (including rights in respect
of Liens securing such Receivables and other credit support in respect of such
Receivables), (b) any proceeds of such Receivables and any lockboxes or accounts
in which such proceeds are deposited, (c) spread amounts and other similar
accounts (and any amounts on deposit therein) established in connection with a
Qualified Receivables Transaction, (d) any warranty, indemnity, dilution and
other intercompany claim arising out of Receivables Documents and (e) other
assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Subsidiary" means a special purpose wholly-owned Subsidiary of
the Borrower or any Subsidiary of the Borrower created in connection with the
transactions contemplated by a Qualified Receivables Transaction, which
Subsidiary engages in no activities other than those incidental to such
Qualified Receivables Transaction and which is designated as a Receivables
Subsidiary by the Borrower's or such Subsidiary's, as the case may be, Board of
Directors. Any such designation by such Board of Directors shall be evidenced
by providing to the Agent a certified copy of the resolutions of such Board of
Directors giving effect to such designation and an officer's certificate
certifying, to the best of such officer's knowledge and belief after consulting
with counsel, that such designation, and the transactions in which the
Receivables Subsidiary will engage, comply with the requirements of the
definition of Qualified Receivables Transaction.
"Reimbursement Obligations" means, at any time, the aggregate of the
obligations of the Borrower to the Lenders and the Issuer in respect of all
unreimbursed payments or disbursements made by the Issuer and the Lenders under
or in respect of the Facility Letters of Credit.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
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"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 66 2/3%
of the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 66 2/3% of the aggregate unpaid
principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to a Eurodollar Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Seller" means the Borrower and any Subsidiary (other than a Receivables
Subsidiary) which is a party to a Receivables Documents.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Special Purpose Vehicle" means a trust, partnership or other special
purpose Person established by the Borrower and/or a Subsidiary to implement a
Qualified Receivables Transaction.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Borrower or any other Seller which
are reasonably customary in accounts receivable securitization transactions, as
determined in good faith by the Agent.
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"Standby Letter of Credit" means any Facility Letter of Credit which is not
a Commercial Letter of Credit.
"Stock" means all shares, options, interests, participations or other
equivalents (however designated) of or in a corporation, whether voting or non-
voting, including without limitation, common stock, warrants, preferred stock,
convertible debentures and all agreements, instruments and/or documents
convertible, in whole or in part, into any one or more or all of the preceding.
"Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Obligations to the
written satisfaction of the Required Lenders and shall include, without
limitation, the Borrower's existing $115,000,000 6 3/4% Convertible Subordinated
Notes Due November 15, 2001 and $150,000,000 6.25% Convertible Subordinated
Notes due December 15, 2002 and any future subordinated Indebtedness issued by
the Borrower provided such subordinated Indebtedness has terms, including
without limitation, representations and warranties, covenants, defaults,
subordination provisions and remedies substantially the same as those in the
existing Subordinated Indebtedness.
"Subsidiary" of a Person shall mean and include each of the following: (i)
any corporation 50% or more of whose stock of any class or classes is at the
time owned by such Person, directly and/or indirectly through one or more
Subsidiaries, trusts, nominees or otherwise; and (ii) any partnership,
association, joint venture or other entity in which such Person, directly and/or
indirectly through one or more Subsidiaries or otherwise as aforesaid, is either
a general partner, or has 50% or more of the equity or voting interest at the
time, including but not limited to 50% or more of the membership interests of a
limited liability company.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which (i) represents more than 5% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 5% of the
consolidated net sales or of the consolidated net income of the Borrower and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Tangible Net Worth" means at any date, the stockholder's equity of the
Borrower on a consolidated basis plus the outstanding principal amount of
Subordinated Indebtedness excluding any value for goodwill, trademarks, patents,
copyrights, Capitalized Software, organization expense, and other similar
intangible items, prepaid expenses and accounts due to Borrower from Affiliates,
all determined and computed as of such date in accordance with GAAP.
"Total Liabilities" means all liabilities shown on a consolidated balance
sheet of the
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Borrower and its Subsidiaries prepared in accordance with GAAP less Deferred
Revenues and less Subordinated Debt.
"Transaction Documents" means, collectively, the Loan Documents and the
Guaranties.
"Transferee" is defined in Section 13.4.
"Type" means, with respect to any Advance, its nature as an Alternate Base
Rate Advance or Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"U.S. Dollar Equivalent" means with respect to an amount denominated in any
currency other than U.S. Dollars, the equivalent in U.S. Dollars of such amount
determined at the Exchange Rate on the date of determination of such equivalent.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
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2.1 Commitment From and including the date of this Agreement and prior to
the Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans to the Borrower from time
to time in amounts not to exceed in the aggregate at any one time outstanding
the amount of its Available Commitment. Subject to the terms of this Agreement,
the Borrower may borrow, repay and reborrow at any time prior to the Facility
Termination Date. The Commitments to lend
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hereunder shall expire on the Facility Termination Date. Any outstanding
Advances and all other unpaid Obligations shall be paid in full by the Borrower
on the Facility Termination Date.
2.2 Facility Letters of Credit.
2.2.1 Obligation to Issue. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of the
Borrower herein set forth, the Issuer hereby agrees to issue for the account of
the Borrower through such of the Issuer's Lending Installations or Affiliates as
the Issuer and the Borrower may jointly agree, one or more Facility Letters of
Credit in accordance with this Section 2.2, from time to time during the period,
commencing on the date of this Agreement and ending on the Business Day prior to
the Facility Termination Date. Facility Letters of Credit may be issued up to
the full amount of the Aggregate Commitment, provided that at no time may the
sum of (a) the Facility Letter of Credit Obligations plus (b) the total
aggregate unpaid balance of the Advances exceed the Aggregate Commitment.
2.2.2 Conditions for Issuance. In addition to being subject to the
satisfaction of the conditions contained in Section 4.1 and 4.2, the obligation
of the Issuer to issue any Facility Letter of Credit is subject to the
satisfaction in full of the following conditions:
(i) the aggregate maximum amount then available for drawing under
Facility Letters of Credit issued by the Issuer, after giving
effect to the Facility Letter of Credit requested hereunder,
shall not exceed any limit imposed by law or regulation upon the
Issuer;
(ii) after giving effect to the requested issuance of any Facility
Letter of Credit, the sum of (a) the Facility Letter of Credit
Obligations plus (b) the total aggregate unpaid principal
balance of the Advances does not exceed the Aggregate
Commitment.
(iii) If the requested Facility Letter of Credit is in a currency
other than U. S. Dollars, the Issuer agrees, in its sole
discretion, to issue the Facility Letter of Credit in such
currency and the Agent determines the U.S. Dollar Equivalent of
the maximum amount available for drawing under such Facility
Letter of Credit in order to determine the Available Commitment,
which determination is subject to revision from time to time
pursuant to Section 2.18.2.
(iv) the requested Facility Letter of Credit has an expiration not
longer than twelve (12) months from the date of issuance.
(v) the Borrower shall have delivered to the Issuer at such times
and in such manner as the Issuer may reasonably prescribe such
documents and materials as may be required pursuant to the terms
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of the proposed Facility Letter of Credit and the proposed
Facility Letter of Credit shall be reasonably satisfactory to
the Issuer as to form and content; and
(vi) as of the date of issuance, no order, judgment or decree of any
court, arbitrator or governmental authority shall purport by its
terms to enjoin or restrain the Issuer from issuing the Facility
Letter of Credit and no law, rule or regulation applicable to
the Issuer and no request or directive (whether or not having
the force of law) from any governmental authority with
jurisdiction over the Issuer shall prohibit or request that the
Issuer refrain from the issuance of Facility Letters of Credit
generally or the issuance of that Facility Letter of Credit.
2.2.3 Procedure for Issuance of Facility Letters of Credit. (a) The
Borrower shall give the Issuer one Business Day's prior written notice of any
requested issuance of a Facility Letter of Credit under this Agreement (except
that, in lieu of such written notice, the Borrower may give the Issuer
telephonic notice of such request if confirmed in writing by delivery to the
Issuer (i) immediately of a telecopy of the written notice required hereunder
which has been signed by an Authorized Officer containing all information
required to be contained in such written notice and (ii) promptly (but in no
event later than the requested time of issuance) of a copy of the written notice
required hereunder containing the original signature of an Authorized Officer);
such notice shall be irrevocable and shall specify the stated amount of the
Facility Letter of Credit requested, the effective date (which day shall be a
Business Day) of issuance of such requested Facility Letter of Credit, the date
on which such requested Facility Letter of Credit is to expire (which date shall
be a Business Day and shall in no event be later than twelve (12) months from
the issuance date), the purpose for which such Facility Letter of Credit is to
be issued, and the Person for whose benefit the requested Facility Letter of
Credit is to be issued and the currency in which it is to be issued, if not U.S.
Dollars. At the time such request is made, the Borrower shall also provide the
Issuer with a copy of the form of the Facility Letter of Credit it is requesting
be issued. Such notice, to be effective, must be received by the Issuer not
later than 2:00 P.M. (Chicago time) or the time agreed upon by the Issuer and
the Borrower on the last Business Day on which notice can be given under this
Section 2.2.3(a). The Issuer shall within one Business Day of any requested
issuance of a Facility Letter of Credit forward to the Lenders a copy of the
Borrower's request for the issuance of a Facility Letter of Credit hereunder.
(b) Subject to the terms and conditions of this Section 2.2.3 and provided
that the applicable conditions set forth in Sections 4.2 and 2.2.2 hereof have
been satisfied, the Issuer shall, on the requested date, issue a Facility Letter
of Credit on behalf of the Borrower in accordance with the Issuer's usual and
customary business practices.
(c) The Issuer shall not extend or amend any Facility Letter of Credit
unless the requirements of this Section 2.2.3 are met as though a new Facility
Letter of Credit was being requested and issued.
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2.2.4 Reimbursement Obligations.
(a) The Borrower agrees to pay to the Issuer, for the account of the
Lenders, as applicable, the amount of all Reimbursement Obligations, interest
and other amounts payable to the Issuer under or in connection with any Facility
Letter of Credit immediately when due, irrespective of any claim, set-off,
defense or other right which the Borrower or any Subsidiary may have at any time
against the Issuer or any other Person, under all circumstances, including
without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower or any Subsidiary may have at any time against a
beneficiary named in a Facility Letter of Credit or any
transferee of any Facility Letter of Credit (or any Person for
whom any such transferee may be acting), the Issuer, any Lender,
or any other Person, whether in connection with this Agreement,
any Facility Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying
transactions between the Borrower or any Subsidiary and the
beneficiary named in any Facility Letter of Credit);
(iii) any draft, certificate or any other document presented under
the Facility Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents;
or
(v) the occurrence of any Default or Unmatured Default.
(b) The Issuer shall promptly notify the Borrower of any draw under a
Facility Letter of Credit. The Borrower shall reimburse the Issuer, for the
account of the Lenders, as applicable, for drawings under a Facility Letter of
Credit issued by it no later than the Business Day after the payment by the
Issuer. Unless the Borrower shall have made such payment to the Issuer on such
date, the Borrower shall be deemed to have elected to fulfill its Reimbursement
Obligation by requesting a Loan in an amount equal to the amount paid by the
Issuer in respect of such drawing under the Letter of Credit. No Borrowing
Notice from the Borrower shall be required and such Loan shall be disbursed by
the Lenders notwithstanding any failure to satisfy any conditions for
disbursement of a Loan set forth in Article IV hereof (including restatement of
all representations and warranties) and, to the extent of the Loans so
disbursed, the Reimbursement Obligation of the Borrower hereunder shall be
deemed satisfied. If any Reimbursement Obligation with respect to any Facility
Letter of Credit is not paid by the Borrower and there is no
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availability to make a Loan under Section 2.1, then the Reimbursement Obligation
shall bear interest from the date of the relevant drawing under the pertinent
Facility Letter of Credit until the fifth Business Day following such drawing at
the Alternate Base Rate in effect for each such day and thereafter until paid at
the interest rate for past due Alternate Base Rate Loans calculated in
accordance with Section 2.11.
2.2.5 Participation. (a) Immediately upon issuance by the Issuer of
any Facility Letter of Credit in accordance with the procedures set forth in
Section 2.2.3, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuer (without recourse or
warranty to the Issuer) an undivided interest and participation equal to its Pro
Rata Share in such Facility Letter of Credit (including, without limitation, all
obligations of the Borrower with respect thereto) and any security therefor or
guaranty pertaining thereto; provided, that a Facility Letter of Credit issued
by the Issuer shall not be deemed to be a Facility Letter of Credit for purposes
of this Section 2.2.5 if the Issuer shall have received written notice from any
Lender on or before one Business Day prior to the date of its issuance of such
Facility Letter of Credit that one or more of the conditions contained in
Section 4.2 is not then satisfied, and, in the event the Issuer receives such a
notice, it shall have no further obligation to issue any Facility Letter of
Credit until such notice is withdrawn by that Lender or such condition has been
effectively waived in accordance with the provisions of this Agreement.
(b) In the event that the Issuer makes any payment under any Facility
Letter of Credit and the Borrower shall not have repaid such amount to the
Issuer pursuant to Section 2.2.4, the Issuer shall promptly notify each Lender
of such failure, and each Lender shall promptly and unconditionally pay to the
Agent for the account of the Issuer the amount of such Lender's Pro Rata Share
of the unreimbursed amount of any such payment. If any Lender fails to make
available to the Issuer, any amounts due to the Issuer pursuant to this Section
2.2.5(b), the Issuer shall be entitled to recover such amount, together with
interest thereon at the Federal Funds Effective Rate, for the first three
Business Days after such Lender receives such notice and thereafter, at the
Alternate Base Rate, payable (i) on demand, (ii) by setoff against any payments
made to the Issuer for the account of such Lender or (iii) by payment to the
Issuer by the Agent of amounts otherwise payable to such Lender under this
Agreement. The failure of any Lender to make available to the Agent its Pro
Rata Share of the unreimbursed amount of any such payment shall not relieve any
other Lender of its obligation hereunder to make available to the Agent its Pro
Rata Share of the unreimbursed amount of any payment on the date such payment is
to be made, but no Lender shall be responsible for the failure of any other
Lender to make available to the Agent its Pro Rata Share of the unreimbursed
amount of any payment on the date such payment is to be made.
(c) Whenever the Issuer receives a payment on account of a Reimbursement
Obligation, including any interest thereon, it shall pay, on the same Business
Day the payment is received if received before noon (Chicago time) and on the
next Business Day if received after noon (Chicago time), to each Lender which
has funded its participating interest therein, in immediately available funds,
an amount equal to such Lender's Pro Rata Share thereof.
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(d) The obligations of a Lender to make payments to the Issuer with respect
to a Facility Letter of Credit shall be absolute, unconditional and irrevocable,
not subject to any counterclaim, set-off, qualification or exception whatsoever
and shall be made in accordance with the terms and conditions of this Agreement
under all circumstances.
(e) In the event any payment by the Borrower or any Subsidiary received by
the Issuer with respect to a Facility Letter of Credit and distributed to the
Lenders on account of their participations is thereafter set aside, avoided or
recovered from the Issuer or the Agent in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding, each Lender which received
such distribution shall, upon demand by the Agent or the Issuer, contribute such
Lender's Pro Rata Share of the amount set aside, avoided or recovered together
with interest at the rate required to be paid by the Agent or the Issuer upon
the amount required to be repaid by it.
2.2.6 Compensation for Facility Letters of Credit. The Borrower
agrees to pay to the Issuer a letter of credit fee equal to (i) 1% per annum on
the average daily undrawn amount (calculated at the U.S. Dollar Equivalent) of
each outstanding Standby Letter of Credit for the period from and including the
date of issuance of such Standby Letter of Credit to and including the
expiration of such Standby Letter of Credit, payable annually in advance and
(ii) a fee to be negotiated between the Borrower and the Issuer at the time of
issuance of a Commercial Letter of Credit, such fee to be payable annually in
advance. The letter of credit fees shall be distributed to the Lenders on a
monthly basis in accordance with their respective Pro Rata Shares. Such fees
are nonrefundable and the Borrower shall not be entitled to any rebate of any
portion thereof if a Facility Letter of Credit does not remain outstanding
through its stated expiry date or for any other reason. The Borrower further
agrees to pay to the Issuer, on demand, such other customary and reasonable
administrative fees, charges and expenses of the Issuer in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of a Letter
of Credit or otherwise payable pursuant to the application and related
documentation under which such Facility Letter of Credit is issued in accordance
with a schedule of fees provided by the Issuer to the Borrower.
2.2.7 Letter of Credit Collateral Account. The Borrower hereby
agrees that it will, until the final expiration date of any Facility Letter of
Credit and thereafter as long as any amount is payable to the Issuer or the
Lenders in respect of any Facility Letter of Credit and whether or not this
Agreement is then in effect, maintain a special collateral account (the "Letter
of Credit Collateral Account") at the Agent's office at the address specified
pursuant to Article XIV, in the name of the Borrower but under the sole dominion
and control of the Agent, for the benefit of the Lenders and in which the
Borrower shall have no interest other than as set forth in Section 9.1. If this
Agreement terminates and any Letters of Credit remain outstanding beyond the
Facility Termination Date, the Borrower shall, prior to the Facility Termination
Date, (i) deposit in the Letter of Credit Collateral Account for the benefit of
the Agent and the Lenders, an amount equal to 100% of the sum of the aggregate
maximum amount remaining available to be drawn under the remaining outstanding
Facility Letters of Credit (assuming compliance with all conditions
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for drawing thereunder), (herein the "Collateral Amount"), or (ii) deliver to
the Agent for the benefit of the Lenders, assets of the type described in the
definition of "Cash and Cash Equivalents" having a face amount, which when
discounted at the Agent's customary advance rate for collateral of that type, is
at least equal to the Collateral Amount, plus such pledge agreements, financing
statements, control agreements and other documents requested by the Agent in
order to perfect a first and prior perfected security interest in such assets in
favor of the Agent and the Lenders or (iii) provide the Agent for the benefit of
the Lenders with a letter(s) of credit in an aggregate amount at least equal to
the Collateral Amount, such letter(s) of credit to be in form and substance, and
issued by banks, satisfactory to the Agent. Such Letter of Credit Collateral
Account shall be maintained by the Agent in accordance with the provisions of
Section 9.1. The Agent will invest any funds on deposit from time to time in the
Letter of Credit Collateral Account in assets of the type described in said
"Cash and Cash Equivalent" definition, as directed by the Borrower from time to
time.
2.2.8 Nature of Obligations. (a) As among the Borrower, the Issuer
and the Lenders, the Borrower assumes all risks of the acts and omissions of, or
misuse of the Facility Letters of Credit by, the respective beneficiaries of the
Facility Letters of Credit. In furtherance and not in limitation of the
foregoing, the Issuer and the Lenders shall not be responsible for (i) the
forms, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of any Facility Letter of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer of assign a Facility Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of a
Facility Letter of Credit to comply fully with conditions required in order to
draw upon such Facility Letter of Credit; (iv) errors, omissions, interruptions
or delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise; (v) errors in interpretation of technical terms;
(vi) misapplication by the beneficiary of a Facility Letter of Credit of the
proceeds of any drawing under such Facility Letter of Credit; and (viii) any
consequences arising from causes beyond the control of the Issuer or the Lenders
and to the extent not avoidable by the Issuer or the Lender by the observance of
reasonable commercial standards prevailing in the geographic area where the
Agent is located. Notwithstanding the foregoing, nothing contained herein shall
be deemed to relieve the Issuer or any Lender from responsibility for any of the
foregoing consequences to the extent arising from the Issuer or such Lender's
willful or intentional breach of the terms hereof or its gross negligence.
(b) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Issuer or
any Lender under or in connection with the Facility Letters of Credit or any
related certificates, if taken or omitted in good faith, shall not put the
Issuer or such Lender under any resulting liability to the Borrower or relieve
the Borrower of any of its obligations hereunder to the Issuer, the Agent or any
Lender.
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2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment.
2.4 Types of Advances. The Advances may be Alternate Base Rate Advances
or Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.5 Commitment Fee; Reductions in Aggregate Commitment. The Borrower
agrees to pay to the Agent for the account of each Lender a commitment fee of 20
basis points per annum on the daily unborrowed portion of such Lender's
Commitment from the date hereof to and including the Facility Termination Date,
payable on each Payment Date hereafter and on the Facility Termination Date. In
calculating the unborrowed portion of a Lender's Commitment, the undrawn amount
of any outstanding Commercial Letters of Credit will not be considered usage,
but the undrawn amount of any outstanding Standby Letters of Credit will be
considered usage.
The Borrower may permanently reduce the Aggregate Commitment in whole, or
in part ratably among the Lenders in integral multiples of $5,000,000 upon at
least ten Business Days' written notice to the Agent, which notice shall specify
the amount of any such reduction, provided, however, that the amount of the
Aggregate Commitment may not be reduced below the aggregate principal amount of
the outstanding Advances and Facility Letter of Credit Obligations. All accrued
commitment fees shall be payable on the effective date of any termination of the
obligations of the Lenders to make Loans hereunder.
2.6 Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $100,000 in excess
thereof), and each Alternate Base Rate Advance shall be in the minimum amount of
$100,000 (and in multiples of $10,000 in excess thereof), provided, however,
that any Alternate Base Rate Advance may be in the amount of the unused
Aggregate Commitment.
2.7 Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Alternate Base Rate Advances, or, in
a minimum aggregate amount of $100,000 and in integral multiples of $10,000 in
excess thereof, any portion of the outstanding Alternate Base Rate Advances upon
two Business Days' prior notice to the Agent. A Eurodollar Advance may be paid
prior to the last day of the applicable Eurodollar Interest Period only upon
payment of any amounts due under Section 3.4 in connection with such prepayment.
2.8 Method of Selecting Types and Eurodollar Interest Periods for New
Advances. The Borrower shall select the Type of Advance and, in the case of
each Eurodollar Advance, the Eurodollar Interest Period applicable to each
Advance from time to time. The Borrower shall give the Agent irrevocable notice
(a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) at least one
Business Day before the Borrowing Date of each Alternate Base Rate Advance, and
two Business Days before the Borrowing
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Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Eurodollar Interest
Period applicable thereto.
The Agent shall give each Lender notice of the Borrowing Notice on the Business
Day on which such Borrowing Notice was received by Agent. Not later than noon
(Chicago time) on each Borrowing Date, each Lender shall make available its Loan
or Loans, in funds immediately available in Chicago to the Agent at its address
specified pursuant to Article XIV. The Agent will make the funds so received
from the Lenders available to the Borrower at the Agent's aforesaid address.
2.9 Conversion and Continuation of Outstanding Advances. Alternate Base
Rate Advances shall continue as Alternate Base Rate Advances unless and until
such Alternate Base Rate Advances are converted into Eurodollar Advances. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of the
then applicable Eurodollar Interest Period therefor, at which time such
Eurodollar Advance shall be automatically converted into a Alternate Base Rate
Advance unless the Borrower shall have given the Agent a Conversion/Continuation
Notice requesting that, at the end of such Eurodollar Interest Period, such
Eurodollar Advance either continue as a Eurodollar Advance for the same or
another Interest Period. Subject to the terms of Section 2.6, the Borrower may
elect from time to time to convert all or any part of an Advance of any Type
into any other Type or Types of Advances; provided that any conversion of any
Eurodollar Advance shall be made on, and only on, the last day of the Eurodollar
Interest Period applicable thereto. The Borrower shall give the Agent
irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an
Advance or continuation of a Eurodollar Advance not later than 10:00 a.m.
(Chicago time) at least one Business Day, in the case of a conversion into a
Alternate Base Rate Advance, or two Business Days, in the case of a conversion
into or continuation of a Eurodollar Advance, prior to the date of the requested
conversion or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount and Type(s) of Advance(s) into which such Advance is
to be converted or continued and, in the case of a conversion
into or
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continuation of an Alternate Base Rate Advance, the duration of
the Eurodollar Interest Period applicable thereto.
2.10 Changes in Interest Rate, etc. Each Alternate Base Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Eurodollar
Advance into an Alternate Base Rate Advance pursuant to Section 2.9 to but
excluding the date it becomes due or is converted into a Eurodollar Advance
pursuant to Section 2.9 hereof, at a rate per annum equal to the Alternate Base
Rate for such day. Changes in the rate of interest on that portion of any
Advance maintained as an Alternate Base Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate. Each Eurodollar
Advance shall bear interest on the outstanding principal amount thereof from and
including the first day of the Interest Period applicable thereto to (but not
including) the last day of such Eurodollar Interest Period at the interest rate
determined as applicable to such Eurodollar Advance. No Eurodollar Interest
Period may end after the Facility Termination Date.
2.11 Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default or
Unmatured Default the Required Lenders may, at their option, by notice to the
Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 9.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that no Advance may be made as,
converted into or continued as a Eurodollar Advance. During the continuance of
a Default, the Required Lenders may, at their option, by notice to the Borrower
(which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 9.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that (i) each Eurodollar Advance
shall bear interest for the remainder of the applicable Eurodollar Interest
Period at the rate otherwise applicable to such Eurodollar Interest Period plus
2% per annum and (ii) each Alternate Base Rate Advance shall bear interest at a
rate per annum equal to the Alternate Base Rate plus 2% per annum.
2.12 Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Agent at the Agent's address specified pursuant to Article XIV, or
at any other Lending Installation of the Agent specified in writing by the Agent
to the Borrower, by noon (local time) on the date when due and shall be applied
ratably by the Agent among the Lenders. Each payment delivered to the Agent for
the account of any Lender shall be delivered by the Agent to such Lender on the
same Business Day such payment is received if received prior to noon (Chicago
time) and on the next Business Day if received after noon (Chicago time), shall
be in the same type of funds that the Agent received and shall be delivered to
its address specified pursuant to Article XIV or at any Lending Installation
specified in a notice received by the Agent from such Lender. When directed by
telephonic, facsimile or written notice, from an Authorized Officer, the Agent
is hereby authorized to charge the account of the Borrower maintained with ANB
for each payment of principal, interest and fees as it becomes due hereunder.
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2.13 Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note, provided, however, that neither the failure to so
record nor any error in such recordation shall affect the Borrower's obligations
under such Note. The Borrower hereby authorizes the Lenders and the Agent to
extend, convert or continue Advances, effect selections of Types of Advances and
to transfer funds based on telephonic notices made by any Person or Persons the
Agent or any Lender in good faith believes to be acting on behalf of the
Borrower. The Borrower agrees to deliver promptly to the Agent a written
confirmation signed by an Authorized Officer, if such confirmation is requested
by the Agent or any Lender, of each telephonic notice. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, the records of the Agent and the Lenders shall govern absent
manifest error.
2.14 Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Alternate Base Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which the Alternate Base Rate Advance is prepaid, whether due to acceleration
or otherwise, and at maturity. Interest accrued on that portion of the
outstanding principal amount of any Alternate Base Rate Advance converted into a
Eurodollar Advance on a day other than a Payment Date shall be payable on the
date of conversion. Interest accrued on each Eurodollar Advance shall be
payable on the last day of its applicable Interest Period, on any date on which
the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at
maturity. Interest accrued on each Eurodollar Advance having a Eurodollar
Interest Period longer than three months shall also be payable on the last day
of each three-month interval during such Eurodollar Interest Period. Interest
and commitment fees shall be calculated for actual days elapsed on the basis of
a 360-day year. Interest shall be payable for the day an Advance is made but
not for the day of any payment on the amount paid if payment is received prior
to noon (local time) at the place of payment. If any payment of principal of or
interest on an Advance shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and, in the case
of a principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.15 Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. Promptly after receipt thereof (and on the same Business Day as
received by the Agent with respect to Borrowing and Conversion/Continuation
Notices), the Agent will notify each Lender of the contents of each Aggregate
Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice,
and repayment notice received by it hereunder. The Agent will notify each
Lender of the interest rate applicable to each Eurodollar Advance within two
Business Days of determination of such interest rate and will give each Lender
prompt notice of each change in the Alternate Base Rate.
2.16 Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the
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Notes shall be deemed held by each Lender for the benefit of such Lending
Installation. Each Lender may, by written or telex notice to the Agent and the
Borrower, designate a Lending Installation through which Loans will be made by
it and for whose account Loan payments are to be made.
2.17 Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption.
If such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.18 Mandatory Prepayments.
2.18.1 Change in Control. Within 30 Business Days prior to the
consummation of any transaction which would cause a Change in Control and which
is scheduled to close prior to the Facility Termination Date, the Borrower shall
notify (a "Change in Control Notice") the Agent of such expected transaction,
including within such Change in Control Notice the expected closing date of such
transaction, if known by the Borrower. The Agent shall promptly deliver a copy
of such notice to each Lender. Within 10 Business Days of receipt of such
Change in Control Notice by the Agent and the Lenders, the Required Lenders may,
at their option, give notice to the Agent and the Borrower that the Lenders
elect to terminate their Commitment hereunder. Unless an earlier date is
otherwise agreed upon between the Borrower, the Agent and the Required Lenders,
the Aggregate Commitment shall terminate simultaneously with the closing of such
transaction and the Borrower shall repay at such time all outstanding Advances,
together with accrued interest thereon, any accrued fees with respect to the
Aggregate Commitment, any costs, losses or expenses incurred by the Lenders in
connection with such prepayment payable by the Borrower pursuant to Section 3.4,
provide cash collateral for all outstanding Facility Letters of Credit in
accordance with Section 2.18.4 and pay any other obligations of the Borrower to
the Lenders hereunder.
For purposes of this Agreement, the term "Change in Control" shall mean
each of the following: (i) any Person or "group" (as such term is defined in
Section 13(d) of the Securities Act of 1934, as said Act is amended from time to
time), other than a Subsidiary or employee benefit plan of Borrower, which is
not as of the Effective Date the legal or beneficial owner of fifty percent
(50%) or more of the common Stock of the Borrower or
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voting securities of the Borrower representing fifty percent (50%) or more of
the combined voting power of all voting securities of the Borrower, becomes the
owner of fifty percent (50%) or more of such common Stock or voting securities
after the Effective Date; or (ii) approval by the stockholders of the Borrower
of any merger, reorganization or consolidation with respect to which the Persons
who were the respective legal and beneficial owners of the Borrower's Stock
immediately before such merger, reorganization or consolidation do not
thereafter beneficially and legally own, directly or indirectly, more than 50%
of both the common Stock and/or combined voting power of the securities of the
corporation or other entity which results from such merger, reorganization or
consolidation.
2.18.2 Outstandings Exceed Aggregate Commitment. If at any time for
any reason, the total of the then outstanding Advances plus the amount of the
U.S. Dollar Equivalent of all Facility Letter of Credit Obligations exceeds the
Aggregate Commitment, as then in effect, the Borrower shall immediately prepay
Advances and/or provide cash collateral in accordance with Section 2.18.4 in an
amount sufficient so that after giving effect thereto, the total of the
outstanding Advances plus the amount of the U.S. Dollar Equivalent of the
Facility Letter of Credit Obligations does not exceed the Aggregate Commitment.
2.18.3 U.S. Dollar Equivalent. Mandatory prepayments that would
otherwise be required pursuant to Section 2.18.2 solely as a result of
fluctuations in Exchange Rates from time to time shall only be required to be
made on the last Business Day of each month on the basis of the Exchange Rate in
effect on such Business Day.
2.18.4 Letter of Credit Collateral Account. Upon a mandatory
prepayment pursuant to this Section 2.18, the Borrower shall, upon request of
the Agent, deliver to the Agent security for the Facility Letters of Credit in
accordance with, and on the same terms and conditions as those set forth in,
Section 2.2.7, in an amount equal to, in the case of Section 2.18.1, 100% of the
sum of the aggregate maximum amount remaining available to be drawn under the
outstanding Facility Letters of Credit (assuming compliance with all conditions
for drawing thereunder) which will remain outstanding after the Facility
Termination Date and in the case of 2.18.2, an amount sufficient to cause the
sum of the outstanding Advances plus the U. S. Dollar Equivalent of the Facility
Letters of Credit not collateralized to not exceed the Aggregate Commitment.
Such Letter of Credit Collateral Account shall be maintained by the Agent in
accordance with the provisions of Section 9.1.
2.19 Application of Payments with Respect to Defaulting Lenders. No
payments of principal, interest or fees delivered to the Agent for the account
of any Defaulting Lender shall be delivered by the Agent to such Defaulting
Lender. Instead, such payments shall, for so long as such Defaulting Lender
shall be a Defaulting Lender, be held by the Agent, and the Agent is hereby
authorized and directed by all parties hereto to hold such funds in escrow and
apply such funds as follows:
(i) First, if applicable, to any payments due to the Issuer pursuant
to
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Section 2.2.5(b); and
(ii) Second, to Loans required to be made by such Defaulting Lender on
any Borrowing Date to the extent such Defaulting Lender fails to
make such Loans.
Notwithstanding the foregoing, upon the termination of the Aggregate
Commitment and the payment and performance of all of the Obligations (other than
those owing to a Defaulting Lender), any funds then held in escrow by the Agent
pursuant to the preceding sentence shall be distributed to each Defaulting
Lender, pro rata in proportion to amounts that would be due to each Defaulting
Lender but for the fact that it is a Defaulting Lender.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1 Yield Protection. If, on or after the date of this Agreement, the
adoption of any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
amendment to any existing law, rule, regulation, policy, guideline or directive
or any change in the interpretation thereof, by any governmental or quasi-
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender or
applicable Lending Installation with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency;
(i) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due
from the Borrower (excluding federal taxation of the overall net
income of any Lender or applicable Lending Installation), or
changes the basis of taxation of payments to any Lender in
respect of its Loans or any Facility Letters of Credit or other
amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender or any applicable Lending
Installation (other than reserves and assessments taken into
account in determining the interest rate applicable to
Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining loans or reduces any amount
receivable by any Lender or any applicable Lending Installation
in connection with loans, or requires any Lender or any
applicable Lending Installation to make any payment calculated
by reference to the amount of loans held or interest received by
it, by an amount deemed material by
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such Lender,
and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation of making or maintaining its Loans, Facility
Letters of Credit or Commitment or to reduce the return received by such Lender
or applicable Lending Installation in connection with its Loans, Facility
Letters of Credit or Commitment, then, within 15 days of demand by such Lender,
the Borrower shall pay such Lender that portion of such increased expense
incurred or reduction in an amount received which such Lender determines is
attributable to making, funding and maintaining its Loans, any Facility Letters
of Credit and its Commitment. Notwithstanding the foregoing, no Lender shall be
permitted to request payment hereunder for any increased cost or reduction in
amount received which was incurred more than 180 days prior to the date payment
is requested.
3.2 Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans or its
issuance of or participation in Facility Letters of Credit or its obligation to
make Loans or issue or participate in Facility Letters of Credit hereunder
(after taking into account such Lender's policies as to capital adequacy).
"Change" means (i) any change after the date of this Agreement in the Risk-Based
Capital Guidelines or (ii) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-
based capital guidelines in effect in the United States on the date of this
Agreement, including transition rules, and (ii) the corresponding capital
regulations promulgated by regulatory authorities outside the United States
implementing the July 1988 report of the Basle Committee on Banking Regulation
and Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3 Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and if
maintenance of such Eurodollar Loans would violate any applicable law, rule,
regulation or directive, whether or not having the force of law, require any
Eurodollar Advances of the affected Type to be repaid, subject to the payment of
any funding
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indemnification amounts required by Section 3.4.
3.4 Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made, converted, or continued on the date specified by the
Borrower for any reason other than default by the Lenders, the Borrower will
indemnify each Lender for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Eurodollar Advance.
3.5 Lender Statements; Limitations on Liability, Survival of Indemnity.
To the extent reasonably possible, each Lender shall designate an alternate
Lending Installation with respect to its Eurodollar Loans to reduce any
liability of the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid
the unavailability of a Type of Advance under Section 3.3, so long as such
designation is not disadvantageous to such Lender. The Borrower shall not be
liable to a Lender under Sections 3.1 or 3.2 above for any such increased costs
whose imposition was caused solely by the willful or intentional breach by such
Lender of the terms of this Agreement or by such Lender's gross negligence or
willful misconduct. Each Lender shall deliver a written statement of such
Lender to the Borrower (with a copy to the Agent) as to the amount due, if any,
under Section 3.1, 3.2 or 3.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be presumptively correct in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding to
the deposit used as a reference in determining the Eurodollar applicable to such
Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement of any Lender shall be
payable on demand after receipt by the Borrower of such written statement. The
obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive
payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION
-----------------------------------------------
4.1 Initial Advance. The Lenders shall not be required to make the
initial Advance (or the Issuer issue the initial Facility Letter of Credit)
hereunder unless the Borrower has paid to the Agent all fees due to the Agent
for its own account and the account of the Lenders under this Agreement and the
Borrower has furnished to the Agent with sufficient copies for the Lenders:
(i) Copies of the articles of incorporation (or other applicable
charter document) of the Borrower and each Guarantor, together
with all
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amendments, and a certificate of good standing for the Borrower
and each Guarantor, all certified by the appropriate
governmental officer in its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of
the Borrower and each Guarantor, of its by-laws and of its
Board of Directors' resolutions (and resolutions of other
bodies, if any are deemed necessary by counsel for any Lender)
authorizing the execution of the Loan Documents or the
Guaranties, as applicable.
(iii) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower and each Guarantor, which
shall identify by name and title and bear the signature of the
officers of the Borrower or such Guarantor authorized to sign
the Loan Documents or the Guaranties, whichever is applicable,
and to make borrowings hereunder, upon which certificate the
Agent and the Lenders shall be entitled to rely until informed
of any change in writing by the Borrower or the applicable
Guarantor.
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Borrowing Date and after
giving effect to the execution of this Agreement no Default or
Unmatured Default has occurred and is continuing and the
representations and warranties contained in Article V are true
and correct as of such date.
(v) A written opinion of the Borrower's counsel, addressed to the
Lenders in substantially the form of Exhibit "B" hereto.
(vi) Notes payable to the order of each of the Lenders.
(vii) Written money transfer instructions, in substantially the form
of Exhibit "E" hereto, addressed to the Agent and signed by an
Authorized Officer, together with such other related money
transfer authorizations as the Agent may have reasonably
requested.
(viii) Consents to the amendments included herein executed by each of
the Guarantors.
(ix) Such other documents as any Lender or its counsel may have
reasonably requested.
4.2 Each Advance. The Lenders shall not be required to make any Advance
nor shall the Issuer be required to issue any Facility Letter of Credit (other
than an Advance that, after giving effect thereto and to the application of the
proceeds thereof, does not increase the aggregate amount of outstanding
Advances), unless on the applicable Borrowing Date or issuance date:
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(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are
true and correct as of such Borrowing Date (or issuance date)
except to the extent any such representation or warranty is
stated to relate solely to an earlier date, in which case such
representation or warranty shall be true and correct on and as
of such earlier date.
(iii) All legal matters incident to the making of such Advance or the
issuance of a Facility Letter of Credit shall be satisfactory
to the Lenders and their counsel, or the Issuer or its counsel,
whichever is applicable.
Each Borrowing Notice with respect to each such Advance and each request to
issue a Facility Letter of Credit shall constitute a representation and warranty
by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have
been satisfied. Any Lender or the Issuer may require a duly completed
compliance certificate in substantially the form of Exhibit "C" hereto as a
condition to making an Advance or issuing a Facility Letter of Credit.
4.3 Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Lender
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
ARTICLE V
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REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Inducement. To induce Lenders to enter into this Agreement and to
make the Loans and to induce the Issuer to issue Facility Letters of Credit,
Borrower makes the representations and warranties set forth in Sections 5.2
through 5.21 of this Agreement, which representations and warranties shall
survive the execution and delivery of this Agreement and the Loan Documents and
the making of the Loans and the issuance of the Facility Letters of Credit,
until such time as Borrower has indefeasibly paid and performed all the
Obligations owed to Lenders, Issuer and the Agent. For purposes of this
Agreement, the "best knowledge" of Borrower shall mean the knowledge which a
reasonable, prudent, experienced individual in similar business circumstances
would have after a diligent inquiry into the subject matter at issue.
5.2 Status. Borrower: (i) is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware; (ii) has
the power and authority to own its property and assets and to transact the
business in which it is engaged or presently proposes to engage; and (iii) has
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in every jurisdiction of every Governmental Authority in
which it owns or leases real property or in which the nature of its business
requires it to be so qualified, including but not limited to the State of
Illinois unless the failure to be so qualified could not have a Material Adverse
Effect. Each Material Subsidiary: (i) is a corporation or similar limited
liability entity duly organized or created and validly existing under the laws
of its jurisdiction of incorporation or creation; (ii) has the power and
authority to own its property and assets and to transact the business in which
it is engaged or presently purposes to engage and (iii) has duly qualified
and/or is authorized to do business and, to the extent applicable, is in good
standing, as a foreign corporation or otherwise, in every jurisdiction of every
Governmental Authority in which it owns or leases real property or in which the
nature of its business requires it to be so qualified or authorized unless the
failure to be so qualified or authorized would not have a Material Adverse
Effect. Borrower and each Material Subsidiary have paid and will continue to
pay all taxes, Charges, levies and other fees associated with such
qualifications or authorizations to the extent failure to pay would have a
Material Adverse Effect, and shall maintain the same in full force and effect.
5.3 Power and Authority. Borrower has full power and authority to
execute, deliver and perform the terms and provisions of each of the Loan
Documents and the Notes. Borrower has taken all necessary and proper corporate
or other action to authorize its execution, delivery and performance of and
under such Loan Documents. Borrower duly has executed and delivered each such
Loan Document, and each such Loan Document constitutes Borrower's legal, valid
and binding obligations, enforceable against it in accordance with said Loan
Documents' terms, except as bankruptcy, insolvency, similar laws which affect
creditors' rights generally or general equity principles may limit such
enforceability.
5.4 Securities Matters. Borrower did not issue any of its Stock or other
securities of any type or nature in violation of any securities or similar laws
of any
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Governmental Authority, nor, to Borrower's best knowledge, did any of its
Subsidiaries issue any of its Stock or securities of any type or nature in
violation of any securities or similar laws of any Governmental Authority.
5.5 No Violation. Neither Borrower's execution, delivery or performance
of, nor compliance with the terms and provisions of the Loan Documents nor the
consummation by the Borrower of the transactions contemplated by the Loan
Documents, either currently or with the passage of time or granting of notice,
will: (i) contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or Governmental
Authority; (ii) conflict or be inconsistent with or result in any breach of, any
terms, covenants, conditions or provisions of, constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any property or assets of Borrower or any Material Subsidiary,
pursuant to the terms of any indenture, mortgage, deed of trust, agreement,
bond, note, insurance policy, license or other instrument to which Borrower or
any Material Subsidiary is a party or by which Borrower or any Material
Subsidiary or any property or assets of Borrower or any Material Subsidiary are
bound or to which Borrower or any Material Subsidiary may be subject; or (iii)
will contravene, constitute a violation of constitute a default under or in any
manner conflict with the Articles of Incorporation, bylaws or other
organizational documents of Borrower or any Material Subsidiary.
5.6 Litigation. Except as provided on Schedule 5.6, there are no actions,
claims, demand letters, investigations, suits or proceedings pending or, to
Borrower's best knowledge, threatened against or affecting Borrower or any of
its Subsidiaries: (i) with respect to any of the transactions contemplated by
the Agreement or any of the Loan Documents or (ii) which could, individually or
in the aggregate, have a Material Adverse Effect. There are no actions, suits
or proceedings pending or to Borrower's best knowledge threatened against or
affecting Borrower or any Subsidiary or any of their assets or properties
regarding any Environmental Claims, Environmental Laws or Materials of
Environmental Concern.
5.7 Margin Regulations. Borrower has not used all or any portion of any
proceeds of the Loans to purchase or carry any Margin Stock (as defined in
Regulation U) or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. Neither the making of the Loans, nor the issuance of
the Facility Letters of Credit nor the use of the proceeds from the Loans will
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Federal Reserve Board.
5.8 Approvals. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
Person (whether or not such Person is a Governmental Authority) is required to
authorize, or is otherwise required in connection with: (i) Borrower's
execution, delivery and performance of any Loan Documents or the consummation by
the Borrower of any of the transactions contemplated by the Loan Documents; or
(ii) the legality, validity, binding effect or enforceability of any Loan
Document except those which Borrower duly made or obtained, and which remain in
full force and effect, as identified on Schedule 5.8 to this
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Agreement. All consents and approvals of, and filings and registrations with,
and all other actions by, any Person (whether or not such Person is a
Governmental Authority) required in order for the Borrower to make or consummate
all transactions contemplated by the Loan Documents have been obtained, given,
filed or taken and are or will be in full force and effect.
5.9 Investment Company Act. Borrower is not: (i) an "investment company"
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended; or (ii) subject to any other federal
or state law or regulation which purports to restrict or regulate its ability to
borrow money.
5.10 True and Complete Disclosure. All factual information furnished by
or on behalf of Borrower or any Material Subsidiary to Agent and the Lenders on
or prior to the Effective Date, for purposes of or in connection with this
Agreement, the Loans, the Loan Documents and/or the transactions contemplated by
the Loan Documents is, and all other such factual information subsequently
furnished by or on behalf of Borrower or any of its Material Subsidiaries to
Agent and the Lenders will be, true, complete and accurate in all material
respects on the date as of which such information is dated and/or furnished, and
not incomplete by omitting to state any material fact necessary to make such
information not misleading at such time. The preceding includes any
information, representations or warranties of or provided by or on behalf of
Borrower or any of its Material Subsidiaries in any schedule or exhibit to any
Loan Documents, as well as contained in the corpus of such Loan Documents, or
provided separately in conjunction with such Loan Documents. The copies of all
documents or instruments Borrower and its Material Subsidiaries have provided to
Agent and the Lenders in conjunction with the Loan Documents and the
transactions contemplated by the Agreement are complete, accurate copies of the
items they purport to be.
5.11 No Default. Neither Borrower nor any Material Subsidiary is in
default under or with respect to any Loan Document or with respect to a material
term of any other material agreement, instrument or undertaking to which
Borrower or any Material Subsidiary is a party or by which Borrower, any
Material Subsidiary or any property of Borrower and its Material Subsidiaries is
bound. No Default or Unmatured Default exists before or after giving effect to
any or all of the transactions contemplated by the Loan Documents.
5.12 Licenses and Permits. Borrower and its Material Subsidiaries have
obtained and hold in full force and effect, all franchises, licenses, permits,
certificates, registrations, authorizations, qualifications, accreditations,
easements, rights of way and other rights, consents and approvals (collectively
the "Permits") which are necessary for the operation of their business as
conducted prior to and will be conducted following the Effective Date, the
absence of which could have a Material Adverse Effect. Borrower and its
Material Subsidiaries have fulfilled and performed all of their material
obligations under each such Permit. No event has occurred or condition or state
of facts exists which constitutes, or after notice or lapse of time or both,
would constitute, a material breach or default under any such Permit, or would
cause the revocation or termination of any such
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Permit and such default and/or revocation would have a Material Adverse Effect.
Neither Borrower or any Material Subsidiary has received notice of cancellation,
of default or of any material dispute concerning any such Permit. Each such
Permit is valid, subsisting and in full force and effect and to Borrower's best
knowledge will continue in full force and effect until after the Facility
Termination Date. Borrower and its Material Subsidiaries shall renew all such
Permits which expire while the Loans or any of the Obligations are outstanding,
to the extent failure to do so could have a Material Adverse Effect.
5.13 Compliance with Laws.
5.13.1 General. To Borrower's best knowledge, Borrower and each of
its Material Subsidiaries, are in compliance with all laws, rules, member
association rules, injunctions, ordinances, franchises and regulations
(including, without limitation, all Environmental Laws), and all orders,
judgments, writs and decrees of any Governmental Authority applicable to any of
them or any of their assets both prior to closing and giving effect to the
closing of the Loan Documents where failure to so comply would have a Material
Adverse Effect. To Borrower's best knowledge, there have been no legislative or
regulatory proposals adopted or pending which could have a Material Adverse
Effect on Borrower's or its Material Subsidiaries or businesses.
5.13.2 Export Assurance. Irrespective of any disclosure Borrower or
any Subsidiary may make to Agent or the Lenders of any ultimate destination for
any software products licensed, sold or distributed by Borrower or any
Subsidiary, Borrower and its Subsidiaries shall not export or re-export,
directly or indirectly, any software products or any technical data derived
therefrom, without first obtaining all necessary approvals or required export
licenses to do so from the United States Department of Commerce or any agency of
the United States Government or of any Other Nation or Governmental Authority
having jurisdiction over such transaction, if required by an applicable statute,
regulation, order, judgment or decree. Borrower represents, warrants and
covenants to Agent and the Lenders that Borrower and its Subsidiaries do not
intend to and shall not, without the prior written consent (if required) of the
"Office of Export Administration of the U.S. Department of Commerce",
Washington, D.C. 20230, transmit or ship any software products or modifications
thereto or products thereof, directly or indirectly to the Peoples Republic of
China or to any group Q, S, V, Y or Z country specified in Section 770 of the
Export Administration Regulations or any Supplements thereto issued by the U.S.
Department of Commerce, as amended, supplemented or replaced from time to time.
5.14 No Threatened Insolvency. Any Advance or Facility Letter of Credit
requested by Borrower or extended by Lenders or Issuer to or on behalf of
Borrower under this Agreement does not currently and to Borrower's best
knowledge will not in the future render Borrower insolvent. Neither Borrower
nor any of Borrower's Material Subsidiaries are contemplating either the filing
of a petition under the Bankruptcy Code, or any other or similar law of any
Governmental Authority involving insolvency, or liquidation of all or a major
portion of their property. No Person has filed or to Borrower's best knowledge
is contemplating filing any petition under any such law against Borrower or its
Material Subsidiaries. Borrower and, to Borrower's best knowledge each of its
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Material Subsidiaries, are now and at all times hereafter until and including
the date upon which all Obligations are indefeasibly repaid in full to Agent,
Issuer and the Lenders, solvent and generally paying their debts as they mature.
Borrower has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage. Borrower now owns
and shall at all times during the term of this Agreement own property which, at
a fair valuation, is greater than the sum of its debts.
5.15 Tax Returns. To the best of its knowledge, Borrower itself has filed
and, each of its Material Subsidiaries has filed, on a timely basis all federal,
state, county and local income, excise, withholding, value added, property,
sales, use, franchise or other tax returns, declarations or reports which any
state, local, municipal, or federal authority of any Governmental Authority
required Borrower or its Material Subsidiaries to file on or before the
Effective Date. All such tax returns, declarations and reports of Borrower, and
to Borrower's best knowledge its Material Subsidiaries, were true and correct,
and accurately reflected all taxable income and tax liabilities of Borrower and,
to Borrower's best knowledge its Material Subsidiaries, for all periods such
reports covered. Borrower and to Borrower's best knowledge its Material
Subsidiaries have paid all taxes, interest and penalties, (if any), which became
due pursuant to such returns or pursuant to any assessment which has become
payable, except where payment is being contested in good faith and adequate
reserves have been provided on the Borrower's or such Material Subsidiary's
books and records.
5.16 Financial Statements. Borrower has provided Agent and the Lenders
with unaudited financial statements prepared by Borrower's management, which
cover the nine (9) month period ended September 30, 1998 (the "Unaudited
Financials"). The Unaudited Financials and all other financial information,
statements, warranties, projections, balance sheets, cash flow statements and
reports which Borrower provides to Agent and the Lenders shall be referred to
collectively in this Agreement as the "Financial Statements". The Financial
Statements which Borrower has delivered or will deliver to Agent and the Lenders
in the future will fully and fairly present the financial condition of Borrower
and its Subsidiaries, and the results of their business operations for the
respective periods indicated in such Financial Statements. The Financial
Statements were prepared in conformity with GAAP and are on a consolidated basis
with all of Borrower's Subsidiaries.
5.17 Undisclosed Liabilities. The most recent ending date of the Unaudited
Financials shall be referred to in this Agreement as the "Balance Sheet Date".
Borrower and its Material Subsidiaries have no debts or liabilities of any type
or nature, whether accrued, absolute or contingent, determined or undetermined,
whether due or to become due (including without limitation unasserted claims
whether known or unknown, liabilities for taxes of any type, penalties, fees or
interest) other than those reflected in the Unaudited Financials dated as of the
Balance Sheet Date, those liabilities incurred in the ordinary course of
business since the Balance Sheet Date, and those liabilities which could not
have a Material Adverse Effect. Neither Borrower nor any Material Subsidiary
have incurred any liability or debt which has or to Borrower's best knowledge
will have a Material Adverse Effect. Except as identified on attached and
incorporated Schedule
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5.17, since the Balance Sheet Date, neither Borrower nor its Material
Subsidiaries have experienced any Material Adverse Effect, and have not incurred
any material or unusual forward or long-term commitments. No fact or condition
exists, is contemplated or is to Borrower's best knowledge threatened which
might reasonably be expected to cause any such material adverse change in the
future.
5.18 COBRA. Except as would not be material: (i) Borrower and each
Material Subsidiary to which COBRA (as hereinafter defined) is applicable, has
provided each of their former employees with the right to continue his or her
respective insurance program with Borrower or applicable Material Subsidiary, in
compliance with all relevant provisions of the Code, as modified by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), including all
amendments to COBRA as contained in the Tax Reform Act of 1986, or any
subsequent legislation, (ii) there are no commitments, whether contractual in
nature or based upon any representation, warranty or other undertaking of
Borrower or such Material Subsidiary, which would preclude Borrower or such
Material Subsidiary from increasing the cost charged to individuals for
participating in any continuing medical benefit coverage, or (iii) except for
COBRA or as may be required under any state continuation coverage laws, Borrower
and such Material Subsidiaries have not established any employee benefit plan
which constitutes a "welfare benefit plan" within the meaning of Section 3(l) of
ERISA, providing for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment
with Borrower or such Material Subsidiary.
5.19 Intellectual Property. Borrower directly or indirectly owns, is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights and any applications
therefore, computer software products, and tangible or intangible property
information or material (excluding packaged commercially available software
programs generally available to the public which have been licensed to Borrower
or a Subsidiary pursuant to end-user licenses) ("Intellectual Property") that
are material to the business of Borrower and its Subsidiaries as currently
conducted by them. Except as provided on Schedule 5.19, there is no claim
pending or, to Borrower's best knowledge, threatened, against Borrower or a
Subsidiary with respect to any alleged infringement of any trademark, service
mark, trade name, copyright, patent or trade secret owned by another person that
could reasonably be expected to have a Material Adverse Effect. Except as
provided on Schedule 5.19, there is no claim or action pending or to Borrower's
best knowledge threatened concerning any Intellectual Property.
5.20 ERISA. As of the Effective Date, all Plans satisfy all minimum
funding standards of Section 302 of ERISA and Section 412 of the Code and no
material Reportable Event or material Termination Event exists concerning any
such Plan of Borrower or any member of Borrower's ERISA Controlled Group.
Neither Borrower nor any member of Borrower's ERISA Controlled Group has
incurred, or expects to incur, any withdrawal liability under Section 4201 of
ERISA to any Multiemployer Plan.
5.21 Subsidiaries. Schedule 5.21 hereto contains an accurate list of all
Subsidiaries of the Borrower as of the Effective Date, setting forth their
respective
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jurisdictions of incorporation and the percentage of their respective capital
stock owned by the Borrower or the other Subsidiaries. All of the issued and
outstanding shares of capital stock of such Subsidiaries have been duly
authorized and issued and are fully paid and non-assessable, to the extent these
terms have local meanings substantially the same as their meanings under the law
chosen by the parties as governing this Agreement.
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
6.1 Duration of Affirmative Covenants. Borrower covenants and agrees that
on and after the Effective Date, and until Borrower indefeasibly has paid and/or
performed in full all the Obligations owed to the Agent, the Issuer and Lenders,
and Lenders and the Issuer no longer have any obligation to make Advances or
issue Facility Letters of Credit under this Agreement, and there are no
outstanding Advances or Facility Letters of Credit issued under this Agreement,
Borrower shall comply with the affirmative covenants set forth in Sections 6.2
through 6.11 below.
6.2 Financial Covenants.
6.2.1 Quick Ratio. The Borrower will at all times maintain a Quick
Ratio of at least 1.0 to 1.0.
6.2.2 Tangible Net Worth. The Borrower will at all times maintain a
Tangible Net Worth of not less than the sum of (a) $275,000,000, (b) 50% of the
consolidated net income of the Borrower and its Subsidiaries (if positive) for
each fiscal quarter commencing with the quarter ending on March 31, 1999, as
reflected in financial statements furnished by the Borrower pursuant to Section
6.3.5, and (c) 100% of the proceeds of any Stock issued by the Borrower after
the date hereof (net of reasonable and customary costs and expenses of
issuance), in any public offering or any private placement to large
institutional investors to the extent such proceeds increase stockholders equity
of the Borrower on a consolidated basis as determined in accordance with GAAP.
6.2.3 Total Liabilities to Tangible Net Worth. The Borrower will not
permit the ratio of (a) Total Liabilities to (b) Tangible Net Worth to at any
time exceed 1.0 to 1.0.
6.3 Information Covenants.
6.3.1 General Obligation to Provide Notice. Borrower will furnish to
the Agent and the Lenders written notice of each of the events and within the
time periods, referenced in Sections 6.3.2 through 6.3.7 below.
6.3.2 Notice of Default, Liens or Litigation. Promptly, and in any
event
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within five (5) Business Days after Borrower obtains knowledge of each of the
following, Borrower shall provide written notice of the same to the Agent and
the Lenders: (i) the occurrence of any Default or Unmatured Default, (ii) any
material Lien on, or any claim or charge asserted against any assets of Borrower
or a Material Subsidiary which, if reduced to judgment with respect to such
assets, would have a Material Adverse Effect on the business of Borrower or such
Material Subsidiary; (iii) any litigation or governmental proceeding pending or
threatened against Borrower or any Material Subsidiary which could, if adversely
determined, have a Material Adverse Effect on Borrower or such Material
Subsidiary; or (iv) any other event, act or condition which could have a
Material Adverse Effect on Borrower or a Material Subsidiary.
6.3.3 ERISA Notices. Borrower shall provide written notice of each
of the following ERISA matters to Agent and the Lenders within the time periods
provided:
(i) as soon as possible, and in any event within ten (10) days after
Borrower or any member of its Controlled Group knows that:
(A) any material Termination Event with respect to a Plan has
occurred or will occur,
(B) any condition exists with respect to a Plan which presents a
material risk of termination of the Plan or imposition of a
material excise tax or other material liability on Borrower
or any member of its Controlled Group,
(C) Borrower or any member of its Controlled Group applies for a
waiver of the minimum funding standard under Section 412 of
the Code or Section 302 of ERISA,
(D) Borrower or any member of its Controlled Group has engaged
in a "prohibited transaction," as defined in Section 4975 of
the Code or as described in Section 406 of ERISA, that is
not exempt under Section 4975 of the Code and Section 408 of
ERISA, which will result in a material liability to Borrower
or any member of its ERISA Controlled Group,
(E) the aggregate present value of the Unfunded Liabilities
under all Borrower's Plans is in excess of fifteen million
dollars ($15,000,000),
(F) any condition exists with respect to a Multiemployer Plan
which presents a material risk of a partial or complete
withdrawal (as described in Section 4203 or 4205 of ERISA)
by Borrower or any member of its Controlled Group from a
Multiemployer Plan and which will result in a material
liability to Borrower or any member of its controlled Group,
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(G) Borrower or any member of its Controlled Group is in
"default" (as defined in Section 4219(c) (5) of ERISA) with
respect to payments to a Multiemployer Plan, and such
default will result in liability to Borrower or a Subsidiary
in excess of $15,000,000,
(H) a Multiemployer Plan is in "reorganization" (as defined in
Section 418 of the Code or Section 4241 of ERISA) or is
"insolvent" (as defined in Section 4245 of ERISA),
(I) to the best knowledge of Borrower, the potential withdrawal
liability (as determined in accordance with Title IV of
ERISA) of Borrower and the members of its Controlled Group
with respect to all Multiemployer Plans is in excess of ten
million dollars ($15,000,000)
(J) there is an action brought against Borrower or any member of
its ERISA Controlled Group under Section 502 of ERISA with
respect to a failure to comply with Section 515 of ERISA;
and as soon as possible, and in any event within five (5)
Business Days after the receipt by Borrower or any member of
its Controlled Group of a demand letter from the PBGC
notifying Borrower or such member of its Controlled Group of
the PBGC's final decision finding liability and the date by
which such liability must be paid, Borrower shall provide
Lender with a copy of such letter, together with a
certificate of the chief financial officer of Borrower
setting forth the action which Borrower or such member of
its ERISA Controlled Group proposes to take with respect to
such matter.
(ii) In the case of a notice required under Sections 6.3.3(i)(A)
through 6.3.3(i)(J) of this Agreement, Borrower shall deliver to
the Agent and the Lenders, a certificate of an Authorized
Officer, setting forth the details of each of the events
described in clauses 6.3.3(i)(A) through 6.3.3(i)(J) above, as
applicable, and the action which Borrower or the applicable
member of its Controlled Group proposes to take with respect to
such matter, together with a copy of any notice or filing from
the PBGC or which may be required by the PBGC or other agency of
the United States government with respect to each of the events
described in clauses 6.3.3(i)(A) through 6.3.3(i)(J) above, as
applicable.
6.3.4 Environmental Notices. Promptly, and in any event within five
(5) Business Days after the existence of any of the following conditions,
Borrower shall provide Agent and the Lenders with a certificate of an Authorized
Officer specifying in
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detail the nature of such condition and Borrower's or its Environmental
Affiliate's proposed response to any of the following: (i) the receipt by
Borrower or any of its Environmental Affiliates of any communication (written or
oral), whether from a Governmental Authority, citizens group, employee or
otherwise, that alleges that Borrower or such Environmental Affiliate is not in
compliance with any Environmental Laws if such allegation could potentially, in
the aggregate, involve Borrower or a Material Subsidiary incurring liability of
$15,000,000 or more; (ii) Borrower or any of its Environmental Affiliates
obtains actual knowledge that there exists any Environmental Claim pending or
threatened against Borrower or such Environmental Affiliate if such Claim could
potentially, in the aggregate, involve Borrower or a Material Subsidiary
incurring liability of $15,000,000 or more; (iii) any release, emission,
discharge or disposal of any Material of Environmental Concern that could form
the basis of any Environmental Claim against Borrower or any of its
Environmental Affiliates if such release, emission, discharge or disposal could
potentially, in the aggregate, involve Borrower or a Material Subsidiary
incurring liability of $15,000,000 or more. Borrower and each Material
Subsidiary shall comply fully with and assist any associated environmental
investigation and/or clean-up, and promptly complete any required remedial
actions.
6.3.5 Financial Reporting. The Borrower shall:
(A) As soon as available, but not later than 105 days after the
end of each fiscal year (commencing with the fiscal year
ending December 31, 1998) provide to Agent, with sufficient
copies for each Lender, a copy of the audited consolidated
balance sheet as of the end of such year and the
consolidated statements of income (from) operations,
shareholders' equity and cash flows for such year, setting
forth in each case in comparative form the figures for the
previous fiscal year, and accompanied by an unqualified
opinion of a nationally recognized independent accounting
firm ("Independent Auditor") which report shall state that
such consolidated financial statements present fairly the
financial position for the periods indicated in conformity
with GAAP and by any management letter prepared by said
Independent Auditor. Such opinion shall not be qualified or
limited because of a restricted or limited examination by
the Independent Auditor of any material portion of the
Borrower's or any Subsidiary's records;
(B) As soon as available, but not later than 60 days after the
end of each of the first three fiscal quarters of each
fiscal year (commencing with the fiscal quarter ending March
31, 1999) provide to the Agent with sufficient copies for
each Lender, a copy of the Borrower's 10-Q financial
statements filed with the Securities and Exchange
Commission, and certified by its chief financial officer as
fairly presenting, in accordance with
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GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of
operations of the Borrower and its Subsidiaries.
(C) Together with the financial statements required under
Sections 6.3.5(A) and (B), a compliance certificate in
substantially the form of "Exhibit "C" hereto signed by an
Authorized Officer showing the calculations necessary to
determine compliance with this Agreement, listing all
Material Subsidiaries as of such date and stating that no
Default or Unmatured Default exists, or if any Default or
Unmatured Default exists, stating the nature and status
thereof.
Within 270 days after the close of each fiscal year, a statement
of the Unfunded Liabilities of each Single Employer Plan,
certified as correct by an actuary enrolled under ERISA, to
the extent such is required by ERISA or the regulations
promulgated thereunder.
(E) Such information (financial or otherwise) regarding each
Guarantor as the Agent may from time to time reasonably
request.
(F) Promptly upon the furnishing thereof to the shareholders of
the Borrower, copies of all financial statements, reports
and proxy statements so furnished.
(G) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular
reports which the Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission.
(H) Such other information (including non-financial information)
as the Agent or any Lender may from time to time reasonably
request.
6.3.6 Other Defaults. Immediately upon the occurrence of any of the
following events, Borrower shall provide Agent and the Lenders with written
notice, in reasonable detail and with such supporting documentation as is
necessary for Agent and the Lenders to evaluate accurately the same: any default
by Borrower or a Material Subsidiary under any evidence of Indebtedness,
indenture, mortgage, note, security interest or other material obligation of
Borrower or a Material Subsidiary, or any other matter which has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect.
6.3.7 Other Information. From time to time, Borrower shall provide
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Lenders with such other information or documents (financial or otherwise) as
Agent. reasonably may request, within five (5) Business Days of Agent's request
for the same.
6.4 Books, Records and Inspections. Borrower shall keep, for itself and
its Subsidiaries, proper books of record and account, in which Borrower shall,
and shall cause each Subsidiary to, make full, true and correct entries, in
conformity with GAAP and all requirements of law, of all dealings and
transactions in relation to its business, and its activities including but not
limited to dealings or transactions between or among Borrower and its
Subsidiaries. Subject to Section 10.12, Borrower shall, and shall cause each
Subsidiary to, permit officers and designated representatives of the Agent and
the Lenders (including, without limitation, internal or external auditors of the
Agent or any Lender) to visit and inspect any of the properties of Borrower or
its Subsidiaries and to examine the books of record and account of Borrower or
its Subsidiaries, to review and/or audit the books and records of Borrower or
its Subsidiaries, to review the work papers of Borrower's independent certified
public accountants, make copies or abstracts of any of the preceding, and to
discuss the affairs, finances and accounts of Borrower or its Subsidiaries with,
and be advised as to the same by, the officers and independent accountants of
Borrower and its Subsidiaries, all upon reasonable notice and at such reasonable
times as the Agent or the Lenders may desire, provided that, so long as no
Default or Unmatured Default has occurred, each Lender and the Agent may conduct
such inspections no more than once in any calendar year at such Agent's or
Lender's own cost. However, following the occurrence of a Default or Unmatured
Default, the Agent and the Lenders may take any actions authorized under this
Section as often as they desire, at Borrower's sole cost. By this provision,
Borrower irrevocably authorizes all its and its Subsidiaries' officers and
accountants to discuss said finances and affairs with the Agent and the Lenders.
6.5 Maintenance of Insurance. Borrower, shall, and shall cause each
Material Subsidiary to, at their own cost and expense, maintain with financially
sound and reputable insurance companies, insurance in at least such amounts and
against at least such risks as are customarily insured against by companies
engaged in the same or a similar businesses (including but not limited to
product liability insurance), which insurance shall in any event not provide for
less coverage or fewer risks than the insurance in effect on the Effective Date.
All such insurance shall be in such form, for such period, and written by an
insurance company with a Best's Rating of "A" or better. Upon any Lender's
request, Borrower shall deliver promptly to Agent and the Lenders evidence of
Borrower's or a Subsidiary's payment of all premiums for any insurance
identified in this Section, as well as copies of the applicable policies and
certificates. Lenders' acceptance of a policy in lesser amounts or risks does
not constitute and shall not constitute a waiver of the foregoing obligations.
Borrower shall notify the Agent and the Lenders immediately of any event or
occurrence causing a material loss or decline in value of Borrower's or a
Material Subsidiary's assets and the estimated (or actual if available) amount
of such loss or decline, and whether or not the same will be covered by
insurance.
6.6 Taxes. Borrower shall, and shall cause each Material Subsidiary to,
pay or
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cause to be paid when due, all taxes, Charges and assessments and all other
lawful claims which Borrower or its Material Subsidiaries are required to pay by
any Governmental Authority, except Borrower or a Material Subsidiary may contest
in good faith and by appropriate proceedings diligently conducted, so long as
Borrower or the applicable Material Subsidiary has established adequate reserves
with respect to such contest, in accordance with GAAP.
6.7 Franchises and Intellectual Property. Borrower shall, and shall cause
each Subsidiary to, do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and to the extent
applicable, its status in good standing as a foreign corporation, and all
respective patents, trademarks, service marks, trade names, copyrights,
franchises, licenses, other Intellectual Property, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights,
consents and approvals necessary in the conduct of its business except where
failure to so maintain or preserve would not have a Material Adverse Effect.
6.8 Compliance with Law. Borrower shall comply and shall cause all its
Material Subsidiaries to comply in all material respects with all applicable
laws, rules, statutes, regulations, decrees and orders of, and all applicable
restrictions imposed by, all Governmental Authorities, in respect of the conduct
of their businesses and the ownership of their properties, including, without
limitation, all Environmental Laws, ERISA laws, COBRA and the Fair Labor
Standards Act, as amended, except where failure to so comply would not have a
Material Adverse Effect.
6.9 Performance of Obligations. Borrower shall perform and shall cause
each of its Material Subsidiaries to perform all of their obligations under the
terms of each, mortgage, indenture, security agreement, debt instrument, lease,
undertaking and contract by which it or any of its properties or any of its
Material Subsidiaries are bound or to which it is a party, including but not
limited to each of the Loan Documents, except with respect to immaterial
obligations under documents other than the Loan Documents, and unless the
failure to perform any such obligation could not reasonably be expected to have
a Material Adverse Effect.
6.10 Maintenance of Properties. The Borrower will, and will cause each
Material Subsidiary to, do all things necessary to maintain, preserve, protect
and keep its Property in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times except
where failure to so maintain would not have a Material Adverse Effect.
6.11 Additional Guarantors. From time to time after the date of this
Agreement, the Borrower shall cause each Material Subsidiary which is not then a
Guarantor which is, or becomes, a Material Subsidiary, to execute and deliver to
the Agent for the ratable benefit of the Lenders, a guaranty in substantially
the form of Exhibit "F" hereto, along with appropriate resolutions and opinions
of counsel, if requested by the Agent.
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ARTICLE 7
NEGATIVE COVENANTS
------------------
7.1 Duration of Negative Covenants. Borrower covenants and agrees that on
and after the Effective Date and until Borrower indefeasibly has paid and/or
performed in full all the Obligations owed to the Agent, the Issuer and the
Lenders and the Agent, the Issuer and the Lenders no longer have any obligation
to make Advances or issue Facility Letter of Credit under this Agreement, and no
Advances or Facility Letter of Credit issued under this Agreement are still
outstanding, Borrower shall comply with the negative covenants set forth in
Sections 7.2 through 7.14 below.
7.2 Indebtedness and Contingent Obligations. Without the prior written
consent of the Required Lenders, Borrower shall not, nor shall it permit any
Material Subsidiary to, create, incur, assume, suffer to exist or otherwise
become or remain directly or indirectly liable (including without limitation,
liability incurred as a general partner or joint venturer) with respect to any
Indebtedness or Contingent Obligations, other than: (i) Indebtedness under this
Agreement and under the other Loan Documents; (ii) Indebtedness outstanding on
the Effective Date and specifically disclosed on Schedule 7.2; (iii) Capitalized
Lease Obligations which, in the aggregate, have a net present value (as
determined in accordance with GAAP) of all future lease payment obligations that
is less than $15,000,000; (iv) other Contingent Obligations with respect to
obligations (other than Indebtedness) of Borrower's Material Subsidiaries,
provided that the amount of such Contingent Obligations, individually or in the
aggregate, does not exceed $15,000,000; (v) other Indebtedness and Contingent
Obligations the principal amount of which, individually or in the aggregate,
does not exceed $15,000,000; (vi) Subordinated Indebtedness which is unsecured
and other Indebtedness which is unsecured and which Borrower owes to Persons who
execute and deliver to Agent (in form and substance acceptable to the Agent and
the Required Lenders) subordination agreements subordinating their claims
against Borrower to the payment of the Obligations, (vii) indebtedness of any
Receivables Subsidiary to the Borrower or any other Seller under any Purchase
Money Notes in connection with Qualified Receivables transactions permitted
under clause (iv) of Section 7.5; (viii) Receivables Program Obligations
described under clause (a) of the definition of such term of Special Purpose
Vehicles, and Receivables Program Obligations described under clause (b) of the
definition of such term of the Borrower and the Consolidated Entities, provided
in each case such Receivables Program Obligations relate solely to Qualified
Receivables Transactions permitted under clause (iv) of Section 7.5, and (ix)
Contingent Obligations in respect of Receivables sold by the Borrower or any
Material Subsidiary with recourse as permitted in Section 7.5(iii)(b), or in
respect of receivables or installment payment agreements from customers of the
Borrower or any Material Subsidiary arising in connection with the sale or lease
of services, products, goods or merchandise by Borrower or any Material
Subsidiary to such customers, provided that such Contingent Obligations do not
exceed $100,000,000 in the aggregate outstanding at any time.
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7.3 Liens. Without the prior, written consent of the Required Lenders,
Borrower shall not, nor shall it permit any Material Subsidiary to, create,
incur, assume or suffer to exist, directly or indirectly, any Lien on any of its
property now owned or subsequently acquired, other than: (i) Liens existing on
the Effective Date and specifically disclosed in Schedule 7.2 hereto; (ii) Liens
for taxes not yet due or which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves are
being maintained in accordance with GAAP; (iii) Liens (other than any Lien
imposed by ERISA or pursuant to any Environmental Law) incurred or deposits made
in the ordinary course of business in connection with workers compensation,
unemployment insurance and other types of social security; (iv) Liens imposed by
law, such as carriers', warehousemen's and mechanics' liens and other similar
liens arising in the ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being contested in good
faith by appropriate proceedings and for which adequate reserves shall have been
set aside on its books; (v) Utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Borrower or the Material Subsidiaries, (vi) Liens
incurred in connection with the sale of receivables pursuant to Section 7.5(iii)
provided such Lien applies only to the receivables being sold; and (v) the
customary interests of any Receivables Subsidiaries, Special Purpose Vehicles
and related collateral agents and trustees in Receivables Program Assets under
Qualified Receivables Transactions permitted under clause (iv) of Section 7.5.
7.4 Restrictions on Fundamental Changes. Except for the Permitted
Reorganization, without the prior written consent of the Required Lenders,
Borrower shall not, nor shall it permit any Material Subsidiary to, directly,
indirectly, voluntarily or involuntarily: (i) enter into any merger,
consolidation, reorganization or other combination unless Borrower (in the case
of a merger, consolidation, reorganization, or other combination involving the
Borrower) is the survivor thereof or, in the case of a merger, consolidation,
reorganization, or other combination involving a Material Subsidiary, the
surviving entity is wholly-owned by the Borrower and any guaranty required by
Section 6.11 has been executed and delivered to the Agent, (ii) liquidate, wind-
up or dissolve (or suffer any termination, liquidation or dissolution); (iii)
discontinue or materially change its business; (iv) convey, lease, sell,
transfer, assign or otherwise dispose of all or any part of its business or
property, whether now existing or subsequently acquired, except as otherwise
permitted under Section 7.5 or (iv) create or divest of any Material Subsidiary
or any significant interest in any Material Subsidiary, if the same could have a
Material Adverse Effect. Neither Borrower nor any Material Subsidiary shall
amend its articles of incorporation, organizational documents, by-laws or
operating agreements (as the case may be), nor make any name change, from that
existing on the Effective Date, to the extent that it has a Material Adverse
Effect. Nothing in this Section 7.4 shall prohibit the creation by the Borrower
and its Material Subsidiaries of Receivables Subsidiaries or the creation by
Receivables Subsidiaries of Special Purpose Vehicles, in each case solely in
connection with Qualified Receivables Transactions permitted under clause (iv)
of Section 7.5.
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7.5 Sale of Assets. Without the prior written consent of the Required
Lenders, Borrower shall not, nor shall it permit any Material Subsidiary to,
directly or indirectly assign, pledge, hypothecate, encumber, grant a security
interest in, convey, lease, sell, transfer or otherwise dispose of (or agree to
do so at any future time), by sale, merger, consolidation, liquidation,
dissolution or otherwise, all or any Substantial Portion of its Property,
except: (i) sales and/or licenses of inventory in the ordinary course of
business; (ii) sales of equipment which are uneconomic, obsolete or no longer
useful in its business; (iii) sales of Receivables for cash provided such sales
are either (a) non-recourse to the Borrower or any Subsidiary or (b) with
recourse to the Borrower or a Material Subsidiary and the outstanding principal
amount of all such Receivables sold with recourse and outstanding at any time
does not exceed $100,000,000, (iv) sales pursuant to a Qualified Receivables
Transaction, and (v) any assignment, transfer, conveyance or other disposition
included as part of the Permitted Reorganization.
7.6 Redemptions. Without the prior written consent of the Required
Lenders, Borrower shall not redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of its own shares of any class of Stock (or any
options or warrants issued with respect to its shares), or make any material
change in Borrower's capital structure or set aside any funds for any of the
foregoing purposes to the extent any of the foregoing could have a Material
Adverse Effect.
7.7 Advances, Investments and Loans. Without the prior written consent of
the Required Lenders, Borrower shall not, nor shall it permit any Material
Subsidiary to, make or suffer to exist any Investments, except that Borrower or
a Material Subsidiary shall be permitted: (i) to make advances to Wholly-Owned
Subsidiaries of Borrower so long as the same do not materially diminish, affect
or reduce the Agent and the Lenders' rights or ability to collect under this
Agreement; (ii) to establish and maintain accounts receivable and payable, if
created in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (iii) to acquire and hold Cash and Cash
Equivalents; (iv) to make Acquisitions or Investments in unrelated Persons,
whether by acquisition of Stock, other equity interests, acquisition of assets
or investments in partnerships and joint ventures unless such Acquisition or
Investment results in a violation of Section 7.4; (v) to provide temporary
working capital financing to acquisition targets of Borrower and advances to
third party software developers (against reasonably anticipated future royalties
or time and materials costs) provided that such financing and/or advances shall
not exceed individually or in the aggregate Fifteen Million Dollars
($15,000,000) outstanding at any time and shall not materially diminish, affect
or reduce the Agent's or the Lender's rights or ability to collect under this
Agreement, (vi) to create Receivables Subsidiaries and Receivables Subsidiaries
shall be permitted to create Special Purpose Vehicles, (vii) to incur Standard
Securitization Undertakings, in each case solely in connection with Qualified
Receivables Transactions, (viii) to make loans or advances to Receivables
Subsidiaries evidenced by Purchase Money Notes in connection with Qualified
Receivables Transactions permitted under clause (iv) of Section 7.5 and (iv)
Investments included as part of the Permitted Reorganization.
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7.8 Transactions with Affiliates. Except as may be required as part of
the Permitted Reorganization, Borrower shall not, nor shall it permit any
Subsidiary to, enter into any transaction with any Affiliate, officer, director,
stockholder, Subsidiary or employee of Borrower or a Material Subsidiary except
in the ordinary course of business and pursuant the reasonable requirements of
Borrower's or such Material Subsidiary's business, upon terms and conditions
which are fair and reasonable to Borrower or such Material Subsidiary and which
are not less favorable than obtainable at the time in a comparable arm's-length
transaction with a Person other than an Affiliate, provided, however, that
Borrower or any Subsidiary may enter into any such transaction with a Guarantor
(or, in the case of a Subsidiary, with the Borrower) if such transaction is
beneficial to the Borrower or such Subsidiary.
7.9 Plans. Borrower shall not, nor shall it permit any member of its
Controlled Group to, take any action which would cause the Plans to fail to
satisfy all minimum funding obligations under Section 412 of the Code.
7.10 Sales and Leasebacks. Borrower shall not, nor shall it permit any
Material Subsidiary to, become liable, directly or indirectly, with respect to
any lease, whether an operating lease or a Capitalized Lease, of any property
(whether real or personal or mixed) whether now owned or subsequently acquired:
(i) which Borrower or a Material Subsidiary directly or indirectly has sold or
transferred or is to sell or transfer to any other Person; or (ii) which
Borrower or a Material Subsidiary intends to use for substantially the same
purposes as any other property which has been or is to be sold or transferred by
Borrower or Material Subsidiary directly or indirectly to any other Person in
connection with such lease.
7.11 Material of Environmental Concern. Borrower and its Subsidiaries
shall not use in their businesses or operations, any products or by-products
which constitute, nor store or hold at any site or location at which they
conduct business or otherwise operate, any Hazardous Substances or Materials of
Environmental Concern unless Borrower or such Subsidiary strictly and fully
complies with all requirements of applicable Environmental Laws which require
the special handling, collection, storage, treatment, disposal or transportation
of such items. Borrower and its Subsidiaries shall not release and shall not
permit the release of any Materials of Environmental Concern on, from or near
any location at which Borrower or its Subsidiaries conduct their businesses or
operations, nor in any way violate any Environmental Laws.
7.12 Margin Stock. Borrower shall not use, directly or indirectly, all or
any portion of the proceeds from the Advances, to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock.
7.13 Subordinated Indebtedness. The Borrower will not make any amendment
or modification to the indenture, note or other agreement evidencing or
governing any Subordinated Indebtedness, or directly or indirectly voluntarily
prepay, defease or in substance defease, purchase, redeem, retire or otherwise
acquire, any Subordinated Indebtedness, provided, however, that the Borrower may
exchange outstanding
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Subordinated Indebtedness for Subordinated Indebtedness in the same or greater
principal amount and with a maturity no shorter than, and an interest rate no
greater than, the Subordinated Indebtedness being surrendered.
7.14 Dividends. The Borrower will not, nor will it permit any Material
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock), except that any Material Subsidiary
may declare and pay dividends to any Wholly-Owned Subsidiary or the Borrower.
ARTICLE VIII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default:
8.1 Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders, the Issuer or the Agent
under or in connection with this Agreement, any Loan or Facility Letter of
Credit, or any certificate or information delivered in connection with this
Agreement or any other Loan Document shall be materially false on the date as of
which made.
8.2 Nonpayment of principal of any Note or any Facility Letter of Credit
when due, or nonpayment of interest upon any Note or of any commitment fee or
other fees and obligations under any of the Loan Documents within five (5) days
after the same becomes due.
8.3 The breach by the Borrower or any Subsidiary of any of the terms or
provisions of Articles 6 or 7 which is not remedied within fifteen (15) days
after written notice from the Agent or any Lender.
8.4 The breach by the Borrower or any Subsidiary (other than a breach
which constitutes a Default under Section 8.1, 8.2 or 8.3) of any of the terms
or provisions of this Agreement which is not remedied within thirty (30) days
after written notice from the Agent or any Lender.
8.5 Failure of the Borrower or any of its Material Subsidiaries to pay
when due any Indebtedness aggregating in excess of $15,000,000 ("Material
Indebtedness"); or the default by the Borrower or any of its Material
Subsidiaries in the performance of any term, provision or condition contained in
any agreement under which any such Material Indebtedness was created or is
governed, or any other event shall occur or condition exist, the effect of which
is to cause, or to permit the holder or holders of such Material Indebtedness to
cause, such Material Indebtedness to become due prior to its stated maturity; or
any Material Indebtedness of the Borrower or any of its Material Subsidiaries
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shall be declared to be due and payable or required to be prepaid or repurchased
(other than by a regularly scheduled payment) prior to the stated maturity
thereof; or the Borrower or any of its Material Subsidiaries shall not pay, or
admit in writing their inability to pay, their debts generally as they become
due provided, however, that it shall not constitute a default hereunder if the
Borrower or Material Subsidiary is contesting such default by appropriate
proceedings diligently conducted and the holder or holders have not commenced
suit or taken an action to foreclose on, or otherwise attach, any property of
the Borrower or such Material Subsidiary.
8.6 The Borrower or any of its Material Subsidiaries shall (i) have an
order for relief entered with respect to it under the Federal bankruptcy laws or
other similar law of any Governmental Authority as now or hereafter in effect,
(ii) make an assignment for the benefit of creditors, (iii) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any Substantial Portion of
its Property, (iv) institute any proceeding seeking an order for relief under
the Federal bankruptcy laws or other similar law of any Governmental Authority
as now or hereafter in effect or seeking to adjudicate it a bankrupt or
insolvent, or seeking dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors or fail to file
an answer or other pleading denying the material allegations of any such
proceeding filed against it, (v) take any corporate action to authorize or
effect any of the foregoing actions set forth in this Section 8.6 or (vi) fail
to contest in good faith any appointment or proceeding described in Section 8.7.
8.7 Without the application, approval or consent of the Borrower or any of
its Material Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Material Subsidiaries
or any Substantial Portion of its or their Property, or a proceeding described
in Section 8.6(iv) shall be instituted against the Borrower or any of its
Material Subsidiaries and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of 60 consecutive
days.
8.8 Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
8.9 The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge any judgment or order for the payment of money
in excess of $15,000,000 which is not stayed on appeal or otherwise being
appropriately contested in good faith.
8.10 The Unfunded Liabilities of all Single Employer Plans shall exceed in
the aggregate $15,000,000 or any Reportable Event shall occur in connection with
any Plan.
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8.11 The Borrower or any of its Subsidiaries shall be the subject of any
proceeding or investigation pertaining to the release by the Borrower or any of
its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
8.12 Any Guaranty shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to comply with any
of the terms or provisions of any Guaranty to which it is a party, or any
Guarantor denies that it has any further liability under any Guaranty to which
it is a party, or gives notice to such effect.
8.13 Any event or condition shall occur or exist with respect to the
Borrower or any Subsidiary which the Required Lenders determine in good faith
will have a Material Adverse Effect.
8.14 Any Governmental Authority revokes or fails to renew any material
license, permit or franchise of the Borrower or any Material Subsidiary or the
Borrower or any Material Subsidiary for any reason loses any material license,
permit or franchise, or the Borrower suffers the imposition of any restraining
order, escrow, suspension or impound of funds in connection with any proceeding
(judicial or administrative) with respect to any material license, permit or
franchise and such revocation, failure or imposition has, or might reasonably be
expected to have, a Material Adverse Effect.
ARTICLE IX
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
9.1 Acceleration.
(a) If any Default described in Section 8.6 or 8.7 occurs, (i) the
obligations of the Lenders to make Loans hereunder and the obligation of the
Issuer to issue Facility Letters of Credit shall automatically terminate and the
Obligations shall immediately become due and payable without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives and without any election or action on the part of the Agent or
any Lender and (ii) the Borrower will be and become thereby unconditionally
obligated, without the need for demand or the necessity of any act or evidence,
to deliver to the Agent, at its address specified pursuant to Article XIV, for
deposit into the Letter of Credit Collateral Account, an amount (the "Collateral
Shortfall Amount") equal to the excess, if any, of
(A) 100% of the sum of the aggregate maximum amount remaining available to
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be drawn under the Facility Letters of Credit (assuming compliance with all
conditions for drawing thereunder) issued by the Issuer and outstanding as of
such time, minus
(B) the amount on deposit in the Letter of Credit Collateral Account at
such time that is free and clear of all rights and claims of third parties and
that has not been applied by the Lenders against the Obligations.
(b) If any Default occurs and is continuing (other than a Default described
in Section 8.6 or 8.7), (i) the Required Lenders may terminate or suspend the
obligations of the Lenders to make Loans and the obligation of the Issuer to
issue Facility Letters of Credit hereunder, or declare the Obligations to be due
and payable, or both, whereupon the Obligations shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which the Borrower hereby expressly waives and (ii) the Required Lenders may,
upon notice delivered to the Borrower and in addition to the continuing right to
demand payment of all amounts payable under this Agreement, make demand on the
Borrower to deliver (and the Borrower will, forthwith upon demand by the
Required Lenders and without necessity of further act or evidence, be and become
thereby unconditionally obligated to deliver), to the Agent, at its address
specified pursuant to Article XIV, for deposit into the Letter of Credit
Collateral Account an amount equal to the Collateral Shortfall Amount.
(c) If at any time while any Default is continuing or after the Commitments
of the Lenders have been terminated, the Agent determines that the Collateral
Shortfall Amount at such time is greater than zero, the Agent may make demand on
the Borrower to deliver (and the Borrower will, forthwith upon demand by the
Agent and without necessity of further act or evidence, be and become thereby
unconditionally obligated to deliver), to the Agent as additional funds to be
deposited and held in the Letter of Credit Collateral Account an amount equal to
such Collateral Shortfall Amount at such time.
(d) The Agent may at any time or from time to time after funds are
deposited in the Letter of Credit Collateral Account, apply such funds to the
payment of the Obligations and any other amounts as shall from time to time have
become due and payable by the Borrower to the Lenders under the Loan Documents.
(e) Neither the Borrower nor any Person claiming on behalf of or through
the Borrower shall have any right to withdraw any of the funds held in the
Letter of Credit Collateral Account. After all of the Obligations have been
indefeasibly paid in full, any funds remaining in the Letter of Credit
Collateral Account shall be returned by the Agent to the Borrower or paid to
whoever may be legally entitled thereto at such time.
(f) The Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Letter of Credit Collateral Account and
shall be deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Agent accords its own property, it
being understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any Persons with respect to any such
funds.
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If, within 15 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans hereunder and the
obligation of the Issuer to issue Facility Letters of Credit hereunder as a
result of any Default (other than any Default as described in Section 8.6 or 8.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
9.2 Amendments. Subject to the provisions of this Article IX, the Required
Lenders (or the Agent with the consent in writing of the Required Lenders) and
the Borrower may enter into agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Loan Documents or changing in any
manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that notwithstanding anything to the
contrary contained herein, no amendment, modification, change or waiver shall be
effective without consent of all the Lenders to:
(i) extend the maturity of the principal of, or interest on, any
Note or of any of the other Obligations;
(ii) increase or forgive the principal amount of any Note or of any
of the other Obligations or decrease the rate of interest
thereon;
(iii) change the date of payment of principal of, or interest on, any
Note or of any of the other Obligations;
(iv) change the amount of the Commitment of any Lender (except for a
ratable decrease in the Commitments of all Lenders);
(v) change the method of calculation utilized in connection with
the computation of interest and fees;
(vi) change the manner of pro rata application by the Agent of
payments made by the Borrower, or any other payments required
hereunder or under the other Loan Documents;
(vii) release any Guarantor;
(viii) modify this Section or the definition of "Required Lenders";
and
(ix) permit the Borrower to assign its rights under this Agreement.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 13.3.2 without obtaining the consent of any
other party to this Agreement.
9.3 Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Facility Letter of Credit notwithstanding
the existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to making such Loan or issuing such Facility Letter of
Credit shall not constitute any waiver or acquiescence. Any
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single or partial exercise of any such right shall not preclude other or
further exercise thereof or the exercise of any other right, and no waiver,
amendment or other variation of the terms, conditions or provisions of the Loan
Documents whatsoever shall be valid unless in writing signed by the Lenders
required pursuant to Section 9.2, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by law
afforded shall be cumulative and all shall be available to the Agent, the
Issuer, and the Lenders until the Obligations have been paid in full.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1 Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans and the issuance of the Facility Letters of Credit
herein contemplated.
10.2 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 Taxes. Any taxes (excluding federal income taxes on the overall net
income of any Lender) or other similar assessments or charges made by any
governmental or revenue authority in respect of the Loan Documents shall be paid
by the Borrower, together with interest and penalties, if any.
10.4 Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
10.5 Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent, the Issuer and the Lenders and
supersede all prior agreements and understandings among the Borrower, the Agent,
the Issuer and the Lenders relating to the subject matter thereof other than the
fee letter described in Section 11.14.
10.6 Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns.
10.7 Expenses; Indemnification. The Borrower shall reimburse the Agent for
any
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costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' fees) paid or incurred by the Agent in connection with the
preparation, negotiation, execution, delivery, review, amendment, modification,
and administration of the Loan Documents, provided that Borrower shall not be
obligated to reimburse the Agent for legal fees in connection with the
preparation and execution of the Loan Documents for any amounts in excess of
$15,000. The Borrower also agrees to reimburse the Agent and the Lenders for any
costs and out-of-pocket expenses (including reasonable attorneys' fees and time
charges of attorneys for the Agent and the Lenders, which attorneys may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with the collection and enforcement of the Loan Documents.
The Borrower further agrees to indemnify the Agent and each Lender, its
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all expenses of litigation or preparation therefor whether or not the Agent or
any Lender is a party thereto) which any of them may pay or incur arising out of
or relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Loan or Facility Letter of Credit hereunder
except to the extent that they are determined by a court of competent
jurisdiction in a final and non-appealable order to have directly resulted from
the negligence, gross negligence, or willful misconduct of the party seeking
indemnification. The obligations of the Borrower under this Section shall
survive the termination of this Agreement.
10.8 Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
10.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP, except that any
calculation or determination which is to be made on a consolidated basis shall
be made for the Borrower and all its Subsidiaries, including those Subsidiaries,
if any, which are unconsolidated on the Borrower's audited financial statements.
10.10 Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
10.11 Nonliability of Lenders. The relationship between the Borrower, the
Lenders, the Issuer, and the Agent shall be solely that of borrower, lender and
letter of credit issuer. Neither the Agent, the Issuer, nor any Lender shall
have any fiduciary responsibilities to the Borrower. Neither the Agent, the
Issuer, nor any Lender undertakes any responsibility to the Borrower to review
or inform the Borrower of any matter in connection with any phase of the
Borrower's business or operations. The Borrower
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agrees that neither the Agent, the Issuer, nor any Lender shall have liability
to the Borrower (whether sounding in tort, contract or otherwise) for losses
suffered by the Borrower in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established by
the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined by a court of competent jurisdiction in a
final and non-appealable order that such losses resulted from the gross
negligence or willful misconduct of the party from which recovery is sought.
Neither the Agent, the Issuer, nor any Lender shall have any liability with
respect to, and the Borrower hereby waives, releases and agrees not to sue for,
any special, indirect or consequential damages suffered by the Borrower in
connection with, arising out of, or in any way related to the Loan Documents or
the transactions contemplated thereby.
10.12 Confidentiality. The Agent, the Issuer, and each Lender agree to
hold any confidential information which it may receive from the Borrower or any
Subsidiary pursuant to this Agreement in confidence, except for disclosure (i)
to its Affiliates and to other Lenders and their respective Affiliates, (ii) to
legal counsel, accountants, and other professional advisors to that Lender or to
a Transferee, (iii) to regulatory officials, (iv) to any Person as requested
pursuant to or as required by law, regulation, or legal process, (v) to any
Person in connection with any legal proceeding to which that Lender is a party,
and (vi) permitted by Section 13.4.
ARTICLE XI
THE AGENT
---------
11.1 Appointment; Nature of Relationship. American National Bank and
Trust Company of Chicago is hereby appointed by the Lenders as the Agent
hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the contractual representative of
such Lender with the rights and duties expressly set forth herein and in the
other Loan Documents. The Agent agrees to act as such contractual representative
upon the express conditions contained in this Article XI. Notwithstanding the
use of the defined term "Agent," it is expressly understood and agreed that the
Agent shall not have any fiduciary responsibilities to any Lender by reason of
this Agreement or any other Loan Document and that the Agent is merely acting as
the representative of the Lenders with only those duties as are expressly set
forth in this Agreement and the other Loan Documents. In its capacity as the
Lenders' contractual representative, the Agent (i) does not hereby assume any
fiduciary duties to any of the Lenders, (ii) is a "representative" of the
Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and
(iii) is acting as an independent contractor, the rights and duties of which are
limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders hereby agrees to assert no claim against the
Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Lender hereby waives.
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11.2 Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
11.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
11.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Agent; (iv) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; or (v) the
value, sufficiency, creation, perfection or priority of any interest in any
collateral security.
11.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or all the Lenders, if required hereunder), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders and on all holders of Notes. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
11.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
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11.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be an employee of the Agent.
11.8 Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders and not reimbursed by the Borrower under the
Loan Documents, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, provided that no Lender shall
be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent. The obligations of the Lenders
under this Section 11.8 shall survive payment of the Obligations and termination
of this Agreement.
11.9 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
11.10 Rights as a Lender. In the event the Agent is a Lender or the
Issuer, the Agent shall have the same rights and powers hereunder and under any
other Loan Document as any Lender or Issuer and may exercise the same as though
it were not the Agent, and the term "Lender", "Lenders" or "Issuer" shall, at
any time when the Agent is a Lender or Issuer, unless the context otherwise
indicates, include the Agent in its individual capacity. The Agent may accept
deposits from, lend money to, and generally engage in any kind of trust, debt,
equity or other transaction, in addition to those contemplated by this Agreement
or any other Loan Document, with the Borrower or any of its Subsidiaries in
which the Borrower or such Subsidiary is not restricted hereby from engaging
with any other Person. The Agent, in its individual capacity, is not obligated
to remain a Lender or the Issuer.
11.11 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information
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as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and the other Loan Documents. Each Lender also acknowledges
that it will, independently and without reliance upon the Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents.
11.12 Information. The Agent shall promptly deliver to the Lenders
copies of all financial statements, written reports and other written
information delivered by the Borrower to the Agent in compliance with the terms
of this Agreement and any written requests by the Borrower for amendments or
waivers to the Agreement. The Agent agrees that upon receipt by it of a written
request from a Lender that such Lender wants information from the Borrower
pursuant to Section 6.3.5(E) and Section 6.3.7 and specifying the information it
wants, the Agent shall promptly request such information from the Borrower and
will cooperate with the Lender to obtain the information desired by such Lender.
The Agent shall have no responsibility for the timeliness, sufficiency, accuracy
or completeness of any information supplied by the Borrower or for any
interpretation or use thereof by the Lender. Agent's sole responsibility
hereunder shall be to request the Borrower to provide the information.
11.13 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has been
appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. The Agent may be removed at any time with or without cause
by written notice received by the Agent from the Required Lenders, such removal
to be effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint, on
behalf of the Borrower and the Lenders and with the consent of the Borrower, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders and consented to by the Borrower within thirty days after the
resigning Agent's giving notice of its intention to resign, then the resigning
Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
If the Agent has resigned or been removed and no successor Agent has been
appointed, the Lenders may perform all the duties of the Agent hereunder and the
Borrower shall make all payments in respect of the Obligations to the applicable
Lender and for all other purposes shall deal directly with the Lenders. No
successor Agent shall be deemed to be appointed hereunder until such successor
Agent has accepted the appointment. Any such successor Agent shall be a
commercial bank having capital and retained earnings of at least $750,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent, the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article X shall continue in effect for the
benefit of such Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under
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the other Loan Documents.
11.14 Agent's Fee. The Borrower agrees to pay to the Agent, for its own
account, the fees agreed to by the Borrower and the Agent pursuant to that
certain letter agreement dated April 4, 1997, as amended August 28, 1997, or as
otherwise agreed from time to time.
ARTICLE XII
SETOFF; RATABLE PAYMENTS
------------------------
12.1 Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender to
or for the credit or account of the Borrower may be offset and applied toward
the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
12.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.
If an amount to be setoff is to be applied to Indebtedness of the Borrower
to a Lender, other than Indebtedness evidenced by any of the Notes held by such
Lender or a Facility Letter of Credit Obligation, such amount shall be applied
first to the Obligations and only after the Obligations are paid in full and
discharged shall it be applied to Indebtedness not evidenced by the Notes or
Facility Letter of Credit.
ARTICLE XIII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
13.1 Successors and Assigns. The terms and provisions of the Loan
Documents
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shall be binding upon and inure to the benefit of the Borrower and the Lenders
and their respective successors and assigns, except that (i) the Borrower shall
not have the right to assign its rights or obligations under the Loan Documents
and (ii) any assignment by any Lender must be made in compliance with Section
13.3. Notwithstanding clause (ii) of this Section, any Lender may at any time,
without the consent of the Borrower or the Agent, assign all or any portion of
its rights under this Agreement and its Notes to a Federal Reserve Bank;
provided, however, that no such assignment to a Federal Reserve Bank shall
release the transferor Lender from its obligations hereunder. The Agent may
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until such payee complies with Section 13.3 in the case of an assignment
thereof or, in the case of any other transfer, a written notice of the transfer
is filed with the Agent. Any assignee or transferee of a Note agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
13.2 Participations.
13.2.1 Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender under the Loan
Documents. In the event of any such sale by a Lender of participating interests
to a Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the holder of any such Note for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be determined as if
such Lender had not sold such participating interests, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents. No
Participant shall be permitted to make any claims itself under Article III, but
may make claims through its applicable Lender, but only to the extent that the
facts and circumstances giving rise to such claims also apply to the applicable
Lender.
13.2.2 Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan, Facility Letter of Credit or
Commitment in which such Participant has an interest which forgives principal,
interest or fees or reduces the interest rate or fees payable with respect to
any such Loan, Facility Letter of Credit or Commitment, postpones any date fixed
for any regularly-scheduled payment of principal of, or interest or fees on, any
such Loan, Facility Letter of Credit or Commitment, releases any Guarantor of
any such Loan, Facility Letter of Credit or releases any substantial portion of
collateral, if any, securing any such Loan or Facility Letter of Credit.
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13.2.3 Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in Section 12.1
in respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under the Loan Documents, provided that each
Lender shall retain the right of setoff provided in Section 12.1 with respect to
the amount of participating interests sold to each Participant. The Lenders
agree to share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 12.1, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such amounts to
be shared in accordance with Section 12.2 as if each Participant were a Lender.
13.3 Assignments.
13.3.1 Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities ("Purchasers") all or any part of its
rights and obligations under the Loan Documents. Such assignment shall be
substantially in the form of Exhibit "D" hereto or in such other form as may be
agreed to by the parties thereto. The consent of the Borrower and the Agent
shall be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or with respect to a Purchaser who is an
Affiliate where said assignment immediately results in the imposition of
increased costs pursuant to Article III hereof; provided, however, that if a
Default has occurred and is continuing, the consent of the Borrower shall not be
required to any assignment. Such consent shall not be unreasonably withheld or
delayed.
13.3.2 Effect; Effective Date. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Exhibit "I" to
Exhibit "D" hereto (a "Notice of Assignment"), together with any consents
required by Section 13.3.1, and (ii) payment of a $4,000 fee to the Agent for
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The Notice of Assignment
shall contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment and Loans under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by the Lenders and shall have all
the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party hereto, and no further consent or action
by the Borrower, the Lenders or the Agent shall be required to release the
transferor Lender with respect to the percentage of the Aggregate Commitment and
Loans assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 13.3.2, the transferor Lender, the Agent and
the Borrower shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Purchaser, in each case in principal
65
<PAGE>
amounts reflecting their Commitment, as adjusted pursuant to such assignment.
13.4 Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees to be bound by Section
10.12 of this Agreement.
13.5 Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 4.3.
ARTICLE XIV
NOTICES
-------
14.1 Notices. Except as otherwise permitted by Section 2.13 with respect
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, facsimile transmission
or similar writing) and shall be given to such party: (x) in the case of the
Borrower, the Issuer or the Agent, at its address or facsimile number set forth
on the signature pages hereof, (y) in the case of any Lender or the Issuer, at
its address or facsimile number set forth below its signature hereto or (z) in
the case of any party, such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
to the Agent under Article II shall not be effective until received.
14.2 Change of Address. The Borrower, the Agent, the Issuer and any
Lender may each change the address for service of notice upon it by a notice in
writing to the other parties hereto.
ARTICLE XV
COUNTERPARTS, AMENDMENT AND RESTATEMENT
---------------------------------------
66
<PAGE>
15.1 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower, the Agent and the Lenders and each party has notified the Agent by
telex or telephone, that it has taken such action.
15.2 Amendment and Restatement. This Agreement constitutes an amendment
and restatement of the Prior Credit Agreement, which Prior Credit Agreement is
fully superseded and amended and restated in its entirety hereby; provided,
however, that the Obligations governed by the Prior Credit Agreement shall
remain outstanding and in full force and effect and provided further that this
Agreement does not constitute a novation of such Obligations.
ARTICLE XVI
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
------------------------------------------------------------
16.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
16.2 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
THE AGENT, THE ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT, THE ISSUER, OR
ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS.
16.3 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT, THE
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<PAGE>
ISSUER, AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
68
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
PLATINUM technology, inc.
By: /s/ Michael P. Cullinane
------------------------
Print Name: Michael P. Cullinane
--------------------
Title: Executive V.P. and CFO
----------------------
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181-5235
Attention: William J. Gecsey
-----------------
69
<PAGE>
Commitments
-----------
$ 25,000,000 AMERICAN NATIONAL BANK
AND TRUST COMPANY OF
CHICAGO,
Individually and as Agent
By: /s/ Paul C. Carlisle
--------------------
Print Name: Paul C. Carlisle
----------------
Title: First V.P.
----------
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Paul Carlisle
$25,000,000 LASALLE NATIONAL BANK
By: /s/ K. Scott Doyle
------------------
Print Name: K. Scott Doyle
--------------
Title: SVP
---
135 South LaSalle Street
Suite 217
Chicago, Illinois 60603
Attention:
$10,000,000 SILICON VALLEY BANK
By: /s/ Brent Donnell
-----------------
Print Name: Brent Donnell
-------------
Title: SVP
---
9701 W. Higgins Road
Suite 150
Rosemont, Illinois 60018
Attention:
$5,000,000 WELLS FARGO BANK
By: /s/ Douglas W. Carlson
----------------------
Print Name: Douglas W. Carlson
------------------
Title: Senior Vice President
---------------------
121 Park Center Plaza
3/rd/ Fl
San Jose, CA 95113
Attention: Karen Barone
70
<PAGE>
$65,000,000
===========
71
<PAGE>
EXHIBIT "A"
NOTE
$____________ December 21, 1998
PLATINUM technology, inc., a Delaware corporation (the "Borrower"),
promises to pay to the order of __________________________________ (the
"Lender") the lesser of the principal sum of __________________ Dollars or the
aggregate unpaid principal amount of all Loans made by the Lender to the
Borrower pursuant to Article II of the Agreement (as hereinafter defined), in
immediately available funds at the main office of American National Bank and
Trust Company of Chicago in Chicago, Illinois, as Agent, together with interest
on the unpaid principal amount hereof at the rates and on the dates set forth in
the Agreement. The Borrower shall pay the principal of and accrued and unpaid
interest on the Loans in full on the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment hereunder. Subject to the terms of the Agreement, the Borrower may
repay and reborrow at any time prior to the Facility Termination Date.
This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Credit Agreement dated as of December 21, 1998, (which, as it
may be amended or modified and in effect from time to time, is herein called the
"Agreement"), among the Borrower, the lenders party thereto, including the
Lender, and American National Bank and Trust Company of Chicago, as Agent, to
which Agreement reference is hereby made for a statement of the terms and
conditions governing this Note, including the terms and conditions under which
this Note may be prepaid or its maturity date accelerated. This Note is
guaranteed pursuant to the Guaranties, all as more specifically described in the
Agreement, and reference is made thereto for a statement of the terms and
provisions thereof. Capitalized terms used herein and not otherwise defined
herein are used with the meanings attributed to them in the Agreement.
PLATINUM technology, inc.
_____________________________________
By:__________________________________
Print Name:__________________________
Title:_______________________________
A-1
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF PLATINUM technology, inc.,
DATED December 21, 1998
<TABLE>
<CAPTION>
Maturity
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
- - ---- ---- ------ ----- -------
<S> <C> <C> <C> <C>
</TABLE>
A-2
<PAGE>
EXHIBIT "B"
FORM OF OPINION
__________, 19__
The Agent and the Lenders who are parties to the
Credit Agreement described below.
Gentlemen/Ladies:
We are counsel for PLATINUM technology, inc. (the "Borrower"), and have
represented the Borrower in connection with its execution and delivery of a
Credit Agreement dated as of December 21, 1998 (the "Agreement") among the
Borrower, the Lenders named therein, and American National Bank and Trust
Company of Chicago, as Agent, and providing for Advances and Facility Letters of
Credit in an aggregate principal amount not exceeding $65,000,000 at any one
time outstanding. All capitalized terms used in this opinion and not otherwise
defined herein shall have the meanings attributed to them in the Agreement.
We have examined the Borrower's articles of incorporation, by-laws,
resolutions, the Loan Documents and such other matters of fact and law which we
deem necessary in order to render this opinion. Based upon the foregoing, it is
our opinion that:
l. The Borrower and each Material Subsidiary are corporations duly
incorporated, validly existing and in good standing under the laws of their
states of incorporation and have all requisite authority to conduct their
business in each jurisdiction in which their business is conducted.
2. The execution and delivery of the Loan Documents by the Borrower and
the performance by the Borrower of the Obligations have been duly authorized by
all necessary corporate action and proceedings on the part of the Borrower and
will not:
(a) require any consent of the Borrower's shareholders;
(b) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its Material
Subsidiaries or the Borrower's or any Material Subsidiary's articles of
incorporation or by-laws or any indenture, instrument or agreement binding
upon the Borrower or any of its Subsidiaries; or
(c) result in, or require, the creation or imposition of any Lien
pursuant to the provisions of any indenture, instrument or agreement
binding upon the Borrower or any of its Subsidiaries.
3. The Loan Documents have been duly executed and delivered by the
Borrower and constitute legal, valid and binding obligations of the Borrower
enforceable in
B-1
<PAGE>
accordance with their terms except to the extent the enforcement thereof may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and subject also to the availability of equitable
remedies if equitable remedies are sought.
4. There is no litigation or proceeding against the Borrower or any of
its Subsidiaries which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect.
5. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Borrower or any of
its Subsidiaries, is required to be obtained by the Borrower or any of its
Material Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under the Agreement, the issuance of any Facility
Letters of Credit or in connection with the payment by the Borrower of the
Obligations.
6. The Obligations constitute senior indebtedness which is entitled to
the benefits of the subordination provisions of all outstanding Subordinated
Indebtedness.
This opinion may be relied upon by the Agent, the Lenders and their
participants, assignees and other transferees.
Very truly yours,
___________________________
B-2
<PAGE>
EXHIBIT "C"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain Credit
Agreement dated as of December 21, 1998 (as amended, modified, renewed or
extended from time to time, the "Agreement") among the PLATINUM technology, inc.
(the "Borrower"), the lenders party thereto and American National Bank and Trust
Company of Chicago, as Agent for the Lenders. Unless otherwise defined herein,
capitalized terms used in this Compliance Certificate have the meanings ascribed
thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _____________________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Borrower and its Subsidiaries during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and computations
evidencing the Borrower's compliance with certain covenants of the Agreement,
all of which data and computations are true, complete and correct.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
C-1
<PAGE>
The foregoing certifications, together with the computations set forth in
Schedule I [and Schedule II] hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this ____ day of
__________, 19___.
C-2
<PAGE>
SCHEDULE I TO COMPLIANCE CERTIFICATE
Compliance as of _________, 199_ with
Provisions of Section 6.2.1, 6.2.2, 6.2.3, 7.2, 7.5, and 7.7
A. Quick Ratio ((S)6.2.1)
1. Cash and Cash Equivalents ________________
2. Current and Non-Current Securities ________________
3. Net Trade Accounts Receivable ________________
4. Sum of Lines 1, 2 and 3 ________________
5. Current Liabilities ________________
6. Current Portion of Deferred Revenues ________________
7. Line 5 minus Line 6 ________________
8. Ratio of Line 4 to Line 7 ________________
9. Line 8 must be equal to or exceed 1.00
----------------
10. Borrower in Compliance Yes/No
----------------
B. Tangible Net Worth ((S)6.2.2)
1. Stockholders Common Equity ________________
2. Outstanding Subordinated Debt ________________
3. Sum of Lines 1 and 2 ________________
4. Capitalized Software ________________
5. Goodwill ________________
6. Other Intangible Assets ________________
7. Sum of Lines 4, 5 and 6 ________________
8. Line 3 minus Line 7 (Tangible Net Worth)________________
Consolidated Net Income ________________
50% of Line 9 ________________
Net proceeds of Stock sales ________________
Sum of Lines 10 & 11 and $275,000,000 ________________
Line 8 must be equal to or exceed Line 12 ________________
14. Borrower in Compliance Yes/No
----------------
C. Total Liabilities to Tangible Net Worth (6.2.3)
1. Total Liabilities ________________
2. Outstanding Subordinated Debt ________________
3. Deferred Revenues ________________
4. Sum of Lines 2 and 3 ________________
5. Line 1 minus Line 4 ________________
6. Tangible Net Worth (Line B.8) ________________
7. Ratio of Line 5 to Line 6 ________________
8. Ratio must not exceed 1.00
----------------
C-3
<PAGE>
9. Borrower in Compliance Yes/No
----------------
D. Indebtedness and Other Obligations (7.2) ________________
1. Capitalized Lease Obligations ________________
2. Other Contingent Obligations of
Material Subsidiaries ________________
3. Other Indebtedness and Contingent
Obligations ________________
4. No individual line to exceed $ 15,000,000
----------------
Contingent Obligations under 7.2(ix)
Line 5 not to exceed $100,000,000
----------------
Borrower in Compliance Yes/No
----------------
E. Sale of Assets
1. Receivables Sold and Outstanding with
Recourse to Borrower or any Subsidiary
Line 1 not to exceed $100,000,000
----------------
3. Borrower in Compliance Yes/No
----------------
F. Advances, Investments, and Loans
1. Temporary Working Capital financing
and/or Advances to Third Parties ________________
2. Line 1 not to exceed $ 15,000,000
----------------
3. Borrower in Compliance Yes/No
----------------
C-4
<PAGE>
EXHIBIT "D"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
__________________________ (the "Assignor") and __________________ (the
"Assignee") is dated as of _________________, 19__. The parties hereto agree as
follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time to time is
herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached
hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement relating to the facilities listed in Item 3 of
Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans and
participations in the Facility Letters of Credit, if the applicable Commitment
has been terminated) purchased by the Assignee hereunder is set forth in Item 4
of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after a
Notice of Assignment substantially in the form of Exhibit "I" attached hereto
has been delivered to the Agent. Such Notice of Assignment must include any
consents required to be delivered to the Agent by Section 13.3.1 of the Credit
Agreement. In no event will the Effective Date occur if the payments required
to be made by the Assignee to the Assignor on the Effective Date under Sections
4 and 5 hereof are not made on the proposed Effective Date. The Assignor will
notify the Assignee of the proposed Effective Date no later than the Business
Day prior to the proposed Effective Date. As of the Effective Date, (i) the
Assignee shall have the rights and obligations of a Lender under the Loan
Documents with respect to the rights and obligations assigned to the Assignee
hereunder and (ii) the Assignor shall relinquish its rights and be released from
its corresponding obligations under the Loan Documents with respect to the
rights and obligations assigned to the Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Agent all payments of principal,
reimbursement payments under Facility Letters of Credit, interest and fees with
respect to the interest assigned hereby. The Assignee shall advance funds
directly to the Agent with respect to
D-1
<PAGE>
all Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. In consideration for the sale and
assignment of Loans and participations in the Letters of Credit hereunder, (i)
the Assignee shall pay the Assignor, on the Effective Date, an amount equal to
the principal amount of the portion of all Floating Rate Loans assigned to the
Assignee hereunder and (ii) with respect to each Fixed Rate Loan made by the
Assignor and assigned to the Assignee hereunder which is outstanding on the
Effective Date, (a) on the last day of the Eurodollar Interest Period therefor
or (b) on such earlier date agreed to by the Assignor and the Assignee or (c) on
the date on which any such Fixed Rate Loan either becomes due (by acceleration
or otherwise) or is prepaid (the date as described in the foregoing clauses (a),
(b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee
shall pay the Assignor an amount equal to the principal amount of the portion of
such Fixed Rate Loan assigned to the Assignee which is outstanding on the
Payment Date. If the Assignor and the Assignee agree that the Payment Date for
such Fixed Rate Loan shall be the Effective Date, they shall agree to the
interest rate applicable to the portion of such Loan assigned hereunder for the
period from the Effective Date to the end of the existing Eurodollar Interest
Period applicable to such Fixed Rate Loan (the "Agreed Interest Rate") and any
interest received by the Assignee in excess of the Agreed Interest Rate shall be
remitted to the Assignor. In the event interest for the period from the
Effective Date to but not including the Payment Date is not paid by the Borrower
with respect to any Fixed Rate Loan sold by the Assignor to the Assignee
hereunder, the Assignee shall pay to the Assignor interest for such period on
the portion of such Fixed Rate Loan sold by the Assignor to the Assignee
hereunder at the applicable rate provided by the Credit Agreement. In the event
a prepayment of any Fixed Rate Loan which is existing on the Payment Date and
assigned by the Assignor to the Assignee hereunder occurs after the Payment Date
but before the end of the Eurodollar Interest Period applicable to such Fixed
Rate Loan, the Assignee shall remit to the Assignor the excess of the prepayment
penalty paid with respect to the portion of such Fixed Rate Loan assigned to the
Assignee hereunder over the amount which would have been paid if such prepayment
penalty was calculated based on the Agreed Interest Rate. The Assignee will also
promptly remit to the Assignor (i) any principal payments received from the
Agent with respect to Fixed Rate Loans prior to the Payment Date and (ii) any
amounts of interest on Loans and fees and reimbursement payments received from
the Agent which relate to the portion of the Loans and Facility Letters of
Credit assigned to the Assignee hereunder for periods prior to the Effective
Date, in the case of Floating Rate Loans or fees, or the Payment Date, in the
case of Fixed Rate Loans, and not previously paid by the Assignee to the
Assignor.* In the event that either party hereto receives any payment to which
the other party hereto is entitled under this Assignment Agreement, then the
party receiving such amount shall promptly remit it to the other party hereto.
*Each Assignor may insert its standard payment provisions in lieu of the payment
terms included in this Exhibit.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor
a fee on each day on which a payment of interest or fees is made under the
Credit Agreement with respect to the amounts assigned to the Assignee hereunder
(other
D-2
<PAGE>
than a payment of interest or commitment fees for the period prior to the
Effective Date or, in the case of Fixed Rate Loans, the Payment Date, which the
Assignee is obligated to deliver to the Assignor pursuant to Section 4 hereof).
The amount of such fee shall be the difference between (i) the interest or fee,
as applicable, paid with respect to the amounts assigned to the Assignee
hereunder and (ii) the interest or fee, as applicable, which would have been
paid with respect to the amounts assigned to the Assignee hereunder if each
interest rate was ___ of 1% less than the interest rate paid by the Borrower or
if the [commitment fee/ Facility Letter of Credit fee] was ___ of 1% less than
the commitment fee paid by the Borrower, as applicable. In addition, the
Assignee agrees to pay ___% of the recordation fee required to be paid to the
Agent in connection with this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor
nor any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
Property, books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans and the Facility Letters of Credit or (vii)
any mistake, error of judgment, or action taken or omitted to be taken in
connection with the Loans or the Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Lender and based on such documents and information at it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents, (iii) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender, (v) agrees that
its payment instructions and notice instructions are as set forth in the
attachment to
D-3
<PAGE>
Schedule 1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder are "plan
assets" as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA, [(vii)
confirms that it is an Eligible Assignee,]* [and (viii) attaches the forms
prescribed by the Internal Revenue Service of the United States certifying that
the Assignee is entitled to receive payments under the Loan Documents without
deduction or withholding of any United States federal income taxes].**
*to be inserted if required by the Credit Agreement.
**to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section [13.3.1] of the Credit Agreement to assign
the rights which are assigned to the Assignee hereunder to any entity or person,
provided that (i) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (ii) unless the prior written
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under [Sections 4, 5 and 8] hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate
Commitment occurs between the date of this Assignment Agreement and the
Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall
remain the same, but the dollar amount purchased shall be recalculated based on
the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice
of Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the address set forth in the
D-4
<PAGE>
attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By: _______________________________
Title: _______________________________
_______________________________
_______________________________
[NAME OF ASSIGNEE]
By: _______________________________
Title: _______________________________
_______________________________
_______________________________
D-5
<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: _____________, 19__
3. Amounts (As of Date of Item 2 above):
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $_____
5. Proposed Effective Date: ________
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By:_____________ By:________________
Title:__________ Title:_____________
** If a Commitment has been terminated, insert outstanding Loans in place of
Commitment
*** Percentage taken to 10 decimal places
D-6
<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
D-7
<PAGE>
EXHIBIT "F"
GUARANTY
1
<PAGE>
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
-------------
__________, 19_
To: [NAME OF BORROWER]*
_________________________
_________________________
[NAME OF AGENT]
_________________________
_________________________
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement") described
in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered to
[the Borrower and] the Agent pursuant to Section [13.3.2] of the Credit
Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of ___________, 19__ (the "Assignment"), pursuant to which,
among other things, the Assignor has sold, assigned, delegated and transferred
to the Assignee, and the Assignee has purchased, accepted and assumed from the
Assignor the percentage interest specified in Item 3 of Schedule 1 of all
outstandings, rights and obligations under the Credit Agreement relating to the
facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment
shall be the later of the date specified in Item 5 of Schedule 1 or two Business
Days (or such shorter period as agreed to by the Agent) after this Notice of
Assignment and any consents and fees required by Sections 13.3.1 and 13.3.2 of
the Credit Agreement have been delivered to the Agent, provided that the
Effective Date shall not occur if any condition precedent agreed to by the
Assignor and the Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The Assignor
will confer with the Agent before the date specified in Item 5 of Schedule 1 to
determine if the Assignment Agreement will become effective on such date
pursuant to Section 3 hereof,
<PAGE>
and will confer with the Agent to determine the Effective Date pursuant to
Section 3 hereof if it occurs thereafter. The Assignor shall notify the Agent if
the Assignment Agreement does not become effective on any proposed Effective
Date as a result of the failure to satisfy the conditions precedent agreed to by
the Assignor and the Assignee. At the request of the Agent, the Assignor will
give the Agent written confirmation of the satisfaction of the conditions
precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before the
Effective Date the processing fee of $4,000 required by Section 13.3.2 of the
Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Agent prepare and cause the Borrower to
execute and deliver new Notes or, as appropriate, replacements notes, to the
Assignor and the Assignee. The Assignor and, if applicable, the Assignee each
agree to deliver to the Agent the original Note received by it from the Borrower
upon its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment instructions
are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the funds,
monies, assets or other consideration being used to make the purchase pursuant
to the Assignment are "plan assets" as defined under ERISA and that its rights,
benefits, and interests in and under the Loan Documents will not be "plan
assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to the Borrower or the
Loan Documents to the Assignee until the Assignee becomes a party to the Credit
Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to the
Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By:______________________ By:________________________
Title:___________________ Title:_____________________
ACKNOWLEDGED [AND CONSENTED TO] ACKNOWLEDGED [AND CONSENTED TO]
BY [NAME OF AGENT] BY [NAME OF BORROWER]
<PAGE>
By:_________________________________ By:________________________________
Title:______________________________ Title:_____________________________
[Attach photocopy of Schedule 1 to Assignment]
<PAGE>
EXHIBIT "E"
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To American National Bank and Trust Company of Chicago
as Agent (the "Agent") under the Credit Agreement
Described Below.
Re: Credit Agreement, dated December 21, 1998 (as the same may be amended or
modified, the "Credit Agreement"), among PLATINUM technology, inc. (the
"Borrower"), the Lenders named therein and the Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned thereto
in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the following
standing money transfer instructions with respect to the proceeds of Advances or
other extensions of credit from time to time until receipt by the Agent of a
specific written revocation of such instructions by the Borrower, provided,
however, that the Agent may otherwise transfer funds as hereafter directed in
writing by the Borrower in accordance with Section 13.1 of the Credit Agreement
or based on any telephonic notice made in accordance with Section 2.13 of the
Credit Agreement.
Facility Identification Number(s)_______________________________________________
Customer/Account Name___________________________________________________________
Transfer Funds To_______________________________________________________________
____________________________________________________________
____________________________________________________________
For Account No._________________________________________________________________
Reference/Attention To__________________________________________________________
Authorized Officer (Customer Representative) Date______________________________
________________________________ _______________________________________
(Please Print) Signature
Bank Officer Name Date________________________________________
________________________________ ____________________________________________
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
<PAGE>
SCHEDULE "5.2.1"
SUBSIDIARIES AND OTHER INVESTMENTS
(See Sections___________)
<TABLE>
<CAPTION>
Investment Owned Amount of Percent Jurisdiction of
In By Investment Ownership Organization
-- -- ---------- --------- ------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE "5.6"
LITIGATION
None
<PAGE>
SCHEDULE "5.8"
APPROVALS
None
<PAGE>
SCHEDULE "7.2"
INDEBTEDNESS AND LIENS
(See Sections__________)
<TABLE>
<CAPTION>
Maturity
Indebtedness Indebtedness Property and Amount
Incurred By Owed To Encumbered (If Any) of Indebtedness
- - ----------- ------- ------------------- ---------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
Schedule 7.4
This summarizes Platinum technology, inc.'s ("PTI") action on reorganizing
PTI into a holding company structure. As shown on the attached chart, the new
organization will result in the current PTI becoming a holding company with no
operations. The name "Platinum technology, inc." will be moved down to the
operating subsidiary level. PTI will then have three new subsidiaries (one
first tier and two second tier):/1/
The intellectual property ("IP") holding company -- this will be the first
tier subsidiary which will hold all intellectual property and license
it for use by the other subsidiaries;
1. The principal operating company -- this will be owned by the IP
Holding Company and will own all of the domestic assets, employ the
domestic operating personnel and conduct all the domestic business;
The international holding company ("IHC") -- this will be owned by the IP
Holding Company, will have exclusive foreign distribution rights to
the firm's software and outbound international IP rights will be
channeled through this company.
The mechanics of the transaction in broad brush strokes are as follows:
I. Create New Operating Company.
----------------------------
Current PTI establishes a newly formed wholly owned Delaware corporation.
At conclusion of the reorganization current PTI will be renamed so
that the operating company is Platinum technology, inc.
Current PTI assigns to the new operating sub all of PTI's operating assets,
liabilities and contracts. The non operating items retained by the
current PTI will be cash, investments, stock in subsidiaries (foreign
and domestic), convertible notes payable, and any outstanding debt
under any credit agreement. In return for this contribution, PTI
would receive the stock of the newco, a promissory note payable from
newco to PTI, and agreements for the operating company to use and
exploit PTI's current intellectual property and develop all future
intellectual property which in turn would be owned by the new
intellectual property holding company.
All domestic operations would then be conducted out of the new operating
company.
II. Create International Holding Company ("IHC").
--------------------------------------------
Current PTI also forms an international holding company which will be an
off-shore entity organized in the Netherlands.
When the IP Holding Company is formed (see III below), the IHC is
contributed to the IP Holding Company and becomes a subsidiary of the
IP Holding Company. The IHC will then be granted an exclusive license
from the IP Holding Company for distributing
- - ------------------------
/1/ Additionally, the existing acquired subsidiaries would continue to exist and
be transferred to and owned by the intellectual property holding company.
New acquisitions in the future to be paid for in PTI stock would be done
through new first tier subsidiaries which might later be dropped down and
become wholly owned by the IP Holding Company.
<PAGE>
PTI's intellectual property rights off-shore.
The stock of all (or a vast majority of) existing foreign subsidiaries will
also be transferred to the IHC.
Any foreign subsidiaries that have development operations will contract
directly with the IP Holding Company to develop future intellectual
property for the account of the IP Holding Company.
III. Create IP Holding Company:
-------------------------
Current PTI forms a new Delaware corporation, the sole business of which
will be to hold and license all of the PTI intellectual property.
Current PTI will contribute all its intellectual property to the IP Holding
Company and the stock of all the other subsidiaries (i.e., the new
operating company, the new international holding company and other
existing acquisition subsidiaries) in return for the stock of IP
Holding Company and a note. The new operating company and the other
subsidiaries will then be subsidiaries of the IP Holding Company.
The IP Holding Company licenses the intellectual property to the new
operating company. The new operating company also agrees to develop
future intellectual property for the account of the IP Holding
Company.
Credit Agreement Issues
-----------------------
Each of the new operating company, the IHC and IP Holding Company would
guaranty or become a co-obligor under PTI's Amended and Restated
Credit Agreement with American National Bank and Trust Company of
Chicago, as Agent, and the lenders party thereto (the "Credit
Agreement"). In addition, each of Platinum Technology UK Limited,
Platinum Technology GmbH, and each other foreign subsidiary which is
or becomes a Material Subsidiary as defined in the Credit Agreement
would guaranty PTI's obligations thereunder.
<PAGE>
Insert Reorganization Chart
---------------------------
<PAGE>
Exhibit 12
Computation of
Ratios of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) before income taxes $30,570 $(81,644) $(93,534) $(121,240) $2,299
Add:
Interest on Debt 17,967 9,314 2,254 1,602 463
-----------------------------------------------------
Earnings $48,537 $(72,330) $(91,280) $(119,638) $2,762
-----------------------------------------------------
Fixed Charges:
Interest on Debt $17,967 $ 9,314 $ 2,254 $ 1,602 $ 463
Fixed Charges $17,967 $ 9,314 $ 2,254 $ 1,602 $ 463
-----------------------------------------------------
Ratio of Earnings to Fixed Charges(1) 2.70 -- -- -- 5.97
=====================================================
</TABLE>
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus fixed
charges less capitalized interest) by fixed charges (interest expense plus
capitalized interest and the portion of rental expense which represents
interest).
(2) Earnings available for fixed charges of ($72,330,000), ($91,280,000), and
($119,638,000) were inadequate to cover fixed charges of $9,314,000, $2,254,000
and $1,602,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PLATINUM technology International, inc.
-------------------------------------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Entity Incorporation
- - ------ ---------------
<S> <C>
Trinzic UK Ltd. United Kingdom
Trinzic Australasia pty Ltd. Australia
Trinzic Europe BV Netherlands
AICorp Benelux BV Netherlands
AICorp Canada, Inc. Ontario, Canada
Altai, Inc. Texas
Altai Software France SARL France
Altai Software Canada Inc. Ontario, Canada
PLATINUM technology solutions, inc. California
PLATINUM Technology-Solutions PTY Limited Australia
Software Interfaces Q.T.B.V. The Netherlands
Softool Technologies SARL France
PLATINUM Air, Inc. Illinois
Prodea Software Corporation Minnesota
Browning & Clements, Inc. Illinois
Axis Systems International, Inc. New York
Paradigm systems Corporation of America New York
Platinum technology Ltda. Brazil
GEJAC, Inc. Maryland
GEJAC International Benclux, B.V. Netherlands
Platinum Technology Holdings, Inc. United States
PLATINUM Holdings I, Inc. Delaware
PLATINUM Holdings II, Inc. Delaware
PLATINUM technology Financial Services, Inc. Delaware
PLATINUM Internet Advance Group, Inc. Illinois
PLATINUM technology AG Switzerland
PLATINUM technology Australasia Pty. Limited Australia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PLATINUM technology B.V. Netherlands
PLATINUM technology Denmark A/S Denmark
PLATINUM technology Gesellschaft m.b.H. Austria
PLATINUM technology GmbH Germany
PLATINUM technology Finland Oy Finland
Platinum Technology Virgin Islands, Inc. US Virgin Islands
PLATINUM technology N.V./S.A. Belgium
PLATINUM technology S.r.l. Italy
PLATINUM technology Software SL Spain
PLATINUM technology Sweden AB Sweden
PLATINUM technology UK Limited United Kingdom
Echo-Soft Technologies S.A.R.L. France
STARTUP Software S.N.C. France
PLATINUM technology Sdn. Bhd. Malaysia
PLATINUM technology Norway AS Norway
PLATINUM technology Limited Hong Kong
PLATINUM technology Pte. Ltd. Singapore
PLATINUM technology Pty. Ltd. South Africa
PLATINUM technology KK Japan
Australian Technology Resources (WA) Pty Limited Australia
Australian Technology Resources (ACT) Pty Limited Australia
ACN 074 421 186 Pty Limited Australia
PLATINUM Technology Canada Inc./Platinum Technology Canada Inc. Canada
Beijing Platinum Technology Computer Co., Limited People's Republic of China
PLATINUM technology S.N.C. France
Platinum Technology China, Limited Hong Kong
PLATINUM technology, Ltd. South Korea
PLATINUM Technology (Phillippines) Incorporated Philippines
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Platinum Technology Taiwan, Inc. Taiwan
PLATINUM technology Ltd. Thailand
Prometrics Group Limited Plc. United Kingdom
Prometrics Limited United Kingdom
Mergetime Limited United Kingdom
Alvering Limited United Kingdom
Integrated Image Technology Limited United Kingdom
Vayda Consulting, Inc. California
PLATINUM technology IP, Inc. Delaware
PLATINUM technology, inc. Delaware
PLATINUM technology C.V. Netherlands
PLATINUM technology GP, Inc. Delaware
PLATINUM technology Canada Company Canada
Vivid Publishing, Inc. California
Geneva Software, Inc. Illinois
Systems Management Solutions, Inc. Nevada
Icon Computing, Inc. Texas
QED, Inc. Delaware
PLATINUM technology Treasury Services, Inc. Delaware
Riviera Acquisition Corp. Texas
PLATINUM technology Solutions do Brasil Ltda Brazil
PLATINUM technology Hellas Sole Partner LLC Greece
PLATINUM technology Mexico, S.A. de CV Mexico
PLATINUM technology Emirates LLC United Arab Emrites
Learmonth & Burchett Management Systems, Inc. (aka LBMS) United Kingdom
LBMS, Inc. Texas
LBMS Europe Ltd United Kingdom
LBMS Pty Ltd Australia
LBMS Holding Ltd United Kingdom
Keith London Assoc Ltd United Kingdom
LT Marketing Svs Ltd United Kingdom
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Michael Jackson Systems Ltd United Kingdom
Structured Training Svcs United Kingdom
LBMS Trustee Co Ltd United Kingdom
LBMS Ltd Hong Kong
Keith London System Ltd United Kingdom
Corporate Computing, Inc Delaware
Jackson Systems, Inc Michigan
Meta Systems, Ltd Michigan
Mastering, Inc (fka Eagle River Interactive, Inc) Delaware
Mastering Computers, Inc Arizona
Eagle River Productons, Inc. Arizona
Graphic Media, Inc Delaware
Ski View Acquisition Corporation Delaware
Logic Works, Inc Delaware
Logic Works International, Inc Delaware
Logic Works Trading Company Barbados
Logic Works France SARL France
Logic Works AG Switzerland
Logic Works GmbH Germany
Logic Works Ltd United Kingdom
Logic Works Australia Pty Ltd Australia
Logic Works Software, Inc. Canada
Logic Works Europe Ltd United Kingdom
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PLATINUM technology International, inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 333-61581, 333-57307, 333-03284, 33-85798, 33-41248, 33-96762, 333-00454,
333-20897, 333-45131, 333-57311) on Form S-8, (No. 333-45133) on Form S-3 and
(Nos. 333-71637, 33-94410) on Form S-4 of PLATINUM technology International,
inc. of our reports dated February 8, 1999, except for Note 19, which is as of
March 29, 1999, relating to the consolidated balance sheets of PLATINUM
technology International, inc. as of December 31, 1998 and 1997 and the related
consolidated statements of operations, comprehensive loss, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1998, and the related consolidated financial statement schedule, which reports
appear in the December 31, 1998 annual report on Form 10-K of PLATINUM
technology International, inc.
/s/ KPMG LLP
Chicago, Illinois
March 29, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 19, 1998, for Mastering, Inc. included in this Form 10-K of
PLATINUM technology International, inc., into PLATINUM technology International,
inc.'s previously filed registration statements on Form S-8 (File Nos.
333-61581, 333-57307, 333-03284, 33-85798, 33-41248, 33-96762, 333-00454,
333-20897, 333-45131, 333-57311), Form S-3 (File No. 333-45133) and Form S-4
(File Nos. 333-71637, 33-94410).
/s/ Arthur Andersen LLP
Denver, Colorado,
March 25, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-41248), Form S-8 No. 33-85798, Form S-8 No. 33-96762, Form S-8
No. 333-00454, Form S-8 No. 333-03284, Form S-8 No. 333-20897, Form S-8 No.
333-61581, Form S-8 No. 333-57307, Form S-8 No. 333-45131, Form S-8 No. 333-
57311, Form S-3 No. 333-45133, Form S-4 No. 333-71637, and Form S-4 No. 33-
94410) of PLATINUM technology International, inc. of our report dated February
10, 1998 except for Note 14, as to which the date is March 14, 1998, with
respect to the consolidated financial statements of Logic Works, Inc. for the
years ended December 31, 1997 and 1996, in this Annual Report (Form 10-K) of
PLATINUM technology International, inc.
/s/ Ernst & Young LLP
Princeton, New Jersey
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 189,925
<SECURITIES> 112,147
<RECEIVABLES> 309,496
<ALLOWANCES> 5,319
<INVENTORY> 0
<CURRENT-ASSETS> 672,325
<PP&E> 159,543
<DEPRECIATION> 60,346
<TOTAL-ASSETS> 1,150,270
<CURRENT-LIABILITIES> 344,380
<BONDS> 0
0
18
<COMMON> 87
<OTHER-SE> 419,708
<TOTAL-LIABILITY-AND-EQUITY> 1,150,270
<SALES> 0
<TOTAL-REVENUES> 968,206
<CGS> 0
<TOTAL-COSTS> 947,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,859
<INTEREST-EXPENSE> 17,967
<INCOME-PRETAX> 30,570
<INCOME-TAX> 33,038
<INCOME-CONTINUING> (2,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,468)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 233,024
<SECURITIES> 125,180
<RECEIVABLES> 232,752
<ALLOWANCES> 4,788
<INVENTORY> 0
<CURRENT-ASSETS> 608,573
<PP&E> 153,335
<DEPRECIATION> 61,170
<TOTAL-ASSETS> 972,907
<CURRENT-LIABILITIES> 255,910
<BONDS> 0
0
18
<COMMON> 80
<OTHER-SE> 342,778
<TOTAL-LIABILITY-AND-EQUITY> 972,907
<SALES> 0
<TOTAL-REVENUES> 738,880
<CGS> 0
<TOTAL-COSTS> 841,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,095
<INTEREST-EXPENSE> 9,314
<INCOME-PRETAX> (81,644)
<INCOME-TAX> 23,459
<INCOME-CONTINUING> (105,103)
<DISCONTINUED> (1,025)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,128)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 178,661
<SECURITIES> 77,962
<RECEIVABLES> 186,216
<ALLOWANCES> 5,415
<INVENTORY> 0
<CURRENT-ASSETS> 468,872
<PP&E> 129,035
<DEPRECIATION> 49,615
<TOTAL-ASSETS> 736,668
<CURRENT-LIABILITIES> 186,323
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 375,668
<TOTAL-LIABILITY-AND-EQUITY> 736,668
<SALES> 0
<TOTAL-REVENUES> 553,484
<CGS> 0
<TOTAL-COSTS> 655,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,303
<INTEREST-EXPENSE> 2,254
<INCOME-PRETAX> (93,534)
<INCOME-TAX> (9,752)
<INCOME-CONTINUING> (83,782)
<DISCONTINUED> (3,412)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,194)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
<PAGE>
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mastering, Inc.:
We have audited the consolidated balance sheet of Mastering, Inc. (formerly
Eagle River Interactive, Inc.), a Delaware corporation, and subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1997, not presented separately herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the consolidated
financial position of Mastering, Inc. and subsidiaries as of December 31, 1997,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado,
January 19, 1998
<PAGE>
Exhibit 99.2
Report of Independent Auditors
The Board of Directors
Logic Works, Inc.
We have audited the accompanying consolidated balance sheet of Logic Works, Inc.
and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1997 and 1996. Our audits also included the
financial statement schedule II - valuation and qualifying accounts for the
years ended December 31, 1997 and 1996. 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 Logic
Works, Inc. and subsidiaries at December 31, 1997, and the consolidated results
of their operations and their cash flow for the years ended December 31, 1997
and 1996, 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.
/s/ Ernst & Young LLP
Princeton, New Jersey
February 10, 1998,
except for Note 14, as to which the date is
March 14, 1998
